The Biggest And Smallest Barriers To California Housing Development
The State of California’s Legislative Analyst’s Office (LAO) estimated that 70,000-110,000 new housing units are needed per year to keep housing prices from rising faster than the national average. What are the most important barriers to new housing construction and what can be done about them?
Scholars Evgeny Burinskiy, Lois Takahashi, and Richard Green gather with industry experts Bert Selva and Dan Dunmoyer to discuss results from a new survey of California homebuilders, planning commissioners, and housing advocates. The survey, supported by a grant from the California Homebuilding Foundation, highlights the differences in perceptions stakeholders have about the development review process. Overall, each stakeholder group universally sees both traffic congestion and affordable housing as a crucial hurdle to overcome as California grows.
Richard Green: Well, good morning, everybody. Happy May 4th. My name is Richard Green. I'm Director of the USC Lusk Center for Real Estate. And it's my pleasure to invite you to a combined Lusk Perspectives USC Price webinar presentation on Barriers to Building Housing in California. The foundation for this particular event is a paper that I wrote with my colleague, Lois Takahashi and Gene Berinsky, who I will be introducing to you in a few minutes. This paper was funded by the California Housing Foundation, and so let me begin this event by introducing Dan Dunnmoyer, who is the CEO of the Building Industry Association and a board member, actually the Secretary of the CHF. So Dan, thanks so much for being here.
Dan Dunmoyer: Professor Green, thank you. Thanks for this opportunity, and it is an honor to be a sponsorship of this study. As professor said, the California Home Building Foundation's mission is to advance the home building industry in California and they do so by providing them scholarships and publishing like today, and that'll be the research findings and promoting workforce education programs. It's a 501 nonprofit and every dollar donated in supporting this foundation is part of the building industry's legacy and supporting research and supporting young people. Joining the building industry both on the trade level and all the way up to leadership roles in companies as CEOs of home-building organizations. So we're honored today to be part of this discussion and honored to support today's research. I'll turn it back to you, Richard. Thank you again.
Richard Green: Dan, thank you so much. And again, thanks to the CHF for providing the funding so that we could do this study. And with that let me turn it over to two people, first of all one of our coauthors on this study Evgeny Burinskiy, Gene Burinskiy. Gene is a freshly minted USC PhD. He defended his dissertation on April 22nd. And if you're the sort of person who likes to read PhD dissertations, I will commend Gene to you. It's about some very important issues revolving around the impact of transit on migration patterns and on the industrial organization of the building industry on the rents that people pay and the places that they live and terrifically rigorous. And it was just a pleasure to be, I will just say, Gene's mentor over the past two or three years. Gene will be presenting the report and then to comment on it, we have one of I think best known, it wouldn't be an exaggeration to say most respected people in the home building industry, Bert Selva. Bert runs Shea Homes, has for at least 13 years, and I know that because he was running it when I took over as Director of the Lusk Center, Bert, I should know exactly when you took over, but I'm afraid I don't. Again, wonderfully thoughtful guy so much so that I know he travels to Washington on a regular basis where the Federal Reserve is interested in his views about what's happening in the home building industry. And so he is a very natural respondent to this particular piece of work. And so I've asked Gene to speak for 15 to 20 minutes, Bert will have a five to 10 minute response and then we will open it up to questions. And I will particularly encourage the audience to make us aware if there are things that they find in the report to not make sense to them because this is with survey data that's done, and what we really are looking for grounding in people's experiences on the world as they as they listen to this. So if you have a question, please type it into the Q and A. I will be moderating the questions and we look forward to your feedback on this. And so with that, I'm gonna turn my camera off and ask Gene to turn his camera on to represent our findings.
