What Price Gnatcatcher? It's Hard to Say


Many economists and analysts predict that the price of Southern California's real estate and homes will eventually rise because of the federal decision last week to name the California gnatcatcher to the nation's list of protected species.

The magnitude of the economic impact, however, is anyone's guess. While everybody acknowledges that saving the gnatcatcher will be expensive, some experts believe the overall affect on home buyers will be minimal.

The U.S. Fish and Wildlife Service on Thursday declared the tiny songbird a threatened species, which immediately protects its nesting grounds. To soften the economic impact, Interior Secretary Bruce Babbitt is trying an experimental approach that would clear the way for building on some of the bird's nesting grounds.

However, some prime Southern California land will be excluded from development to save the bird, and landowners also face the costly task of restoring and managing sensitive bird habitat.

It will take months to answer the most compelling questions, namely how much land will be prohibited from development and where the property is located.

"Quantifying it is tough. But the theory is pretty clear. To the extent that fewer houses are built, it will have to increase home prices," said Michael Carney, a professor of finance and real estate who directs the independent Real Estate Research Council of Southern California at Cal Poly Pomona.

Gnatcatcher protection "will either reduce the number of houses that can be built in the area--which will raise prices--or it will make the same number of houses more costly to build, which also raises prices," he said.

From 297,000 to 314,000 acres of developable land in Southern California, including 48,000 acres in Orange County, contains the blend of sage and other native plants used by the gnatcatcher, according to an updated estimate by the national wildlife agency.

Of that, about 12,000 acres of privately owned scrub in Orange County are at a low elevation the bird prefers, so they are likely to be top candidates for preservation.

Generally, a single acre of land can support six new single-family houses in Orange County, but it is impossible to gauge the number of homes and other projects that might be prevented or abandoned because of the gnatcatcher listing.

Contrary to common belief, listing a species as endangered or threatened does not stop development projects.

It does mean, though, that landowners will lose some control over when, where and how much they build, and what measures they must take to avoid or compensate for the ecological damage. Landowners must set aside natural lands, enhance others and guarantee money to monitor and manage them, perhaps for years. Such conservation projects usually cost millions of dollars.

Under Babbitt's novel plan, landowners will be allowed to build on most of their land without delay if they set aside permanent preserves of sage scrub for the bird and other species under a conservation program created by Gov. Pete Wilson.

The size and location of the preserves will be determined using guidelines, set by a panel of scientists, that will be revealed this week. Then, the details will be negotiated by an alliance of developers, environmentalists, biologists, local government planners and state and federal wildlife officials. The process of choosing sites, expected to be highly contentious, is scheduled to take at least six months.

Babbitt's attempt at compromise could avert the long and rigorous federal reviews that cause uncertainty, delay and added costs for developers.

"There will be some economic costs of doing it this way, but not nearly as much as if the gnatcatcher was declared endangered and the full weight of the Endangered Species Act was put into effect," said David Sloane, a professor of environmental ethics at USC's School of Urban and Regional Planning.

"This solution is trying to bring economics into the decision without eliminating the environmental intent of the law," he said. "The result should be fascinating."

Home building in Southern California has already slowed so much and prices have dropped so low in the past two years that gnatcatcher protection will probably have minimal impact at first.

But when--some say if--the real estate market recovers, it could slow development and drive prices in those areas higher.

"It's a question of supply and demand," said Esmael Adibi, director of Chapman University's Center for Economic Research, which is usually sympathetic with the development industry. "We're almost running out of open space. We don't have much flat land left. If you exclude a big portion of that (for the gnatcatcher) it would mean added costs and higher home costs."

Adibi says higher real estate prices would harm all aspects of the area's economy, because the cost of living is often cited as a major factor in why businesses move or relocate elsewhere.

Others, however, believe the impact will be undetectable and call the supply-and-demand rationale propaganda from the development industry.

"It won't have any effect on home and land prices. That is a spurious argument as far as I'm concerned," said Peter Navarro, a UC Irvine associate professor of business and economics who is a strong advocate of controlling growth. "Any impact from the gnatcatcher will be what economists call 'second order small' compared to the massive devaluation of land values we've experienced."

Navarro acknowledged that "some landowners will lose a lot of money. There's no question about that," but "you're hearing a lot of gloom and doom from a narrow set of vested interests."

