In recent weeks there has been an active and persistent discussion on the Vanguard about the issue of workforce housing. The discussion has been interesting and impassioned. The emerging consensus places the number somewhere around $200,000 as housing that a substantial portion of the workforce can afford. While I am sympathetic to the viewpoint of the people who are advocating for more affordable housing for the Davis workforce, I think the discussion to this point has focused too narrowly on one number and one population segment.
I have long been an advocate of slow growth in Davis, and I think the 1% growth requirement set by the council majority is currently set too high. I also believe that any actual growth should not be based on a requirement number, but rather on two concepts: first, internal demand and second, quality of the project.
I note at the onset here that this is the first of two articles on this topic. This article looks exclusively at the notion of housing in Davis. The follow up article tomorrow will seek to apply the concepts developed in this essay to Wildhorse. The goal here is to have a discussion on workforce housing outside of the political hot potato of the Wildhorse Ranch discussion. To some extent of course that is shear folly, but to the extent that we can do it, it will make the follow up discussion more meaningful.
Any look at the internal demand includes (but is not limited to) the following:
- The portion of Davis’ internal demand that is for workforce housing,
- The idea of supplying housing to people who either live in Davis but rent or who work in Davis and live elsewhere.
- Supplying housing that includes school age children who would fill classrooms and help the DJUSD address the challenges of declining enrollment.
One of the realities of Davis that is a major factor in any debate about housing affordability is the fact that Davis is a place that has:
- Good schools,
- A relatively low crime rate, and
- A high quality of life.
The result is that the cost to buy a home in Davis is significantly more than in surrounding areas of the Sacramento/Yolo CMSA, but somewhat less than many of the more costly areas of the Bay Area.
I spoke to a Davis Realtor to drill down into those broad realities. She told me that she had just sold a 2,850 square foot home for $935,000. Another 2,000 square foot home in Willow Bank just sold for around $700,000.
Adding a cost to build a home of about $200 per square foot to the acquisition cost of land, one is realistically looking at around 1,000 square feet costing $300,000. To put that size into perspective, I currently rent an apartment that is between 1,100 and 1,200 square feet. While it is roomy for an apartment it is not exactly spacious.
Thus realistically to get down to $200,000 one would need to get around a 600 square foot home — half the size of my apartment, and $200,000 may not even be achievable given the per unit fees that the City of Davis extracts from each new development. If those fees were based on square footage then building small units would not be penalized, but for the immediate present discussion, one size fits all is the method the City uses to levy the fees regardless of unit size.
The other issue is one of financing. The Realtor told me that this year, as a standard practice banks have been requiring a 20% down payment. In previous years that number was as low as between 0% and 10%. With an FHA loan, a first time home buyer could purchase a house with 3 to 5% down money. One has to ask, how many people who can only afford a $200,000 home can at the same time come up with a 20% down payment?
Generally speaking about 25% to 30% of a household’s income could go to mortgage payments, less if the household has debt other than the mortgage. In a university town like Davis it is safe to say that lots of residents have student loans or car loans, or both. For a $300,000 mortgage with 10% down, the monthly payments would be about $2,023 per month. At $400,000 they go up to $2,628. Theoretically someone who makes about $80,000 should be able to afford a $300,000 home. That would probably be tight and would require limited debt, but that mortgage payment might be manageable. You probably have to go up to $100,000 per year to afford $400,000. Relating that to Wildhorse Ranch, where the townhomes are supposedly going to go for $350,000 to $425,000 is a point we will come back to in tomorrow installment of this essay.
The key question from a policy standpoint, independent of any discussion of Wildhorse Ranch is, how can we create affordable workforce housing in Davis? I see three possible solutions to that question, and each one of them is fraught with complications and difficulties.
- Produce 600 square foot townhomes that people can purchase and build their equity, and then some time in the future sell that first home and upgrade to one that is larger. The advantage of this solution is that it is a “market solution” that provides people with the opportunity to purchase market rate homes, build their equity, and then upsize. The downside is of course threefold. First, there are not a lot of these sized homes available in Davis. Second, 600 square feet is fairly small and might work for a single household or a couple, but would be increasingly difficult with children introduced into the mix. Third, the current City of Davis development impact fee structure means that fully one third of the cost of building a 600 square foot unit would be devoted to costs that add no tangible amenities or value to the home.