Gene Berinsky: Hello everyone. I'm Gene. But Richard thanks for the warm welcome. It's a pleasure to present this report here today. Now let me just quickly turn on screen-sharing so that I can present. All right. Can everyone see the slides? All right. So today, as Richard mentioned I'll be presenting a report that we've recently finished using survey data titled the biggest and smallest barriers to California housing development, survey evidence from developers, planning, commissioners and housing advocates. This was coauthored by professor Richard Green and Lois Takahashi, both of them who are on the call. The report was funded by the California Home-Building Foundation. I would also like to thank Honor Hayball for her excellent research assistance because without her a lot of this work would not have been possible. All right, so I'm just gonna dive straight into it. I presume most of us are on the call for, are aware of the housing issues that prevail in California namely very high housing prices and housing prices just don't let up. They keep growing. One of the predominant reasons behind growing housing prices in California has been said to be lack of housing construction. the California housing, the California Legislative Analyst Office estimates that we need 70,000 to 110,000 new housing units every single year to avoid home prices from rising faster than the national average and we're not building nearly as much. Some of the reasons that they've been cited for preventing more construction include local resistance, growth control ballot initiatives, cumbersome environmental review requirements, and some other reasons. So in the survey, we're primarily gonna focus on the discretionary approval process. And if you're not familiar with it namely the developers have to go through a process where they submit various documents, including EIRs. And then these documents need to be approved by the planning commission or I guess the recommended to be approved or not approved by the planning commission for each city. And then the city council ultimately decides whether the project is going to go forward or not. And there are a lot of details in there but we're not gonna go into that. Our goal was essentially to see if we can find avenues for dialogue among the key stakeholders in housing development process and hopefully build mutual understanding among key stakeholders. To achieve this we solicit perceived barriers to housing development among the key stakeholders and using the survey responses we try to find areas in which stakeholders agree, disagree and potential blind spots essentially, with each party. The survey consists of, survey three populations, the first one's consists of city planning commissioners for cities with populations over 100,000 people. This includes about 66 cities. We didn't survey every single planning commissioner we randomly selected one from each city to represent the city. We surveyed 30 housing developers with the assistance of Dan Dunnmoyer through the California Building Industry Association. These 30 developers represent about 80% of California housing development within CVA membership. And then finally we also try to involve as many advocacy groups as we could. And by advocacy groups, we mean YIMBYs, NIMBYs, non-profit, affordable housing developers, and all the associations we know, environmental groups, friends of groups, community and and things like that. The survey was administered anonymously online via Qualtrics and our responses have been collected rather recently. So the survey was conducted just a couple of months ago, December 2020 to January 2021. The one thing that would like to caution our listeners before we dive deep into the results is the fact that our samples may suffer from selection bias in that the responses may not necessarily be a representative of the greater population that they represent. As a result we'd like to caution the listeners from interpreting the results and the statistical framework. And I guess see these responses more of as a compilation of perceptions from experts in the respective fields There were a couple of questions I'm gonna dive straight into the results because that's what we wanted to discuss here. We asked both questions that overlap among the three groups. Namely, the questions were essentially the same exactly the same across the three commissions three populations and we did this so we can compare their perceptions regarding key issues. The first question, to Change to desire for new housing. And the question specifically was how favorable do you think city councils County boards have been regarding new housing development? And there are a couple of and would you ask a similar question for a planning commissioners? A couple of interesting patterns that are merged here first over 70% of planning commissioners said that there a lot or a great deal of favorable towards or city councils or a great or a lot deal favorable towards the new housing. Which stands in somewhat contrast to the fact that over 90% of developers said somewhat the opposite that city councils are only moderately or a little favorable towards new housing and similar pattern emergence among the planning commissioners. So over 90% of planning commissioners said that they themselves are a moderate or a lot favorable towards new housing. While developers said the somewhat opposite that over 90% developer said that City Commissions are either are moderate or a little favorable towards new housing. So essentially there's is a discrepancy between the parties about the favorability of municipal bodies regarding new housing development. We also see when we compare the city councils to commissions that a city commissioner planning commissions in general seem to be perceived more favorable towards new housing than the city councils. And in general, the voices among advocates reflect the voices among developers. The second overlapping question that we asked pertains to public opposition, namely how much have planning commissions you work with being persuaded by public opposition arguments to new housing development. And here we have a similar kind of sort of dichotomy that emerges. So over 80% of planning commissioners said that planning commissions are only a moderate or a little persuaded by public opposition. While over 90% of developers said that planet commissions are a moderate or a great deal of responsive to or persuaded by public opposition there. Similarly for city councils, again, over 80% of commissioners said that city councils are a moderate or a little persuaded by public opposition while over 40% of developers said that that city councils are a great deal persuaded by public opposition. So again, we see that commissioners perceives themselves and city council to be less responsive to public opposition than what the developer is believe. Advocates perhaps because they're advocates also believe that city councils are fairly responsive to public opposition. So in the over 90% of advocates believe that city councils are either a moderate or a lot or a great deal persuaded by public opposition. The final overlapping question we asked all three parties pertain