California Housing Trends: Past, Present, and Future Outlook

1. California Housing: Past, Present, Futures John D. Landis Crossways Professor of City and Regional Planning University of Pennsylvania UCLA Lake Arrowhead Symposium October 12, 2007

2. ‘there are no future facts and no past possibilities’ Robert Sherrick Brumbaugh, 1966

3. Outline • How Many Homes? For Whom? • How Many Homes? Where? • Alternative Housing Futures • Meeting the Challenge

4. Outline • HOW MANY HOMES? FOR WHOM? • What’s Old: Raising the Roof Revisited • What’s New: Raising the Roof Reappraised • How Many Homes Where? • Alternative Housing Futures • Meeting the Challenge

5. Raising the Roof Revisited 2020 Projections • 220,000 new homes needed each year (through 2020) to keep pace with projected population and household growth. • Assuming some slowdown in population growth or reduction in household formation rates, California would still need an average of 190,000 new homes each year through 2020. • Southern California will continue to be the epicenter of the state’s population growth and housing production needs. • For demographic reasons, most new California households will be strongly inclined toward homeownership.

6. Raising the Roof Revisited Land Supplies & Infill • Except for Los Angeles and Orange counties, California should have enough raw land to accommodate projected housing growth through 2020. • Additional environmental protections, especially Endangered Species Act protections would sharply constrain land supplies in Santa Clara, Alameda, and San Diego counties. • Infill activity and residential densities on the upswing—but unevenly so. • Much of the infill housing constructed in the 1980s and 1990s occurred with local RDA help. What of the future?

7. Raising the Roof Revisited Regulatory Constraints • California’s entitlement process is the nation’s most complicated. • Throughout the 1980s and 1990s, the balance between planning (GPs) and permitting (CEQA) tipped to permitting. • This made it much easier for communities and local residents opposed to growth to get their way. • Nonetheless, those communities interested in accommodating new housing production were able to keep the times and costs of the entitlement process in check.

8. Raising the Roof Revisited Finance, Fees, and Housing Assistance • Mortgage money should remain “plentiful” for the foreseeable future. • Low mortgage interest rates will make ..[increased lending to moderate-income households, members of ethnic and racial minority groups, and to center city neighborhoods]…. especially attractive. • Rents in many California markets are below the levels required to attract investor capital. • The higher levels of risk associated with land development [in California] may make it difficult for land developers to find investors and financing.

9. Raising the Roof Revisited Finance, Fees, and Housing Assistance • California municipalities will have no trouble issuing special-purpose debt, but continuing difficulties issuing general obligation bonds. • As California municipalities continue to increase their development fees, they risk aggravating affordability problems. • If there is no comparable increase in housing assistance levels, the number of low-income households needing some form of housing assistance could rise to about 3.7M households by 2020, an increase of 1.3M households.

10. Raising the Roof Revisited A Prospective Housing Shortage? • By one calculation, housing demand exceeded production by 500,000 units during the 1990s. • Such shortfalls are likely to continue, although not necessarily at the same magnitude. • If they do continue, they will put further upward pressure on housing prices and rents, lead to increased cost burdens, depress what would be a large increase in homeownership, further lengthen commutes (already the nation’s longest), and worsen over-crowding.

11. Raising the Roof Revisited Policy Challenges & Suggestions • CA: Increase the supply of financing to providers of affordable rental housing. • CA: Find ways to increase infill housing production, especially in Southern California, and especially in Los Angeles County.. • CA & Local: Rebalance the planning and permitting processes. • CA & Local: Expand the use of special district/assessment district financing for municipal infrastructure. • Local: Revise impact fees to categorically exempt affordable housing • Local: Consider adopting minimum density requirements where appropriate. • Builders: Make your product better: stop turning out cookie-cutter homes and subdivisions; start building communities.

12. WHAT’S NEW? Meanwhile, Back at the Ranch…. • Continuing low mortgage interest rates: • Enabling many more Californian’s to become homeowners: 6.5M (2000) to 7.1M (2006) • Accelerate the long-awaited recovery of the Southern California housing market. • Produce a speculative construction boom, especially in Sacramento and the Central Valley. • Housing prices continue rising everywhere. • Rents rise accordingly:$750 Median in 2000, to $1,029 in 2006 • National, publicly-listed companies continue to dominate the homebuilding business.

