By David M. Greenwald
Executive Editor
A reader shared a presentation by Nick Arenson, President of the North State Building Industry Association on high density housing.
In his presentation he estimates that there will be 2.1 million new people in the Bay Area by 2040, which he calculates to 700,000 additional units at 3 people per household.
His main argument is once you get over 26 du/ac, the feasibility drops. For mid-rises, 50 du/ac, it is feasible without subsidy only in expensive markets.
For example, he asks if you can increase density to get more units.
He looks at Brentwood, CA – “a traditional and moderately priced Single Family area.”
He argues, “This is why mid-rise condominiums have not been built outside San Francisco for a decade.”
He said, “Increasing prices will make it feasible in some expensive locations.” But, “Given a choice, most buyers will pick existing homes rather than make compromises necessary for mid-rise living.”
This has been a point I have made with respect to Davis. Yes, Davis can add multi-family and higher density housing. But for a lot of people, if given the choice between paying more in Davis for a smaller home without a yard and a larger home outside of Davis, they will choose to live outside of Davis and potentially commute to work at UC Davis.
Those who want to argue that current land use practices are not climate friendly need to accommodate the fact that the choice is between housing in Davis with less VMT and housing elsewhere—which is also not climate friendly and which presents more VMT.
Another interesting point he makes is with respect to what he calls “fiscal zoning.”
He argues, “The idea that ‘housing doesn’t pay its way’ came from anti-growth 1990’s studies. At the time the Prop. 13 began limiting city revenues.”
He notes however, “Because of our severe and chronic housing shortage and dramatic price increases, market rate housing provides fiscal surpluses in most Bay Area jurisdictions.”
He also presents ways to increase housing production.
As I have mentioned a few times, I think our discussion needs to shift from housing/no housing to questions such as density and type of housing. That’s a more healthy and fruitful debate for the community to have.
I don’t know why Arenson jumps right to mid-rise housing in Brentwood as an example. No one would build that there in any case unless there are many walkable amenities next door. If one has to get in a car anyway, there’s no advantage to apartment living other than to lower costs. He doesn’t analyze where mid-rise makes much more sense such as the northern East Bay and SW South Bay.
The more interesting analysis, relevant to Davis, is the feasibility of townhouses and condos >20 du/ac, and even small yard SF (of which we have many of the latter here.) There’s also no reason to focus on 2700 sf houses–sub 2000 are still attractive.
This article from CP&DR may help add some clarity to the question…
Does Density Lead To Affordability? 11.19.23
https//www.cp-dr.com/blog
Among the 200-odd housing-related laws that the California has enacted since 2015, many – if not most — were designed to increase density in one way or another. Some laws encourage housing units where now there are only big boxes and offices. Some encourage developers to build higher in exchange for housing lower-income residents. Others literally put new housing in people’s backyards, by way of accessory dwelling units. The entire RHNA process is, essentially, an exercise in densification.
To an extent, this is the YIMBY dream writ large.
At last this weekend’s annual Journalists Forum at the Lincoln Institute of Land Policy, David Garcia, policy director for the UC Berkeley Terner Center for Housing Innovation, had the burden of summarizing all these laws. But he was joined by, among other panelists, Patrick Condon, a Vancouver-based planner and professor who predicted, provocatively, these laws may simply lead to more expensive housing.
For at least as long as the YIMBY movement has been around — calling for, broadly speaking, as much upzoning in as many places as possible — Condon has questioned the orthodoxy of density.
Condon has lived in Vancouver long enough to see high rise condo and apartment buildings rise on a peninsula–which includes its central business district–like the redwood trees that covered it a century ago. Vancouver also encourages duplexes, fourplexes, “lane houses” and other forms of suburban upzoning. Since 1970, Vancouver’s population has increased by more than 50%, from around 420,000 to nearly 665,000; thanks in part to pro-density zoning, its number of housing units has doubled, according to Condon’s numbers. Its density is over 14,000 persons per square mile–fourth highest in North America.
And what happened to its housing prices? They are, according to Condon, among the highest in North America, with the average house costing 24 times the average annual salary.
So Condon cautions that increased density does essentially
nothing for housing costs.
“Land prices absorbed all the benefit of that new supply,” said Condon. “Because the capacity of those parcels was increased in terms of the financial return on it, it’s reflected in this tremendous rise in land value.”
To explain: If upzoning, say, doubles the number of units allowed on a given piece of land, the seller will calculate the upzoned value and raise the asking price accordingly,
thus sticking it to the buyer, who must, as a matter of necessity, pass on the added cost to residents. In Vancouver, Condon says 40% of the rent or price — at whatever density — goes right into the land.
Anybody who’s been involved in a transaction involving a piece of newly upzoned land will understand this. It’s the reason, why, say, prices for a tract of modest homes near my home in West Los Angeles shot up after the adoption of the city’s TOC ordinance. Enticed by the possibility of density bonuses, developers were willing
to accept inflated prices in order to build a multi-hundred unit building. On a micro-scale, there’s no doubt that the potential to build an ADU or duplex in place of an existing single-unit home can raise the price buyers are willing to pay (a phenomenon I personally felt in a recent, unsuccessful, quest to buy a house in Los Angeles).
