San Francisco

How the California Dream Became a Nighmare

Joel Kotkin — Sun, 22 Jan 2023 20:28:58 -0500

For Americans, California once looked like the future. It was a state defined by risk-taking and utopian dreaming. Yet for most Californians today, the upward mobility so central to the state’s ethos is rapidly disappearing. For decades, California was the primary destination for both other Americans and for foreign immigrants. Now, this trend has gone into reverse, with people and companies leaving the state. Population growth, already slowing over the past decade, has turned negative for the first time in modern California’s history, largely due to the state’s shrinking middle and working classes and its loss of families.

California’s difficulties undermine the notion, so fashionable today, that with the right mixture of technology and utopian dreaming, societies can forge a future that is both green and widely prosperous. In reality, California now has America’s worst rates of cost-of-living-adjusted poverty and functional illiteracy, the worst housing affordability in the continental US and a devastating shortage of mid-skilled jobs. What’s more, in 2022, California suffered some of the lowest personal-income growth rates in the country, and its GDP grew at less than half the pace of its arch-rival, Texas.

California’s struggles demonstrate what happens when an economy shuns both industry and solid middle-class jobs. Instead, it has placed heavy bets on ephemera, like social media and entertainment. The failure of this approach now stands exposed. Today, California’s once-huge budget surplus has morphed into a deficit of $25 billion, one that may become even higher in the coming years, given the high chance of recession. Because of this, California’s political class is under pressure either to shrink its expansive welfare state and regulatory regime, or to raise taxes – although taxes are already among the highest in the country. Meanwhile, companies are deserting California in droves, as are some of its top one per cent of earners, who pay roughly half of the state’s income taxes.

All this runs in stark contrast to California’s historic reputation as a land of opportunity. As historian Kevin Starr argued in his 1973 study, Americans and the California Dream, California long ago ‘entered American awareness as a symbol of renewal’. The California dream – one which the Biden administration is seeking to emulate – combines techno-optimism with a new-age spiritualism and, most critically, apocalyptic environmentalism. An amalgam of ‘cybernetics, free-market economics and counter-culture libertarianism’ constitutes what Richard Barbrook and Andy Cameron described in 1995 as ‘the Californian ideology’.

In the early days of the tech revolution, the Californian ideology was notably egalitarian. In 1972, Californian author Stewart Brand predicted that the advent of computers would herald an era of enhanced ‘spontaneous creation and of human interaction’, empowering all of society ‘as individuals and as co-operators’. The ‘early digital idealists’, as computer scientist and writer Jaron Lanier noted in 2014, envisioned a ‘sharing’ web that functioned ‘free from the constraints of the commercial order’.

Initially, this model worked for most residents of Silicon Valley, as well as those inhabiting the aerospace-dominated areas of southern California. High-wage jobs allowed the workforce to buy homes, raise families and send their kids to college. And as left-wing scholars Manuel Pastor and Chris Brenner noted in 2015, Silicon Valley was also among the most egalitarian areas in the US. It was the ultimate beacon of opportunity. That included for immigrants, particularly from east Asia, who set up small tech businesses and launched larger firms.

Today, the oligopolist overlords of Silicon Valley, like Apple, Meta and Google, all enjoy market dominance. Those entrepreneurs who are not embraced by big venture-capital firms live largely at the sufferance of these tech overlords. One online publisher describes his website’s dependence on Google for ad revenue as being like ‘a serf on Google’s farm’.

Read the rest of this piece at Spiked.

Joel Kotkin is the author of The Coming of Neo-Feudalism: A Warning to the Global Middle Class. He is the Roger Hobbs Presidential Fellow in Urban Futures at Chapman University and Executive Director for Urban Reform Institute. Learn more at joelkotkin.com and follow him on Twitter @joelkotkin.

Photo: Robert Couse-Baker via Flickr under CC 2.0 License.

Friends of the Urban Forest

John Sanphillippo — Fri, 25 Nov 2022 20:28:58 -0500

Cities are better when there’s a generous tree canopy. Vegetation keeps the city cooler in summer, trees help clean the air, absorb noise, and beautify the landscape. Properties on tree lined streets are often more desirable and statistically more valuable than those in barren neighborhoods. But trees that grow in the city are different from those that grow in nature. They need to be selected for specific characteristics and require ongoing care from people.

Here in San Francisco city agencies realized that official crews were good at some aspects of cultivating tree cover, but bad at others. Cutting holes in the sidewalk, planting new trees, and trimming mature trees were all pretty straightforward for government bureaucracies. But providing ongoing care for young trees and keeping them alive long enough to mature was a real challenge.

San Francisco has a Mediterranean climate. In a good year we get three or four months of rain in winter followed by eight or nine dry months. In a drought we might not get any rain at all for four or five years in a row. So young trees need to be hand watered for a while until they set deep enough roots to find their own ground water. They must also be protected from vandals and occasionally replaced after random mishaps.

That’s why Friends of the Urban Forest was created in 1981. FUF is a non-profit organization that works with private property owners and city agencies to install and maintain street trees and sidewalk gardens. The city does what it’s good at while residents tend specific trees and gardens where they live and work. I first planted trees with FUF in the 1990s when I was living in a rental space. The owner of the property needed to sign off on the project, but I did the work. I’ve continue to be engaged with the organization on and off ever since and some of the trees I planted are now decades old.

I’m often surprised by how much a single plant can transform an otherwise banal little sliver between buildings. FUF helps resolve various conflicting uses of public and semi-public space. The sidewalks must be free of obstructions that would impede pedestrians, wheelchairs, baby carriages, driveways, emergency access, and underground utilities. The correct kinds of trees and plants must be selected so as to avoid aggressive roots breaking up the concrete or foundations. The esthetic preferences of each property owner must be balanced with pragmatic considerations.