- Reinstate the tried and now discarded middle income affordable housing requirement, which required a development to have 20% of its units set aside for middle income residents in addition to the 25% that was to be set aside for low income residents. The problems with that program were myriad. First, the only way for developers to make a profit given 45% submarket units was to build huge units elsewhere in the development in order to cover the costs of the affordable units. This meant there was a large number of non-market units and a large number of huge units, but very few workforce units with fully equity. Second, if a person could purchase a home under this scheme, they were limited in the amount of equity they could build. Third, mortgage companies have recently changed their practices and are extremely reluctant to lend money for units that have the type of limited equity appreciation deed restriction that was a key part of the program. For these reasons, developers in Davis lobbied the city council to remove that restriction and given the housing climate at the time, the council, probably with good reason, acceded to that request.
- The third option is of course to build enough additional houses so that the members of the Davis workforce would be dealing with a supply/demand relationship that resulted in a higher level of affordability. The questions this option raises would be:
- How much additional housing would need to be built?
- What the cost of such housing growth would be in terms of city services?
- And . . . How much such a growth in housing would harm the character of Davis.
The assumption here is that the cost of housing is strictly a function of scarcity, and isn’t affected by quality factors such as good schools and a relatively low crime rate. The question boils down to whether A) building lots of new housing would really make an impact on regional housing demand in a healthy and functioning market by simply building homes or B) the quality of life issues would also have to decline in order for the price of housing to drop. Said another way, “Do we have to build like Elk Grove and/or Natomas and at the same time decrease the quality of life for every Davis resident?” If the answer to that question is yes, then the logical follow-up question is “Is the trade off of housing affordability vs. reduced quality of life worth it?” Some will argue that it is.
Regardless, all three of these solutions to workforce housing and affordability are fraught with uncertainty and risk. However, by no means is that uncertainty and risk enough of an argument that we should not strive to produce more affordable housing. To me it is; however, an argument that means we ought to focus on smaller units, greater density, restructured development impact fees, and if we do all of that, we may finally begin meeting the needs of Davis residents and those who work here.
For me the charm of Davis, the character of the town, the quality of the schools, our agricultural heritage, our preservation of open space are all treasures that need to be guarded. At the same time, we must also guard against become an elite community that only the very wealthy can afford. This dilemma should structure every discussion on housing.
To add into that, our legacy as environmental innovators pushes us to create more and more environmental friendly housing developments. That necessity is driven by the concerns about global warming and our community-based efforts to help design land use and development policies that will help to fight global warming. Obviously the community of Davis’ policies will have small impacts on the overall greenhouse gas and carbon emission on a global scale. However, the policies that we development can be implemented across the nation and the globe to mitigate some of the impacts of human society on our climate and overall environment. If we cannot change the way we develop in Davis, if we cannot lead the way who will?
And while that is all necessary, at the same time, we have to understand that sustainability comes with a cost. That cost means we must be all the more vigilant about developing homes that everyone can afford. Even the most milquetoast development, typical suburban sprawl model, will be costly in Davis. A highly innovative, green, and sustainable home, not only carries with it the cost of development in Davis, but the added features. If we wish to be both affordable and green, we have to devise strategies to achieve that.
Tomorrow we will examine these concepts within the more specific parameters of the Wildhorse Ranch development and see how that project fairs in providing housing to people who work in Davis and would like to own a home in this community.
—David M. Greenwald reporting
You entire discussion is predicated on the cost of land being 2000 a square foot but that is only true because we have restricted growth and strangled it to death. If you open up lots of land for development you can lower the cost by making development rights competitive. You don’t need to become Elk Grove or Natomas for two reasons; you already have a downtown infrastructure and you don’t need to build as much as these other places to achieve the goal of making homes affordable. Look no further than Woodland or Dixon where they overbuilt in the boom and now houses are only 120 to 150 a square foot. They didn’t need to build so much to meet supply needs and I suspect that a few thousand houses would do the same in Davis. That doesn’t turn us into Elk Grove.