Condon insisted that, absent a policy mechanism to moderate land prices–such as, perhaps, a Henry George- style land value tax — this pattern is almost inevitable. He suggested that the only way to ensure that upzoning does not raise housing costs is to require aggressive inclusionary provisions so that the cost of below-market- rate units substantially counteract, on average, those of “luxury units.” He pointed to none other than Cambridge’s recently adopted 100% inclusionary requirement. (He did not, though, explain how these projects would pencil out, though he might argue that land sellers would have to settle for less and, thereby, enable developers to break even.)
As Condon repeated several times, his argument spells bad news for anyone, especially YIMBYs, who hopes that upzoning will reduce housing costs. To his credit, though, Condon is not nearly as much of a curmudgeon as certain venerable density scolds who favor Valencia over Vancouver. Emphasizing that “adding density is a good thing,” Condon acknowledged that density may embody other, nontrivial benefits that outweigh–or at least offset–whatever its costs might be. He cited reductions ingreenhouse gas emissions, increases in transit ridership, and diversity of housing types.
What, then, does all of this mean for California and it’s 5 bazillion new housing laws?
At a glance, it doesn’t bode well. California’s coastal cities, at least, share a lot in common with Vancouver. And yet, there’s reason to believe that, even if Condon is right about Vancouver, he may yet be wrong about California.
Most obviously, Condon’s argument is arguably a straw man. Many YIMBYs would acknowledge that increased density is not necessarily intended to lower housing costs. YIMBYs might be satisfied if the density simply reduces the rate at which housing costs increase. That’s where Condon’s analysis is incomplete: might Vancouver’s costs be even higher in the absence of upzoning? Is it possible that Vancouver did not upzone enough? Or, is it possible that British Columbia did not upzone enough?
Whatever Vancouver has done, its housing market still exists alongside those of Burnaby, North Vancouver, and even Victoria. As the Terner Center’s Garcia pointed out, jurisdictional inconsistencies in California have often kept housing supply constrained and costs high. Even if Emeryville or Oakland says “build, baby, build,” its new units do next to nothing to counteract the reticence of Lafayette, Walnut Creek, and all of Marin County. “Oakland is pulling its weight, but suburbs prop up housing costs,” said Garcia.
Rather than focus growth on one small peninsula, as the upzoning in Vancouver has done, most of California’s new upzoning laws apply statewide. Notwithstanding cities that complain about (and sometimes sue over) Sacramento’s incursion on their sacred right to self-determination, if every housing-constrained region and jurisdiction in the state has to upzone, then we might actually get an economy of scale, and we might actually meet aggregate demand.
Of course, the demand for deed-restricted affordable housing will always outstrip the market’s ability to supply it. This is where Condon’s admonishment really comes into play. Roughly speaking, most cities’ RHNA numbers require zoning for roughly equal amounts of market-rate and affordable housing. But, of course, there are no laws, incentives, or funding programs — locally or statewide — that approach the 100% density bonus in Cambridge that Condon touts.
Whether you’re Cambridge or Canada or anyplace in between, urban economics will always involve combinations of alchemy, soothsaying, and dead reckoning. We can’t predict the future, and we can’t control for every variable. Whether Condon is right, wrong, or somewhere in between, his analysis is crucial for at least one reason: it compels us to define our goals and acknowledge that reaching some goals may be at cross-purposes with reaching others.
Then again, given the number of new housing policies in California, it’s hard to keep track of all the goals. And, maybe that’s the point. If this goes well, California might just stumble its way into affordability and abundance. And, really, we’re going to have to. At those prices, we can’t all move to Canada.
– JOSH STEPHENS | NOV 21, 2023
Two factors that make Vancouver unique and difficult to extrapolate from: First, it’s on a peninsula like San Francisco. The West End is the densest area in Canada–it’s Manhattan. Second, Hong Kong Chinese used its Commonwealth status to buy gobs of property in Vancouver to be ready to emigrate to Canada. That wave sent the Vancouver market into the stratosphere.
Land constraints are certainly one of the primary factors in those urban environments. But that doesn’t change the fact that land values go up significantly when land is upzoned; even in more suburban areas. If I can squeeze in 6 smaller units compared to 1 larger unit; I’m probably building more total square feet. So while the price/cost per square foot may be less (though usually not proportionally so), I’m getting more total square footage to sell which is going to be reflected in the land value/cost….which in turn is passed on to the buyer/renters. Land constraints mean that higher density has to be built and higher density units will be what consists of the new supply and what will be for sale. But that effect is in addition to upzoning land cost increase that happens regardless of the development conditions (land constraints) of an area.
