
How did an entire state price itself out for entry-level home buyers? - prostoalex
http://www.builderonline.com/building/regulation-policy/the-unintended-consequences-of-law_o
======
nugget
The more prohibitively expensive California (and the Bay Area in particular)
becomes, the better it is for the rest of the country - entrepreneurial talent
has already started to relocate elsewhere, and I expect this trend to
continue, perhaps even accelerate, in the future. There are advantages to
having a single, super-dense concentration of business, marketing, and
engineering talent but there are also (in my opinion, greater) advantages to
having multiple regions competing fiercely for that talent.

~~~
xrange
> the better it is for the rest of the country - entrepreneurial talent has
> already started to relocate elsewhere

It's only better if they move elsewhere and refuse to vote for the same
policies that caused the problems in the first place.

~~~
toomuchtodo
The problem is, when you move somewhere else, and you buy your home, you
become the person that wants their home value maintained/protected. Are you
going to vote against your own interests? If so, I applaud you. Otherwise,
you're just distributing the problem across the country, as tech money flows
through workers in secondary cities (inflating property prices in Austin,
Denver, Boulder, Nashville, Portland, Seattle, etc).

~~~
moultano
It isn't their home value they are protecting though. Increasing the zoning
limit on a plot only causes its value to increase. It's the "character" of
their neighborhood.

Somehow we've gotten into a cultural state where everyone expects the place
they live to stay exactly as it is for their lifetime. It's totally
implausible and destructive, but people fight for it anyways, even when it
isn't in their financial interest.

~~~
toomuchtodo
> It's the "character" of their neighborhood.

> Somehow we've gotten into a cultural state where everyone expects the place
> they live to stay exactly as it is for their lifetime.

I think this is just human nature.

> It's totally implausible and destructive, but people fight for it anyways,
> even when it isn't in their financial interest.

I disagree. Simply look at Europe or historical districts in the US. Its
definitely not implausible, and only destructive to new citizens who want to
live there (that don't have an existing vested interest in the area).

All politics is local, as they say. If local citizens want to keep their
neighborhood the same, that's up to them, and its their choice.

~~~
moultano
>I think this is just human nature.

Probably, but I suspect we can trace the triumph of NIMBYism to the baby-boom
reaching the "get off my lawn" age.

>I disagree. Simply look at Europe or historical districts in the US. Its
definitely not implausible, and only destructive to new citizens who want to
live there (that don't have an existing vested interest in the area).

If the area being "preserved" was limited in some way, then sure. But the
reality is that new housing is simply illegal in every positive population
growth city in the country. You cannot live in a city as a young person
without displacing someone else because we've legislated it that way, and
that's insane.

~~~
niftich
Your points have some merit, but this:

> the reality is that new housing is simply illegal in every positive
> population growth city in the country

is just not true. There's plenty of greenfield building going on in the
metropolitan areas of Denver, Boise, Salt Lake City, Vegas, St. George,
Phoenix, Kansas City, Minneapolis, Northern Virginia, Raleigh, Atlanta, and
South Florida. These are areas that have all shown positive population growth.

~~~
positr0n
Also the Dallas/Ft. Worth metroplex is growing like crazy and there are cranes
everywhere from downtown Dallas out 20 miles north where even the suburbs are
getting high rises along the highways.

------
carsongross
A recent conversation with a co-worker really drove this home: what's crazy to
me is how comically short-sighted folks are. We've priced our _children_ out
of the towns we raised them in but it doesn't seem to bother anyone.

And we've slapped a huge amount of college debt on their backs, just to be
sure.

~~~
closeparen
>We've priced our children out of the towns we raised them in

Alternatively, "our children left behind the sprawling 2nd and 3rd-string
metros we raised them in, realized what rent costs in walkable neighborhoods
in destination cities, and are finally beginning to appreciate why we raised
them in sleepy suburbs in flyover country and why they spent so much time in
cars."

Obviously _some_ children got priced out of the Bay Area, but I think most of
the rent crisis is attributable to people who grew up in low density now
seeking high density.

~~~
hilop
Bingo. Every generation discovers why the suburbs are desirable

------
chiph
> you’re in the hole by at least $50,000 before you even put a shovel in the
> ground

So, the equivalent of people's downpayment in the rest of the country is lost
to regulation. That's insane.