to planning commission priorities. And as we look at the graph on the right side we actually see that there's a fair amount of agreement among the three groups. Especially on the top priorities, right? So in the panel we see that traffic congestion received the most number of votes in terms of top priorities on affordable housing and received the second largest number of votes in terms of priorities. Which suggests that planning, commissioners, developers, and advocates they're all coming to the table knowing that traffic congestion and affordable housing are going to be an issue. When going through the housing development. The approval process. We also allow every party to write in responses under other. The advocates made the greatest use of this category to write in topics such as gentrification homelessness and housing stability. Again, none of the other parties mentioned this suggest which suggests that this is perhaps a field ripe for the building of mutual understanding so to say. The other kind of cork that emerged was the fact that only developers selected parking requirements. In fact, over 15% of developers that have parking requirements were a top priority for planning commissions neither advocates, nor commissioners mentioned that. So again, perhaps an area for building mutual understanding. Now, besides overlapping questions we also try to capture at least the known barriers and see what their perceptions of are among those barriers among each of the three parties. So the questions didn't quite align, I mean each of the parties that received a different types of questions. And we tried to categorize their responses in terms of different types of barriers and the first type of barrier perhaps, or procedural barriers, right? So in that case we see that over about 30% of planning commissioners said that the approval process takes too long. And that's generally a sentiment that was also visible among the developer responses. And developers also noted a few other issues including the fact that the approval process takes so long. That during the process the planning commissions have staff turnover. They have turnover in planning, commissioners and other issues. So very often the process has to be almost restarted or completely redone due to changes. So there's not a lot of continually within the process. So that's, perhaps an issue. The interesting thing is that about 80% of planning commissioners said that they have enough resources to fulfill their jobs. Although there are some planning commissioners who did say that they would like to have, more time to review documents and things like that. But in general it seems that the process takes long. And if there are procedural barriers it's not necessarily due to lack of resources. One thing that some planning commissioner mentioned were code compliance namely the ability of developers to adhere to code compliance is a barrier for developers. Interestingly, no developer mentioned that. So we wonder if perhaps that's, a blind spot for one of the parties. I'm not gonna dive too much into it. I'm just gonna get perhaps to the biggest declutter here which is the plot on the right. Through our conversations with planning commissioners. There was a theme that arose, essentially saying that there are some planning commissioners who did not believe who may not necessarily believe that there's a housing crisis in California. So we decided to put that to the test. We asked planning commissioners whether they think that there is enough housing just enough housing or too much housing in California or within their jurisdictions. Pardon me. Well we see that about a third of planning commissioners said that there's just enough housing within their municipality within their jurisdiction rather. And if there's just enough housing then there's not as much need I guess or incentive rather to approve new housing developments. So that was a, I think a surprise for us. We also dove into CEQA related barriers. Now, before we talk we would like to mention that we're not opposed to CEQA. I think CEQA does a lot of great things in terms of protecting the environment. Protecting local culture and much more. But it's not a perfect legislation. And there are a couple of issues. There are a couple of themes arise from CEQA. When we talked to developers, this includes mitigation fees 37% of developers mentioned that CEQA, EIR and their arbitrary interpretation is a barrier to CEQA and this involves mitigation requirements mitigation fees that go into approving the project. We also see that 50% of developers mentioned that they had to stop projects due to the impact fees that they were levied by the either planning commissions or a city councils, similarly 50% of developers said that they had to substantially alter projects due to mitigation requirements and then 45% of developers that they had to make substantial cuts to project density. Another interesting element of CEQA is that it allows for essentially any party to sue the developer for practically any reason. And of course there are legitimate lawsuits. And then perhaps there various lawsuits. Within that we see that 37% of developers say that they have to settle a lawsuit during the development process, at least half of the time. And then 54 developers said that they legal challenges to their project ended recent projects. We also asked for the litigants who are the people who sue them. The top suing group were environmental groups including Siarra so forth. Second, most common suing group are neighborhood groups and cities. And then the third most commonly mentioned were labor unions. What's interesting is that none of the commissioners mentioned litigation as an issue for a housing construction. And to be fair, I wouldn't ask specifically I wouldn't ask the commissioner specifically whether litigation, but I think litigation is an issue but there were ample spots for right ends and litigation never came up. So again, an area ripe for building of mutual understanding. Public opposition I think is a fairly, at least anecdotally knowledge issue over 91% of developers said that NIMBYs and BANANAs impede development. What's interesting within this is that advocates at least the ones who surveyed said that they're generally supportive of new housing development. But there's a heavy emphasis on desire for more affordable housing. And within that over 60% of developers mentioned that they were, I guess, regularly pressured by the cities or planning commissions to afford to include more affordable housing. In terms of issues on infrastructure and zoning. We see that 67% of developers say that cities should have By-right zoning to allow for the construction of housing the type of housing that they want. And if you're not familiar with By-right zoning By-right zoning allows for administrative versus discretional approval and a discretional approval involves going through the planning commissions and city councils and administrative approval basically issues. All of that. There are a lot of, I guess political risks and similar issues that come up with the regular approval process. That does not arise when we look through By-right