Recently, a local woman who’s lost her extended family to moves out of state asked me for advice. She’s concerned that her remaining grandchild will move away, too. She said, “Our last grandchild (a young adult) and her boyfriend would love to buy a house here and we are thrilled. But finding one they can afford is a challenge…how can our young get started here in real estate?”
These are great questions and, excuse me for a moment while I step up onto my soapbox to answer them. We have two closely related housing problems in Ukiah. First, lack of availability for housing, either to buy or rent. Second, which is related to the first, the high cost of housing.
People from bigger metropolitan areas look at Ukiah and think housing will be cheap. They sure are disappointed when they start looking around. Although housing prices aren’t quite as unreasonable as they are in the Greater Bay Area, they are higher than expected and higher than they would be with some different decision-making in Mendocino County.
The cost of renting or buying a home is driven by the basic economic law of supply and demand. Supply (more available housing) is created when people move out of the area or pass away, or by new construction. Demand (desire for more housing) is created by people moving to the area or people in the area choosing to buy or rent a new place. As long as Ukiah remains a popular destination for new households and/or we continue to have kids, demand will continue to rise.
If we want to see something other than a continued housing shortage and escalating prices, our elected officials will need to get a firm grasp on supply and demand. Right now, well-meaning regulation from the State on down to local school districts continue to negatively impact housing’s supply/demand curve. At the State level, new construction requirements that include solar installation and higher levels of engineering—all with good intentions—increase the cost of new development.
Not all the new requirements are bad. Smoke detectors cost very little and can save lives. More insulation reduces utility costs and the decreases the unnecessary use of natural resources. I’m fine with these types of requirements. However, wouldn’t it be better if a home buyer could choose what was important when it comes to expenses like sprinklers, solar panels, and thermal pane windows? The $15,000 price tag on thermal pane windows saves about $300 per year in utility bills but costs the home buyer approximately $750 per year in house payments and $150 per year in property taxes. It just doesn’t pencil out unless you are incredibly committed to climate change and have the financial resources to support it. This is just one of many examples. The bottom line is this: the person paying the bill should have the freedom to decide which features to pay for rather than a bureaucrat in Sacramento, or even one on Low Gap Road in Ukiah.
Locally, restrictive zoning requirements and local ordinances like inclusionary zoning also increase development costs. Zoning restrictions define how land can be used. Instead of working with housing developers to rezone land that enables it to be used for the single and multi-unit dwellings our community desperately needs, we make developers jump through endless hoops and pay significant fees. Inclusionary zoning is something else altogether. Inclusionary zoning requires developers to contribute a portion of their housing development project or equivalent cash to local government. Like the fees required to change zoning, when local governments demand that developers donate part of their project to the city or county, it increases costs, thereby decreasing supply. Here in Ukiah, the school district just passed a new tax on real estate, too. No wonder there isn’t enough housing.
If you have questions about real estate investing, please contact me at firstname.lastname@example.org or call (707) 462-4000. If you have an idea for a future column, share it with me and if I use it, I’ll send you a $25 gift certificate to Schat’s Bakery.
Dick Selzer is a real estate broker who has been in the business for more than 45 years.