California’s Green Bantustans

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One of the core barriers to economic prosperity in California is the price of housing. But it doesn’t have to be this way. Policies designed to stifle the ability to develop land are based on flawed premises. These policies prevail because they are backed by environmentalists, and, most importantly, because they have played into the agenda of crony capitalists, Wall Street financiers, and public sector unions. But while the elites have benefit, ordinary working families have been condemned to pay extreme prices in mortgages, property taxes, or rents, to live in confined, unhealthy, ultra high-density neighborhoods. It is reminiscent of apartheid South Africa, but instead of racial superiority as the supposed moral justification, environmentalism is the religion of the day. The result is identical.

Earlier this month an economist writing for the American Enterprise Institute, Mark J. Perry, published a chart proving that over the past four years, more new homes were built in one city, Houston Texas, than in the entire state of California. We republished Perry’s article earlier this week, “California vs. Texas in one chart.” The population of greater Houston is 6.3 million people. The population of California is 38.4 million people. California, with six times as many people as Houston, built fewer homes.

And when there’s a shortage, prices rise. The median home price in Houston is $184,000. The median price of a home in Los Angeles is $530,000, nearly three times as much as a home in Houston. The median price of a home in San Francisco is $843,000, nearly five times as much as home in Houston. What is the reason for this? There may be a shortage of homes, but there is no shortage of land in California, a state of 163,000 square miles containing vast expanses of open space. What happened?

You can argue that San Francisco and Los Angeles are hemmed in by ocean and mountains, respectively, but that really doesn’t answer the question. In most cases, these cities can expand along endless freeway corridors to the north, south, and east, if not west, and new urban centers can arise along these corridors to attract jobs. But they don’t, and the reason for this are the so-called “smart growth” policies. In an interesting report entitled “America’s Emerging Housing Crisis,” Joel Kotkin calls this policy “urban containment.” And along with urban containment, comes downsizing. From another critic of smart growth/urban containment, economist Thomas Sowell, here’s a description of what downsizing means in the San Francisco Bay Area suburb Palo Alto:

“The house is for sale at $1,498,000. It is a 1,010 square foot bungalow with two bedrooms, one bath and a garage. Although the announcement does not mention it, this bungalow is located near a commuter railroad line, with trains passing regularly throughout the day. The second house has 1,200 square feet and was listed for $1.3 million. Intense competition for the house drove the sale price to $1.7 million. The third, with 1,292 square feet (120 square meters) and built in 1895 is on the market for $2.3 million.”

And as Sowell points out, there are vast rolling foothills immediately west of Palo Alto that are completely empty – the beneficiaries of urban containment.

The reason for all of this ostensibly is to preserve open space. This is a worthy goal when kept in perspective. But in California, NO open space is considered immediately acceptable for development. There are hundreds of square miles of rolling foothills on the east slopes of the Mt. Hamilton range that are virtually empty. With reasonable freeway improvements, residents there could commute to points throughout the Silicon Valley in 30-60 minutes. But entrepreneurs have spent millions of dollars and decades of efforts to develop this land, and there is always a reason their projects are held up.

The misanthropic cruelty of these polices can be illustrated by the following two photographs. The first one is from Soweto, a notorious shantytown that was once one of the most chilling warehouses for human beings in the world, during the era of apartheid in South Africa. The second one is from a suburb in North Sacramento. The scale is identical. Needless to say, the quality of the homes in Sacramento is better, but isn’t it telling that the environmentally enlightened planners in this California city didn’t think a homeowner needed any more dirt to call their own than the Afrikaners deigned to allocate to the oppressed blacks of South Africa?

The Racist Bantustan

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Soweto, South Africa  -  40′ x 80′ lots, single family dwellings

When you view these two studies in urban containment, consider what a person who wants to install a toilet, or add a window, or remodel their kitchen may have to go through, today in South Africa, vs. today in Sacramento. Rest assured the ability to improve one’s circumstances in Soweto would be a lot easier than in Sacramento. In Sacramento, just acquiring the permits would probably cost more time and money than doing the entire job in Soweto. And the price of these lovely, environmentally correct, smart-growth havens in Sacramento? According to Zillow, they are currently selling for right around $250,000, more than five times the median household income in that city.

The Environmentalist Bantustan

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Sacramento, California  -  40′ x 80′ lots, single family dwellings

When you increase supply you lower prices, and homes are no exception. The idea that there isn’t enough land in California to develop abundant and competitively priced housing is preposterous. According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. Think about this. You could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14% of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3% of it. Three percent loss of agricultural land, to allow ten million people to live on half-acre lots!

And what of these lots in North Sacramento? What of these homes that cost a quarter-million each, five times the median household income? They sit thirteen per acre. Not even enough room in the yard for a trampoline.

