DAVIS, Calif. — One of the defining contradictions in the Davis housing debate is that nearly everyone says they support affordable housing, but far fewer people appear willing to confront the underlying economics required to actually build it.
Recently, Davis resident Dave Ceppos wrote a lengthy Nextdoor post that explained better than most the financial realities behind housing production in Northern California
The post addressed a question that often gets lost in local political debates: If housing is supposed to be affordable, who exactly pays the difference between what housing costs to build and what people can afford to pay?
“Do you know what the average cost to BUILD a home in this region is?” Ceppos wrote. “How about the average profit margin for a home builder?”
According to Ceppos, construction costs in Northern California now range “between $400 – $800 / sq ft” excluding land costs, meaning that even relatively modest homes can cost hundreds of thousands of dollars simply to construct.
“The cost to build a home in No CA (excluding land costs) is between $400 – $800 / sq ft,” he wrote. “So a modest sized 1,500 to 2,000 sq ft home will cost a minimum of $600,000.”
California has made housing extraordinarily expensive to produce, which makes it more tricky to produce affordable housing.
Land, labor, insurance, infrastructure, environmental review, financing and project delays have all driven California housing construction costs sharply higher.
Moreover, in Davis, Measure J/R/D adds another layer of uncertainty because large peripheral housing projects must survive not only city approvals and environmental review, but also a citywide ballot measure campaign.
That uncertainty further drives up costs because capital markets price risk into projects: the longer the timeline and the greater the uncertainty, the more expensive financing and development become.
As the Vanguard noted this year, California’s housing shortage is not merely the product of population growth or developer behavior, but decades of political and regulatory systems that constrained production while demand continued to rise.
In Davis specifically, years of slow housing growth have created cumulative shortages that reshape who can afford to live in the city at all.
A March Vanguard analysis noted that Davis added only 2,818 housing units over 17 years — well below long-term growth benchmarks — while producing relatively few ownership-oriented homes for families (805 single family homes in 17 years).
The consequences are increasingly visible: rising home prices, declining school enrollment, and younger families relocating to surrounding communities where housing is comparatively attainable.
Yet even as the city acknowledges a housing affordability crisis, local debates often proceed as though affordable housing itself is inexpensive to build.
That’s precisely the problem and it may be the single biggest misconception driving public frustration.
Affordable housing generally costs roughly the same amount to construct as market-rate housing. In some cases, it costs more because of financing structures, prevailing wage requirements, regulatory obligations or specialized funding compliance.
The difference is usually not the cost of building the housing itself, but rather the financing structure, subsidies and funding mechanisms that make the housing affordable to residents.
In his post, Ceppos touched directly on that point.
“For-Profit AH developers account for around 80% of the AH building market which means they also expect to turn a profit,” he wrote.
The point challenges the common assumption that affordable housing developers are somehow insulated from the same financial realities and economic pressures facing the broader housing market.
In reality, affordable housing projects usually depend on complicated layers of subsidy: federal tax credits, state grants, local housing trust funds, fee waivers, public financing mechanisms or cross-subsidization from market-rate housing built alongside the affordable units.
This is particularly important in projects like Village Farms.
Supporters of Measure V have repeatedly argued that the project includes a substantial affordable housing commitment, including 16 acres dedicated toward affordable housing and millions in contributions toward affordability programs.
But those affordable units do not emerge from nowhere financially.
In many mixed-income developments, the market-rate homes help subsidize the affordable units, meaning that some amount of higher-priced housing becomes necessary to financially support below-market-rate homes.
Ceppos explained that dynamic explicitly.
“The market-rate developer prices homes higher than average which is then used as a subsidy for the low income housing brokered through development deals,” he wrote.
Meanwhile, residents often demand more affordable housing while simultaneously opposing market-rate housing, opposing density, opposing peripheral growth, opposing subsidies and opposing higher taxes.
But affordable housing generally requires some combination of subsidy, density, cross-financing or public investment. Without those mechanisms, projects often do not pencil out economically.
The broader point remains: affordable housing does not get built simply because people say they want it. It requires financing structures, subsidies, market-rate cross-support and projects large enough to make the economics work.
The conversation must recognize affordable housing is not created simply by declaring that housing prices are too high.
Housing prices are high because the underlying cost structure of building housing in California has become extraordinarily expensive and that is coupled by high demand and scarcity.
Davis’ housing debate reflects a larger statewide problem: people want affordable housing, but many still resist the economic realities necessary to produce it.
