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The Search for Affordable Housing – Part 2

So last month we talked about the critical shortage of housing in California, particularly affordable/workforce housing, which is contributing to the significant ramp up in year-over-year prices for existing home. We also explored the escalating cost of new home construction predicated on lumber prices and shortage, at least partially a self-inflicted wound in California’s case.

But today we’ll explore another facet of our housing problem – namely fees and entitlement costs together with what is probably the biggest single hurdle for housing construction in the state, CEQA, the California Environmental Quality Act.

In brief, developers face a plethora of costs inherent in the building process. There’s the cost of land acquisition, the basic building block of any home. You’ve got to have a parcel of land to build a single or multi-family home. Developers usually buy in bulk prepared to build anywhere from a few dozen to a few thousand homes, or a large condominium or apartment complex. That’s the start of the process.

Keep in mind that a developer faces a myriad of fees and costs during the entitlement process, the up-front work that needs to happen before they can do any work. These fees are typically imposed by the city, county and state and carry various names like Riverside County’s TUMF (Transportation Uniform Mitigation Fees – to help with road and other transit infrastructure); DIF (Development Impact Fees – a city-imposed fee typically used to finance a wide variety of public facilities like sewer, water, parks and roads); Service fees, School fees, Development Agreement fees, ancillary water and sewer fees and a host of others. These fees can add as little as $70,000 to the cost of a home in Riverside County to over $200,000 to a home in La Jolla or Fremont.

As if that’s not enough, a developer is also tasked with preparing an EIR, an Environmental Impact Report. That has to satisfy everybody up and down the line that the development won’t significantly harm the environment, that carbon offsets are in place, that there is adequate water and other services to meet the need, that there are no endangered species, tribal lands or other negative impacts to the property or on nearby neighbors, and that they meet increasingly onerous and costly GHG (Greenhouse Gas) standards mandated by Sacramento. This all has to be approved under CEQA before you can do anything else.

When CEQA was passed in 1970 and signed by Governor Ronald Reagan, the goal of environmental protection was admirable and much needed to ensure future generations the right to well-planned, clean, healthy development. Unfortunately, in the intervening years CEQA has become the refuge of scoundrels and NIMBY’s, invoked to stymie development, drive up litigation costs and ultimately derail otherwise worthwhile projects. We’ve seen CEQA deleteriously used in our own communities numerous times to either kill a project or, in many cases, simply threaten to sue under CEQA unless a ‘fee’ is paid to a complainant so they’ll go away.

It’s not what the program was intended for, but it’s what it’s become. Every year there are efforts in Sacramento to reform CEQA, to return it to the lofty purpose for which it was intended, but they never go anywhere. The environmental lobby is very powerful, and thanks to the not inconsiderable gains from their numerous litigations, they rank right up there with the public unions in calling the shots for their minions in the legislature. Unless you’re building a stadium in, say downtown Sacramento or Inglewood, your chances of getting a CEQA exemption for your project is slim to none, and slim left the building.

CEQA is why it can take 15 years or more to add a lane to a freeway, a decade to add a much needed water line, why no new dams can be built, and why California homebuilders simply cannot build what many would consider to be an affordable entry level home. It’s why a median level home in our community will now set you back close to $600,000 and an average home in California now costs $758,990.

As we well know, supply = solution, but CEQA keeps that supply spigot ratcheted down tight. So don’t hold your breath that we’ll see any much-needed construction anytime soon. Certainly not enough to offset the demand. There’s really only one way we’ll get back to anywhere close to affordable housing in California. We last experienced that back in 2008 and, as much as we don’t want to see it again, you know it’s coming at some point. There’s only one way off that California roller-coaster.

Next month we’ll talk some about why you voted to increase the state coffers by $1 billion a year on the backs of your kids and grandkids, and why a few legislators are trying to fight for you.

Gene Wunderlich is Legislative Liaison for the Southwest California Legislative Council, a business advocacy coalition for Southwest Riverside County.

Written by Gene Wunderlich, Sr. Staff Writer

Gene Wunderlich is the Government Affairs Director for Southwest Riverside County Association of Realtors. If you have questions on the market please contact me at GAD@srcar.org or to keep up with the latest legislative and real estate trends go to http://gadblog.srcar.org/.

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