There is a reason to belabor these points, this simple algebra. Because the notion that we have to engage in urban containment is a cruel, entirely unfounded, self-serving lie. You may examine this question of development in any context you wish, and the lie remains intact. If there is an energy shortage, then develop California’s shale reserves. If fracking shale is unacceptable, then drill for natural gas in the Santa Barbara channel. If all fossil fuel is unacceptable, then build nuclear power stations in the geologically stable areas in California’s interior. If there is a water shortage, than build high dams. If high dams are forbidden, then develop aquifer storage to collect runoff. Or desalinate seawater off the Southern California coast. Or recycle sewage. Or let rice farmers sell their allotments. There are answers to every question.

Environmentalists generate an avalanche of studies, however, that in effect demonize all development, everywhere. The values of environmentalism are important, but if it weren’t for the trillions to be made by trial lawyers, academic careerists, government bureaucrats and their union patrons, crony green capitalist oligarchs, and government pension fund managers and their partners in the hedge funds whose portfolio asset appreciation depends on artificially elevated prices, environmentalism would be reined in. If it weren’t for opportunists following this trillion dollar opportunity, environmentalist values would be kept in their proper perspective.

The Californians who are hurt by urban containment are not the wealthy elites who find it comforting to believe and lucrative to propagate the enabling big lie. The victims are the underprivileged, the immigrants, the minority communities, retirees who collect Social Security, low wage earners and the disappearing middle class. Anyone who aspires to improve their circumstances can move to Houston and buy a home with relative ease, but in California, they have to struggle for shelter, endlessly, needlessly – contained and allegedly environmentally correct.

Ed Ring is the executive director of the California Policy Center.



















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Prop 13 and Urban Containment

Urban containment not only creates a house price premium, it creates a property tax premium. We got a look at how much that premium might be when during the Mortgage Meltdown from 2007 to 2012. Home prices on the urban fringe dropped 50%, in suburbs about 30%, and in the urban core in places like San Francisco they did not drop at all. In places like Beverly Hills prices didn't drop as much as there was a stall in house sales for a few years.

So if you had a $350,000 home located in the urban fringe at a 1% base tax rate that equaled $3,500 in property taxes.

When property values dropped 50% to $175,000 at the same 1% tax rate property taxes dropped correspondingly to $1,750.

The urban containment tax premium was thus $1,750 per year or 50% during "boom times."

One of the problems of urban containment is that it puts pressure on politicians to press the Federal Reserve to lower interest rates so that over-inflated housing can be made more affordable. For example, Texas with few land use controls had spotty foreclosures but California had entire communities foreclosures and with "underwater" (over-mortgaged) homes (e.g., Stockton, San Bernardino, Fresno, Oakland, etc) which led to municipal bankruptcies or insolvencies. So what caused this? Was it the sub-prime loans that were also available in Texas? No, it was the land use policies (as pointed out by urbanist Wendell Cox).

Urban containment policies lead to boom and bust real estate cycles, making municipal and public school budgets unpredictable as to tax revenues. To "fix" this problem, many school districts are shifting to flat parcel taxes instead of ad valorem property taxes based on market values of homes. If the real estate market tanks, local governments and public schools will be immunized from property tax declines during bad economic times.

Prop 13 has a base tax limit of 1%, but that did not cause local governments to erect urban containment policies to pump up their tax base. Many new housing subdivisions in the urban fringe were built with Mello Roos infrastructure bonds allowing 2% property tax rate to pay for public roads, sewer plants, and public schools. Those Mello-Roos subdivisions suffered the same, or worse, foreclosure rates and underwater mortgages than other subdivisions.

If California's policy makers had a chance they would want 2% property tax rate and urban containment concurrently. Taxpayers in California serve government, not the other way around.

Ah yes, economic logic

Well said. The golden land of opportunity has become the opposite. California has now become Europe and the East Coast of the US with its owned entrenched ruling class and landed gentry. It has an elite oligarchy that is effectively saying, "Well now that I am in the boat, I think I will lift the anchor, and let you proles fend for yourself in the water."

BTW, note that the current US administration, through the Department of Housing and Urban Development, is trying to federalize San Francisco / Minneapolis / Seattle land use densification policies. Leave aside the fact that HUD and the Federal Government should not be involved in local land use policy, as it has no jurisdiction, but these policies are just wrong and have severe negative impacts on the poor and young just starting out, as capably illustrated in this article.

Housing

It's a good essay. Clearly young families, who today are about half minority and will soon be mostly minority, are being shunted off into segregated high density developments (or else to Texas).

The author might have commented on how the housing policies actually work. The San Francisco Bay Area's new Plan Bay Area envisions that most new housing will be in a handful of urban centers built at high densities with about half being deed restricted affordable units. The outlying suburbs are largely let off the hook with smaller housing quotas than in previous years. The affordable units are usually unprofitable to build, so much of this quota will never be met. Additionally, while there is a requirement that each municipality identify a land inventory sufficient to meet it's housing quota, such inventories can be elaborately faked.

There isn't going to be sufficient new housing built in CA in the foreseeable future. For current homeowners we'll see our houses continue to increase in value, but it's tough on the kids trying to get started.

The housing policies should

The housing policies should be implemented. Thanks