Is more urban sprawl the solution to California’s housing crisis?

Is more urban sprawl the solution to California’s housing crisis? 

Chapman fellow says yes, others say no

In a state where vacant homes and apartments are scarce and where rents and house prices are out of control, state leaders and experts have proposed a host of solutions. Build more homes, build them in higher-density developments and build them in existing cities and suburbs, closer to jobs, buses and commuter rail line. (Jeff Gritchen, Orange County Register)

By JEFF COLLINS | JeffCollins@scng.com | Orange County Register
PUBLISHED: May 3, 2017 at 12:01 am | UPDATED: May 3, 2017 at 8:27 am


In a state where vacant homes and apartments are scarce and where rents and house prices are out of control, state leaders and experts have proposed a host of solutions.

Build more homes, build them in higher-density developments and build them in existing cities and suburbs, closer to jobs and transit to reduce pollution and congestion, they say.

On Tuesday, however, a Chapman University fellow offered a more traditional solution: urban sprawl.

Rather than limit new construction to apartments and condos in “infill” development, California needs to build more houses, using vacant land in interior communities like the Inland Empire and the Central Valley, said Joel Kotkin, Chapman’s RC Hobbs Presidential Fellow in urban futures and co-author of a new report on millennials’ housing needs.

Kotkin was a guest speaker Tuesday at a California Association of Realtors forum in Sacramento streamed over FaceBook.

“Millennials contemplate unaffordable housing that could compel them to leave California,” said the report, “Fading Promise: Millennial Prospects in the Golden State.”

“Nothing,” the report states, “could improve housing affordability than to restore the competitive market for land by permitting greenfield development.”

For decades, California homebuilding has failed to keep up with growth, resulting in some of the highest rents and home prices in the nation. The problem is worse for millennials — people aged 20 to 36, Kotkin’s report said.

While homeownership rates for California baby boomers are close to the national average, only one in four Californians aged 25 to 34 own a home, the third-worst homeownership rate among states, the report said.


But converting vacant land into housing runs contrary to the prevailing view.

A recent UC Berkeley report that denser, “infill” residential housing near jobs and public transit would allow California to meet its housing needs and emission-reduction goals. The study’s authors issued a response to Kotkin saying he ignores other costs of urban sprawl.

“Encouraging more sprawl will only result in more driving, higher transportation costs, and increased pollution,” the statement said. “We need housing solutions that take into account all costs – not just the full cost of living for a resident but the full cost to our environment and to our state’s mandated greenhouse gas reduction targets.”

A 2015 study sponsored by the nonprofit California Housing Partnership found that locating affordable housing in close proximity to jobs and services causes a significant decrease in pollution as people switch to walking, bicycling or taking public transportation.

“I don’t see how you can solve the housing crisis by sprawling unless you decide that climate change is not important,” Matt Schwartz, the California Housing Partnership’s president and chief executive, said in response to Kotkin’s report.

But Kotkin argued that such an approach won’t work because millennials don’t want to live in expensive apartments in high-density environments.

“What we’re seeing is an attempt to re-engineer Southern California into something that it’s not,” Kotkin said in an interview before Tuesday’s presentation. “High-density housing is not a substitute for building houses. The vast majority of people … want a house.”

Kotkin maintains high-density construction costs as much as 7.5 times more than the cost of building houses. Few places in the nation, and certainly not Southern California, have New York-type amenities and transit to make high-density living desirable, he said.

Congestion can be reduced by moving jobs inland, closer to where new housing is developed or by allowing people to work from home. To increase supply in existing communities, “redundant” retail space should be redeveloped into small-lot houses or townhomes, he said. Prefab construction techniques also could help keep housing costs down.

Authors of the Berkeley study disputed Kotkin’s claim that millennials want houses, saying recent surveys show they want to live in walkable, mixed-use communities and in neighborhoods where they don’t have to use a car often. Millennials, the authors said, were split almost evenly between single-family vs. multi-family preference.

Meanwhile, new data released Monday shows that California inched closer to meeting housing goals, but still is falling short.

The state had a net increase of 88,562 housing units last year, 41,155 of them in Orange, Los Angeles, Riverside and San Bernardino counties, the state Department of Finance reported. While the statewide total is up 31 percent from 2015, it’s still less than half the 180,000 new housing units state housing officials say California needs annually to keep up with population growth.

A QUESTION OF VALUES: MIDDLE-INCOME HOUSING AFFORDABILITY

by Wendell Cox 11/10/2015

This is the Executive Summary from a new report “A Question of Values: Middle-Income Housing Affordability and Urban Containment Policy" authored by Wendell Cox and published by the Frontier Centre for Public Policy. Ailin He, a PhD doctoral candidate in economics at McGill University served as research assistant.

