Why is Housing So Expensive Here?

Recently, a client moved to North Carolina where they paid $95 per square foot for a brand new home with upgrades. This didn’t include the cost of the lot, but it did include a mighty nice house. In Ukiah, it would cost $200-250 per square foot to build a comparable home. Since it takes about the same number of hours to frame a house wherever you are, and given that materials like lumber, sheet rock, and insulation cost about the same nationwide, why is it so expensive to build in Ukiah?

While I don’t know for sure, based on my 40 years in the real estate business, I have some theories.

First, we have relatively few places where people can build in the Ukiah Valley. Ideally, land for housing should be flat (and not in a flood plain). Ukiah doesn’t have much flat land zoned for residential use, and flattening land to create a good building site can be expensive.

That isn’t to say we don’t have land where we could build houses. There’s plenty of land zoned for agriculture in and around Ukiah that’s flat, close to infrastructure, and would be easy to develop. However, people here like to live where they are surrounded by vineyards, orchards, and grazing animals. So, this prime real estate remains unavailable for building homes.

Where there is enough flat land for a housing development—and where that land is zoned for residential use—developers are often wary of committing to a building project because of the risk associated with spending the time and money to develop land in Ukiah. Developers often have to wait years for General Plan amendments, zoning changes, and/or building permits, if they are approved at all. Given the cost of preparing for a subdivision, an individual lot for a single family home costs $100,000-150,000—this is before the houses are built.

Once developers find the land and get the required approvals, they still have to comply with all the State of California building regulations, which are some of the most restrictive in the nation. While some of us believe things like fire sprinklers in a 1200-square-foot, single-story house are a waste of money, they are a requirement, nonetheless. California also has many structural requirements that, while well intentioned, are not cost effective. For example, did you know that beginning in 2020 all new California residences must include solar panels?

In Mendocino County, housing developers must also adhere to some onerous local regulations, while also finding enough people with the skills to build houses. In Ukiah, people who would consider working in the construction trades in other towns often opt to work in the illicit marijuana industry instead, leaving a severe shortage of people who know how to swing a hammer in Ukiah. When certain skills are in high demand, the people who possess them can charge more for their services, sometimes significantly more.

When it all comes down to it, there are only two things that dictate the cost of housing: supply and demand. While supply is sensitive to replacement costs, demand is what pushes up the cost of housing. In the final analysis, it is people like you and me causing the cost of housing to rise—people who want to live here, raise our families here, and who encourage our children to live here and raise their families here, too. Ukiah is a beautiful and desirable place to live, and if enough of us want to live here, the price of housing will rise to support those high construction costs.

To the extent that local government can reduce red tape to lower building costs, they should do so. We desperately need more housing so local employers can recruit people to the area. We need to fill vacancies for doctors and teachers, as well as for the other public and private sector jobs in our community.

If you have questions about getting into real estate, please contact me at rselzer@selzerrealty.com or call (707) 462-4000.  Dick Selzer is a real estate broker who has been in the business for more than 40 years.

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