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It could be that “everyone says they want Affordable housing” (supposedly – on behalf of others who can’t afford it in some areas) because they know that it sounds politically-acceptable these days.
But for those who actually do support it, the reality (that they may not even think about) is that every government dollar spent in one community is a dollar less that’s available for a different community.
Other realities include tax breaks for the owners of Affordable housing, which has a negative fiscal impact. Not to mention the fiscal impact of purposefully seeking residents who have little disposable income (which is already an issue in a town with a lot of student residents).
The “Economics that people havent confronted” apparently with regards to housing is the fact that Single Family Housing bankrupts cities.
That isnt hyperbole, or a “hot take” it is well supported conclusion of economicsts who have studied why so many sprawling american cities are bankrupt. Turns out the only person that single family housing is good for is the developer.
This is the reality we really need to confront. Any of the following links will be illuminating… or feel free to “do your own research”. this isnt a minority opinion.
https://www.strongtowns.org/
https://youtu.be/y_SXXTBypIg?si=beRJB42X2t3Dx704
https://www.msn.com/en-us/news/opinion/suburbs-are-bankrupting-america-and-no-one-wants-to-admit-it/vi-AA21yHK6?ocid=iehp%24
So if houses are so expensive to build AND that housing ends up costing us FAR more in the long term, then someone please tell me why THIS is our “housing” process? Its insane.
This is why measure J is the REAL problem here. The only reason we are even discussing single family tract homes is because that is what is most profitable to the developers. If we were proactively selecting the kind of housing that is in our own best interest as a city to develop.. we would be doing something VERY different
Re: “The only reason we are even discussing single family tract homes is because that is what is most profitable to the developers” – That’s an objectively false statement. The reason they are proposing single-family homes is because that is what young families want to live in. Your own living situation is a perfect example.
In terms of single family housing being a losing proposition for cities, that is entirely due to the way most tract developments were structured in other municipalities and the fact that many projects were leap-frog developments. Leap-frog development incures expansion of infrastructure for which future maintenance is not often factored into the governing municipality’s long term financial analysis.
In the case of Village Farms and other recent Davis developments, future street and neighborhood park maintenance is provided by assessnent districts. Up front infrastructure costs are entirely paid for by developer impact fees. And for Village Farms, those impact fees will go towards improving local streets, help in upgrading the sewer system capacity, put money into the water system to either pay down debt or use for operating expenses which in all cases reduce costs to the local municipality and/or ratepayers.
The final price tag is expected to be net positive for the City of Davis. It is also expected to be net positive for the DJUSD because of the upfront impact fees paid by the developer and the additional per student fees received annually by from the State
Other than comparisons with municipalities who do not require these fees to be paid by the developer and/or residents, is there any quantitative reason you can provide specific to Davis and the Village Farms project that says otherwise?
Alan
Yes — many people WANT single family homes. People also want cheap gas, unlimited parking, wider roads, and long commutes with no traffic. People used to “prefer” to cut down old-growth redwoods and enjoy the lubricating benefits of leaded gasoline…
“What the market wants” has NEVER been the standard environmentalists use to determine what is sustainable public policy.
In fact, the entire purpose of environmental regulation is EXACTLY to constrain market behavior when the long-term public costs are externalized onto society.
That’s why this sudden appeal to “consumer preference” feels so inconsistent coming from someone who has spent decades opposing projects precisely for these exact same reasons.
If Davis is going to expand at all, why are we defaulting yet again to the least land-efficient, most car-dependent, and least climate-resilient model simply because it is easier to sell politically and more profitable for developers?
That is the question “environmentalists” used to ask.
But in this case, even that question doesnt matter because the people we most need to house are NOT the people who will be able to afford to live here. Its a non-solution to start with.
Alan P
Who do you think pays those developer fees for new neighborhoods? The developers don’t just absorb those costs–they pass them on to the home buyers. Maybe other residents avoid those direct costs, at least for a while until the infrastructure needs maintenance and replacement, but this approach is one of the key reasons why housing is unaffordable.
Emphasizing more multifamily housing and increasing density per acre is the path to more affordable housing. The younger generation recognizes that they can’t live in the same houses that their parents own–the NAHB survey that I’ve shared several times shows their willingness to trade off. We need to push developers to come forward with the right package that meets that housing need, not what developers are most comfortable with.
They can LITERALLY live in the same houses their parents own (and will do so when their parents die). And if not, they’ll benefit from the proceeds. It’s happening every single day.
If our society was serious about “leveling the playing field”, they’d be taxing billionaires and changing the laws regarding inheritance.
