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California rolls out a daring new housing policy to combat high home prices and increase supply

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California is the last place you think will lead the way in adopting bold new policies designed to dramatically increase housing supply. We have been at the forefront of doing just the opposite by imposing the toughest restrictions in the country. In the housing industry, state local governments have moved beyond the “not in my backyard” or NIMBY restrictions common in coastal markets to Another Dimensional Disturbance It’s called BANANA, which means “never build anything near anyone.”

Amazingly, California recently enacted a new law. If it works as planned, it can break the deadlock and, over time, expand the flow of new homes entering the market each year. (For luckSee the latest take on where home prices are headed in 2022 this story.) Under California’s plan, these new homes would be much less expensive than the new homes that are now trickling in, and the program would not rely on subsidies or income limits, but rather “naturally.” Achieve Market-Based Affordability. Entitled “Light Touch Density,” this approach was developed in 2019 by the Center for Housing at the American Enterprise Institute. The idea itself is simple. If the homeowner could put her two units on her lot instead of her one, the same lot would support her two homes. The land cost per house is halved and the largest input to the total cost of the unit is greatly reduced. Instead of the old policy of freezing the amount of land that can be built, the Golden State is increasing its abundance by allowing the ground beneath homeowners’ existing homes to sprout newly constructed units. It will create new supplies.

“It’s all about individual homeowners making decisions,” says Ed Pinto, director of AEI Housing Center. “So it will evolve over time, but surely the way compound interest will come back up. Remember, we are talking about a base of millions of lots.”

Spearheading the new legislation was Tonia Atkins (Democrat, San Diego), one of California’s most powerful politicians and the protem or de facto majority leader in the state Senate. The legislature passed the Right Touch Bill, or SB9 (Senate Bill 9), late last summer, and Gov. Gavin Newsom signed it into law in September. It entered into force on January 1, 2022. With SB9, 80% of all land-zoned single-family homes in the state will be eligible for Lite Touch density. “The challenge now is to see if various municipalities are accepting the new rules or are trying to undermine them by continuing to limit construction,” Pinto said.backed by a grant from Hilton The Foundation, Pinto, and his housing center colleagues will hold conferences statewide in September attended by developers, local politicians, academics, and homeowners. How, he’s cautiously optimistic. he says.

According to Pinto and his staff, Lite Touch has attracted strong interest from policy makers in cities such as Grand Rapids, Austin and Spokane. It will be fascinating to see the money made by unlocking the hidden value of and see if we become more tolerant of houses being built around us.

California’s severe housing shortage created a light touch

California is notorious for being the least affordable state in America. Median homes sell for more than 10 times the annual income of the average resident, which is double the national standard. The average price is now over $900,000. And with these numbers, Californians are getting very small, decades-old homes for the most part: “According to the vintage, the house in the center probably dates from around 1975, when he says Pinto. “People joke that he could get a 1,200-square-foot ‘starter home,’ which started as a starter home in 1957. That alone costs $1 million. “In San Jose’s home Santa Clara County, a typical existing home is only 1,700 square feet and costs $1.3 million.” The problem of “nothing within my income” is so acute that her 10 of the residents aged 18 to her 34 live with their parents.

At the heart of the crisis is self-imposed land scarcity. “California has artificially run out of buildable land by keeping many of its resources off-limits,” said Pinto. “States and towns impose the thickest web of rules in the country to discourage new construction.” It takes about 10 years to get it. Inland’s timeline is about five years for him. “In the process, the town will negotiate with the developer to downgrade from 400 to he 300 buildings,” he said. “These delays and the pressure to reduce densities, even with approval, are the forces that have driven the price Californians pay for shelters skyrocketing.”

Obstacles to obtaining construction site approvals are hampering the flow of new housing. Five of her students graduate from high school for every home built in the state. Florida, Texas, South Carolina, and Arizona issue nine to ten new construction permits per 1,000 people each year, three times as many as California. At the same time, the state’s employment has proven surprisingly strong in recent years, surpassing the national pace from 2012 to 2019 and rebounding strongly from the blow of the pandemic. Driving demand is a combination of job growth and stagnant supply, with prices for scarce new homes and aging existing homes pushing more and more Californians, especially those looking to get their first job or start a family. It has been pushed to a height beyond the reach of young people who want to.

