Coastal California is notorious for its high housing costs. And to residents of beach communities like Encinitas, it’s not all that confounding. People like to live by the coast, after all.

But that doesn’t explain it all.

“There is a particular sense that a particular community can plead that it’s not our fault that housing is so expensive here,” said William Fischel, an economics and legal studies professor at Dartmouth College. “On one hand, they’re right. You can’t have an expensive place if people don’t want to live there, but you also make the problem worse, by limiting supply through environmental regulations or NIMBY land use policies.”

Among those so-called NIMBY (shorthand for “not in my backyard”) land use policies are zoning decisions that restrict how many homes can be built on a given piece of property.


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In a March study he co-wrote on statewide housing costs for the California Legislative Analyst’s Office, Brian Uhler found home prices in the state are 150 percent more than the national average – $440,000 versus $180,000.

Uhler found policies that restrict building new housing are a big reason why.

“Often the way that you wind up with lower density zoning or restrictive land use policies is existing residents don’t tend to be in favor of building more housing,” Uhler said. “Requiring lower densities is one way of restricting.”

Fischel, likewise, points to 1970s-era, anti-growth policies intended to make it harder to build new homes as a culprit in the state’s high housing costs. In the 1970s, housing on California’s coast was 50 percent above the rest of the U.S.; it’s now three times the cost.

Between 1980 and 2010, housing stock in California’s coastal zones increased by 32 percent, in other U.S. metro areas, it grew by 54 percent, according to the LAO report. Between 1940 and 1970, the number of homes in California coastal cities grew by 200 percent.

Since the coast is such a desirable place to live, excluding people from living there forces them to move inland, driving up prices there, according to the report. It advises the state build more than 100,000 houses or apartments annually, almost exclusively in coastal areas.

Encinitas, for instance, has been struggling for years to comply with a state law that requires cities to allow construction of low-income housing in certain areas.

Yet since the city was incorporated in 1986, it hasn’t changed the zoning to allow additional housing on any property, according to the city’s planning department. Everything has either remained the same or been down-zoned.

Zoning for lower densities, or down-zoning, a property will make the raw land cost cheaper – hence, how agriculture land, which you can’t build a lot on, got the reputation for being cheap – but it will make the homes built on the land more expensive.

Two specific Encinitas examples demonstrate how zoning can increase housing prices.

556 Union St.

This 3.7-acre, undeveloped plot along I-5 in Encinitas was recently on the market for $3.1 million, according to a flier from Lee & Associates.

Owners of this property and the one directly east of it can only build three single-family homes per acre, and each one needs to be built on at least a 14,500-square foot lot.

If you divide the price of the land by the lots available, each lot of raw land would cost about $344,444.

In reality, not all of this property can actually be used to build houses. Developers need to allocate some of it for infrastructure additions, so the raw land cost per lot would actually be slightly higher.

The average three-bedroom home for sale on Zillow in Encinitas as of early November was about $1.2 million. A three-bedroom home built on these lots could go for easily $1 million, said Dave Gatske of Community Housing Works, a nonprofit that owns and develops low-income housing. Jeff Ziebarth of Ziebarth Associates and Erik Bruvold of the National University System Institute for Policy Research agreed. None of the experts have any financial connection to the property.

So how does $344,444 land end up as a $1 million-plus home? You have to factor in construction costs and then the rest of the price is from bid-ups from eager home-buyers competing for the house.

The cost of land makes up about 65 percent of the cost of a home on average in San Diego, according to decades of data provided by the Lincoln Institute of Land Policy, a land economics think tank in Massachusetts. Construction costs average roughly $216,053, according to the data set.

Excluding price bid-ups, the price of a home built on that property would come to around $560,497. In this case, the price bid-up would account for around $500,000. If housing supply were to increase and get closer to demand, this bid-up amount would decrease.

“This is a price premium that gets attached to houses in tight markets,” Uhler said. “The premium gets attached to houses where there is high demand and short supply.”

