Monday, August 30, 2021

California's NIMBY Problem


The Mortgage Corner

Calculated Risk

It’s no secret that California has a housing problem. Its bias for single-family, ‘not-in-my-backyard’ (NIMBY) zoning since the 1960s has finally caught up with reality—in the form of more than 150,000 residents homeless and some 700,000 new homes built last year in California, whereas 1,500,000 new jobs were created.

Where are these people expected to live? It’s no secret that the real problem is affordability. Commuters that work in Silicon Valley, for instance, must travel up to two hours per day to reach their jobs, because homes they can afford are on the farthest outreaches of metropolitan areas, with little mass transit yet planned to speed up the commute.

COVID-19 exacerbates the problem with existing-home inventories dropping to their lowest level in 2020, and annual prices then rising at double-digit rates when consumers came out of their stay-at-home shells looking for too few available to purchase.

The Calculated Risk graph dating from January 2002 shows that existing-home inventories in YoY change (blue line) and months of supply (red line) reached their low in January 2021 and have been rising fairly sharply since then.

Gov. Gavin Newsom, who came into office with bold pronouncements about a “Marshall Plan for Housing,” said he supported plans to increase density near transit, but never endorsed an individual bill that would implement that goal.

California legislators just took a huge step to address the state’s housing crisis by allowing homeowners to double up.  The state assembly passed a bill last week (Aug. 26) that allows for two-unit buildings to be built on lots previously zoned for single-family homes.

It’s a significant reversal of decades of policy built around restrictive single-family zoning. In California, as across the US, allowing for one housing unit to be built per parcel of land has been standard. It’s what gave rise the suburbs as we know them, but has also been used as a tool in racist housing policies that have excluded Black, brown, and Native Americans from homeownership. In recent years, restrictive zoning has been a primary driver of the state’s affordable housing shortage. The median home price in California has risen 27% in the past year alone, and currently sits at more than $800,000.

The bill would allow more building where it’s now illegal, with the intent of reducing California’s fast-rising home prices and increasing access to homeownership through a greater variety of options, according to state Senate leader Toni Atkins, D-San Diego, who introduced the bill and similar versions in the past.

To lessen concerns from more than 100 cities and neighborhood groups that oppose the bill, Atkins on Monday added a few amendments that give local jurisdictions some veto power over units that threaten public health and safety and curtail potential speculation. The bill — approved by the Senate in May and two Assembly policy committees in June — made it out of the Assembly Appropriations Committee Monday and was approved by the full Assembly Thursday on a 45-19 vote.

I reported last week that there is not enough housing to meet soaring demand. The national existing-home housing inventory at the end of July totaled 1.32 million units, up 7.3 percent from June's supply and down 12.0 percent from one year ago (1.50 million) according to the NAR. Unsold inventory sits at a 2.6-month supply at the present sales pace, up slightly from the 2.5-month figure recorded in June but down from 3.1 months in July 2020, a historic low.

The housing market is so hot that individual investors or second-home buyers, who account for many cash sales, purchased 15 percent of homes in July. All-cash sales accounted for 23 percent of transactions in July, and up from 16 percent in July 2020.

But first-time buyers purchased just 30 percent of existing sales, which means most young adults leaving school and/or their parents’ home may find rental housing to a more viable option for the foreseeable future.

Much more must be done, in other words. It will take years for this to happen with more multi-family housing amid denser zoning in the cards. And it will be closer to needed public transportation hubs, whether the NIMBYs like it or not.

Harlan Green © 2021

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