Mar302015

Affordable housing in California requires ignoring the NIMBYs

Curbing the power of NIMBYs at local government is essential to providing more housing to alleviate shortages in California.

California house prices are high relative to the rest of the nation for two reasons, one fundamental, and one not. First, California wages are higher than most of the rest of the nation, so people who live in California qualify for larger loans and use those loans to bid up prices — the fundamental reason. Second, California has a chronic shortage of housing, which forces buyers to compete with each other for the available housing stock — a reason that is not fundamental, but political.propert_ladder_pressure

The market for housing in most of the United States is much more stable, and house prices are much less inflated because the local political system does not restrict new home development near as much as it does in California. As soon as house prices rise above the cost of construction in the rest of the country, builders respond by building more houses and selling them for a profit. In California builders are not allowed to do that, so shortages persist, prices get inflated, and everyone suffers a diminished quality of life because they must substitute down to a lesser quality home.

The problems with chronic shortages, inflated house prices, and the substitution effect to lower quality housing is a direct result of the development approval process in California being 100% in the hands of local politicians. In California no State or regional entity has the power to mandate that any local political body must provide sufficient housing to meet local demand. Further, since local governments are highly dependent upon commercial and business tax revenue, they are always keen to zone for more commercial than residential land uses, which in turn creates imbalances between the number of jobs and the number of available housing units.

The only way California will ever have housing that’s affordable in a free-market, non-subsidized way is to shift some power away from local governing bodies — a course of action that will not be popular on the local level. This could take the form of direct approval override of local governments by a State or regional decision-making body, or it could take the form of mandates for development. In whatever form, some State or regional body must be given power to stop NIMBYs from lobbying local government officials to stop development that benefits everyone.

How to fix Silicon Valley’s housing crunch: Increase regional power and stifle NIMBYs

Greg Baumann, Editor in Chief- Silicon Valley Business Journal, Mar 26, 2015, 7:25am PDTAmerican_dream_the_money_pit

Silicon Valley is experiencing a housing crisis, and leaders should seize the moment to take emergency action to address the problem

Ask business leaders how big a problem high housing prices are in Silicon Valley, and you’ll get different answers from different kinds of CEOs. In sum, the smaller the company, the bigger the problem.

So what’s to be done? One option is to do nothing. The surging economy will eventually correct itself into a downward spiral, and most people left with a job again will be able to afford a home.

Alternatively, the Bay Area could take an aggressive approach to constructing enough new housing inventory to match demand. The laws of supply and demand indicate that’s the only solution.

The only long-term solution to California’s housing problems is to increase supply. How this is accomplished is less important than accomplishing the task. If more supply is not added, people will continue substituting down in quality to obtain a place to live. This downward substitution effect lifts house prices at every level of the housing ladder and prices out the lowest tier of the housing market. California is already the least affordable housing in the US, and this problem will only get worse.

But it isn’t that easy. The California Analyst’s Office recently found that resistance from local communities is a primary impediment to creating new housing.

lowly_renterNIMBYism is the primary cause of all California housing shortages because everyone wants to be the last person who moved into their neighborhood.

Whenever someone buys a new house, the only reason that house exists is because there was not a local opposition group strong enough to prevent its construction; however, once a new homeowner moves in, many immediately adopt the belief that traffic congestion is out of control and any new development will ruin the character of their neighborhood, so they band together to prevent others from obtaining the benefit they get to enjoy. The hypocrisy of this attitude and behavior is completely lost on them.

What makes matters even worse is that once these local development opposition groups get entrenched, their success inflates house prices in the area and gives the NIMBY owners the added benefit of inflated house prices, house prices that were affordable when they moved in because the NIMBY group was not strong enough to prevent their house from being built.

To solve that problem, veto power over local planning decisions that have harmful regional effects must be granted to regional authorities. Of course, legal opposition from local groups is also an impediment that must be legislated into rational dimensions.

The only way to solve the NIMBY problem is to take away their ability to block new development.

This is not to say local communities should be stripped of local determination. Rather, local decision-making authority must be calibrated to account for regional needs. Where local decisions force negative effects onto their neighbors, regional considerations must outweigh micro interests.

This could be accomplished by mandating a certain number of housing units, mostly likely linked to the quantity of commercial and industrial space in the area to match job creation and housing opportunities.deforestation

This does not mean unleashing developers to build pell-mell with the same disregard for smart planning that turned Silicon Valley into what it is today: A sprawl lacking in urban amenities, connected by clogged freeways. …

If implemented, developers would shift their lobbying to this regional authority, and this authority would likely be “captured” by the developers they are supposed to regulate. Keeping this regulatory body independent would be a significant challenge, and it might doom the whole idea.

The principles articulated here (curbing the power of Not-In-My-Backyard obstructionists and requiring local jurisdictions’ housing decisions to take into account regional impacts) aren’t new. But the need to make them priorities and carry them forward is acute.

California may never have affordable housing. It certainly won’t as long as all development approvals are 100% determined locally. The problem of NIMBYism and the desire of each homeowner to be the last person to move into their neighborhood will cause this problem to get worse and worse over time.

The Bay Area is where these problems are the most acute, and any real action to solve these problems will likely start there. If something is not done, home ownership will be relegated to only the wealthy and the highest of high wage earners in the area. Everyone else will be transitory renters who overpay for housing and never get ahead, at least until they give up and move out of state. The American Dream will truly be dead.

death-of-home-ownership

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