zoning By-right approval rather. What's interesting is when we asked developers they said that only about 12% so that the zoning and infrastructure were inadequate to accommodate city growth, which suggests that when developers are requesting By-right zoning it's primarily to get around the discretionary approval process. Among commissioners we asked similar questions and 71% of them said that there were cities have recently updated their master plan, their zoning, and so forth. So it seems that the cities are listening and they are trying to update zoning to reflect more modern growth projections and things like that. What's interesting and what wasn't quite mentioned among very often by developers and commissioners. Were things mentioned by the advocates namely there were two, right and answers by the advocates suggesting that cities need better infrastructure for transit oriented development. There are a couple of developers who mentioned the need for more transit oriented development or for the need for more multi-family housing development, things like that. And only about 36% of advocates believe that zoning is inadequate. And the final question we try to find a section in a survey, perhaps try to engage how did the COVID-19 pandemic affected the development process? And the biggest question that we asked among the planning commissioners and developers was by how much were the approval processes delayed due to the pandemic. And again, as we saw over the overlapping questions we saw a couple of interesting patterns emerge. Namely 32% of commissioners said that there was no delay in the approval process, which again, short stands somewhat in sharp contrast to the fact that 60% of developers say that the approval process was delayed by six or more months. To be fair, that there is a fair amount number of agreement about 26% of planning commissioners say that the approval process was delayed by six months. So it seems that there is a fair amount of agreement within this field. We also asked if priorities changed within, among planning, commissioners and advocates and planning commissioners and advocates both mentioned that the priorities have shifted towards the construction of more affordable housing. And towards making sure that households are able to have some housing security. So what are the implications for dialogues? We have a couple of themes that arise throughout this. Notably we see that planning commissions are perceived perhaps a city councils and themselves as more favorable to new housing than developers who are advocates for that matter. And that planning commissions generally are a bit more favorable towards new housing than city councils. We also see that when it comes to priorities all the parties generally agree that traffic congestion and affordable housing are a major issues. Finally, there's some agreement that there is need for updated zoning and infrastructure to accommodate growth. Then there are procedural issues such as the planning process being too long and scheduling difficulties. And finally a lot of developers want By-right approvals and some of the city's actually responding by providing By-right approvals if they include affordable housing, for example. And then finally COVID-19 has made everything worse perhaps to no surprise. So that's about it. I'm not gonna dive into future work, but feel free to ask questions and email us if you'd like to know more details. Thank you for letting me present. And I'm going to stop sharing my screen now
Richard Green: Gene, thank you for that very clear presentation. Let me turn it over. And I did look it up. So Bert has been in charge of Shea Homes since 2002. You look at how young he looks and it's just hard to believe that he's had a job that important for 19 years but there it is. Bert thanks for being willing to be a respondent. We look forward to your remarks.
Bert Selva: Thank you, Richard. And I didn't need these glasses 19 years ago. So anyway, it's great to be with all of you. A couple of shout outs, first of all, to CHF for funding. You do great jobs in the community, and this is one of them. I love this scholarships that you provide to kids to go into the state of real estate and home building in particular, also to USC Luskin price schools. I think it's fantastic that you're both working together especially in a metropolis like LA it's a great place to be Gene, Lois and Richard. I thought this was a long overdue study. I thought it was a nice survey. I think there's a lot more to come and I think it's the tip of the iceberg, but it's a really good first start I down notes copiously while Gene was going through it. So let me provide responses to, the survey and then kind of my thoughts on how we got here. And then I'm happy we get to answer questions or Richard, whatever you prefer to do. When I look at it overall the results of the survey are generally very consistent with our experience. You have a lot of good people in the planning commissions and in city councils but the process sometimes doesn't work. And a lot of times it doesn't work and I'll give some examples but with regard to the scenario where the planning commission approves and then it's overturned by the city council, it does happen. And the reason why it happens predominantly is the planning commission. The commissioners are basically looking at a project or new community from a very objective standpoint. Does it meet zoning requirements? Does it meet general plan requirements? Does it meet, various requirements that are pretty objective? And does it hitting the zoning guidelines, et cetera. But when it gets to the city council, it's very different. They're more prone to look at the projects a lot more subjectively. The other fundamental issue that is just a misalignment and why there's gonna be a little bit of difference is planning commissioners are appointed and city council members are elected. And that kind of tells you, you have a little bit of different bosses, so to speak. Controversial projects, sometimes it's as controversial as just building more housing in a community. Our political lightning rods for some city Councilman and councilwomen to get the attention of advocacy groups and to establish goodwill with their electorate. And that is just a fact of life. We're seeing that every day and in politics across the board, it's not saying that they're not doing a good job, but they're balancing that where the planning commissioners are basically looking at more, to make sure that things are done by with the standards that were set before. One of the studies gene that might be interesting to do in the future is looking at what happens during an election year, because we have noticed that during election years, especially for council people, our projects get delayed. And I think I look back on history and I don't know of one pro growth politician that has held a position for any period of time. And we clearly need housing. And I'll talk to reasons about that. So that's my kind of planning commissioner versus city council. The other items notes that I'd taken on a development barriers kind of the elephant in the room is the infrastructure. That is something