This one percent growth rate is ridiculous. I just read that world population will hit 7 billion next year after hitting 6 billion around a decade ago. Places like Davis with a good quality of life and the educated workforce that can provide the innovation to support the educational needs and ecological needs of a growing population should be growing faster not slower. Any loss of farmland around Davis will be mitigated by the technological innovation provided by the university and its magnetic ability to attract biotech to the region. Yes protection of farmland is important but at some point it is not the most critical factor in determining what growth should occur.
“You entire discussion is predicated on the cost of land being 2000 a square foot but that is only true because we have restricted growth and strangled it to death”
200 per square foot, not 2000. And do you know that for a fact as opposed to the other factors that lead to high cost of housing–low crime, high quality of living, and good schools?
[i]I have long been an advocate of slow growth in Davis, and I think the 1% growth requirement set by the council majority is currently set too high.[/i]
Then you’re against providing more than token housing for the workforce in Davis at any price. Today’s workforce will be retired by the time you’re ready to provide housing for them.
[i]The key question … is, how can we create affordable workforce housing in Davis?[/i]
If that’s the key question, then the answer is easy: In order to create housing, you first have to want to.
David:
Your housing costs are very incomplete. I did this subject to death on Chiles (w/o the homeowners fees because unknown).
I am sick of the “more houses on the market in Davis means lower prices” foolishness. Market forces in badly planned, grossly overbuilt cities w/ lower median income do result in lower prices. Look around the Sacramento area. Davis is an affluent town (yes let’s admit it) w/ more people that can afford houses.
Full cost to own a house includes mortgage payments + insurance + taxes + city services. On a $400k house. Insurance is approx $80/month. Property taxes (1.2%) are $400/month. City is $75/month. That’s another $550/month. If you budget right, there are also repair costs. PITI+city (no repairs) on a $400k house w/ 10% down is $2,708/month. It’s $100k/yr to own a $400k house (if housing is 30% of total cost).
Oh yeah and there’s the $30,000 – $40,000 down payment. It IS hard for many first time buyers of “affordable” property to come up w/ this. This seems to be conveniently ignored. If you currently own a house, it’s much easier.
Look at the current proposed developments (including the much praised WHR). Notice that there aren’t any $300k housing units for sale there or anywhere else in Davis? No single story senior housing either.
Your small $300k condos do exist in Davis. They are 30 years old. Check the McKeon condos on Poleline Road.
What’s a major need in Davis? Rental properties. These places might be attractive to investors. Newer smaller properties are easier to rent and lower upkeep. Higher depreciation, higher potential rent. Lots of students in this town drive expensive cars and come from well to do families. If an investor has some cash and oays high taxes, a glitzy Davis “housing unit” might be attractive. Depreciation helps hold down taxes.
DPD, I think your numbers are way off. It doesn’t cost $200/square foot for new construction. Something closer to $100 or $125 per square foot is ballpark for new construction, and $150 to $200 for remodel, depending on what exactly is being done.
It’s also important to remember, that despite recent real estate market woes, housing prices are still very high compared to historical levels. When Mace Ranch was built up, less than 10 years ago, you could buy a new 2,500 square foot house there for $250,000. The early houses in Lake Alhambra were built for the low to mid $400,000s (including the land). We had a quote for a new 3,500 square foot house in Lake Alhambra in late 2001 for less than $600,000. The construction cost quoted was $100/square foot, and the lot was $150,000. The first house we bought in Mace Ranch in 2000 cost us $265,000, and it was a 1,500 square foot 3 bedroom.
While real estate market prices obviously ballooned after that, the basic cost of materials and labor have not. In fact, with recent slowdowns, there is downward pressure on construction costs.
Those darn zeros add up pretty fast when they are on the end before the decimal point. A small typo with a big error.
Jim:
“I am sick of the “more houses on the market in Davis means lower prices” foolishness. Market forces in badly planned, grossly overbuilt cities w/ lower median income do result in lower prices. Look around the Sacramento area. Davis is an affluent town (yes let’s admit it) w/ more people that can afford houses.”
I agree. I threw that out there because someone is going to argue for it (and someone did). But the fact of the matter is we probably have to build tens of thousands of homes to reduce housing costs and at a huge cost to the city.
