Affordability Requirements To Reduce Market Rate Deliveries.
California is facing a housing crisis that has reached alarming proportions: demand is far outstripping supply, driving prices up and keeping far too many working Californians from becoming first-time homeowners. The lack of supply and the resulting affordability challenge is having serious impacts on long-term homeownership in the Golden State.
According to US Census Bureau data, the national homeownership rate for the fourth quarter of 2015 was 63.8%, while California’s rate for the same period was below that, at 54.1%. Furthermore, analysts expect California’s homeownership rate to stagnate below its historical rate of 55% for years to come due to a dearth of supply and prices exceeding average incomes. If the state does not start to address the home affordability issue, businesses will forfeit competitive edges as housing costs and availability act as impediments to attracting and retaining workers, says analyst reports.
Reports by the nonpartisan Legislative Analyst’s Office (LAO) and Beacon Economics commissioned by Next 10 consistently identify the lack of supply as the primary reason that California has some of ‘the most expensive housing prices in the country. There are other far-reaching impacts that California’s housing shortage is prompting, including blocking the ability to retain lower and middle-income wage earners, pushing homeownership out of reach for working families, and making it more difficult for workers to build wealth, i.e. increasing poverty.
Both the LAO and Next 10 identify a number of factors for why housing supply is not keeping pace with demand. These include the California Environmental Quality Act (CEQA) which has been used to stop development projects rather than address real environmental concerns, costly regulatory mandates, community opposition, and lawsuits, local finance and land-use policies that favor nonresidential development and work against increasing densities.
In light of this, the report says California policymakers would be well advised to advance policies that have a significant impact on increasing the supply of market-rate housing, controlling costs, reducing regulatory barriers and allowing the market to respond to demand. Both the LAO and Next 10 recommended that adding significantly more private housing stock, up to an additional 100,000 units annually, to what the market is already providing could meaningfully address the housing affordability problem for many Californians.
One person who shares this view of the housing shortage is Garrett Frakes, managing director of Polaris Pacific, who says we are far from peak supply.
Frakes tells GlobeSt.com: ‘San Francisco is currently experiencing a housing affordability and supply crisis. Our mayor and members of the board of supervisors have stated that. The San Francisco Planning and Urban Research Association has stated that. The Association of Bay Area Governments has stated that.’
Polaris Pacific says from 2010 through 2015, approximately 100,000 new jobs were created in San Francisco but during that same time frame, only 10,000 housing units were produced. In 2015, there were 1,320 apartments units completed and 1,291 condominium units completed. When measuring how many months it would take to absorb current supply, Frakes says six months is considered a balanced market, while nine months or more is considered an oversupplied market.
Frakes tells GlobeSt.com: ‘We’ve been woefully undersupplied in terms of housing throughout the entire West Coast for the past five years. There is a three-month moving average of supply going back to 2008. ‘We’ve remained below the six-month benchmark since 2012. The most recent figure was 3.9 months.’
There are 2,560 new condominiums currently under construction in San Francisco. Lumina, which began construction in June 2013, has 512 of the under construction units, and 350 are in Mission Bay Block One, which began construction in 2015. In addition, a sizeable number of condominium projects were entitled and could begin construction in the near future.
While new construction condominium deliveries are beginning to make an impact this year, future new condominium deliveries remain low by historic standards, because the supply is already sold, therefore, inadequate to meet the city’s for-sale housing needs. And, proposed increases to the city’s affordability requirements will reduce new market rate condominium deliveries in the future, Frakes says.
He tells GlobeSt.com ‘We are making progress toward getting back to normal but we’ve forgotten what that is. We need more housing in every category. We also need to work toward predictability for buyers and sellers because it allows developers to understand where buyers are coming from.’