13. WHAT’S NEW? Meanwhile, Back at the Ranch…. • California voters approve two large housing bond issues: • Proposition 46 (2002): $2.1B • Proposition 1C (2006): $2.8B • A combination of growing demand and builder interest invigorates the infill condo market. • All of these factors push up annual housing starts: from 148,000 in 2001 to 209,000 in 2005 (starts fall back to 163,000 in 2006) • COGs and MPOs embrace expanded infill development as the central element of their regional blueprint plans: • ABAG Smart Growth/Livability Footprint Project, 2002 • San Diego County Regional Plan, 2003 • SCAG Compass Project - 2% Strategy, 2004 • SACOG Blueprint Project, 2005

14. WHAT’S NEW? Demographic Changes Updated, slightly lower population forecasts from CA DOF (2007) New analysis of household formation rates by PPIC (2004) showing continuing declines

15. WHAT’S NEW? R-t-R REAPRAISED • Reduced Production Needs: 150,000 to 175,000 per year. • Increased Housing Production: 183,000 per year since 2001, up from 110,000 per year in the 1990s. • Housing demand becoming more bifurcated, between long-time equity-rich homeowners ready to move up; and recent arrivals—especially immigrants—who are less and less able to pay rising housing prices. • Land Supply and Entitlements: Rising prices enable large public builders to pay top dollar for raw land and infill sites, temporarily ameliorating land supply issues, and enabling them to cope with still-rising entitlement costs. • Housing cost burdens worsen: • 2.3M homeowners with 35%+ cost burdens in 2006, up from 1.2M in 2000. • 2.1M renter HHs with 35%+ cost burdens in 2006, up from 1.7M in 2000. • Federal, state, and local subsidy programs fail to keep pace.

16. Outline • How Many Homes? For Whom? • HOW MANY HOMES WHERE? • Greenfield vs. Infill Shares • Infill Options • Preferences • Trends Extrapolated • Alternative Housing Futures • Meeting the Challenge

17. HOW MANY HOMES WHERE? Riverside, San Bernardino, Ventura CC, Marin, Napa, Solano & Sonoma El Dorado, Placer, Sutter, Yolo, Yuba LA, Orange, San Diego Alameda, SF, SM, Santa Clara Sacramento Source: 1990, 2000 Census; American Community Survey

18. HOW MANY HOMES WHERE?INFILL OPTIONS: Opportunities, Potential, Feasibility

19. Infill Definitions …. Infill sites are: • Currently VACANT PARCELS (no significant structure). • IMPROVED PARCELS in commercial, industrial, multi-family or other uses for which the improvement value is less than the land value (ILR < 1.0). • IMPROVED PARCELS in single-family use for which the improvement value is less than 50% of the land value (ILR < .5).

20. Infill OPPORTUNITIES: Inventorying Sites Steps • Obtain and clean assessor’s parcel data. • Identify vacant and underutilized parcels. • Geo-code vacant and underutilized sites. • Identify sites by “Infill Counting Areas” • Exclude undevelopable sites. • Count infill parcels and acreage by county, city, census tract, and counting area.

21. California’s Infill Inventory: Statewide Totals

22. How We Estimate Infill Housing Unit POTENTIAL Current Parcel Size in Acres Estimated Infill Housing Unit Potential Neighborhood Appropriate Density Factor Initial Block–Level Net Density = x x From Infill Inventory From 2000 Census or COG Land Use Maps Based on parcel & neighborhood land uses and densities; and transit service quality

23. Neighborhood Appropriate Density Factors

24. Infill Housing Unit POTENTIAL: Statewide Totals

25. Potential Infill Housing Units by Transit Type and Service Quality for Selected Counties

26. INFILL FEASIBILITY Starting with a Maximum LICA Potential of 4 Million Units - Financial Feasibility - Cumulative Community Character Impacts - Affordable Housing and Displacement Issues - Economic Development Pre-emption - Physical Feasibility: Small and Irregular Lots - Inconsistent with Current Zoning End up with 1 – 1.5 Million “Currently” Feasible Units Most binding Least binding

27. HOW MANY HOMES WHERE? Factors Strongly Associated with Recent Moves to Central City, Inner Suburban, and Fringe PUMAS

28. HOW MANY HOMES WHERE?THE NEXT 100 YEARS…….?

29. 100 Year Projection: 10 Million New Californians Every Generation Source:

30. Factors Explaining Urban Development, 1988-1998

33. Projected Urban Growth Threats to Environmental Landscapes, 1998-2100 Source:

34. Outline • How Many Homes? For Whom? • How Many Homes Where? • ALTERNATIVE HOUSING FUTURES • Where are the Jobs Going • Development Drivers • Alternative Visions • Meeting the Challenge

35. ALTERNATIVE FUTURES Riverside, San Bernardino, Ventura LA, Orange, San Diego CC, Marin, Napa, Solano, Sonoma Alameda, SF, SM, S.Clara Source: Estimated from zip code-level tabulations of County Business Patterns establishment data

36. ALTERNATIVE FUTURES:Density and Development Drivers

37. Outline • How Many Homes? For Whom? • How Many Homes? Where? • Alternative Housing Futures • MEETING THE CHALLENGE