that is talked about a lot but it's not really defined. I guess I look at infrastructure as streets, roads, schools, water, fire departments those things that are essential to it. And I just don't feel like whenever we go to a city, what we hear quite often is we can't even keep up with our current needs. How are we gonna add more housing? And I look at COVID you touched on that Gene. COVID to me was a perfect opportunity to get out and build the roads. There was nobody on the roads, right? We should have had an emergency plan in many of our cities to stay in the event that this happens. Can we build the roads or start a variety of other projects that are hard to do when it's not COVID time. But anyway I tend to look at things that way. Zoning is another barrier. I just think there's not enough housing supply identified in general plans. We need more land set aside for housing. And that's just a consistent when you look at how under supplied and under built we have been in California the last, decade or so. One of the statistics that I could share with you is that California should be building about 180,000 homes a year, right? I think right now, between single family and multifamily we're probably doing 85,000. If you look at just two cities in Texas, Dallas and Houston those two cities built more homes in 2020 than we had permits or starts in all of California in the entirety of California. If you can think about our population, we've got 39 and a half million people. Texas has got 29 million people. So in two cities, that's not including Austin. It's not including San Antonio. You put those and it blows it out. The point is that we are well under supplied, and I think zoning should take that into consideration. Other issues of the report, the high impact fees is really driving up the cost of what we've built in and doing California for instance, what do we pay on each house? We pay building permit fees. We pay water and sewer fees. We pay school fees, we pay traffic fees, we pay park fees and the list goes on and on. It is significant when I look at the fees that we pay in California per house just for the building permit alone is about $25,000 to $50,000. So say on average $37,500 per permit if you look at our divisions in Las Vegas and Nevada or in Arizona, their average is $7000. So we're at $37,000 in building permit in California. They are in $7000. If you do the math, it's five X and it shouldn't be that much different, to be honest that just shouldn't be the case. So the barriers and costs are creating a housing supply shortage. And thus a tremendous demand for very limited homes and prices are going through the roof. And that's something that we need to be very careful with because what it's doing is it's driving a lot of out migration. We're seeing it. We build across the country. We build in 10 States and numerous markets in each of those states. And I look at our out migration numbers this morning. I was looking at a report 39% of our interest list to buy a home pre-approved in Boise Idaho 39% of those are from California. In Arizona it's 22%. In Las Vegas the number of buyers is a 30% of our home buyers in Las Vegas are from California. And Washington State it's 9%. So there's a lot of people that are leaving. And unfortunately, a lot of those people leaving are not the wealthy they're those working class folks that can't afford a house here that are going to support other economies and other areas. So anyway, it's led to out migration and obviously skyrocketing prices because there's so little supply that's an issue. So those are my thoughts on Genes paper. Let me talk real quick about kind of how we got here, in my opinion. Just at a high level, we had tremendous growth in California from the 1940s to the 1970s. And I think it pushed us. We were so overwhelmed by that growth. It pushed us as a state to a slow growth mentality and that's happened through municipal and statewide entities that govern land use approval and new housing. Well, the pendulum has swung the other way. I think we've gone so far back that, we should be building about 180,000 homes a year like I had mentioned, and we were building 85,000 a year. That's an issue. The other thing that I look at is just the excessive regulation. If you look at the regulation that we deal with today we've got planning groups planning commissions, planning department CEQA regulations environmental regulatory agencies to name a few. And I could go on the list. It goes on and that filter creates additional costs. And what it really does is it creates time delays and in our business time is money and that adds up. Cause you're not a lot of times you're borrowing this money and every day that passes. And when I look at the time for instance just on a simple building permit in Arizona, for instance it takes about two weeks in Las Vegas. It takes about two weeks in California to get a building permit it's anywhere from four to eight weeks. And I don't understand why that is, but that amount of time, an extra month is adds to the cost. So, and the other thing I'd just say it seems like there's a maze of bureaucracy. That's taken over. You've got really good people in commissions councils working in the city offices, but the processes, I just feel need to be picked apart and looked at differently like we would in kind of private industry so to speak. So when I throw out some solutions I'll throw it out just for conversation. First I think we need to realize that we have a problem. And that problem is that we're short on housing and it's creating a lot of issues to the extreme of homelessness, that there are people that can't keep up with the payments and it drives that. And then workforce housing and we're driving people out. So we need to realize there's a problem. Second, we need to define what success is in the process. Is it achieving a certain amount of quotas of approvals? Is it some type of timeframe adherence to that today? There is none, right. It can take as long as it wants. And really the onus is on the developer on that front. Next I'd say redefine the scope of review for every regulatory agency. It feels like there's a lot of agencies that have their hand in the cookie jar. And in the meantime you're getting scrambled around trying to satisfy the needs of all of them. So I think that would be something else. Again, the look at the bureaucracy of the redundant regulations. I think that's something we need to look at. And then I think a big one is introduced technology using artificial intelligence or other forms of technology can take months and months and months worth of processing down to a very short period of time if used appropriately. And I just don't see that happening as much. And that way it was really evidenced to us in COVID in dealing with a lot of planning commissions that even sending over files and those types of things were difficult, but some did great. We now have aerial footage that we could see every week, our progress on land development in communities. And there should be some type of information like that. So with that, I will turn it back, Richard to you to ask anything or lead the discussion as you see fit.
