California Government Fees Curb New Home Construction

State and local government policies in California that restrict the supply of homes plus rising construction costs are causing a serious housing shortage. California’s zoning rules have thousands of restrictions that affect the entire construction process limiting the number of homes that are built each year.

New Home Construction
Zoning restrictions, which mandate open space and reduce housing units in new developments, are the biggest factor driving up prices, according to a landmark 2003 study by economists Edward Glaeser of Harvard and Joseph Gyourko of Wharton.

There’s plenty of land in San Diego County, not to mention California. But politically popular anti-growth policies place most of it off limits.

Yet costs play a role, too. And here public officials seem more interested in tossing gasoline onto the economic blaze than in building fire breaks. On Jan. 9 Carlsbad’s housing commission voted 3-2 to charge apartment developers $20 per square foot as an “affordable housing impact fee.” For perspective, this would add $16,000 to the already considerable cost of building an 800 square-foot apartment.

Higher “one-time” costs require more capital. An investor seeking a modest, 10 percent annual return would need an extra $133 a month in rent just to cover this proposed fee. If landlords aren’t sure they can charge the higher rent, this fee kills a project. In the last 32 years, the San Diego Housing Commission has helped build just 15,208 subsidized rental units. The waiting list is 45,000 people long. The trend is evident all over the state. In San Francisco, a subsidized project recently set its qualifying income cutoff at $140,000 a year for a family of four.

Examples of higher costs abound in the county. Building permits average $59,000 for a typical new house in San Diego, but in the Torrey Highlands neighborhood the “public facility” portion of the fees cost nearly $129,000. San Diego County needs to build an average 20,000 new houses, condos or apartments every year to keep up with household formation, according to government estimates. Last year, builders pulled permits for a paltry 8,000 or so, despite a 38 percent jump in the median home price since January 2012.

California’s governments have created a true economic crisis in housing. And the latest wave of policies is making it worse.

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