California’s housing landscape is ever evolving, meaning the rules and regulations that support a healthy housing market need to be constantly re-assessed. In 2020, the biggest obstacle confronting housing is the current inventory shortage, especially in the low tier where first-time homebuyers typically break into the market. The change on the table: adapting density and permitting rules to cure the shortage.
For example, consider California’s most populous city, Los Angeles. From the 1940s through 1990, development was fairly mixed, consisting mainly of SFRs and smaller multi-family dwellings. The direction of development was outward, creating today’s sprawling city (and infamous traffic problems).
But the past two-to-three decades have seen very little growth. Since the city has reached its horizontal limits, the only way to grow is up. Thus, the little growth that has occurred has been in the form of occasional large multi-family developments, according to a recent Zillow analysis. That being said, Los Angeles’ housing situation has remained largely the same in recent years, with very little growth.
During the 2000s, for every one new construction unit built in Los Angeles County, the population grew by two individuals. Considering the average household size fluctuates around 2-3 people, this rate of construction is fairly appropriate for a healthy housing market.
But in the years that followed, from 2010-2017, the average annual ratio was over twice that. For every new construction unit started annually, the population grew by 4.1 individuals in Los Angeles, according to the U.S. Census Bureau.
As a city stretches its boundaries further and further, problems get bigger. These include more traffic, longer commutes to city centers and more pollution. In Los Angeles and other large metros, the construction shortfall has led to record-high rents — the average Los Angeles renter is forced to spend 46% of their income on rents in 2019 — and record levels of homelessness.
Since metro areas can’t continue to build out indefinitely, increasing density is the only way to ensure the housing stock keeps up with a metro’s growing population.
Yes, in my backyard
Laws allowing for greater density have been slow to take hold here in California and across the U.S. That’s mainly due to vocal not-in-my-backyard (NIMBY) advocates who don’t want to see their “neighborhood character” jeopardized with an influx of residents.
These barriers to density are in fact barriers to economic growth and a more stable housing market. When NIMBYs win, it places real estate professionals in the position where they need to compete for a handful of listings in a given neighborhood, even when demand is high.
In turn, homebuyers are forced to either pay high market value or abandon the search in their desired neighborhoods. Sellers are hesitant to place their homes on the market for fear of being unable to find suitable replacement property in their neighborhood or budget, keeping inventory further in check.
The solution is so simple: more housing! first tuesday has long advocated for increased density in desirable areas that are:
- close to jobs, which means shorter commutes; and
- near public transit, to relieve parking requirements which take up precious land.
The good news is that legislators are aware of the issue, and the solutions. Several new laws have been passed since 2018 aimed at increasing the housing stock, especially of low- and mid-tier homes. But more help is needed at the grassroots level. The loud voice of NIMBYs needs to be countered by reasonable calls for density in California’s urban cores. As real estate professionals, you are ideally placed to both see the problem and voice the solution.
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