By David M. Greenwald
Davis, CA – Inexplicably people often act as though laws of supply and demand do not apply to housing costs. Unfortunately part of the reason for this is no one has really done the research about how much things like restrictive zoning and other measures to block residential development have really added to the costs.
This week, the San Francisco Chronicle put out an article, “This is how much single-family zoning is costing San Franciscans.” It is interesting research at a time when California is considering easing some restrictions on single-family zoning through SB 9, to allow for the construction of fourplexes in single-family zoned land.
Critics see this as destroying single-family neighborhoods, while proponents see it as a way to add density and achieve affordability by design, to allow middle and lower income people access to single-family neighborhoods that are currently out of their price range.
The Chronicle, for instance, notes, “The Bay Area needs to build over 440,000 units of housing between 2023 and 2031 to keep pace with its population, an average of nearly 50,000 units a year.” At the same time, over the last three years, they have been adding under 25,000 units annually.
They argue, “That’s because the region is one of the hardest places in the country in which to build homes, thanks to restrictive zoning, intensive permitting procedures and state laws that have historically allowed local groups to block residential development.”
Researchers from the University pf Pennsylvania attempt to estimate the impact of restrictive land use regulations on the price of land across major US housing markets.
They created an estimate they call the “zoning tax”—“the amount by which land prices are bid up due to supply side regulations.”
They find that zoning taxes “are especially burdensome in large coastal markets.”
The price impacts are especially big in west coast markets such as San Francisco, Los Angeles and Seattle.
In fact, they find “the price of land everywhere within those three markets have been bid up by amounts that at least equal typical household income.”
Even worse, the San Francisco Metro Area including San Francisco, Alameda, Contra Costa, Marin and San Mateo, has the worst zoning tax in the nation, with the estimate being $409,000—more than four times the median income of the region.
The Chronicle notes: “To put that number into perspective, imagine you’re a Google software developer making $200,000 a year, over twice the median household income of the central Bay. The median ‘zoning tax’ alone is twice your annual salary. This estimated extra cost makes up about one third of the area’s median home price of $1.26 million, making it unlikely you would qualify for a mortgage on a home at or near the median without a large down payment.”
“That’s how you know it’s expensive, when Google engineers are getting priced out” of a median home, Joseph Gyourko, an economist at the University of Pennsylvania and the study’s lead author, told The Chronicle.
Basically he argued that if you are making closer to a traditionally middle class wage, forget about homeownership.
But in Davis we don’t want to believe that restrictive zoning is driving up pricing. Perhaps some of that is that we are impacted by this less than they are in the Bay Area, where the prices are far higher. On the other hand, Davis is generally far more expensive than surrounding areas. Some of that might be desirability—but a lot of that is probably simply scarcity.
Moreover, I would argue that we really haven’t seen the full impact of this on the community. That’s because of lot of the residents, especially those over the age of 60, still live in homes purchased in the 70s and 80s when the prices were modest. What happens when the ownership finally turns over for those places and, instead of homes purchased at $80 to $100K, we have homes purchased for closer to $800K—what does that do to demographics in the city?
The Chronicle noted that the effect of zoning taxes impacts the cost of apartments and condos as well.
“As an economist, I undoubtedly believe that’s true. Why? Because the restrictions against multifamily are almost always more severe” than for single-family homes, he said. “People hate apartments, particularly in the suburbs.”
The Chronicle points out renters end up paying more because of restrictive zoning. That’s because fewer multi-family buildings get built at all and, second, “the increased expense of purchasing a house means more high-income renters, who then compete with middle and lower-income renters for the limited units on offer.”
While the Penn study focused on Metro areas, maybe Davis ought to finally attempt to look at the impact of such policies as Measure J on home prices and rental rates. In the 20 years since the measure has passed, astonishingly, little has been studied except cursory and anecdotally on the impact on supply and affordability.
Of course, even with a robust study, it might not make a huge difference in policy. One thing we saw a few weeks ago during public comment was a very clear demographic/generational dividing line, where people under the age of 40 or so tended to support increasing housing strategies, whereas people over 60 tended to support more restrictive ones.
A lot of that is probably due to whether someone owns a home and therefore wishes to protect their quality of life, while someone looking to purchase a home is therefore more concerned about creating a market that they can buy into.
—David M. Greenwald reporting