The "report is a public policy narrative on the relationships between urban containment policy, housing affordability and national economies. It is a synthesis of economic and urban planning analysis that is offered as a policy evaluation of urban containment. The analysis is presented in the context of higher-order objectives of domestic policy: improving the standard of living and eradicating poverty" (Page 9). The research focuses on the international experience, especially in Canada, Australia, New Zealand, the United Kingdom and the United States. Download the full report (pdf) here.

Middle-income housing affordability is important to people and the economy:Canada’s house prices have risen more than house prices in most other high-income nations. This is of concern, because higher house prices reduce discretionary incomes, which defines the standard of living and poverty. If discretionary incomes are reduced, households will have less to spend on other goods and services, which can retard job creation and economic growth. Improving the standard of living and eradicating poverty are among the highest-order domestic priorities.

Urban containment policy can lead to higher house prices: Urban land-use regulation has become stronger in many metropolitan areas and often includes urban containment policy. Urban containment severely restricts or bans development in urban fringe areas. Consistent with basic economics, this increases land values and house prices (all else equal). The planning intention and expectation is that higher housing densities will offset the land-price increases and that housing affordability will be maintained.

Severe losses in housing affordability have been experienced in urban containment markets: Top housing and economic experts attribute much of the loss in housing affordability to stronger land-use policy.

Housing affordability losses have been sustained in the five nations this report focuses upon: Across the United Kingdom, Australia, New Zealand and some markets in Canada and the United States, house prices have nearly doubled or tripled compared with household incomes as measured by price to income ratios. Much of this has been associated with urban containment policy.

Demand and supply: Some research suggests that the huge house-price increases have occurred due to higher demand and the greater attractiveness of metropolitan areas that have urban containment policy. However, the interaction of supply and demand sets house prices. Claims that metropolitan areas with urban containment policy are more attractive are countered by their net internal out-migration and diminished amenities for some households.

An intrinsic urban containment amenity seems doubtful: Some urban containment advocates claim that urban containment policy intrinsically improves amenities (such as a dense urban lifestyle). However, whether a feature is an amenity depends on individual preferences. Moreover, the strong net internal migration away from many metropolitan areas with urban containment policy is an indication that there is no urban containment amenity for most households.

Higher densities have not prevented huge losses in housing affordability: In contrast with planning expectations, the land-value increases expected from urban containment have not been nullified by higher densities within urban containment boundaries.

Intervening urban containment boundaries are more influential than topographic barriers: It has been suggested that topographic barriers such as mountains and the ocean cause higher house prices. However, in urban containment metropolitan areas, urban containment boundaries are usually placed between the built-up urban areas and the topographic barriers. As a result, house-price increase associated with the land shortage will be principally associated with the urban containment boundary, not the topographic barrier.

A competitive land supply is required for housing affordability: A risk with urban containment policy is that by limiting the land for sale, large landholders will seek to buy up virtually all of the land for future gain. Without urban containment, there will not be a land shortage, and there will not be an incentive to monopolize the land supply. A sufficient land supply can be judged to exist only if prices relative to incomes are not higher than before the urban containment policy came into effect.

Urban containment policy has been associated with reduced economic growth:Evidence suggests that urban containment policy reduces job creation and economic growth. The increased inequality noted by French economist Thomas Piketty is largely attributed to the housing sector and is likely related to strong regulation. Other research estimated a US$2-trillion loss to the U.S. economy, much of it related to strong land-use regulation, and called this “a large negative externality.”

Urban containment policy has important social consequences: There are also important social consequences such as wealth transfers from younger to older generations and from the less-affluent to the more-affluent households.

Urban containment policy has failed to preserve housing affordability: Some have expressed concern that urban containment policy might not have been implemented if there had been the expectation of losses in housing affordability. In fact, the administration of urban containment policy has been deficient, with corrective actions largely not taken despite the considerable evidence of losses in housing affordability. In urban containment markets, programs should be undertaken to stop the further loss of housing affordability and transition toward restoring housing affordability. Further, urban containment should not be implemented where it has not already been adopted.

Canada could be at risk: Canada could be at greater risk in the future. Already, huge losses in housing affordability have been sustained in Vancouver and Toronto. Other metropolitan areas are strengthening land-use regulations. This could lead to severe consequences such as lowering middle-income standards of living and greater poverty with less job creation and less economic growth.

The urban containment debate is fundamentally a question of values: Ultimately, the choice is between the planning values of urban design or urban form and the domestic policy values of improving the standard of living and reducing poverty. Urban containment policy appears to be irreconcilable with housing affordability. Proper prioritization requires that the higher-order values of a better standard of living and less poverty take precedence.

Download the full report (pdf) here.