Richard Green: So Bert, thank you very much for those remarks. And let me ask Lois and Gene to turn their cameras on and Dan, for that matter, because I think when I look at the questions that have come through I think the entire group can participate in answering them. Bert the one comment I would make in response to what you said though is maybe the state legislature will be upset enough by the fact that California lost a congressional seat. That, which is I think because it's not that people don't wanna be in California. We know that because house prices keep going up. If the issue were, the people don't wanna live here you would see house prices falling because there'd be vacancy, right?
Bert Selva: Yap.
Richard Green: So you see states like Michigan and Ohio losing congressional seats. Well, that's people leaving. Cause there's there just as an opportunity there. Sorry to say about those places, but that's how they are Pennsylvania as well. And here it's that there's just no place for people to live. And so the way to keep a congressional seat next time around is to make sure there are enough houses that you don't have people fleeing or at least or that they're fleeing in smaller numbers than they are right now. And so since political power and money seems to matter to people, maybe this will be a wake up call I'm not that hopeful, but at least it's something. So let me start working through. So we've gotten a number of really good comments here. Question some of them is their comments but the first one is it's ironic to hear planning commissioners believe they're favorable toward housing. That's simply not my experience. As recently as the last five plan commission meetings I have attended across LA County in the last I'm sorry I just cut off. The last two months on four different project types and sizes. I would love to learn the percentage of plan commission, respondents approval of housing projects to see what is really happening. And I think that would be a great metric to compare with just asking people. So that's another project which will require more graduate students. And so I'm just putting it out there. So we can't really answer that particular question but yeah, it's one thing to say we're gonna approve things and something else to actually do it. From Ben, Tony there's again, a really interesting comment. Oh, and Gene is typing an answer. So Gene instead of typing an answer to it why don't you read the question and answer it.
Gene Burinskiy: I was typing the answer, believing that I knew it. And then it dawned on me that I don't actually. But the question asks 45% said they have recently given density bonuses and this he's referring to planning commissioners of who 45% said that they have recently given density bonuses to projects that provide some sort of affordable housing. Here's that question is or that they give bonuses above and beyond state law requirements are in those compelled by state if the projects qualify. And I guess the one thing that I can say is that the state law has a particular threshold. And I forgot maybe the other respondents. No, I think maybe it's 50% to get a density bonus or something like that. But cities can require much lower levels in order to require or in order to approve a renewal or to give density bonuses. I don't know if Richard or Lois wanna speak more to us.
Richard Green: Yeah. The shape of what you said is correct Gene. I do not remember the particulars of the numbers right now. And again, we didn't parse out that particular answer in our questionnaire. And so it's certainly a question worth exploring in future research on this for sure.
Dan Dunmoyer: If I can just add one-
- [Richard] Yeah go a head Dan please.
Dan Dunmoyer: The question author is correct. There are greater flexibilities here. But it's really interesting question. Do we need more laws in California to change our housing situation? The answer is yes but it's amazing how many laws are already on the book that would address a lot of these issues. but here's the reality of it? The commissioners will say, well, yes we should grant you a density to moments but the pressure we're receiving from the community is to keep these bigger homes, bigger lots and less. So if you wish to litigate this, you'll probably win. That will take you three to five years. And so, but if you'll agree to build less we'll approve it and move it forward. And so you accepted as a builder developer because as Bert said, so accurately time is money. So part of the reality of the fact is there's a lot of good laws in the book books, but, do you wish to go through that fight? Or you wish just to kind of try to get to yes. And that's oftentimes why, people kind of beat us up saying you should build smaller, better homes a better price point and do it more quickly. And you'll see many of our projects like the one that Shea Homes has and Livermore started 20 years ago originally offered it $400,000 is now selling $880,000 because it took 20 years. They had to make all these changes. And that's why Shay homes is selling it at $880,000, even though their original plan 20 years ago was half that price. So that's the challenge you see, it's not that the laws aren't good it's to get to yes. You tend just to not push back and get to yes.
Bert Selva: And Dan, that's a great point and the misnomer is that all that, doubling in price is all coming to us, right? That it's all profit. It's not even close. If you probably look at it we're probably in an 8% to 10% profit before tax. And then probably 4% to 5% after tax. That's a lot of risk over 20 years, we've got a community in Southern California near the water. That's took 21 years to get entitled. And again, it's not saying that we get to go away from it. It's just that when you look at what the intent of a lot of these laws and regulations were they've gotten lost and everybody's used it to kind of increase the cost of housing. Dan, if you could, I would love for you to just talk about just to give the audience here and idea of what's on the books for regulation like VMT in San Diego vehicle miles traveled just to to show the extreme of what we're talking about. Cause I think that's a great example.