~~~
cjensen
50K isn't that much if we are talking about a development where that cost is
spread over dozens of homes. It's possible they just misspoke, but the quote
about Chico did not say "per home."

Meanwhile in my home town of Fremont, a developer is putting in hundreds of
new homes in North Fremont, and the school district has no way to charge those
homes enough to actually build a school for them. The four nearest elementary
schools are over-capacity, so the buyers will have the fun of commuting over
five miles to school.

Consider the source: the linked article is from a Home Builder Industry
magazine.

~~~
talmand
>> but the quote about Chico did not say "per home."

And yet the next sentences are:

"Typical fees in San Francisco are $72,600 per home; in Sacramento, they’re
$62,000. And for the six California markets highlighted in the Zelman &
Associates report, the average is $51,650."

~~~
StillBored
But then it takes them a few more paragraphs to point out that is for a $600k+
house.

Which doesn't make it sound all that bad after all. Particularly when they
point out the land itself is about 1/2 the cost.

Not that any of it is good for anyone under 40...

~~~
talmand
The sale price of the house doesn't matter; it could sell for $100k or $900k,
the builder is still out the $50k or more they paid out in fees. Which was
most likely passed on to the buyer and I bet the mortgage companies have no
complaint.

~~~
StillBored
So what, its probably less than 10%, which is less than the sales taxes on
most other things being purchased. We could just as well complain about the
profit the builder is making, which is likely a lot more given how much most
sub contractors are making.

Its sounds like a big number until you consider the final cost, aka everything
is relative, it would be a much bigger deal if the houses were selling for
$100k because then it would be 50% of the cost.

~~~
breischl
Yes, but the whole point is that the fees are part of the reason _why_ the
house costs that much. If you wanted the final house to cost $100k, then you'd
have to actually build it for $50k. Which may not even be possible, or if it
was it would be so tiny that nobody would want it.

They're basically forced to build a (relatively) big expensive house so that
the final cost seems reasonable despite the $50k in fees buried in it. Hence
why they aren't building entry-level priced houses - they're too cheap to hide
the fixed fees.

~~~
seanp2k2
Fees are like 5-10% of the reason. What's the other 90%?

Edit: there are no entry-level houses because zoned land in places where
people want to live in the bay are is more expensive than a lot + house in
most other places. There are lots selling for >$500k or some for just as much
with tear-down houses on them. That's not due to the fees.

------
beamatronic
This is a fascinating and shocking number:

"Typical fees in San Francisco are $72,600 per home; in Sacramento, they’re
$62,000. And for the six California markets highlighted in the Zelman &
Associates report, the average is $51,650. "

~~~
twothamendment
I built a few homes in a new (didn't really exist in 1998) city in Utah. Fees
were about $20,000. I thought that was high! Most of those fees went to the
infrastructure that was put it so people had a lot to build on. Getting water
power and gas out there isn't cheap and the city owned the power, water and
gas utilities - so they had to pay the bonds with something.

Since then I built in the middle of nowhere - no city, no inspections (except
electrical) and it costs about $20,000 to get water (a well and equipment) and
power. Anything much more than that and it seems like it is well beyond
recovering the costs.

~~~
gsnedders
There's varying levels, though, when it comes to infrastructure—at an extreme
end, you might need to expand the road network to deal with increased traffic,
and if that's building a new, parallel road, or doubling an existing one, that
can get pricy fast.

Of course, this is unlikely to affect anyone building a single property, but
at least here if you're a developer building a large number of homes you can
be expected to make a contribution towards to the cost of the infrastructure
associated with the development.

------
ScottBurson
_“Cities will tell you that from a property tax perspective, housing is a
loser,” says David Cogdill, president of the [California Building Industry
Association]._

I was trying to make this point a few weeks ago here on HN, in a discussion on
Prop. 13, and got pushback. I take this quote as evidence that it's common
knowledge among people in the housing industry. _Prop. 13 disincentivizes
cities from adding housing._

 _Prop. 13 needs to be fixed._ The way it should have been done is this: in a
year in which property values increase by more than 2%, instead of limiting
the _tax_ to 2% more than the previous year's, we limit the _payment due_ to
2% more than last year's payment due. The locality receives a lien on the
difference, but that lien does not become due until the property is sold.