The ancient technique of espaliering trees up against a flat wall is used to great effect in this instance - complete with an abundance of figs. A determined gardener will always find a way to cultivate something even where others see no potential. It’s this impulse on the personal level that needs to be bridged with municipal scale processes, attendant regulations and infrastructure.

FUF also serves as a de facto force for community organizing. There’s an economy of scale associated with cutting multiple holes into nearby sidewalks and planting dozens of trees in the same general location all at the same time. FUF requires neighbors to work together in a coordinated fashion in order to enjoy the benefits of these municipal investments. In turn, neighbors are more likely to encourage each other to tend to their new trees and gardens and build stronger social bonds.

Read the rest of this piece at Granola Shotgun.

Johnny Sanphillippo is an amateur architecture buff with a passionate interest in where and how we all live and occupy the landscape, from small rural towns to skyscrapers and everything in between. He travels often, conducts interviews with people of interest, and gathers photos and video of places worth talking about (which he often shares on Strong Towns). Johnny writes for Strong Towns, and his blog, Granola Shotgun.

Photos: by the author.

West Coast Blues

Joel Kotkin — Mon, 07 Nov 2022 19:28:58 -0500

Few regions have been more consistently Democratic than the West Coast. Even compared with the Northeast, where Republicans occasionally win governors’ offices, the appropriately named “left coast” has been adamantine in its progressivism. Republicans haven’t won statewide office in California in years; in Oregon, it’s decades. Washington has elected a Republican secretary of state, but she now serves in the Biden administration. And the region’s major cities are overwhelmingly blue.

That could be changing, at least a bit. As cities from Seattle and Portland to San Francisco and Los Angeles fight crime and disorder, something of a political rebellion has broken out. One progressive fashion entrepreneur has called San Francisco “a city of chaos,” where his employees are not safe. The city, by some estimates, has deteriorated further and faster than virtually any urban area in the country. Within the last year, though, San Francisco recalled its progressive district attorney, Chesa Boudin, as well as left-wing members of the city school board. Meantime, remarkably, Seattle elected a Republican as city attorney, and Los Angeles district attorney George Gascón has faced backlash, and a possible recall. Voters have a chance to continue this rebellion this week.

Progressive candidates will likely eke out some wins. L.A. mayoral candidate and former Republican Rick Caruso has recovered some momentum after a weak summer and could conceivably beat progressive opponent Karen Bass, though Bass leads in betting markets. In Washington, long-time Democratic senator Patty Murray faces a surprisingly tough challenge from Republican Tiffany Smiley, though Murray, too, is favored.

But some heterodox candidates seem poised for upsets. In Oregon, Christine Drazan could become the first Republican governor since the 1980s, replacing the ultra-progressive and highly unpopular Kate Brown. In California, Republican Lanhee Chen, endorsed by the state’s usually lockstep progressive press, could be elected state controller, in what would be the first statewide win for a Republican since 2006.

Crime and chaos drive the GOP revival, but looming economic and fiscal crises are also factors. The once-flourishing tech industry may face at least a short-run implosion that has rattled investors. In California, where the post-pandemic recovery has lagged, the one industry left booming in Silicon Valley may be psychotherapy. Don’t expect a more business-friendly climate to emerge after the election. New proposals for wealth taxes, a 32-hour work week, and controls on franchise employment are likely—despite regional struggles with pensions, jobs, and business flight.

The physical economy, too, has declined across the West Coast. Manufacturing is lagging, particularly in California. Due to regulations and a lack of storage for water supplies, the Golden State’s once-dominant agriculture sector is declining. The state’s highly regulated housing sector has lagged on construction, leaving the state vulnerable to a real-estate downturn that is already hurting housing markets.

In addition, state policies drive electricity and fuel prices that rank among the nation’s highest, discouraging price-sensitive industries from staying in state and putting millions on the edge of energy poverty. California, in fact, suffers the nation’s highest rates of cost-of-living adjusted poverty, with residents of the less temperate and poorer interior far less able to pay for the state’s green zealotry than residents on the coast. And California, despite massive education spending, suffers the highest percentage of illiteracy of any state.

Read the rest of this piece at City Journal.

Housing Affordability in California: Part 2 — Urban Land Markets

Wendell Cox — Sun, 06 Nov 2022 19:28:58 -0500

Harvard’s William Alonso showed that the value of residential land tends to increase from the rural uses on the urban fringe¹ to centers of economic activity, such as central business districts.²

Urban Containment: Urban containment has become the dominant planning strategy for combating urban expansion and has been implemented in California through CEQA ³ and growth management.

According to prominent urban planners Arthur C. Nelson and Casey J. Dawkins: “… urban containment involves drawing a line around an urban area. Urban development is steered to the area inside the line and discouraged (if not prevented) outside it.”⁴ Further: “… urban containment programs can be distinguished from traditional approaches to land use regulation by the presence of policies that are explicitly designed to limit the development of land outside a defined urban area, while encouraging infill development and redevelopment inside the urban area.”⁵

Urban containment is intended to increase land costs. According to Nelson and Dawkins “ …the regional demand for urban development is shifted to the area inside the boundary. This shift should decrease the value of land outside the boundary and increase the value of land inside the boundary.”⁶

This article is adapted and updated from Chapter 2 (“California’s Housing Crisis”) by Wendell Cox in Saving California: Solutions to California’s Biggest Policy Problems, Stephen Greenhut, editor. The chapter is being published by newgeography.com with permission of the Pacific Research Institute, in three parts:
Part I: Housing Affordability in California: The Situation (published October 24, 2022)
Part II: Housing Affordability in California: Urban Land Markets (this piece)
Part III: Housing Affordability in California: A Way Forward

The impact of urban containment on urban land is illustrated in Figure 1 (below). The land value increases inside the urban growth boundary (UGB) are the “urban containment effect.”⁷ Other land value increases from land use regulation, such as “ordinary zoning” would be in addition to higher values from the urban containment effect.

