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.

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

Southern California Home Sales Drop 20 Percent mortgage rates and economic uncertainty contributed to an already slowing housing market in December, causing Southern California home sales to tumble 20.3 percent from a year ago, new data show.

That’s the biggest year-over-year sales drop in eight years, real estate data firm CoreLogic reported Wednesday, Jan. 30.

With one-fifth fewer homes changing hands, December home prices barely budged, increasing by the smallest margin since the housing recovery began in 2012.

“It’s too soon to tell, but December was a bit of a yellow flag that maybe housing is slowing down,” said Ralph McLaughlin, CoreLogic’s deputy chief economist.

Area agents and home sellers say they noted a shift in market psychology as early as last summer, following 3 ½ years of a red-hot seller’s market. …

Click here to read the full article from the OC Register

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