Tuesday, April 04, 2006

A few more homes

In the Capital Region 77,000 new homes have been built and sold since 2001. But wait, there’s more………..In Rancho Cordova, thirty thousand additional homes are either under construction or approved to be built, another 21,000 are in the pipeline in south Placer County and 7,800 in Elk Grove. But wait, there’s more…..According to a report released earlier this month by the California Building Industry Association (CBIA) there are 128,000 new homes in the planning stages for the Capital Region and the CBIA says that’s still isn’t enough. So what’s up with that?

The CBIA study “Homeownership in California” (www.cbia.org) discusses the disparity between the homeownership rate in California, presently at 57 percent and the higher national ownership rate at 70 percent. The builders believe adding another 62,000 homes to the 128,000 already in the pipeline, will increase the percentage of homeowners and life will be beautiful. I am not so sure.

The study points out the many social and economic advantages of home ownership. A society of homeowners is usually more affluent, better educated, employed, and pay more taxes than renters. Thus the logic that more is better. The average price for a new home in California is $300,000 more than most anyplace else, contributing to our lower percentage of homeowners.

While it’s true that California is near last in the nation (in the company of New York, Hawaii and Washington D.C.) in our percentage of families who own their own home, I am not convinced that building another gazillion homes is going to increase that percentage significantly. The price of a new home, not the number available for sale, determines affordability. California also has some unique demographics not found in Alabama, Minnesota, and Indiana, a few states with higher than average homeownership rates.

The Capital Region already has a higher percentage (62 percent) of homeowners than does the rest of the state. Our regional percentage would be even higher without Sacramento since both Placer and El Dorado counties have 65 and 70 percent homeowners. Our region actually has a higher percentage of homeowners today, albeit with higher home prices, thanks to Placer and El Dorado County than it did in 1994 when the ownership rate was at 59 percent.

The report does a good job of pointing out that it’s more than lumber and labor that make up the cost of a home. The additional environmental, legal expenses, fees and permits contribute to our high cost of housing. The builders make the argument that if there were fewer obstacles to building, the price of their product would be less and “presto” another 1.6 million people would be able to afford to buy a new home.

The building industry has a legitimate beef. They continually face over zealous regulations, excessive litigation, costly building permits, impact fees, restrictive zoning and bureaucratic delays before the first shovel of soil is displaced. The substantial environmental and impact cost, however, is not absorbed by the industry. It is passed along to the eventual homebuyer

If all environmental and government restrictions were lifted on new developments, it would reduce the development costs but there is no guarantee that the average price of a home would be any less and certainly not by the $300,000 difference between here and Kansas. Other economic principals besides the actual costs of production play an important role in determining value.

If the social impact of growth is to be paid, then it will either come from the specific development and/or everyone collectively. The builders are pointing out that the high development costs are preventing affordable home ownership. They are right but their solution of immediately building another 200,000 homes in the region is too simplistic. We are having difficulty enough solving the social and environmental problems caused by the people already here. Maybe, we should work on a few solutions first before the next construction boom.

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