“Oh yeah and there’s the $30,000 – $40,000 down payment. It IS hard for many first time buyers of “affordable” property to come up w/ this. This seems to be conveniently ignored.”
I don’t think I ignored that, but I probably could have discussed it in greater detail. The FHA loan comes into play here and I use that to mitigate the 20%. But two Realtors told me 20% is standard right now given the credit market and the problems therein.
I also agree we need more rental property in Davis, I think a lot of that needs to be provided by the university for a variety of factors that have been discussed before.
“DPD, I think your numbers are way off. It doesn’t cost $200/square foot for new construction. Something closer to $100 or $125 per square foot is ballpark for new construction, and $150 to $200 for remodel, depending on what exactly is being done.”
I’m using the figure I got from one Realtor that was confirmed by a few others. I’d be happy to adjust it if you can cite the source and show me that it’s wrong. It doesn’t really matter for the bottom line which is the cost for the homes in Davis, which I think is accurate from my assessment.
Yes schools and crime are factors but the biggest factor is always supply and demand. When we discuss moving to a nearby community such as Sac or Dixon or Woodland we discount the cost of private schools.
Say a private k12 education has a net present value of $100,000. On a 1000square foot house that adds 100/ft on a 2000/ft house that adds 50/sq ft. So you can easily see that the increase price in Davis is more than just the schools because housing costs are more than the difference in the cost of an education. As for crime and quality of life these are mostly just illusions. We are only a freeway drive away from crime. Quality of life is dependent on whose life it is and what value they put on many things in their life. It is too vague to calculate without being more specific.
“Yes schools and crime are factors but the biggest factor is always supply and demand.”
You always argue that point, but do you have evidence to back it up?
Or to put it into other terms, how many houses would we have to build in Davis before the prices were comparable to Woodland or Dixon?
“I see three possible solutions to that question, and each one of them is fraught with complications and difficulties.
1. Produce 600 square foot townhomes that people can purchase and build their equity, and then some time in the future sell that first home and upgrade to one that is larger.” [quote][/quote]
As I am frequently compelled to do, I want point out that high-density housing does not and should not equate to 2-story (i.e., inaccessible) townhouses. Buildings with stacked, single-level units can provide high-density ownership housing without sacrificing accessibility to people with physical disabilities and many seniors who cannot use stairs.
We do have affordable housing for the Davis work force, it’s called Woodland and Dixon. Ask the receptionist in your local Dr. or Dentist office where their from. They will tell you they come over daily, begrudgingly, to wipe the stern of the pompous Davis elite. They report to work after dropping their off spring at a Davis public school!
Lenders are not apt to lend on properties under 800sf.
Oh, and there are other factors as well. The bigger the house the smaller the value added to the cost of a Davis house for the purposes of education and if you have more than 1 child the denominator gets larger so the increased costs are inversely related to the number of children. (I’m sure this really bugs the Malthusians out there.)Then we must subtract the fees paid to support the schools added to your tax bill. So while you can add something to the cost of housing due to schools it is not as much as you would think.
The $100,000 figure was from a friend who had his two kids in private school at a cost of $18,000/year for both this year.
“Lenders are not apt to lend on properties under 800sf.”
It would be helpful if people are asserting facts not in evidence that we cite a source for those of us who are skeptical but not knowledgeable about this topic. Thanks.
I honestly don’t know how many houses we would need to build but Spring Lake was planned for 4000 homes and that was too many for the market to absorb when the bust came. I’m sure that there are economists that can tell you how much you would need to build to get various impacts on the real estate market in Davis but I am not an economist although I play one on this blog. Maybe someone who knows how to calculate that will add to the discussion. Sue thinks 2000 is too many and David says he thinks it would take over 10,000. My guess is somewhere in between but it would be interesting to hear from the experts.
[i]I’d be happy to adjust it if you can cite the source and show me that it’s wrong.[/i]
It’s a misinterpretation from the beginning to suppose that there is one number for cost per square foot that can be proven “wrong”. A house costs more per square foot if it’s more complicated per square foot. A smaller house will generally be more per square foot, and a fancier type of house will generally be more per square foot. If a house has constructed space that does not count towards total square feet, such as a garage, then that also increases the cost “per square foot”.