Thus, the operative dynamics of urban containment are that:

Land values rise precipitously at UGBs (or their equivalent).
This increase is telescoped onto virtually all plots inside UGBs, raising house prices.

There was, however, a risk. Nelson and Dawkins note that “higher prices (especially for housing) could occur if planning fails to increase the supply of buildable land within the boundary” and that “…urban containment boundaries are prudent land-use policies … only when accompanied by policies that increase urban development density and intensity.”⁸ Housing affordability would be preserved by expanding urban containment boundaries “to accommodate projected growth over a specified future time period, typically 10 to 20 years.”⁹

Elusive Densification: However, sufficient densification did not occur. Perhaps the “social engineering” required to force households into smaller, often multi-family housing was politically infeasible.

Without the massive densification that would have been required to preserve housing affordability, it is not surprising that considerable political pressure has been directed toward reform of single-family zoning (an ordinary zoning measure) in markets with urban containment. As house prices have risen, so have rents (though at a slower rate¹⁰).

However, replacement of single-family zoning may not lead to materially improved housing affordability. For example, in the city of Vancouver (BC), has virtually eliminated single-family zoning¹¹ and massively densified, increasing its population 65% from 1961 to 2016,¹² without material annexation or greenfield capacity.

University of British Columbia planning Professor Patrick Condon, who has studied Vancouver extensively, has concluded “… there is a problem beyond restrictive zoning. … No amount of opening zoning or allowing for development will cause prices to go down.”¹³ The problem, according to Condon, is that upzoning as a densification strategy does not improve housing affordability.¹⁴

Despite the densification, Vancouver housing market had experienced massive housing affordability losses. Metro Vancouver has the highest house prices and highest rents in Canada.¹⁵ Further, Vancouver is the second least affordable market in Demographia International Housing Affordability. Affordability has worsened from a 3.9 median multiple in 1970¹⁶ to 13.0 in 2020. Metro Vancouver has had stringent urban containment policy for decades.

The housing affordability (median multiple) range was far less when there was only ordinary zoning. Median multiples in major US markets did not rise above 4.0 until urban containment.¹⁷ In 2019, the 12 least affordable markets had median multiples of from 5.1 to 9.0, and all had urban containment.¹⁸

Moreover, examination of US data suggests this opposite relationship. Metros with more single-family housing and larger lot sizes (both indicators of lower density) have substantially better housing affordability (Table 3).

San Diego, San Jose, San Francisco and Los Angeles ranked 44th through 47th in their shares of single-family housing.¹⁹
Some of the smallest lot sizes were in San Diego (42nd), Los Angeles (47th), San Jose (48th) and San Francisco (50th).²⁰

Table 3 Single Family Houses & Lot Sizes Major Metropolitan Areas: By Affordability Ratings (2018)
Housing Markets (Metropolitan Areas): Number by Affordability Rating (Median Multiples Shown)	Single Family Share of All Housing Units	Single Family Housing Average Lot Size (Acres)
Affordable (3.0 & Lower)	66.1%	0.34
Moderately Unaffordable (3.1 - 4.0)	61.7%	0.30
Seriously Unaffordable (4.1 - 5.0)	60.4%	0.24
Severely Unaffordable (5.0 & Higher)	53.7%	0.19
Number of Housing Markets with Data	53	50
Sources: Affordability Data: American Community Survey 2018 (Census Bureau), Demographia International Housing Affordability Lot Sizes: American Housing Survey: 2011 & 2013(Census Bureau)

Contravening Land Market Dynamics: Often urban containment requires new development to be adjacent to existing development. One of the world’s leading urban and housing analysts, New York University Marrron Institute Director of Urban Expansion, Shlomo Angel explains the problem with this approach.

“If only plots that were directly adjacent to existing built-up areas were allowed to develop, their owners would have monopolistic power. For the land market on the urban periphery to function properly, supply must be adequate to allow competition to determine land prices.”²¹

This could lead to the virtual destruction of the competitive supply of land, which Brookings Institution economist Anthony Downs stressed is required to maintain housing affordability. Legendary British planner Peter Hall,²² and colleagues at University College London expressed concern that land-use plans could “act as a speculator’s guide.” Land with planning permission or likely planning permission becomes a desirable item which will be traded at increasing prices, or hoarded.”²³

Urban Containment Research: In fact, urban containment has been associated with deteriorated housing affordability.

According to Angel: “… the explicit containment of urban expansion— by greenbelts, as in Seoul, Korea or in English cities, by urban growth boundaries, as in Portland, Oregon, or by environmental restrictions as in California—has inevitably been associated with declines in housing affordability.”
Hall, et al suggested that by the early 1970s, the “speculative value” of land with planning permission in the UK was five to 10 times that of land without planning permission.²⁴ They also concluded that the failure to prevent housing affordability losses was “perhaps the biggest single failure” of urban containment in the UK.
Mariano Kulish, Anthony Richards and Christian Gillitzer of the Reserve Bank of Australia report that that land increased in value from 12 to 20 times when brought within the Melbourne UGB.²⁵
Arthur Grimes, former chair of the Board of the Reserve Bank of New Zealand, and Yun Liang found a land value gap of 7.9 to 13.1 times over the Auckland UGB²⁶
Gerald Mildner of Portland State University found that a gap in land values of 10 times across the UGB in Portland.²⁷
The Barker Reviews indicated that land on which housing was permitted had a value of more than 250 times that of the agricultural land outside London where housing was not permitted.²⁸
Benjamin Dachis of the C. D. Howe Institute has associated administration of Toronto’s urban containment (greenbelt) program with far higher house prices.²⁹ By 2020, the median multiple had reached 250% of its 2004 (pre-urban containment) level.³⁰

Prominent housing economists Edward Glaeser of Harvard and Joseph Gyourko of the University of Pennsylvania presented evidence in the San Francisco metropolitan area (city of San Francisco and suburbs) that land values³¹ were approximately $490,000, or 10 times ($440,000) the expected 20% in a well functioning market. Much of this additional cost is attributable to urban containment.

