I am a commercial appraiser in our area, and I spend quite a bit
of time considering what affects housing prices. I have been
reading articles and columns about the high price of homes, and
wrote this letter to express my thoughts.
Editor,
I am a commercial appraiser in our area, and I spend quite a bit of time considering what affects housing prices. I have been reading articles and columns about the high price of homes, and wrote this letter to express my thoughts.
Affordable housing. Recent changes to local growth planning include a requirement that developers provide 20 percent to 30 percent affordable housing in new tracts. This may be a step in the right direction, but this approach has several major challenges.
The cost for building affordable homes causes the overall price of homes to rise. This is not a problem in a strong market as buyers are willing to pay the higher price. However, in a weak market there are no buyers willing to pay the higher prices, and construction of affordable housing stops.
Also, affordable housing prices are based on median income. Many people living in bedroom communities tend to work elsewhere and earn higher wages than local workers. This causes even the affordable housing to be out of the reach of many local residents.
Sustainable affordable housing requires a regional approach. The old county line approach to planning and taxation will not provide affordable housing. Regions that are rich in commercial dollars must use those dollars to provide local housing for employees.
Developer profit. A local columnist recently suggested that developers are only building large expensive homes to maximize profit. Buyers overwhelmingly choose larger homes over smaller homes in new tracts. The reason is simple. Larger homes offer a better value, and in most cases is a better fit for buyers’ needs.
A large home sells for about 35 percent more than a small home in a tract, but the large home is twice the size and a better value for most buyers. Housing data shows that a developer makes about the same profit in building the small home as in building the large home. Large homes are priced higher because they cost more to build, not because the developer is making more profit. The least-pricey new home today is a small home in the city that sells for around $475,000. That same home on five acres sells for around $800,000. Developers can, and do, build small homes, but they only appeal to a tiny portion of the market. Most buyers are not willing to pay the current high price for a small home when they can pay a bit more and get a home twice the size.
Growth control and housing supply. Low supply and high demand is the California model of home building. The Department of Housing and Urban Development (HUD) estimates that over the last 35 years, California has under-built to housing needs by more than 30 percent. This has led to an incredibly long period of rising home prices in our state.
Prices are rising throughout the region, even in areas without a sewer moratorium. Many areas are under growth control, and many are running out of vacant buildable land. Throughout the region, the supply of homes is limited and demand is strong; thus the high and rising prices.
Morgan Hill, Gilroy and Hollister had, until recently, been the fastest-growing cities in the state, and prices rose throughout those building boom periods. This indicates that supply was not meeting demand, even in periods of explosive growth.
Current growth control policies limit growth to a rate that is less than in previous years. Smart growth control policies can do a great job of balancing the growth of housing to the growth of services, but the policies also lower the supply of housing and contribute to the rising price of homes.
In summary:
Low supply and high demand are the causes of the current high price of homes, not high developer profit or increasing building costs.
Growth control policies must be in lock-step with affordable housing policies if affordable housing issues are to be addressed.
Affordable housing policies require a regional approach, as commercial dollars and employee housing are not evenly distributed across the area.
Finding good solutions for affordable housing may go a long way towards lowering the demand for housing. However, regional home prices will not go down unless many more homes are built, or unless the demand for housing decreases.
Many good ideas to increase the supply of housing are being put in place. Condominiums and apartments over commercial stores are gaining favor throughout the region. Some land is being rezoned for higher density housing, but not without some complaints from local residents.
Building a lot of high density housing is one solution to increase home supply. One argument against high density housing is that it will increase the population and strain services.
However, wouldn’t it be nice if that increase in population were our teachers, police officers, fire fighters and nurses moving back into our community?
Steve Loos, Hollister