So in an area in which property values have been rapidly rising, a homeowner
who sells their property will have to share their windfall to some extent with
the locality. But those on fixed incomes are still protected: their annual tax
payments don't increase any faster than they would today.

Common objections:

"People will take out home equity loans that will have to be repaid at sale,
leaving them with a cash loss."

A property tax lien is a public record. Banks will take the liens into
consideration when deciding how large a loan to offer. This is standard
practice already.

"The liens will accumulate to the point that they will be greater than the
owner's gain on the property, giving them a strong disincentive to sell."

No, this wouldn't happen, because the lien is only on 1% of the excess gain
(the amount the value increased over 2%). If, for one example, the value
jumped in the first year and then went flat, the payment would continue to
grow at 2% annually until it caught up to the value. The only scenario that
generates a lien larger than the owner's gain is if the market has been up but
then drops sharply just before the owner wants to sell -- in short, if there
was a bubble. Well, bubbles produce lots of dislocation; I don't think they
make for a good argument against this proposal.

"Prop. 13 will never be modified."

Well, it certainly won't if no better alternative is put forth!

~~~
prostoalex
> Prop. 13 disincentivizes cities from adding housing.

disincentivizes cities from adding _low-density_ housing

Once you start piling them up into high-rises, the revenue stream doesn't look
that bad.

But for multi-family high rises different cities have a number of additional
requirements. Minimum parking spaces, minimum number of feet from the
sidewalk, minimum footage of "green zones" consisting of lawns or trees - all
great things hypothetically speaking, but costs add up pretty fast, so any
high-rise building is now a "luxury condo tower" when in theory increasing
density should lead to decrease of cost per square foot, not increase.

~~~
r00fus
> Once you start piling them up into high-rises, the revenue stream doesn't
> look that bad.

Combine with earthquake regulations essentially limiting buildings to a small
number of stories and ScottBurson's comment is pretty spot-on.

~~~
ScottBurson
There are height limitations in most of Silicon Valley (except maybe downtown
San Jose?) -- I think the limit here in Sunnyvale, for example, is eight
stories -- but earthquakes are not the reason for them. People just want to
preserve the suburban character of the area. How that can be done when a lot
more people want to live here is not clear to me.

~~~
prostoalex
It's a bit more insidious than preserving the character. Tall residential
towers generally require certain amount of parking spaces, which in turn
require more expensive structural support for the (usually) underlying garage.

Developers would justify the cost of the parking structure by adding a few
residential floors on top of the tower. But that's where height restrictions
kick in and price out low-tier and middle-tier apartments, leaving room only
for luxury, using SF as an example [http://missionlocal.org/2016/10/neighbors-
double-down-agains...](http://missionlocal.org/2016/10/neighbors-double-down-
against-mission-district-affordable-housing/) "Coliver said her team concluded
that developers could squeeze a maximum of 13 parking spots in the 12,000
square foot lot— but that would make the building “structurally not feasible,”
since it would require removing the columns that support the structure. The
cost for the hypothetical scenario? Coliver said $2.25 million — or $180,000 a
stall."

So the long-term recipe for opposing any new development is:

1) Require certain minimum parking spaces per square feet built (already done
in most cities).

2) Run the numbers for a minimally economically viable structure, calculate
the total number of floors it would need with parking garage included.

3) Lobby for regulations that set the maximum height at N-1 floors.

4) Bingo, every tall structure is now economically unfeasible. Saves you a
trip to the city hall to protest new development, as most developers come to
the conclusion that the numbers don't make sense well before acquiring the
land and permits.

~~~
closeparen
>“Well, how about guests?” asked Lucy, before the conversation turned to
shadow impact and wind tunnels.

This has a very simple answer: no overnight parking. Keeps residents from
owning cars if they don't have off-street parking, so there is always street
frontage for visitors. You get a limited set of overnight parking passes for
overnight visitors.

In the long run, it's probably the only way to get people to stop blocking
development over street parking. Take it away from everyone, except short-term
users like guests and car-sharing.

Bonus points of you make an exception for motorcycles/scooters, since they
allow far more people to benefit from motor vehicles per square foot of
parking.

------
aplomb
Started out with an every-man appealing headline and quickly showed its
stripes of being a developer funded prop 13 hit article - totally separate
from the horror show environmental impact has turned into.

The examples given are completely out of whack and strawmen. prop 13 allows
for effective tax increase through reassessment of value, but that
reassessment is capped so when the market goes crazy people aren't driven out
of their homes - the increases effectively keep pace with inflation which
should handle increased outlays on part of the localities.

