Efforts by the California legislature to mandate increased densities for residential housing would make housing more expensive–the exact opposite of what lawmakers intend.
This outcome would be truly tragic given the already high housing costs that disproportionately impact lower-income residents.
Proponents of higher density, or “upzoning,” such as Chapman University’s Kenneth Stahl, argue that California has not built enough housing units to meet demand, resulting in higher prices. Pending bills in the legislature would seek to solve this problem by allowing fourplexes to be built on single-family plots (SB9), and up to 10 residential units on certain single-family parcels (SB10).
But this supply-and-demand theory is flawed as are current bloated estimates of demand. Quadrupling densities on a plot of land simply quadruples the value of that land. A ten-fold increase would … well, you can do the math.
Take for example the city of Vancouver, B.C, where upzoning has done nothing but increase land values, according to Patrick Condon, Chair of the Urban Design program at the University of British Columbia. Once a proponent of higher densities, Condon has changed his tune: “[In] all the cases that I’ve examined throughout North America, what happens when you do a rezoning is you let the hungry dogs of land price speculation and inflation loose across the landscape with the intention of enhancing affordability,” he says.
Higher densities may produce more units per parcel, but the higher land values cause the critical measure–the cost per square foot of finished space–to remain the same. “Cheaper” housing simply becomes denser, smaller housing.
Even without higher densities, land values tend to rise faster than wages or inflation. (Californians have experienced this firsthand and passed Proposition 13 to put a brake on soaring property taxes.) Urban land is especially scarce and valuable, and becomes even more costly with improved infrastructure and services. Henry George, a famous 19th-century political economist, first described how economic growth and development can accelerate land values and cause homelessness. A hundred years later, Nobel Prize winning economist Joseph Stiglitz confirmed this phenomenon, developing what is known as the “Henry George theorem.”
As George predicted, soaring land values are now a global phenomenon in nearly all cities around the world.
What is the solution to this seemingly intractable problem? Public agencies and non-profits need to build and buy more affordable housing. Rent increases may need to be more tightly controlled (currently 5% plus inflation per year in California). And the federal government needs to ensure that all who qualify for rent vouchers get them. These paths may be politically hard, but many at least stand a chance of promoting more affordable housing by putting a brake on land-price inflation.
Better upzoning approaches than SB9 and SB10 may work if designed correctly. One such approach was implemented by Cambridge, Mass. last year. It imposed a zoning overlay that allows a doubling of density, but only if used to build permanently affordable housing. Importantly, Cambridge’s affordability thresholds are set so that developers have no incentive to bid up existing single-family home values.
In contrast, SB9 and SB10 contain no requirements to build affordable housing in exchange for density bonuses. If implemented, these laws would turn speculators loose to outbid young families for single-family homes that could be converted into market-rate fourplexes and 10-unit apartments. Bye-bye affordability gains; hello higher single-family home prices.
If lawmakers in Sacramento are serious about addressing housing costs, affordability requirements must accompany mandated density increases. If SB9 and SB10 pass as is, the dream of an adequate new home for those of limited means will become ever more distant.
Huntington Beach-based Dan Jamieson is a retired business journalist, amateur economist, and a director of Huntington Beach Tomorrow, a community group focused on quality-of-life issues. He and his wife Roxanne McMillen spearhead the Monarch Nature Trail restoration project in north HB. Views are his own.
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