Walters: California’s high construction costs limit housing. A Supreme Court decision might help

California’s chronic inability to build enough housing – particularly for low-income families – has many causes, but a big one is its extremely high cost of construction.

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Some costs are intrinsic and unavoidable, such as land acquisition and building materials. But some are artificial and could be lowered, especially those imposed by state and local governments. They include dictating the use of high-cost unionized construction labor, time-consuming environmental clearances, arbitrary design criteria and so-called “impact fees.”

Collectively, these costs have the effect of minimizing the number of housing units that can be constructed for a given amount of investment – less bang for the buck.

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Four years ago, the Los Angeles Times illustrated the syndrome by delving into a decade-long effort to construct a small apartment project for low-income residents of Solana Beach, an affluent coastal community in San Diego County.

What was proposed in 2009 as an 18-apartment project that would cost $413,913 per unit became – after 10 years of political and legal wrangling – a 10-apartment project costing more than $1 million a unit. It simply would not pencil out and was ultimately suspended.

Solana Beach was not an isolated example. Other projects costing $1-plus million per unit have surfaced, including one approved last week in Santa Monica, another upscale coastal community.

The 122-unit project, aimed at providing shelter for homeless people and built on city-owned land, will cost an estimated $123.1 million. It could become even costlier because of an extended development timeline: It’s not expected to be built until 2030.

Development costs are particularly high in coastal communities, but even in interior areas building modest apartments for low-income residents easily tops $500,000 per unit, which is often costlier than single-family homes in those communities. It defies logic but that’s the reality of housing in California.

As mentioned earlier, the many cost factors affecting housing in California also include impact fees.

While local governments had imposed some fees for decades, they began escalating sharply after voters in 1978 passed Proposition 13, the iconic property tax limit, to offset the loss of tax revenue.

A 2015 study found that California’s fees, averaging $23,000 a unit, were the highest in the nation and four times the national average. Housing advocates have argued that reducing fees would increase production but local governments have zealously defended them.

Last week, as Santa Monica was approving the low-income housing project costing more than $1 million a unit, the U.S. Supreme Court was putting the brakes on California’s impact fees. The court ruled unanimously that fees constitute an unconstitutional “taking” of private property without compensation unless based on actual costs.

Click here to read the full article in CalMatters


  1. Andy Molina says

    Yes, government fees and dictates have raised the cost of everything in California. Our well-cosseted politicians eagerly defy the laws of economics, and fully expect a Hollywood ending where all is well and all problems solved. Regrettably, Mother Nature didn’t see the movie, so we left with an unmitigated disaster where the victims flee the shakedown; businesses relocate, wealthy tax supporters vanish, unproductive hordes of homeless tax consumers move in, and costly assistance opportunities are regularly disgorged by all manner of public entities to address ever-increasing crises.

    Even home-owner retirees who would like to downsize to a smaller home and access some of their equity to fill the gaps of hideous inflation are stymied. Inflation-driven ballooning home equity has caused capital gains increases that result in punishing taxes well beyond the now-meager $500,000 capital gains exclusion. Proposition 19 was a godsend to seniors, but the antiquated capital gains exclusion has created an unintended penalty that has frozen the once-natural age-ordained transfer of larger homes from older residents to younger, growing families. This is what happens when our leaders lose sight of the big picture, but I don’t see it improving much any time soon because, as it has been recorded somewhere by someone: When the government decides that it must rob Peter to pay Paul, it can count on enthusiastic support from Paul.

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