~~~
jvm
> that reassessment is capped so when the market goes crazy people aren't
> driven out of their homes

By definition, the people who would be "driven out" have seen their home
values wildly appreciate and they have by that token become substantially
wealthy. This is like saying that if someone is on food stamps but then
becomes a millionaire, it's unfair to take away their foodstamps or raise
their tax rate.

~~~
jacalata
No, it's like saying that when someone has an illiquid asset theoretically
worth $1 million but not actually capable of being traded for cash, it is
unfair to take away their food stamps and leave them with no way to buy food.
The general idea is that it is impossible to trade in the value of your house
for any replacement for 'spend my retirement in the area I spent my working
life in', because the other houses that fulfil that requirement will also have
appreciated in value.

Edit: I mean, even actual food stamps don't make you sell your house to
qualify.

~~~
seanp2k2
...and it's based on the assumption that it is one's right to continue living
in a place just because they've lived there for a few decades, current market
conditions be damned.

------
lambdasquirrel
On the flip side, does this state have enough water for the other 10-odd
million people who'd be living in those 3.6 million homes?

~~~
twothamendment
I keep waiting for California to go the way of Israel and have more fresh
water than they need. It would really help out the West if the coast could
make use of the water that is right next to them.
[https://www.scientificamerican.com/article/israel-proves-
the...](https://www.scientificamerican.com/article/israel-proves-the-
desalination-era-is-here/)

~~~
thefalcon
How do we go from waiting to doing?

~~~
chiph
Convince the people living along the coast to allow the construction of a
desalination plant nearby. Which won't happen because it'd devalue their
million-dollar property (multi-million in places like Laguna Beach).

~~~
rhizome
Diablo Canyon?

------
dangravell
Anecdotal evidence from small scale builders suggest building to higher
performance standards, even to Passivhaus, add only _up to_ (sometimes no more
than) 10℅ build cost.

It's all down to design, and this is where volume builders baulk. They can't
pay minimum wage to cheapest labour to throw up 'standard' builds - in the UK
that's cavity wall, but in the US no doubt you have your own standard
approaches with performance problems.

Given that no house has ever been sold at a price based on build cost, the
type of whining in the OP really boils down to "our profits are lower, can
government do something about it?".

~~~
talmand
So, is it possible for a local government to ever reach a limit on fees
necessary for building in their area before it creates a problem?

>> "our profits are lower, can government do something about it?"

Seems the complaint is that government is directly responsible for the problem
as they see it. Isn't it reasonable for the companies to complain to the
government concerning that topic? What if the local government started tacking
on fees to your paycheck that reduced your take home pay to what you felt was
unreasonable amount? Do you have the right to complain?

~~~
dangravell
I'm addressing performance standards specifically so I can't speak for other
fees.

But regards performance targets these exist such that suitable quality housing
is built - there are numerous market problems here, so leaving it to the
market will not end with a high quality building stock. Performance
regulations are too lax by a long way, not too strict.

~~~
talmand
>> Environmental Impact Review

Does that fit under performance standards of the quality of the build?

~~~
st3v3r
Yes.

~~~
talmand
Oh, ok, can someone please explain to me how an environment impact review
pertains to the build quality of the house?

~~~
st3v3r
It goes to maintaining the environment around the house.