The big problem is the cost of land, and that’s what LiteTouch is trying to solve

Chronic shortage of building land causes two aftershocks. First, the land value of some new parcels that have survived the ordeal will increase.Secondly, the land under the often small and venerable populations, as competing supply seldom emerges existing Homes are getting more and more expensive. As Pinto points out, actual construction costs, including building materials, labor, and capital, are higher in California than in other states. But the biggest difference is the difference in land prices. He cites the case of Santa Clara County. “The average price of a newly built home there is $2.1 million, and the average size he’s 3,200 square feet. The construction cost is probably he’s $1 million, so the land is worth $1.1 million, more than half of the total.” What about existing housing? They average just 1,700 square feet and the standard is $1.3 million. “The fully depreciated value of the house itself could be $200,000,” he says Pinto. “Like in a new house, he’s worth $1.1 million on the land.” But for the old dwelling, the land is worth several times more than four walls of aluminum siding and sheetrock.

When a homeowner demolishes a dwelling and builds a new dwelling, it only makes sense if the replacement dwelling is larger and more expensive. “As with all new homes, he’ll build a 3,500-square-foot home that sells for $2.1 million,” Pinto says. “And it costs a million dollars to build. If you have a million dollar land, you can’t make a small investment in an expensive piece of land. It doesn’t make sense. Undo the new house cost-to-land ratio.” is needed.”

But a light touch changes those economies. A homeowner in Santa Clara typically says he has a small old house on a quarter of an acre he has. SB9 allows you to build a second dwelling without splitting a parcel and creating a new parcel. The house can be removed and sit next to the owner’s existing location. Alternatively, the owner can tear down the house that is there now and build her two detached units with backyards, or two attached townhouses. “In both cases, the owner takes his $1 million worth of land and divides it into two parcels worth $500,000 each. It makes sense to build a dollar unit,” Pinto said. “So the total cost of a new unit, or new he two units, is $1 million each. That’s still expensive.” But for Santa Clara, it’s a bargain. The add-on homes will sell for him 30% below his $1.45 million median price for all homes in the county.

it gets better. With SB9, the homeowner also has the option to divide an existing lot into her two lots. This allows her to build an extra unit on the piece below her house first, and an extra unit on the newly created lot on her two. Suddenly, from her one plot under one dwelling, three more plots sprang up. This solution could strongly appeal to a developer who could buy an existing house, tear it down and build her four new homes. However, obtaining approval is more complicated than the process of placing her second unit on the lot. This is because a new subdivision plan must be submitted to the local government. The course could give the town an opportunity to stop homeowners from securing her 4-to-1 option.

Some municipalities must resist

At this early stage, it’s not clear how many towns will resist the new rules, or how effective the campaign will be. “For example, the state sets the minimum size for new units, he said, at 800 square feet. It’s not a target,” says Pinto. Towns may also impose restrictions on building heights, and by capping rents, owners can claim separate homes on their lot. One lot discourages him from splitting into two: charging a high fee for the new lot.

We are already seeing a backlash, especially from wealthy enclaves. In Woodside, Silicon Valley, the town council recently frozen all his SB9 applications, citing mountain lion habitat exemptions. But in a good sign of a light touch, Woodside backed off when the California Attorney General said the town was violating state law. It actually imposes a maximum size of 800 square feet along with miscellaneous requirements including an order that the driveway must be removed. San Diego, by contrast, is embracing the new rules. “They publish brochures and do a lot of counseling to make it easier for the homeowner to have her second residence on her property,” Mr. Pinto says. “San Diego has taken the position of adding minimal additional requirements and following very lenient state law regarding allowing additional units.”

The first “enhanced density” law passed in California still surprises Pinto. “But it shows how dire the housing shortage has become,” he says. By way of background, Pinto recounts his own first encounter with the pioneer that helped inspire his brainchild: “I grew up in his park in Palisades, New Jersey,” he says of me. told to “In 1939, a law was passed allowing homeowners to install a second unit on their property. The population has been able to double since I left.” According to Pinto, Palisades Park’s adherence to its unusual policy for 80 years was influenced by generations of homeowners. Because there was a wave of support. He says this is a preview of Light Touch’s appeal at the grassroots level. It was the move to the Golden State that paid off for the Garden State, and once Pinto had his way, it would provide the raw materials, the ground beneath the ranch, the bungalows, the cottages, and the already standing Tudor Affordable housing will spread using style.

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