Where there is severely unaffordable housing, urban containment tends to be present.³² This includes some major markets in the United States and Canada, as well as virtually all major markets in Australia, the United Kingdom and New Zealand. All 92 severely unaffordable major markets in Demographia International Housing Affordability have urban containment.

Angel, an advocate of densification has strong reservations about urban containment:³³

“You have to show me that you have enough room that you are creating for the demand for me to say it’s okay to have containment, but usually you can’t. So, what it means is that you need expansion.”

Urban containment may be the “critical mass” that explains much of the housing affordability crisis in the least affordable markets, including California.

Indeed, economist Claude Gruen observed, “…growth controls in economically powerful coastal cities is to the middle-class what the economic disaster of slum clearance was to the poor.”³⁴

View and download endnotes (PDF opens in new tab or window)

Wendell Cox is principal of Demographia, an international public policy firm located in the St. Louis metropolitan area. He is a founding senior fellow at the Urban Reform Institute, Houston, a Senior Fellow with the Frontier Centre for Public Policy in Winnipeg and a member of the Advisory Board of the Center for Demographics and Policy at Chapman University in Orange, California. He has served as a visiting professor at the Conservatoire National des Arts et Metiers in Paris. His principal interests are economics, poverty alleviation, demographics, urban policy and transport. He is co-author of the annual Demographia International Housing Affordability Survey and author of Demographia World Urban Areas.

Mayor Tom Bradley appointed him to three terms on the Los Angeles County Transportation Commission (1977-1985) and Speaker of the House Newt Gingrich appointed him to the Amtrak Reform Council, to complete the unexpired term of New Jersey Governor Christine Todd Whitman (1999-2002). He is author of War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life and Toward More Prosperous Cities: A Framing Essay on Urban Areas, Transport, Planning and the Dimensions of Sustainability.

Photo: Embarcadero, city of San Francisco, by Bob Collowan via
Wikimedia under CC 4.0 License

The California Headquarters Exodus Continues

Wendell Cox — Wed, 26 Oct 2022 20:28:58 -0400

A new Hoover Institution (Stanford University) report indicates that California continues to shed corporate headquarters locations to other states.

Hoover Institution Senior Fellow and UCLA distinguished professor of economics Lee Ohanian and Joseph Vranich, President of Spectrum Location Solutions, show that “In 2021, California business headquarters left the state at twice their rate in both 2020 and 2019, and at three times their rate in 2018. In the last three years, California lost eleven Fortune 1000 companies, whose exits negatively affect California’s economy today. But California also is risking its economic future as much smaller but rapidly growing unique businesses are leaving, taking their innovative ideas with them.”

Including companies outside the Fortune 1,000, Ohanian and Vranich indicate that California lost 153 corporate headquarters between in 2021. This is more than double the totals for each of the three years from 2018 to 2020.

They note that “Our count is almost certainly biased downwards significantly, because relatively small business relocations are difficult to detect, since most business relocations are not reported by the media, and relatively few relocations require filing state compliance reports that would trigger documentation of the exit.”

And there is more than headquarters relocations. The report “does not take into account California businesses that are retaining their headquarters in California but who are making large facility investments in other states, such as Apple and Wells Fargo, who are building large campuses in Texas, and Disney, who is doing the same in Florida.”

The report indicates a broadly based corporate exodus, “occurring across virtually all industries—including manufacturing, aerospace, financial services, real estate, chemicals, and health care—but perhaps most disturbing is the large number of high-technology businesses that are leaving.” Noting that the “tech hubs of Silicon Valleyand San Francisco are among the most productive locations on the planet, they see the loss of firms like Hewlett-Packard Enterprises, Oracle, and Tesla have relocated, all to Texas, as concerning.

The business exodus is, not surprisingly, concentrated in the most populous parts of the state. The table below (from the report) shows that more than one quarter of the corporate migrations were in Los Angeles, County, with 80 out of the 352 from 2018 to 2021. San Francisco County accounted for one-seventh of the state figure, at 52.Orange, Santa Clara, San Diego and Alameda all had at least 20 corporate headquarter relocations.

Table: Top Ten Losses by California County
Rank	County	Total	Rank	County	Total
1	Los Angeles	80	7	San Mateo	12
2	San Francisco	52	8	Sacramento	10
3	Orange	39	9	Riverside	8
4	Santa Clara	38	10	San Bernardino	7
5	San Diego	26	10	Placer	7
6	Alameda	23

Based on population, San Francisco County had by far the highest proportional loss, at nearly 60 corporate headquarters lost per million population, well above the 8 per million loss in Los Angeles County (Figure 1). Alameda, Santa Clara and Orange counties have higher headquarter exit rates than Los Angeles County, but are also well below that of San Francisco.

The exiting California headquarters have moved most to Texas, followed by Tennessee, Nevada, Florida and Arizona. Each of these states have consistently better rated business climates and lower costs of living than California.

The authors attribute the California’s headquarters exodus to multiple causes. Certainly one of the most significant is California’s business regulatory climate, routinely graded as worst or near worst among the 50 states.

“The Tax Foundation, a nonpartisan think tank focusing on state and national tax policies, ranks California 49thin its Business Tax Climate Index, far below Tennessee, Florida, Texas, and other states that are attracting California businesses. Annual surveys of business CEOs and small business owners invariably rank California 50th in terms of the quality of state business climates.”