Apparently, nothing has changed since the days of the railroad barons.
I recently read that the laws regarding inheritance are very different in Japan, as are the houses themselves (essentially not intended to be “permanent”).
I tell you who isn’t going to pay for the Affordable housing and it won’t be the naysayers who demand everything but contribute nothing.
Are you referring to the school district? Sounds like it.
“’What the market wants’has NEVER been the standard environmentalists use to determine what is sustainable public policy.”
I don’t know man. I live in a 60 year old single family home that has offered a number of families shelter and equity growth over three generations. Hard to argue that isn’t a sustainable model.
“I don’t know man. I live in a 60 year old single family home that has offered a number of families shelter and equity growth over three generations. Hard to argue that isn’t a sustainable model.”
It is, indeed. And it will continue to offer shelter and equity (perhaps for hundreds of years, or more).
Though it seems to me that “equity” IS the problem in our system.
In reality, we don’t “own” anything. What we call “ownership” provides rights and responsibilities – that’s all.
If any entity owns “everything”, it’s the government (which has a permanent, increasing annual lien on all properties). And approximately half of all tax dollars (statewide) go to school districts, I understand. (I’m sure it’s much, much higher in Davis when considering DJUSD parcel taxes.)
In regard to real estate transactions, the primary entity that has a stake in that is the real estate industry.
Ron O against equity. LOL. You mean equity for me but not for thee.
Not sure how you’re deriving that from my comment.
I’m not sure that I’m ultimately a fan of some aspects of our system.
But for sure, we only temporarily “own” anything. Since I suspect you’re about the same age as me, we’ll “own” whatever we have for maybe 2-3 decades more, at “best”.
In my case, I’m not trying to provide an inherited advantage to my non-existent kids.
Impotence or abstinence?
Choice, but thanks for asking.
But it does seem strange that you can’t see the irony of your own dwelling providing housing for “multiple generations” (presumably not members of your family) since it was built 60 years ago, as you stated.
It’s called “turnover”, and it’s the reason that houses are for sale in Davis (and everywhere else) right now.
No one is “waiting for a developer” to build them a cheap house. And if they are, they’re probably incapable of owning ANY house.
In fact, I haven’t seen anyone on the Vanguard itself who claims they’re waiting for a developer to do so. Everyone on here is supposedly “speaking for someone else”. I don’t buy it – regarding the reason that some are pushing for sprawl.
“I don’t know man. I live in a 60 year old single family home that has offered a number of families shelter and equity growth over three generations. Hard to argue that isn’t a sustainable model.”
Here is what isn’t sustainable:
1) Single family homes lose energy from every exposed wall. Doubling your energy bill and carbon footprint compared to multifamily homes
2) the low density of single family neighborhoods means that transit cannot ever effectively have enough ridership to make sense.
3) Which means residents of those neighborhoods need to get into a car for pretty much every trip outside their home. The carbon footprint for that part of life just doubled again, and now we one additional car taking up room on the road, requiring a parking spot downtown…
4) The low density of the neighborhood means that sewer lines, water mains and electrical connections need to have exponentially longer runs to serve the same number people, and your property tax doesn’t pay for their replacen’t. So the city loses money on providing you basic services.
Maybe your problem is you think you know how others should live.
1. We insulated, we put in solar panels, we put in energy efficient windows, and appliances. I only drive 4000 miles a year. I haven’t been on a plane in a decade. You want to compare carbon footprints? Anyway aren’t these new homes going to be energy efficient?
2. In my neighborhood, people drive cars, but more and more they ride bikes or e-vehicles, or take one of three bus lines to UC or work from home. Your transportation assumptions are as old as my house.
3. Depends on how long you have owned your home. What is true is that newer buyers are paying well over $10,000 a year in property taxes and with extra assessments any home can pay enough to cover deferred maintenance, as was explained by Pryor above. The real free riders are the people who haven’t moved in decades.
I know I’m a neanderthal but how many years does a home need to provide families with shelter and equity before it is considered sustainable?
I’m coming late to this discussion, but the root of the problem is in this statement by Ceppos, “The cost to build a home in No CA (excluding land costs) is between $400 – $800 / sq ft,” he wrote. “So a modest sized 1,500 to 2,000 sq ft home will cost a minimum of $600,000.”
1,500 to 2,000 square feet isn’t modest. And $800 per square foot is the antithesis of modest. It is extravagant.
900 to 1,200 square feet with 2 bedrooms and possibly a home office since many people are working from home these days, is modest.