Dan Dunmoyer: So vehicle miles traveled is a concept that comes out of Senate bill 743 by former senate leader, Darrell Steinberg. Now the mayor of Sacramento, it's a lot. It says let's put a fee on a home if it results in a commute. So we wanna encourage urban infield and we wanna encourage building up, not out. And so the fee that's being proposed to the San Diego board of supervisors on the 19th of May is if it's more than two from the urban core it's $100,000 added fee. If it's more than 20 miles it's a $2 million per home added fee. And so the idea being if you would just build tall buildings in the urban core you would be able to solve this vehicle miles traveled and greenhouse gas impact the urban core homes that they're suggesting start a roughly one and a half to $2 million. Why so much? Because when you build five to 10 stories cost you five times more than you build a single family or duplex stick structure. So what does it mean? It means you have to be wealthy to live in San Diego if the board of supervisors adopt these things. So that's on top of all the EIR fees of developer fees, bird outline that's an additional fee intending to change human behavior and trying to urge urban infill. Again two miles from the urban core. I would not say as a long commute, probably even take a bus but to add $100,000 per door means that a middle-class family is priced out and they'll move to Arizona or Las Vegas or Boise because they necessarily want to it's they have to. So that's an example of a regulation that's well-intentioned it's goal is noble it's impact means there's no middle class housing in San Diego if the board of supervisors prices.
Richard Green: So here's a question from, an anonymous attendee. There's another question that I think you more or less just answered actually, but it notes that Berkeley has recently ended single family zoning beginning in 2022. And this is something where we've seen it in Oregon. We've seen it in Minneapolis. Do you see this as possibly happening more broadly in California? And I think Lois sort of has her finger on the pulse of Sacramento, but Bert and Dan as well too any anyone wanna take on that question?
Dan Dunmoyer: Lois you wanna jump in.
Lois Takahashi: Yeah so I'm being thrown to the dogs here. So I think a lot of people are paying attention to this whether or not it's gonna have this domino effect. I think it's another question I don't really know what's gonna happen but I think people are watching Berkeley and they're watching the Apple center trying to see what's what the effects are gonna be. So that's, maybe we should study that Richard. include that question.
Richard Green: No, we didn't that's a good question. One of the things that occur that I think people fear that if you do this suddenly their neighborhoods are gonna change overnight. And I understand why people are fearful because I live in Pasadena, in a single family neighborhood that I think would be ripe for duplexes. And certainly people were freaking out about ADU. So no ADU user coming in and turns out there they're totally fine. But in most places, the economics of tearing down a single-family house and replacing it with a duplex or triplex or fourplex just doesn't work. The current house is more valuable than the implicit value of the land underneath the triplex would be. So it's not like you're gonna suddenly have this massive change in five years or 10 years. But there are particular lots where it really makes sense. And in particularly we see tear downs all the time, right? But not particularly productive. As people tear down older, smaller houses and put up newer bigger ones that are big mansions. And it could be that the higher and better use of the tear down is in fact to do a duplex or triplex. And with that, you create affordability in density as opposed to the opposite. Which happens when you put a bigger house on the lot. So what I'm hoping is people will see that this stuff is not that scary and it will be more broadly accepted in the years to come.
Dan Dunmoyer: Just on that, Richard, the legislature in California has been very reticent to push for greater density, obviously Senator Wiener tried to lead the charge last year in SB 50. And it was referred to as a Manhattan visitation of San Francisco, which last time I checked San Francisco's not a small city, and the bill was killed because of the fear of building up and changing the culture and fabric of communities, direct quotes. So there is tends to be a reticence or hesitation to allow for greater density, even perhaps
Richard Green: Changing the culture and fabric of community or lines that white supremacists use to use to keep neighborhoods segregated.
Dan Dunmoyer: That's exactly what Senator Wiener reminded his colleagues those as colleagues from the city of Los Angeles that killed it. Out of that fear, that great concern. So there is not, Berkeley is an example, but by the way Berkeley is not approving any housing projects per se. So that's part of the challenges. A lot of laws, a lot of changes a lot of opportunities are presented, but it really comes down to butch number of how many permits report. And even though the demand-
Richard Green: But let me ask you about that. So Berkeley now has gotten rid of single family zoning. That means it's a triplexus. You can do up to triplexes. I think that means it's By Right. You don't need to get permission. You need to show that the building conforms to the building standards, but you do that. You pull the building permit and you're done right or no?
Dan Dunmoyer: No. That's not that quick. It's not that-
Richard Green: I understand bigger projects, you have CEQA but a triplex is not going to be subject to a CEQA challenge. What is the mechanism where once it's By Right, the process gets slowed down.