It may be true that the type of houses that people build in Davis lately cost $200 per square foot. But that’s because the builders make the most of the square feet that they have in a limited allotment. It can’t always be true in the region, because it would mean that it’s flat out impossible to build an affordable house in Northern California. It isn’t. If you really wanted to, you could build for $100 per square foot.
Of course it helps if you don’t demand a $40,000 photovoltaic system for each house.
Yes, rental properties and university properties are two good ways to be more fair to the thousands of people who work in Davis or at UC Davis, but can’t find a home here. Not that that truly appeases those who think that 1% growth is way too much. The political solution is to blow hot and cold on affordability so that very little of anything gets built.
In a way, university housing is also a political solution, because it’s entirely divorced from city democracy. The university just has to fend off the lawsuits before it gets started.
It seems to me that the goal should be to pay a living wage. Frankly I think it is important to support those employers who are doing so now, and to pass a living wage ordinance so that those who do are not at a competitive disadvantage. I work for a union, and belong to another one – I believe that putting pressure on Target (when it is completed) to allow their workers to organize if they choose would be a positive step toward allowing the folks who work in Davis to live here, if they want to.
David: “I also agree we need more rental property in Davis, I think a lot of that needs to be provided by the university for a variety of factors that have been discussed before.”
At the pace that the university plans and develops new housing, it will be a decade before anything beyond West Village gets built. So in the absence of any more rental units being built in Davis, the vacancy rate will remain low, rents will remain high, and the people least able to afford housing will be the most squeezed. Remember, Davis is the only city in the region where rents are increasing this year. That is a sign of a rental market that is unhealthy for the consumers. That reflects an urgent need. There is no urgent need for senior housing. There is no urgent need for townhouses for people making $100K a year, no matter how energy-efficient they may be.
Davis needs to allow more apartments and other rental units to be built. The city needs something like 1000 more beds for students and young adults. That should be the first priority as the city council reviews any development proposal. A housing project which doesn’t provide significant rental housing should move back down the list. WHR was something like #22 on the ranked list of housing developed by the citizen-input commission last year. Yet it is the first out the gate. Why?
The fact is that steady peripheral development is exactly how Davis has grown for as long as I’ve been here. Stonegate was a brand new, peripheral development when I moved to Davis. Covell Park had been built very recently. A combination of infill and peripheral development, built at a steady pace, will allow for the housing that is needed and help to reduce the vacancy rate and local rents.
Davis doesn’t have to grow the way Dixon and Woodland did. The city council can assess each project for true affordability, even set clearer parameters if they wish. WHR barely meets the current city affordability limits, and does not really do so in a meaningful way. But it is very likely that some peripheral development, including more apartment complexes, will be necessary.
[i]I honestly don’t know how many houses we would need to build but Spring Lake was planned for 4000 homes and that was too many for the market to absorb when the bust came.[/i]
It may be true that they should not have planned 4,000 McMansions in the Woodland school district without good bicycle access to Davis. It may also be true that if you weigh down developers in Davis with affordability quotas, they won’t build. And it may be true (as Rich Rifkin noted) that the situation is even worse at most of the other UC campuses.
But none of that means that there is no shortage. The shortage is real. When we try to hire young new faculty, we end up apologizing to them for the cost of housing. The pay is not all that competitive, and the houses are much cheaper in Eugene, in Madison, in Urbana, in a lot of places. We wish we could tell them how wonderful it is to live in Davis, but sometimes we just can’t.
And if that’s how it is for faculty, it’s even worse for staff.
[quote]
“Solution” 1…
Lenders are not apt to lend on properties under 800sf. [/quote]
[quote]Source?…
It would be helpful if people are asserting facts not in evidence that we cite a source for those of us who are skeptical but not knowledgeable about this topic. Thanks. [/quote]
As a previous Realtor who sold a home under 800sf, my source is through personal experience. Even in a market where loans were given out like candy, we had trouble finding a lender to finance the purchase (the house was 798sf). Every lender we approached said that a loan on a home under 800 sf went through a different underwriting process and would likely not be approved. There is a lender concern about marketability on tiny houses and they treat the loan more like an auto loan. Of course, it is not impossible and the lender risk can be mitigated by a large down payment and an inflated interest rate.