They also cite California’s high tax rates, with the highest marginal income tax rates in the nation, now more than 20% above that of second highest Hawaii. This could be raised if voters approve another tax increase on the November ballot (Proposition 30).

Then there is California’s “remarkably high housing costs,” which Urban Reform Institute research identifies as the critical element in the cost of living crisis. It’s not just companies, but people that are moving. The Hoover report reminds us that since 2015, California has experienced a net outmigration of nearly 700,000 people.” A principal reason for these moves is the cost of living crisis, which makes it more difficult for firms to obtain sufficient talent.

The exodus continues even into 2022. “Lucas Oil, a large producer of specialty petroleum products that is moving to Indianapolis, and Aviatrix, a technology company specializing in cloud networking and security, whose valuation doubled recently to $2 billion” moved to Dallas-Fort Worth.

Aviatrix CEO Steve Mullaney stated that he plans on hiring many young people but noted that young people don’t want to live in Silicon Valley anymore, because they cannot afford to buy a home.

O’hanian and Vranich note that losing so many people to other states “would have seemed ludicrous not so long ago.”

However, the authors characterize the state’s political leadership of dismissing the business exodus as an issue. seriously enough. They conclude:

“While California has many natural advantages, its state and local economic policies have created a business climate that is no longer competitive with that of many other states. Policies have driven business and housing costs so high that companies and people are leaving the state for more affordable, less regulated, and less taxed locations. This process will continue until the state’s political leaders make very different policy choices that create a different future for California—one that honors its remarkable past.”

The report can be downloaded here: Why Company Headquarters Are Leaving California in Unprecedented Numbers.

Photo: Former corporate headquarters of Bank of America in San Francisco. Bank of America is now headquartered in Charlotte, North Carolina. Source: Wikimedia under CC 2.0 License for both building images

Housing Affordability in California: Part 1 — The Situation

Wendell Cox — Mon, 24 Oct 2022 20:28:58 -0400

There is probably no issue more requiring resolution in California than poor housing affordability. It is a threat to the preservation of the middle-class and the competitiveness of the state.

Housing Affordability: Background

Housing affordability is more than house prices --- it is house prices in relation to income. Price-to-income ratios are widely used, such as by the World Bank,¹ the Organization for International Cooperation and Development, and others to measure housing affordability. This chapter uses the “median multiple,” a price-to-income ratio (median house price divided by the gross median household income), to measure middle-income² housing affordability (Table 1).

Table 1 Demographia Housing Affordability Ratings
Housing Affordability Rating	Median Multiple
Affordable	3.0 & Under
Moderately Unaffordable	3.1 to 4.0
Seriously Unaffordable	4.1 to 5.0
Severely Unaffordable	5.1 & Over
Median multiple: Median house price divided by median household income

Housing affordability herein is at the housing market level --- the metropolitan area, which is both a housing market and labor (commuting) market.³ This excludes submarkets, such as municipalities or neighborhoods.

Housing affordability is compared (1) between housing markets (such as between the San Francisco metropolitan area and the Dallas-Fort Worth metropolitan area) or (2) over years within the same housing market (such as in the San Francisco metropolitan area).

This article is adapted and updated from Chapter 2 (“California’s Housing Crisis”) by Wendell Cox in Saving California: Solutions to California’s Biggest Policy Problems, Stephen Greenhut, editor. The chapter is being published by newgeography.com with permission of the Pacific Research Institute, in three parts:
Part I: Housing Affordability in California: The Situation (this piece)
Part II: Housing Affordability in California: Land Markets
Part III: Housing Affordability in California: A Way Forward

Housing Affordability In California: Context

Until about 1970, housing was affordable (less than 3.0 median multiple) throughout the United States, including California. All but one of today’s 53 major markets⁴ was rated “Affordable.” Since then, huge housing affordability differences have arisen, especially between California and the nation (Figure 1). This has been due to much higher land costs, as construction costs have risen more modestly.⁵

The Legislative Analyst’s Office reports that an average California home costs 2.5 times the national average and monthly rent is about 50 percent higher.⁶ In 2019, the median California house value was $325,000 above the US.

More recently, there has been an unprecedented deterioration in housing affordability. The driving factor has been the result of the pandemic and its related demand shock. According to Sam Khater, chief economist at the US Federal Home Loan Mortgage Corporation (Freddie Mac) characterized “the effect of the Covid-19 pandemic” as “unusual in that it spurred housing demand because higher-income households who were able to work from home wanted more space and were willing to live farther from their offices. At the same time, the pandemic caused supply-chain bottlenecks and permitting delays that slowed new-home construction.” The pandemic continues to disrupt standards of living, housing markets and national economies.

During this period, California’s housing affordability also deteriorated. In 2021, San Jose had the least affordable housing among the 92 major US housing markets, with a median multiple of 12.6. San Francisco had a median multiple of 11.8, Los Angeles was at 10.7, followed by San Diego, at 10.1).⁷ Housing was severely unaffordable even in the interior markets, with Riverside-San Bernardino at 7.4 and Sacramento at 6.7.

California’s excessively high cost of living is a formidable barrier for middle-income and hopeless for lower-income households.

Land Use Regulation In California

Economic research attributes California’s housing affordability crisis to stronger land-use regulation starting around 1970.⁸

Dartmouth economist William Fischel published an early seminal review ⁹ of housing affordability in California (1970 to the 1990s). Fischel suggested that regulatory research should look for major changes that “are adopted in some places but not in others.”