On the properties directly east of this property, although the area has the same current zoning, the homes are actually built more densely – there are roughly six homes on one 1.4-acre plot. These homes were built in the 1970s, before the zoning was changed to its current density.

These homes are currently estimated to be worth $462,530 and $563,096, according to Zillow.

Obviously, there’s a big difference between these homes that are over 30 years old, and potential new homes built in the area.

But both are a long way from reaching $1 million.

“The difference is big enough that those don’t account for the full price disparity,” said Uhler.

Encinitas_102915_bythenumbers

 

Intersection of Santa Fe Drive and Lake Drive

This roughly 10-acre empty plot of land is zoned for one housing unit per acre. The homes directly west of it are on land zoned for 11 houses per acre, and the area was downzoned from 14.5 housing units per acre after the city was incorporated, according to Encinitas acting planning director Manjeet Ranu.

The denser homes are more affordable than what could be built on the raw land next to it. One of the homes was just sold earlier this month for $496,000. Another is estimated to be about $493,967, according to Zillow.

“Encinitas is not particularly unusual in its behavior,” Fischel said. “Manhattan Beach looks like this. Any place along the coast tends to enact these policies, so this is not overly surprising. California has become a more expensive place. And it’s not just because people want to live there.”

But if Encinitas were to independently up-zone properties to allow for denser housing, it probably wouldn’t impact prices that much.

“If this particular community were to up-zone and let people build, if they were the only coastal community to do that, it probably wouldn’t make a big difference,” Fischel said.

Instead, the city would need to act along with other cities in the region.

That’s because housing supply and demand are regional, said Fischel and Uhler. If Encinitas allows for more housing, but other Southern California coastal communities with restrictive zoning policies don’t, prices won’t drop significantly.

If they all act in unison, as Uhler urged in his report, housing along the coast would begin to get more affordable.

    This article relates to: Growth and Housing, Land Use

    Written by Maya Srikrishnan

    Maya Srikrishnan is a reporter for Voice of San Diego. She can be reached at maya.srikrishnan@voiceofsandiego.org.

    13 comments
    Gregory Hay
    Gregory Hay subscriber

    I own/live in that denser subdivision by Santa Fe and Lake [the 10/110 graphic], and it is called Park Place. It is about 420+ homes, a mix of primarily twinhomes, and a small percentage of townhomes. I am also on the board of the HOA.


    The 10 new homes built there START at $2.2 million dollars. The model home they show is listed at $3.3 million. The developer built them with the stated purpose of building luxury homes with larger than normal yards, because that's what the rich people "wanted." Funny how that gets done here, but yet Encinitas City Hall still 'struggles' to comply with the low-income housing laws.

    NIMBY is right. Nothing will get done, because virtually everyone who lives here does not want their own property value to go down, which would invariably happen were any high-density development to actually occur. Sadly, the only way change will actually occur is if the state MAKES coastal towns change.

    Derek Hofmann
    Derek Hofmann subscribermember

    @Gregory Hay "virtually everyone who lives here does not want their own property value to go down, which would invariably happen were any high-density development to actually occur."

    Can you provide a modern day example of property values going down when a high density (preferably under 5 stories) development was built?

    bgetzel
    bgetzel subscriber

    All of the examples in the article apply to owner occupied, upper middle class housing. For the 60% of the population that are low and moderate income, the "increase supply" approach is not a solution by itself. People making $10 to $12 an hr. cannot afford to buy a home, even if there are 2 wage earners. These people need affordable rental housing, not market rate rentals that go for $2,000+ per month, and certainly not condos. These needed rental units, which are never the highest and best use, can only be built through government mandated inclusionary zoning or heavy government subsidies

    phil weber
    phil weber

    The Real issue is income inequality…. Business is Pay less because this is a nice place to live... Developers think they need to make a lot of money

    And do we want to be LA???


