Growth and land-use

Love this article in today’s NY Times.

For the lazy: The article makes the case that America doesn’t have boomtowns anymore, because the cities with the most economic opportunity have put in place land0use restrictions that keep housing prices very high, blocking new workers from coming in.

Now, as a developer with a growing property portfolio, I’m obviously benefitting from these growth restrictions.

But, as an American who would love to see the economy return to the days of 3-4% / year growth instead of 1-2%, I would welcome anything that would make it easier to add housing to LA and other highly productive metro areas.

To me, the big opportunity to do so is the impending arrival of autonomous cars, which have the potential to free all of us from the tyranny of minimum parking requirements.

Simply by waiving parking requirements, LA could easily add tens of thousands of new units, which would have an amazingly positive impact on the city (each new resident is a new potential employee, consumer of goods and services, and new tax-payer).

Let’s hope our politicians are brave enough to seize this opportunity.

Small-scale, in-fill development blues

Everyone should read this article in today’s NY Times, which goes into great depth about the problems associated with in-fill development in coastal CA.

My experience with the ground-up deal we just completed was similar. No lawsuits, but it did take nearly a year to get permits to add four units to an existing duplex, by right, with no discretionary approvals.

This mess hurts housing-starved cities in at least two ways:

  1. The uncertainty involved means that investors are not inclined to provide capital to build marginal deals, meaning fewer projects get the green-light; and
  2. The extended permitting process adds to carrying costs (interest expenses, property tax, insurance, security, etc.), increasing the total cost of the project and thereby making fewer projects pencil out

What you want is a transparent, rapid, predictable entitlement / permitting process.

What we have is the opposite.

Dealing with vacant lots

Yesterday, Curbed described Long Beach’s attempt to beautify the city by placing a $55 annual surcharge on vacant lots.

The argument is that the fee will be used to pay for monitoring these lots, which can be magnets for blight and misbehavior.

This fee does not go anywhere near far enough.

At a time when all of coastal CA is suffering from an acute housing shortage, having land in the middle of major cities sit unused is an outrage against decency.

So, at a time when land inside cities is expensive, why are there vacant lots at all?

In normal states, property taxes rise in proportion to the value of the lot. So, if you have a vacant lot sitting in an expensive neighborhood, the property taxes will eventually rise to the level where you need to do something… either develop yourself or sell to someone who will.

But CA hasn’t been normal since 1978, when Proposition 13 was passed, limiting the amount by which property taxes can rise to 2% / year. Here, if you have a lot you bought a million years ago, your total annual carrying costs (property tax and insurance) are tiny, and certainly lower than the amount by which your property appreciates annually. So, you’re in no particular rush to do anything with the land.

So, cities can’t just increase the taxes to prompt development. What can they do?

Well, Long Beach is doing its monitoring fee.

But, if I were in charge, I’d target the biggest lots with the densest zoning and use eminent domain to force the owners to sell. Then, I’d partner with affordable housing developers to build 100% affordable complexes on the lots.

 

Preservation or affordability on Sunset?

Curbed LA has a story today about the possibility that the city will deem the Hollywood Reporter building on Sunset a Historic Cultural Monument and thereby prevent a developer from moving forward with plans to build ~300 hotel rooms, ~190 condos and and ~700 apartments on the site.

I appreciate interesting architecture. But I think the time has come to make the trade-offs inherent in preservation explicit.

We are living through a full-blown housing affordability crisis. We’re not even building enough units to keep pace with population growth, let alone put a dent in existing rents.

With respect to my fellow smaller-scale developers, absent some major changes to the zoning laws and building codes, we’re not the ones who are going to solve this crisis. It’s simply not possible to add thousands of units 4-8 units at a time.

The solution, like it or not, is large complexes, where one developer can add hundreds or thousands of units of housing in one shot.

Currently, the only places the zoning allows for these huge complexes is along commercial streets like Sunset.

In this case, we have an obviously obsolete office building (it’s been vacant for years!) taking up land that could be used to add materially to the city’s housing supply.

We need to ask ourselves what’s more important: The aesthetic sense of the preservationists among us, or the ability of working and middle class people to continue to live in our city?

People are moving again

Bloomberg is out today with an article confirming that people are, once again, moving around the country.

This is a big deal for the real estate business.

The Great Recession essentially froze people in place, because they couldn’t sell their (underwater) homes and had little confidence in finding work in other cities.

This was really bad for our economy, which depends upon the labor market efficiently allocating workers to growing companies.

If workers are stuck in place and can’t chase higher pay in new places, companies can’t grow as fast as their demand would otherwise allow, reducing the potential GDP growth rate.

Now that people are starting to move for work again, LA (and the rest of coastal CA) needs to ask itself: Do we want to be the kind of place that can attract ambitious people from other parts of the country?

Right now, we can’t, because our housing costs are so high that the act as a barrier to (particularly younger) workers relocating here.

We urgently need to target transit-rich neighborhoods for radical up-zoning in order to bring tens of thousands of relatively affordable units onto the market, and thereby get our share of the hard-working, risk-taking labor willing to move here in search of better lives.