Fischel examined the higher house price increases that occurred in California compared to the rest of the nation between the late 1960s and late 1980s. Fischel cites various possible causal factors. He found that the higher prices could not be explained by higher construction cost increases, demand, higher personal income growth, the quality of life, amenities, Proposition 13, land supply or water issues.

Instead Fischel cites stronger land use restrictions --- There were two principal issues, the California Environmental Quality Act (CEQA) and local growth management restrictions.¹⁰

Growth Control: Fischel notes that California “became the leader in the “growth control,”¹¹ a new land use strategy that limited new housing development (especially “greenfield” development). According to Fischel, under growth management, “Allowable growth is held below the rate that was both permitted under previous zoning laws and below the rate at the community's vacant land inventory can reasonably sustain.” Growth management could impose building moratoria, annual quotas and limits on conversion of vacant land to housing.¹²

Fischel contrasts growth management with “ordinary zoning, which is nominally dedicated to the good-housekeeping rule of a “place for everything, but everything in its place," In contrast, “growth-control communities attempt to reduce future residential “development.” “Growth management” regulations were superimposed by municipalities upon their ordinary zoning.

Before the later evolution of growth management to counties and housing markets, builders could “shop around” for more affordable municipal regulatory environments.

CEQA: CEQA imposed far stronger environmental review for private housing projects than elsewhere. Under CEQA anti-development interests routinely challenged major “greenfield” ¹³ housing projects. Some projects have been blocked, others have been delayed for decades ¹⁴ and become far more costly through the CEQA process. As regards its effect on greenfield development, CEQA has effectively acted as urban containment.

Other early research raised concerns. Massachusetts Institute of Technology professor Bernard J. Frieden noted in 1979, “the public benefits are small, costs to the consumer’s big and inequities unmistakable.”¹⁵ David E. Dowell, a University of California economist found that “wherever stringent land-use controls have come up against burgeoning demand for housing, land and home prices have skyrocketed.”¹⁶

Impact Fees: In response to Proposition 13, municipalities began to use impact fees on new houses and apartments to fund new development. Single-family fees average four times ($28,000) the rest of the nation.¹⁷ Fees range to more than $150,000 per house.

There are huge impact fee variations between municipalities¹⁸ and questions about the “nexus” between such fees and new development.¹⁹ At the same time that costs for new development have been transferred to new owners,²⁰ existing owners received, in effect, windfall profits from extraordinary house value increases in California’s regulatory environment.

From Municipal Regulation to Housing Market Regulation: Growth management started as a municipal issue. However, it expanded to cover counties and entire housing markets.²¹

The balance between supply and demand has been upset by seriously restricting land for residential development, at the same time as demand increased. This, as predicted by economics, leads to higher prices, all else equal.

View and download endnotes (PDF opens in new tab or window)

Lead photo: METRO-LAND cover, a suburban promotional publication by the London Metropolitan Railway, 1921 in Public Domain.

Gavin Newsom's Presidential Prospects

Joel Kotkin — Thu, 01 Sep 2022 20:28:58 -0400

Conservatives often see prospective presidential contender Gavin Newsom as a tool of the far Left—and, as such, politically doomed by the seemingly endless crises afflicting California. Yet the Golden State governor is a more formidable candidate than this portrayal suggests. Rather than being a progressive windup doll, the 54-year-old is in fact a skilled political opportunist, with far less dogmatically left-wing views than most of his party’s legislative delegation. He would have no qualms abandoning unpopular progressive stances to pursue the goal of succeeding a doddering President Joe Biden.

In just the last week, Newsom provided two indicators of his flexibility. He vetoed a bill that would have legalized “shooting alleys”—so-called safe drug-injection sites—in San Francisco, Los Angeles, and Oakland. Many of his progressive allies, who favor such programs, denounced the veto. They may be untroubled by rising street crime and drug overdoses, but Newsom knows that disorder in California’s major cities offers a devastating talking point for his opponents—especially those to his right.

Even more striking was Newsom’s recent turnaround on California’s last nuclear plant, and even its gas plants. The green constituency in California detests both forms of energy production and even seeks to ban gas stations, gas heaters, and anything else tainted by fossil fuels. California’s green policies have helped make its energy prices among the nation’s highest and have created conditions likely to cause massive energy shortages on the power grid. Large-scale blackouts and brownouts could also become fodder for anti-Newsom political ads in 2024.

Newsom’s recent moves on public safety and energy have outraged California progressives, particularly the powerful green lobby, which denounced his energy move as “incredibly dangerous.” (California’s greenhouse-gas emissions are statistically meaningless next to those of China, which emits more carbon than all other industrial countries combined.) Newsom knows that green pronunciamentos about the distant future—for example, the recently announced ban on the sale of new gas cars after 2035, and the goal (set in 2018 by his predecessor) of relying on a zero-carbon electric grid in 2045—make better politics than trying to shut down an economy that still depends on fossil fuels today. Newsom spokesman Anthony York suggested that the alternative policies proposed by greens “feels like fantasy and fairy dust.”

Yet none of Newsom’s recent moves should be surprising. He is, after all, not the product of the radical social-justice crowd but the anointed candidate of the Bay Area’s uber class. He generally backs causes embraced by Silicon Valley and the heirs of inherited wealth—on gay marriage, gender, abortion, gun control, and climate change—rather than those focused on expropriating the wealth of the tech, entertainment, and financial elites who have financed his career.

Indeed, compared with Jerry Brown, his far more interesting and sometimes more intellectually driven predecessor, Newsom tends to bend with changing conditions. As mayor of San Francisco, he ran as a “dogmatic fiscal conservative and a social liberal,” who moved ahead of the pack on issues like gay marriage but also proved friendly to the tech firms that transformed the city during his reign. After winning election as lieutenant governor, in 2011, Newsom ventured to Texas to witness firsthand that state’s thriving economy—a move many saw as implicit criticism of then-Governor Brown.