------
vadym909
The problem is when Californians start to move elsewhere, they raise prices in
those cities too. e.g. Portland, Bend, Seattle.

~~~
zeveb
Yup, and they tend to have the politics whose practical effects ended up
driving them from California in the first place. I'd like to see an amendment
to the Constitution which provided for internal immigration, such that there's
a multi-year waiting period to become a state citizen after moving to a new
state. The idea would be to give folks a period of time to acclimate &
acculturate to their new state's politics. They would, of course, still be
able to vote in their old states during that time period.

This might even be good for states that people move from: as their former
residents retain voting rights for a period of time while acclimating to
better states, they are likely to vote for better policies, to the betterment
of those net-emmigrant states.

~~~
rconti
[citation needed]

~~~
zeveb
The politics of Colorado, Florida, Oregon, Virginia & Washington have all
noticeably undergone this effect over the past forty years.

Heck, that effect was the entire reason for Bloody Kansas, with pro- and anti-
slavery people moving into the territory in order to influence its politics.
It's why the Free State Project exists. It's why some politicians want to
decrease immigration, and others want to increase it.

I'm curious why you think it _doesn 't_ exist. It's hardly an extraordinary
claim, and makes perfect sense: people from a place have the habits of mind
common to that place; when they move elsewhere, they retain those habits of
mind for some time. Even if they were outliers at home, they are more likely
to be like their former neighbours than a random subset of their new ones
(ever noticed how much you have in common with a fellow countryman you meet
whilst travelling abroad? It's the same effect).

And when there is a tremendous influx of people from one particular place into
another particular place, then one will be more likely to find people from the
former place in the latter — that's just math.

Maybe you find this good, but I don't: we should try to figure out what makes
a state the sort of place people move _from_ rather than the sort of place
people move _to_ , and replicate that.

(in California's case, I think it's the sort of place people move to because
they must and from because they can)

~~~
rconti
1\. Politics have changed, people have moved. You fail to draw a causal link.
I'm not disputing that people don't take their attitudes with them as they
move, but your post implies that people flee politics they don't like, but
then vote for the same politics in their destination. Politics would have
changed with or without migration. Political views and cultural attitudes are
not static. etc.

2\. You're right that politics change with migration, and that people have and
do move with the explicit intent of influencing politics.

3\. This comment would imply that people are happiest in places where they
previously lived and hence would not move. It certainly doesn't support the
assertion that they're fleeing the results of their own preferred policies.

4\. Sure.

5\. I agree with your first statement, but then the parenthetical statement
gives up the game. You've concluded that people are forced/heavily
incentivized to move to California and are lucky to be able to flee, which I
have not found to be the case at all.

~~~
clock_tower
That first item has a causal link in Virginia; the "People's Republic of
Northern Virginia" is made possible by DC people fleeing Maryland, then
staying liberal, once again voting for the policies that made them flee. The
locals are still what they always were -- for what that's worth.

------
rconti
How did the article turn $47,000 (average for CA) and $72,600 (SF) and $62,000
(Sacramento) or $51,650 (six California cities highlighted in the report) into
"$75,000 in added costs from fees and building code requirements"? They say
the average fees nationwide are $21,000.

If the average new home price in CA is $621,135, 73% higher than the national
average of $358,200, then it seems like the $26,000 difference in average fees
represents only ~10% of the $262,935 difference.

It's not insignificant, and it makes a difference at the margin, but it feels
like numbers are being thrown around a bit dishonestly.

------
laurentoget
I do not know much about real estate cost but it is interesting to see someone
blaming a $50,000 regulatory fee for the $400,000 or so difference in median
house cost between CA and other states.

~~~
pascalxus
It's not just about the 50K. There's an additional 20% for building impact
fees. And all these regulations prevent builders from using more cost
effective means for building.

And, by far, the worst part of it is, it makes innovation in housing a
complete non-starter. It's tantamount to: if in the 1980s (before the shape of
the internet was known) the government had decided to tax every page download
20 cents. Imagine how much that would have stifled innovation - everything
internet would've come to a screeching halt before even seeing what's
possible.