Dan Dunmoyer: Generally speaking By-Right doesn't exist in much in the state. One of the questionnaires asked about Senate bill 35, which is a By Right concept where if you do 50% affordable use prevailing wage. We call it a unicorn bill because it requires always seems. So it has been three major projects that have been By-righted and they're in litigation. They have not been built. And this is a Senator bill of four years, five years ago. So again, the concept, unlike the state of Washington, very green, very progressive very normally friendly By-right means By-right. If it's over for 100 homes you'd build 100 homes in California. By-right means that's where you start the discussion. We don't have true By-right. Even with SB 35, those are litigated projects that continue to be sued litigated. Now the developers are winning those lawsuits but how many years is that? Then how much does that cost? And eventually as was pointed out by the survey litigation means half the builders and developers walk away from the project, delay, crushes the project. And that's if you're an entity that's a genius strategy for trying to solve the housing crisis. It's the wrong strategy.
Richard Green: A way to, I forgive the self-promotion, but I made a short video about a month ago on time is money. And just the way to think about it, if suppose that your equity investor, the first hurdle is 8% before the developer gets paid anything. Five years in, let's say land is half the value of a construction project. Five years you're looking at with compounding about a 25% increase in cost, just because of the weight has nothing to do with materials, nothing to do with labor just because of the way.
Bert Selva: Just to that point, you know that I totally concur with Dan. There's nothing I see that's By-right. But think about your example of in Berkeley you do a triplex on the building. Then you get the neighborhood community coming in and saying, well, I don't like the architecture so I want that to be changed. And how many people are gonna live there and what's the size of it. And you could say that all you want it gets back to my point of the planning commission could say it's checked all the quote By-right boxes but now you get the city council. That's getting lobbied by everybody. That's when the rubber hits the road. And it's not as easy a process as it may seem.
Richard Green: So I really good. I'm Lois, go ahead.
Lois Takahashi: Oh, I was just gonna read because we're coming up to the top of the hour. I just wanna make sure we got down Meyer's question.
Richard Green: And I was just going to do that. Go ahead, Lois. Do take it away.
Lois Takahashi: So I'll put this out to everybody on the panel, Dowell Myers who's a very famous demographer and USC price asks does building in the urban core encounter greater resistance than suburban development.
Dan Dunmoyer: Answers is yes. And that's our challenge as builders. So the leadership of the legislature of supporting research governor's office, much of the environmental community is asking us to do the urban core and Dr. Meyers is raising. But that's where we receive the greatest litigation for CEQA. We have a joke that NIMBYs CEQA cows don't. The reason why I mentioned cows is if you go into the greenfields where cows are. There's less litigation or environmental quality but that's not where the environmental community wants us to build when you go into the urban core and you start saying, Hey we could build a five story building here. The neighbors wake up, they bring in CEQA. They bring in mitigation, everything Bert said about we don't like the design and we want a different architecture. We want some it looks more like 1910 and 2020. That's where you get to delay the litigation and the other complex. So we have the schizophrenia. We want you as a building community to build in the urban core, but we have the most litigation there. And then in the Greenfield space we don't want you to build out there but that's one where the demand is especially post COVID. People want a single family detached a little tiny backyard. So their three-year-olds not screaming on the seventh floor of an urban infill apartment in San Francisco. So you have this consumer demand versus political direction. And these are worlds that are colliding. It's a policy schizophrenia with the markets schizophrenia. So we are asked in an urge to build in the urban core VMT encourages that but that's not what the neighbors want.
Richard Green: I'm sorry Bert go ahead.
Bert Selva: I just said, well well-put and then you get into the cost side of it. And with all those delays and then what it costs to do in an inner city that are in the inner core, it becomes prohibitive.
Richard Green: So I think perhaps the most important reform we could have in California is to make By-right development, which means if you have the use and if you have the bulk, and of course you meet building codes, it really is By-right. And I tell the story. I lived in Madison, Wisconsin for many years a very liberal, very environmentally conscious city. I was on the plan commission for Madison and By-right men, most stuff didn't come to us. It was ministerial. If you conform to zoning you went to the planning office, you brought the plans. And within a week you add an answer, yes your plans conform to zoning, or they don't. And on UN and our entire jobs plan commission and the city council was to approve conditional use permits which were very transparent, what they were and what the standards were for approval or disapproval. Or full rezonings. And otherwise the zoning was the zoning. And you got to do what the zoning said you got to do.
Bert Selva: Yeah. Richard, pretty much most everywhere else we built. That's kind of how it is. And it's just builders. I know from other parts of the country just think we're crazy for building in California, cause they just say, I don't even understand it. It's like a different planet and it's different. One of my peers I love his comment when asked by a politician. Well, why aren't you building homes affordable homes for Californians? His remark was we are they just happened to be based in Las Vegas and in Phoenix.
Richard Green: And with that happy note you've reached the top of the hour. I'd like to thank my partners in this endeavor Lois Takahashi and Gene Berinsky. I'd like to thank Dan and the BIA for actually it's this California Home Building Foundation for supporting this research. Bert, thank you for your very thoughtful comments. Thank you everybody for coming and we'll see you again.