Navarro, who last year ran an unsuccessful campaign for mayor of San Diego, argues that reining in suburban sprawl won't hurt Southern California's economy, but help it.

The gnatcatcher decision is "an incredible" blessing in disguise to the California economy, he said. "I think the taxpayers of California will breathe a huge sigh of relief. The building that occurs in gnatcatcher habitat is primarily suburban sprawl, which does not pay its fair share. These subdivisions create enormous budgetary needs for capital facilities like schools and libraries and cops and they don't pay for themselves."

Southern Californians may never learn who is right.

Measuring the economic impact of the decision will be virtually impossible because of the complex factors at work with real estate and housing prices.

"We may never know," said Carney of Cal Poly Pomona. "Both sides can say whatever they want and nobody is going to be able to come up with evidence either way or another."

Some real estate analysts believe the financial impact will be limited to some companies caught in the squeeze, since other Southern California land, especially in urban cores, will still be available.

"I don't think it will ripple to have an impact on the overall economy," said Richard Gollis, vice president of Lesser & Wheitzman, a Newport Beach real estate consulting firm that advises developers and financial institutions. "There are still lots of opportunities for development. We have infill, as well as fringe developments, that are not impacting the bird's habitat."

The bird's major nesting areas are in the coastal hills between Irvine, Laguna Beach and Newport Beach and the entire eastern one-third of Orange County, from south of Ortega Highway north to the Chino Hills near Anaheim. Others are along the northern coast of San Diego County, western parts of Riverside and San Bernardino counties and Palos Verdes Peninsula.

The new restrictions would apply to projects already approved by cities and counties, such as the Irvine Co.'s massive East Orange and Gypsum Canyon housing developments, and Chevron's housing development in Fullerton and La Habra.

"A lot of investment decisions were made under different rules of the game," Gollis said. "By incorporating those (gnatcatcher) protections, you're changing the rules of the game. Plans and approval were made by these companies based on different assumptions of economic return."

The extra costs could make some projects unprofitable so they are abandoned, Gollis said. Other firms could delay their projects longer than they already have.

"The pill is harder to swallow when times are not good like they are now," Gollis said. "When a builder is getting strong prices, then you have more flexibility and can trade off more."

Builders also will face more trouble getting loans from already reluctant lenders if a protected bird nests on their land.

Carney believes home prices will start moving up in 1994. Analysts say if that happens, builders must be ready to build houses immediately to capitalize on the rising prices. But coming up with conservation plans that satisfy the federal government may take longer than that.

The Santa Margarita Co., which owns 35,000 acres of undeveloped land in south Orange County, is spending about $1 million on conservation planning for sage scrub, Vice President Richard Broming said. But he cannot predict how high the next and most expensive part--the creation and long-term management of preserves--will reach until the new guidelines come out.

The most severe economic impact, Broming said, will probably not be on large landowners like his company, but on people who own just a small patch of land that turns out to be inhabited by the bird.

"We, as large landowners, are used to this type of planning. But it will be the little guy who wants to build a few homes on 20 acres or 10 acres, that is going to be the interesting part of the puzzle," he said.

Monica Florian, senior vice president of the Irvine Co., Orange County's largest private landowner, believes the gnatcatcher decision might not significantly alter the company's newest proposals, such as the East Orange planned community.

But she worries about the future. The goal is to complete the conservation plans in November, but if the parties can't agree and the process drags out, it could cause financial problems for the company.

"The last thing that the Southern California economy needs," she said, "is any new hit that further discourages or stops any kind of economic activity. . . . It's a very fragile economy we're dealing with right now."

Shrinking Habitat

The gnatcatcher nests and feeds in a mix of native shrubs called coastal sage scrub. About 60% of the scrub that existed in Southern California 50 years ago is gone. The rest, about 300,000 acres, is now protected by federal law while officials try to set aside some of it for permanent preserves.

1990 acres 1945 acres Orange County 48,000 95,000 San Diego County 135,000-152,000 381,000 Riverside County 114,000 279,000

Note: Small amounts of scrub also in the Palos Verdes Peninsula and San Bernardino County

Source: U.S. Fish and Wildlife Service, gnatcatcher final rule, issued Thursday

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