As he eyes a White House campaign, in the event Biden doesn’t seek reelection, Newsom faces some homegrown obstacles, including the presence of his fellow Californian, Vice President Kamala Harris, in the Biden administration. But Harris generates little enthusiasm these days, even among California progressives, and many expect her to be bought off by a plum private-sector job or perhaps an appointment to the Supreme Court. Yet even if Harris leaves on demand, Newsom will still have to cope with the negatives associated with his patrician profile.

Read the rest of this piece at City Journal.

Photo: Gage Skidmore via Flickr under under CC 2.0 License.

Total Fertility Rate: Metros — San Francisco (Lowest) to Jacksonville (Highest)

Wendell Cox — Mon, 22 Aug 2022 20:28:58 -0400

As we previously reported, US total fertility rates have dropped markedly since 2010. The total fertility rate (TFR) is “the expected number of lifetime births per woman women given current birth rates by age.” Generally, the TFR needs to be at least 2.10 for a society to maintain its population.

Few of the nation’s 56 major metropolitan areas (more than 1,000,000 population) have retained TFRs above replacement rate based on data from the American Community Survey: 2016 to 2020 (Table). This is more than a measurement of pandemic effects and includes less than one year of the pandemic. The mid-point of this data is 2018.

While TFR data is available from the Centers for Disease Control at the state and national level, there little or no readily available data at the metropolitan, county or municipality level. But there is sufficient ACS data to perform the calculations. The TFR calculation method, used to derive the metropolitan area data, is described in this government of Singapore page. The average TFR among the 56 major metropolitan areas was 1.785 over the 2016 to 2020 period.

Major Metropolitan Areas with the Highest TFRs

Among the 15 major metropolitan areas with the highest total fertility rates, seven are located in the South and five in the Midwest. Three are located in the west and none are located in the Northeast The highest ranking major metro in the north east is Buffalo, with a TFR of 1.82. Pittsburgh ranks 25th, at 1.80.
(Figure 1).

Only three of the largest metropolitan areas have TFRs at or above the population replacement rate.

Jacksonville is the highest with a rate of 2.19 children per women of childbearing years.Tulsa with a TFR of 2.12 has the second highest total fertility rate. Honolulu ranks third with a TFR of 2.10.

The other 53 major metropolitan areas have total fertility rates at lower than replacement rate.

Fresno, one of the three recent additions to the list of major metropolitan areas (the others being Tulsa and Honolulu) ranked number four, with a TFR of 1.99.

Ten other major metros had TFRs of at least 1.90. This includes, in order, Grand Rapids, Minneapolis-St. Paul, Houston, Oklahoma City, Memphis, Salt Lake City, Detroit, Dallas Fort Worth, Columbus, and Birmingham.Salt Lake City’s 11th ranking may be surprising, located in the state of Utah, which has often had the highest TFR in the nation.

Only two of the nation’s nine metropolitan areas with more than 5 million residentsare ranked in the top 15--- Houston and Dallas-Fort Worth.

Major Metropolitan Areas with the Lowest TFRs

San Francisco had the lowest total fertility rate, at 1.49. It was closely followed by Los Angeles with a TFR of 1.52. In addition to these two, California also had the major metro with the 6th lowest TFR, in San Jose, at 1.59 (Figure 2).

Five other metros had total fertility rates of under 1.60, including Austin, Boston, Hartford, and Orlando.

The balance of the top 15 had total fertility rate of 1.70 or lower. These include (from lowest to highest) Denver, Portland, Miami, New York, Tampa-St. Petersburg, New Orleans, Washington and Las Vegas.

Additional Observations

California has large TFR differences between its broad regions, the coast and the interior. The four major metros on the coast (Los Angeles, San Francisco, San Diego and San Jose) have far lower TFRs, averaging 1.58, compared to the interior major metros (Riverside-San Bernardino, Sacramento and Fresno), which average 1.86, a different of almost 20%.

Raleigh (1.82) and Seattle (1.77) have stronger TFRs than other tech centers, such as San Francisco (1.49), San Jose (1.59), Austin (1.53), Denver (1.61) and Portland (1.62).

International Context

Total Fertility Rates have been declining in most areas of the world. The US TFR had declined to a level similar with those of European nations, as of 2020. The estimated US major metropolitan area TFR, averaging 1.79 remain healthier than that of metropolitan London (including East and Southeast England), at about 1.64 (derived from Office for National Statistics data). The USmajor metro TFR is far higher than that we have estimated for metro Tokyo (Tokyo, Kanagawa, Saitama and Chiba), at 1.21 and metro Seoul (Seoul, Gyeonggi and Incheon), based on Korea Statistical Information Service data, at 0.73. There are also reports that the TFRs of metropolitan Shanghai and metropolitan Beijing are even lower, at approximately 0.70 (Note). America may not be producing enough children, but it’s hardly doing worse than most of its prime competitors.

Note: The provinces, which are also the municipalities of Shanghai and Beijing include virtually all of the built-up urban areas and the commuting shed to the outside, and are thus metropolitan labor markets.

Photo: Jacksonville: US major metropolitan area with the highest estimated Total Fertility Rate (2016-2020), via Wikimedia under CC 4.0 License.

The Importance of Fare Enforcement

Randal OToole — Mon, 15 Aug 2022 20:28:59 -0400

According to the New York City police department, subway crime is up 53 percent so far in 2022 compared with 2021. Since ridership grew by 64 percent in that time period, that means that crime rates per rider have actually fallen, but that doesn’t reassure many people.

Nationwide, Federal Transit Administration data show that, through the end of March 2022, transit crime (not counting suicide) is 44.4 percent more than the same period in 2021. This is almost exactly the same as the increase in ridership, which was 44.9 percent. Former riders who are reluctant to return to transit may be justified in not doing so.