Personally, I think these laws are a major crime against humanity. Housing
makes up such large percentage of people's spending (50%-65% when you take
into account property taxes for 50 years). It keeps you a wage slave for at
least 30 years. It doesn't have to be this way - housing can cost a fraction
of what it does now without all these regulations, with the right land use
policy, the right building materials, using manufactured homes, etc.

~~~
seanp2k2
Land would still cost a lot because a lot of people who make a lot of money
want to live there, and most of them want single-family homes with yards and
driveways and school, churches, shopping centers, parks, and residential
streets nearby.

------
11thEarlOfMar
I'd venture to guess that the fundamental drivers of prices remain founded on
desirability of the state relative to other states. These policies are
certainly making it worse, but they are priced in, one way or the other.

You might think of it like a luxury tax. The item still sells at the total
price, even though there is significant cost to acquire it. Either you can
afford a $500,000 home or you can't. If you can, then consider living in
California. If not, you've likely got 48* other states to choose from.

* Per Zillow, Hawaii's median home price is $571,000, is higher than California's $472,000.

------
lsc
So, the case that expensive housing hurts California businesses is well stated
and intuitive, (and I don't disagree)

But I was considering a counter point the other day. Homeownership here means
mid level engineers who have lived here a decade or two often have access to
seven figure credit lines. What effect does this have on the entrepreneurial
side of things here?

To be clear, I am not putting this fourth as a fully formed belief, but it is
an interesting argument, I think, and worth talking about.

~~~
whamlastxmas
>What effect does this have on the entrepreneurial side of things here?

The effect is that an already privileged group is more privileged than they
previously were (financial flexibility to try a startup), and those less
privileged are driven away and forced to relocate.

Here's my unformed thought from this: are startups hurting
progressive/socialist movements in the US? Their benefit is that they're lean
and efficient. They do more with fewer people and fewer resources. This means
fewer jobs.

~~~
lsc
California does a lot to privilege long term homeowners over new buyers, which
is the reason that the problem can't be solved simply by building density.

In a very real way, existing, long term homeowners are extracting value from
newcomers, as the article points out, in part by pushing more of the tax
burden on to new construction, and in part by restriction new construction
entirely, which pushes up prices, without significantly increasing the tax
burden for existing owners.

Many of these existing homeowners would otherwise been displaced by the boom.
I have met many people working in service jobs who live in half million dollar
plus houses. The tax scheme makes doing so possible; they are still paying
taxes on one tenth of that... That was the intent of prop 13.

People who don't own and live outside of rent control cities have cause to
complain, but the situation is set up to benefit existing owners.

The second paragraph of your post is more complex, and I don't have time to
address it.

------
JustSomeNobody
Can we just set some explosive along the fault line and end this state
already?

How is it possible that this largely Democrat-leaning state can be so pro-
wealth/anti-middle class and poor?

~~~
prostoalex
If you were middle-class or poor in 1978 and happened to own some property in
California, you most likely did well.

------
sremani
Central Valley was sort of ground zero for housing meltdown, since we are
talking here about the entire state, places like Modesto which are about 2-3
hours from SFO are also out of reach for population? That is surprising,
Central Valley is predominantly Agri, but when people of thinking of flying
all the way to Colorado, why not move 3 hours East or South ?

~~~
ssalazar
Jobs/quality of life/commute. E.g. Denver is better at all of these than
Modesto or Stockton.

------
Frogolocalypse
As an Australian, I always muse at what people consider expensive.

[http://www.globalpropertyguide.com/most-expensive-
cities](http://www.globalpropertyguide.com/most-expensive-cities)

There is only one city from the US on that list (New York) of a hundred
cities. Sydney Australia is 18th.

And you want to talk about bubbles?

[http://www.economist.com/blogs/dailychart/2011/11/global-
hou...](http://www.economist.com/blogs/dailychart/2011/11/global-house-prices)

Australia tops the list (and Sweden, apparently). That list indicates the
price of real-estate has tripled in 15 years.

So yeah...

~~~
EduardoBautista
There is something that is not right with that list. Mexico City is on that
list but not San Francisco? I have been to Mexico City and rent is about a
third for a similar sized apartment in San Francisco.

------
odbol_
Is it just me, or is $50,000 out of $600,000 not that big of a deal?

------
Namrog84
I'm forever torn on this. What can a non homeowner do to help the problem? I
feel compelled to not buy into overpriced homes. But I'd also like one and
fear they are only going to become more overpriced in the future.

~~~
Tempest1981
It feels a bit like the stock market... you're trying to decide the right time
to buy. Not sure anyone can answer that definitively.

