16 Comments
Jan 21Liked by Cameron Murray

"... provide below-market housing … directly with public and subsidised housing institutions"

👍👍 Borrow cheap because you're the government. Build modest housing, and rent it at break-even (including no expectations for future holding gains on sale). Since it's modest/few frills, most units will get rented to those of more modest means. Doesn't seem complicated.

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author

Sure But mosest homes in expensive cities still aren't cheap at market prices. It's the value ofl locations, not buildings, that is the challenge.

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Jan 21Liked by Cameron Murray

True but building modest housing that developers won't (cuz profits) would still lower the bar. And can also subsidize as you say but without means-testing, because the modest-ness will still make them unattractive to those with more means.

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author

Good points.

How would you respond to the argument that it's a waste to build modest new homes when there are plenty of nearby old homes that offer cheaper market-priced options?

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I guess I'd need to run some numbers to get a feel for the (relative) magnitudes of those countervailing economic effects. Does one seem like it would dominate over the other, or just be ameliorated (some)? Sorry to punt...

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Mar 20Liked by Cameron Murray

California HCD dashboard can be found here: https://www.hcd.ca.gov/planning-and-community-development/housing-open-data-tools/housing-element-implementation-and-apr-dashboard

The data, including SB9 permits, can be found here: https://data.ca.gov/dataset/housing-element-annual-progress-report-apr-data-by-jurisdiction-and-year

I think there were 355 SB9 permits in 2022.

Knock yourself out.

Extra credit is to understand that in order to fulfill Federal "Affirmatively Furthering Fair Housing" policy, HCD implements policies that literally attempt to income-integrate each and every "Racially Concentrated Area of Affluence ("RCAA") ,i.e. neighborhood, no matter how affluent. And the tool is upzoning. If cities upzone to either 20du/acre or 30du/acre the State pretends that that is "multi-family" enough to produce housing affordable to "low-income" families, and it will credit the proposing city with meeting its AFFH requirement.

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Jan 22Liked by Cameron Murray

Overlay the US 18.6-year Real Estate Cycle over that chart above and its like turnig the light on in a dark room. One thing thats obviously impossible to quantify, and yet history tells me it's coming, is sentiment.

One day, in the near future, the FOMO merchants will become the ones making all the noise. And that sentiment will see a shift in many land owners who are currently on the sidelines unwilling to enagage with these new planning laws.

Then consider the battleground that will become the mortgage market. Sizes of mortgages wont reduce, but the requirement for a deposit, less regulatory paperwork and much easier servicability rates is what lites up the groundswell of "we are missing out here if we dont get in now!"

Recheck that chart, 1995 to 2007. This is what awaits the US land markets...

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Jan 22Liked by Cameron Murray

Every city globally where we see massive housing affordability issues has one thing in common — high demand. What is seldom discussed is that if everyone wants to live on the same postage stamps (which seems to be true of our world), the postage stamps will be increasingly expensive regardless of the zoning. Ignored in the housing debate is that the “rate of supply” is not matching the “rate of demand”.

At issue is that if you grow population faster than supply, you will see rapidly increasing prices. Furthermore, rapid price increases act as reason for properties owners to NOT sell their properties; holding property will bring higher returns than selling.

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Jan 21·edited Jan 21Liked by Cameron Murray

With upzoning, it's important to distinguish between potential new development that is permissable (allowed because of the upzoning) and that which is feasible (economically viable).

Feasibility is often related to infrastructure access and amenity. Sydney has a history of upzoning to create permissable development in places it's not economically feasible. Developers usually find that people won't pay much for high density with a 2hr commute unless they have no other choices.

Also look at the demographics of the areas being upzoned. Most material upzoning involves site consolidation. Young families often don't want to move due to disruption to local friends, schools etc. Developers can consolidate more easily where there's suburbs full of people in age cohorts with 'high risk of age related mortality' or in age groups where people are selling to move into retirement homes. Otherwise, density mostly occurs on sites converted from industrial or other non residential uses.

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These are all considerations. I would go further and say that creating more feasible development sites often isn't enough either. There are usually plenty of feasible sites across a city, but property owners often get a better return by waiting to develop than developing immediately.

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Jan 21Liked by Cameron Murray

> Some are now asking this question on social media.

They act like they don't know.

You can upzone all you want, but if you don't get rid of HOAs, even families who want to build more to house their family members (instead of putting them in retirement homes) and obtain all the necessary permits will find themselves blocked by the architectural committees HOAs. Besides, we still tax improvements.

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(Sorry, the editor in this app is still broken.)

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"Any comments and further details from insiders to help this outsider understand are appreciated in the comments"

Go here for an joint assembly/senate information meeting on housing: https://ahcd.assembly.ca.gov/hearings/2023-2024-informational-hearings

Go to the Feb 28, 2023 meeting. The backgrounder is interesting, and contains the California version of the usual narrative. The last bullet, "Limited Resources" gets to both hard construction costs, and the dearth of construction workers in the state.

Regarding the comment on rents:

You'll see a developer pro-forma from DM development: https://shou.senate.ca.gov/sites/shou.senate.ca.gov/files/DM%20Development%20-%202.28.23%20Hearing.pdf

pp 10-12 contains the pro-forma.

One thing no-one talks about is construction costs. In California they are very, very high. Here, it is $793k per unit.

The pro-forma essentially says that in order to get a 6% ROI on construction costs it would require rents of $8.40 per square foot, or a reduction in construction costs of ~$43M (I think his %reduction figure is wrong.)

One can deconstruct his proforma to understand that units are about 650sf and cost about $1215/sf.

One can deconstruct the rent figures to understand that the $5.77/sf figure targets household incomes of $150k (@30%Gross income) and the $8.40/sf figure would require a household income of $220k.

In my mind I deconstruct that, in SF there is market (income) support for product that rents to income earners of $150k, but not $220k, or conversely the market will bear $5.77 but not $8.40.

Also, things are a bit dicey in SF right now. There is a persisting post-pandemic shock here from remote work. Employers and employees are still "negotiating" how often workers have to show up. And office vacancies are high.

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This is not a surprise. Elmendorf admitted that RHNA and all it's legislative framework has no real economic (or any other) basis. In his words, the state's implementation agency, the Housing and Community Development (HCD) department, decided to use an approach that is "...(1) ad-hoc, rather than model-based; (2) reliant on simple rules of thumb; and (3) moderate in the exercise of

administrative discretion." Moreover, he notes that "...the Legislature delegated implementation of SB 828 to a department (i.e. HCD) without staff economists." The California housing program drives all of this is called the Regional Housing Needs Assessment (RHNA). The allocated RHNA numbers assigned to each city have no systemic basis whatsoever. Therefore, it is not a surprise that none of this works.

His comments can be found in his official submission to the state during the 2021 RHNA audit:

https://law.ucdavis.edu/sites/g/files/dgvnsk10866/files/inline-files/RHNA-Audit-Cover-Letter-2022.01.04_0.pdf

https://law.ucdavis.edu/sites/g/files/dgvnsk10866/files/inline-files/RHNA-Audit-Background-Paper-2021.01.04.pdf

See also:

https://catalystsca.org/project/the-housing-crisis/

Marc Verville

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Great post Cameron!

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Investors get into the market to create wealth, not to subsidise renters or help the government provide housing, ergo, they may be part of the problem but they are definitely not the answer - ‘public and subsidised housing institutions’ - a mix of service model housing, as we know education & health, as well as assisting low to middle income households to purchase their housing is the only solution.

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