Limit Issue Driving Up Home Prices
There has to be an intelligent choice between the chaos of unbridled growth and heavy-handed restrictions and growth controls.
In the continuing statewide turmoil over this issue, the principal losers in the battle include the virtually voiceless, mostly young would-be home buyers. Defining the winners can become a little murky.
Paradoxically, the present surge of home buying, camp-outs and lotteries continues unabated as mortgage interest rates remain comparatively stable.
Realtors tell us it’s not unusual now to take their prospective buyers in tow, quickly make the rounds of certain homes for sale, and to avoid the “loss” of a house, urge the client to make an offer on the spot.
This hurry-up approach, coupled with the present buying mood, adds a new dimension to the usually emotional experience most people have when buying a home. It becomes an open house of another sort--an open invitation to push up the listed price.
Some recent sales have left sellers aghast--and very ecstatic--over the selling price and what the traffic will bear. Sellers are gleeful over the price and the buyer appears to be happy, having “won” the fight to buy the sought-after house.
Many sellers have conceded that they would be “embarrassed” if the buyer knew that the house could have been purchased for much less. The buyer’s broker knows the price has been inflated, but the seller doesn’t want the “buyer to feel bad,” as one housewife said after the close of escrow of her home at a price six figures greater than the original listing.
In that euphoria, sellers become much less guarded about the sales price. It’s no longer “You wouldn’t believe what it sold for!” They tell you what it sold for.
This surge of buying is a preface to the expected tightening of construction and development issues and is tied to the belief that buying now is wiser than buying when the supply becomes limited.
“Growth-control limitation on housing construction, a predominantly Southern California phenomenon now spreading to other parts of the nation, consistently produces winners and losers,” says Eric Heikkila, an economist and assistant professor at USC’s School of Urban and Regional Planning.
“The benefit to existing property owners may well be a motivating force behind the growth-control movement. Nevertheless, growth-control ordinances and ballot measures often win communitywide endorsement because of legitimate concerns about the harmful effects of unrestrained development.”
Heikkila, a principal investigator at the university’s Lusk Center for Real Estate Development during a recently completed study commissioned by the Riverside Citizens for Reasonable Growth, said growth controls have an immediate impact on housing affordability in the area.
Middle- and lower-income people tend to be squeezed out of the home purchasing and rental market as a consequence of the law of supply and demand.
“When the supply of housing is restricted, prices must rise in order to clear the market,” he said, adding that slow-growth measures “redistribute wealth in favor of homeowners and landlords at the expense of tenants and would-be homeowners.
“The losers become voiceless in this case,” he said, while the wealth gap increases.
The attitude of the home buyer changes once he or she becomes an owner. In its new way of life, the family wants to keep the area or neighborhood as it is, to enjoy the better schools and parks and other community facilities. Settled neighborhoods have an entrenched reaction when changes are suggested to alter the status quo, he said.
As for paying for the development fee add-ons passed along to the buyer by the home builder--fees for roads, parks, libraries or fire stations--it becomes looked upon as a “club membership,” Heikkila said.
The buyer doesn’t get any more square footage in the house but those add-on fees provide the buyers with adjoining and necessary amenities. For the builder, who knows he wouldn’t be able to build homes without those fees, it has become a way of doing business. Builders have estimated that required levies, passed along, can add close to $20,000 to the total purchase price of a new California residence.
“Restrictive review processes tend to work against the smaller or newer developer who does not already have a substantial stake in the community, who has, so to speak, no pull at City Hall,” he said.
“The community ends up with a development industry concentrated in the hands of a few, very large operators. As a result, there are fewer competitive forces to keep housing costs down and the costs rise even higher.”
He cites two principal reasons for the anti-growth sentiment:
“First, people in the community fear that growth will change the physical and/or cultural environment to which they are accustomed. Second, growth undeniably puts pressure on the community infrastructure--of transportation, schools, water.”
But people and communities don’t have to choose between “potential chaos” of unrestrained growth and the “potential inequities” of rigid growth control.
He suggests making “growth more manageable” by equitable financing of the resulting costs to the community. It can be done by carefully setting the fees that local entities impose on developers to fairly represent the cost of expanded community services.
If that formula works, growth would be responsibly regulated by free market processes so that when the developers find that fees are too high, it would mean any more new development in that “particular location is unwarranted.”
Heikkila worked with other investigators during the commissioned study for the Riverside group to provide an economic analysis of existing nationwide case studies comparing housing markets with regulated and unregulated construction.
His views, expressed here--and those of his colleagues--will be tested when voters in unincorporated areas of Riverside County go to the polls Nov. 8 to help decide their pattern of growth for the future.