    Derek Hofmann
    Derek Hofmann subscribermember

    If Encinitas were to allow 4-story multifamily housing with fewer required parking spaces per dwelling unit on narrower streets with shallower setbacks and narrower street frontages, would that finally allow the market to build affordable housing?

    Gregory Hay
    Gregory Hay subscriber

    @Derek Hofmann It would be horrific to allow housing/apartments to build anything with fewer required parking spaces. IMO, that is the #1 for any development, to make sure the space is actually usable and livable. If you are constantly fighting to find parking spots (see most SD neighborhoods south of the 8), then it becomes stressful to live or even visit.

    Derek Hofmann
    Derek Hofmann subscribermember

    @Gregory Hay Which of those neighborhoods do NOT have price ceilings on parking? Are you aware that shortages, such as the shortages of parking you describe, are caused by price ceilings?

    Gregory Hay
    Gregory Hay subscriber

    @Derek Hofmann: "Are you aware that shortages, such as the shortages of parking you describe, are caused by price ceilings?"

    I'm honestly not even sure if I understand what that means. Are you saying that making developers including sufficient parking in their buildings would cause housing price increases? If so, are you also saying that that permanent parking hassles for the entire surrounding areas would be worth it, in order to make the initial purchase price fractionally lower? That seems like a logical and worthwhile trade-off to you?

    Derek Hofmann
    Derek Hofmann subscribermember

    @Gregory Hay "Are you saying that making developers including sufficient parking in their buildings would cause housing price increases?"

    No, developers don't need to be forced to build sufficient parking. In the absence of parking maximums, they already build as much as the market wants and is willing to pay for--in other words, they already build sufficient parking. But forcing them to build more parking than that is what artificially raises the price of housing.

    Gregory Hay
    Gregory Hay subscriber

    @Derek Hofmann… ah, you're a classic libertarian. Which means you don't believe what actually happens in the real world. You just think that 'what the market will bear' is a realistic benchmark, no matter human nature, or (more importantly) what the long-term effects are on things/people.

    I actually believe in a majority of the libertarian *principles*. HOWEVER, principles almost never play out in the real world. THIS IS TRUE OF ANY PURE POLITICAL PHILOSOPHY. And this is true here as well.

    To be clear… virtually ANY developer will NOT CARE what the market wants in terms of parking. They want to build as little as possible and sell at the most possible. Bad parking planning, for example, will not be apparent to a property buyer. Plus, if not enough parking is required by regulations, it will not be apparent to any buyer. (Or neighbors, who wouldn't even have a single voice in the sale or building of property.) It would only become apparent AFTER the sale was complete, and people moved in, and streets were flooded with cars. 

    And guess what. The developer wouldn't care, because he/she already made their money, and are LONG GONE.

    And that my friends, is what is wrong with blindly instituting Libertarian policies. They just don't take human nature into account.

    Derek Hofmann
    Derek Hofmann subscribermember

    @Gregory Hay "virtually ANY developer will NOT CARE what the market wants in terms of parking."

    Of course they care. They're greedy, so they will build as much parking as what makes sense financially. If it costs $10,000 to build a parking space and they estimate that it will raise the value of the property by at least $10,001, then they will build it. So you can be certain that they will satisfy market demand for parking, because they're greedy.

    Of course the neighbors will want the developer to build even more parking than that, but only because they (those neighbors) won't have to pay for it. It's human nature for them to be just as greedy as the developers.


    "It would only become apparent AFTER the sale was complete, and people moved in, and streets were flooded with cars."

    Then the only thing the neighbors would have to do is make it parking by permit only, and set the fee just high enough to eliminate the shortage. Ideally, they should be allowed to keep and evenly split all the parking revenue collected on their street so that the fees don't become an economic burden to them. Grandma with just one car that she parks in her driveway wouldn't have to pay anything but would still get a share of the revenue. And as a bonus, this would disincentivize mini-dorms who would have to pay their neighbors extra for street parking. So it all works out nicely.

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