Many crimes are directed at transit workers. Assaults on New York City transit operators happen an average of once per day. More than three out of four transit workers say they are afraid to come to work. Transit unions recently sent a letter to Pete Buttigieg and FTA administrator Nuria Fernandez asking them to take more actions to increase transit security, though the real actions must be taken by transit agencies.

BART rider Darrell Owens has a proposal to reduce crime: Decriminalize fare enforcement. BART, he says, spends $2.6 million a year on fare enforcement that results in the collection of less than $30,000 in fares. Sounds like a pretty poor benefit-cost ratio.

The purpose of fare enforcement, however, is not to collect more fares than the cost of enforcement. It is to send a message to potential criminals that they are likely to get caught. If they can’t get away with minor crimes such as evading fares, they will be less likely to try to get away with major crimes such as assaults, robberies, and attempted murder.

This is known as the broken windows theory (which name comes from the notion that a building with broken windows is more likely to be broken into than one that is well maintained). While the theory is controversial, there is clear evidence that lack of fare enforcement is correlated with transit crime. As I demonstrated in March, the highest rates of transit crime are associated with light rail, which has the least fare enforcement of any transit mode. The only other mode of transit that comes close is trolley buses, and that is solely due to high crime rates on San Francisco trolley buses — which, like light rail, has minimal fare enforcement. Unlike most other buses, the drivers of San Francisco trolley buses don’t check for fare payments as people board.

Owens worries that fare enforcement can quickly turn into police brutality. But police actions aren’t necessarily the best way to enforce fares. Instead, turnstiles in subway stations should be replace with gates that can’t be crossed without paying a fare. Fences and gates should also be placed around light-rail stations and stops. Once people pass through these gates, they should feel as safe as they do at home or anywhere else. Fare enforcement on buses should be done by the drivers, as has been done for decades except recently in San Francisco and a few other cities.

People should also be protected from falling or being pushed onto tracks by screens between the platforms and the tracks. Doors in the barriers would open only when a train is in the station. This is the way most airport rail systems work as well as many rail systems in other countries.

Such barriers and screens will cost money. Despite the infrastructure bill, rail transit still has a huge backlog of maintenance and repair projects, many of which won’t be fixed with money in that bill. All of which raises the question: is rail transit worth it? Outside of New York City, the answer is mostly no. Even in New York City, the value of rail transit is becoming questionable as more people work at home and the job density of Manhattan seems to have permanently declined.

This piece first appeared at The Antiplanner.

Randal O'Toole, the Antiplanner, is a policy analyst with nearly 50 years of experience reviewing transportation and land-use plans and the author of The Best-Laid Plans: How Government Planning Harms Your Quality of Life, Your Pocketbook, and Your Future.

Photo: MassDOT, via Flickr under Public Domain. In 2009, MBTA could say that crime had reached a 30-year low. Yet FTA data show that, by 2021, the MBTA suffered almost 19 times as many “security events” as in 2009: 94 vs. 5.

Engineered California

Joel Kotkin and Marshall Toplansky — Mon, 20 Jun 2022 20:28:58 -0400

Nothing so illustrates the mindset of green politics, particularly in California, as the word “natural,” which is taken to mean unspoiled, pure, and better than the workings of man. Yet few places are as fundamentally artificial, if measured by its dependency on human intervention, as California.

So why do California’s progressives, and so many others, yearn for what the historian Leo Marx dubbed the “pastoral ideal”? Much has to do with the state’s rapid population growth from 1.5 million in 1900 to nearly 40 million today, which resulted in a regime of environmental rapine that many still living experienced.

California would not exist in anything like its modern form without massive engineering. Largely dominated by desert, flammable, dry chaparral and high mountains, California depends on human-created technology to bring water to its bone-dry coast. It taps distant dams for the bulk of its electricity and food and would have never grown its population without this manufactured transformation of its natural environment. “Science,” as the University of California’s second president, Daniel Coit Gilman, put it, “is the mother of California.”

The Origins of Environmental Politics

Modern environmentalism rose in California, starting with the unsuccessful attempt by The Sierra Club to halt the flooding of Hetch Hetchy Valley in Yosemite to supply water to largely waterless San Francisco. This struggle presaged an almost endless succession of battles across the state over land use, energy, and water development. When the Sierra Club’s solutions seemed too tame, the Friends of Earth, also founded in San Francisco, generally pushed more extreme policies.

Over the last few decades, California greens have evolved. They started as largely conservationist, with a bipartisan base of affluent middle-class homeowners, who looked askance at development near their neighborhoods. By the late 1960s, however, the green agenda became increasingly shaped by visions of a dystopian future, epitomized by Stanford’s Paul Ehrlich’s 1968 Population Bomb, with its predictions of mass starvation on a global scale.

Ecotopia, published in 1975 through an obscure press, by Ernest Callenbach, an equally obscure movie critic, sold a million copies. The cult classic was followed with a 1981 prequel, Ecotopia Rising. These two books tell the story of a successful secession by greens in the northern coastal areas from the rest of the polluted, dystopic United States on the other side of the Sierra.

Ignoring the costs and trade-offs

The architects of our green policies often ignore both nuance and inevitable trade-offs. In coverage of fires, the legacy media mindlessly repeats Governor Gavin Newsom’s claim that the conflagrations are caused by climate change. Predictably, the New York Times suggests that California is “ground zero for climate disasters,” while the claims that California now fights not just fires and droughts but “climate despair.”

Read the rest of this piece at American Mind.

Marshall Toplansky is a Clinical Assistant Professor of Management Science at the Argyros School of Business and Economics at Chapman University.

Photo: Antandrus, via Wikimedia under CC 2.0 License/