Less Regulation, Less Expense

On April 28, the Ukiah Daily Journal reprinted a CalMatters.org story about how housing prices have hit a record high in California. The story opens with, “The median price for a single-family home shot up to a staggering $758,990 in March — a nearly 6% increase from the previous record of $717,930 set in December and a whopping 24% increase from March 2020, according to figures released Friday by the state Department of Finance.”

Those are big increases, but anyone following the housing regulation during the past few years won’t be the least bit surprised. Please allow me to climb the stairs to my soapbox for a moment.

State senator Scott Wiener from San Francisco rightly points out that, “Until California gets it together and starts to massively build new housing, we’ll continue to see these inflated and unsustainable housing costs.” Governor Newsom apparently agrees and has publicly stated he wants to build 500,000 residential units annually to reduce homelessness in California. Yet, state legislators have made it nearly impossible to make a profit as a housing developer. Would you go to work if no one paid you? Developers won’t either. Sometimes developers are willing to take a risk in the hopes that their much-needed housing developments will get approval. Local developer Guillion, Inc. has already paid more than $200,000 in fees to construct a housing development in Ukiah, and although Guillion has jumped through every hoop imaginable, they still await approval that may never come.

Over-regulation has made most market-rate construction projects prohibitively expensive, so developers end up building expensive “affordable” housing; that is, housing where the cost of building as well as the cost to rent or purchase these units is subsidized by the government (and therefore funded by all of us who pay taxes). Case in point, the two-bedroom apartments built near the Sun House Museum cost $382,000 per unit, roughly twice the cost of a free-market development and the people who live there do not pay market rates.

With so many people struggling to afford a place to live, one would think that legislators would support the construction of solid, safe, basic homes. But no, new residential construction in California must include tempered-glass windows, solar panels, indoor sprinklers, and a whole host of other amenities that, while nice, are not essential. In Mendocino County, we take things a step further and prioritize oak trees over people (see my prior column on the proposed oak tree ordinance). Wouldn’t it be better to have 1,000 homes with no solar panels or sprinklers rather than 10 houses with these amenities? With finite resources, we cannot have everything. I argue we are not prioritizing properly.

To bring the cost of housing down, we need to reduce regulation, but legislators, in their wisdom, try to fix the problem with even more regulation. Heaven help us.

They recently passed rent control laws against the wishes of California voters. Rent control is a form of price control. Does anyone remember trying to get gas during the 1970s? When President Nixon (and then Presidents Ford and Carter) artificially suppressed gas prices, they caused a financial mess with massive inflation. Stations ran out of gasoline and consumers could only buy gas on certain days.

Artificial price caps prevent market forces from restoring balance. Rent control has a similar effect. The current waiting lists for rentals will get even longer. When vacancies appear, the people rent control is intended to help will be the first to suffer. Why would landlords accept a prospective tenant with a monthly income of $3,000 when they have another applicant for that same unit who makes $7,000 per month?

If we want to see more houses at all price points, we should all send a message to our legislators: please stop “helping” us. Please get out of the way and allow the market to do what it does best, find equilibrium. I’m climbing down from my soapbox now.

If you have questions about property management or real estate, please contact me at rselzer@selzerrealty.com 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. To see previous articles, visit www.selzerrealty.com and click on “How’s the Market”.

Dick Selzer is a real estate broker who has been in the business for more than 45 years.

Leave a Reply

Your email address will not be published. Required fields are marked *