This goes back to what I’ve been saying here for years. Relying on for profit builders that build market rate housing is not a solution to housing affordability issues. The upzoning and gentrification effect is exasperated (builders don’t build homes unless they can make max profit….they’re target market is always going to be the top of the market or higher (looking at an area that draws in people that can spend even more money). Builders tend to constrain supply as well to maximize profits by their scheduling of land acquisition, construction and home releases on the market. All these factors in the very least nullifies the benefits for profit builders provide by adding to the supply of housing.
What a story this article tells! Just look at the first graphic of the article and ask yourself what a 2,750 square foot house in Davis will sell for, and then subtract the $550,000 cost to build it from that number. That means the builder/developer is ONLY getting $300,000 per residence profit! Oh woe is me!
The graphic also causes me to flash back on a housing affordability question asked many years ago by a Council member. It was directed at a developer standing at the Council Chambers public comment lectern. “Couldn’t the homes be much more affordable if you built them at 1500 square feet or less?” The answer the developer gave was consistent with the graphic … his answer was “I’ve never built a 1500 square foot home! I’ve never even considered building a 1500 square foot home. I will never ever consider building a 1500 square foot home!”
https://davisvanguard.org/wp-content/uploads/2023/12/Arenson-1.png
Developers don’t care about the Missing Middle. It doesn’t generate enough profit for them.
“O’ what a tangled web we we weave when we practise to deceive.” Sir Walter Scott
Even if one accepts the numbers provided as accurate the author conveniently omits two key elements in his cherry-picked data.
First, the annual costs of Government are closely tied to the number of people served, not the number of residential units. The average number of square feet of a $300,000 house is definitely lower than the average number of square feet of a higher priced house … and the more the square feet rise in number, the more the average number of residents rises. So, if his example $1,334 annual costs are for a 2 person occupancy of a house, moving up to 3 persons increases those costs to $2,001 per year.
Second, the author has conveniently chosen a snapshot of the first year of a residence, while ignoring the effect of inflation over time on both Revenues and Costs. Revenues for ownership homes in California in long-tenure ownership cities like Davis grow at a little more than 2.0%. Rental properties almost never change ownership under Prop 13 rules, so they only inflate 2.0% per year. On the other hand, Government costs rise at close to 4.0% … and those are only the actual spent costs, which don’t include the deferred costs that Governments do not actually spend because of Revenues shortfalls. The cumulative effect is that any budget surplus quickly evaporates and becomes a budget deficit.
https://davisvanguard.org/wp-content/uploads/2023/12/Arenson-3.png
This analysis also probably leaves out the main thing that Strong Towns found that pushes single family residential underwater: The long term cost of replacement utilities: roads, sewer, electrical. I doubt that this analysis has that cost amortized under “public works and community services”
Short term SFH looks good, long term it is a ponzi scheme.
Prop 13 forced this Ponzi scheme on to cities. As Matt points out, existing home taxes will only rise at 2% a year, yet just to cover existing activities, a city’s costs are likely to rise 3-5% a year, and that excludes any new investments or even replacement of infrastructure at substantially higher costs than original installation. Prop 13 is at the root of the need to continually grow and put up new buildings that are assessed at much higher values per SF.
There’s one way around the fiscal imbalance of new development which is to give local governments the state’s share of the property tax increments, like what was done with redevelopment agencies. It’s not that radical of an idea–the state ran the “triple swap” a couple decades ago to even out sales tax revenues.
Hey, I’ve got an idea: why doesn’t the state make it possible for a city to annex ag property for affordable housing, even if the landowner doesn’t want it annexed.
And this is the point I keep making when you bring up this point: WE SHOULDNT CARE.
Seriously. Look at the volumes involved. 20,000 people commuting in every day. Village farms is 1800 units…
There is NO scenario where realistically we can capture 100% of the inbound commuters. NONE.
We CANNOT worry about the hold-out you speak about here because there is NO pleasing everyone.
Yes, there are a significant number of people who have never lived in anything other than a single family home, and cant imagine doing anything else… thats fine. What is MUCH more important is that there are LOTS of people who WOULD live in more sustainable local housing IF we made it avaliable. Since we only have a few building sites, lets focus on THEM.
What we absolutley should NOT do is fail to provide higher density housing for the people who WOULD inhabit it, for the sake of making less efficient housing for people who resist more responsible housing. Lets serve the most sustainable options FIRST.
That means that the only single family housing we should even be considering is the housing needed to provide profits that under-write land dedication for capital-A affordable. That is an acceptable tradeoff in my mind.
And of course, there is always the factor that single-family housing here in davis is quite likely NOT going to be occupied by somone who is currently commuting in.. chances are good that it will be occupied by someone commuting OUT.
So that entire argument is moot. It solves nothing.
Well said Tim, very well said. However, I think if you and Jim sat down together, I suspect you woul have a whole lot more agreements than disagreements
I actually wasn’t trying to respond to Jim… I think I hit “reply” in the wrong area. My response was to David… who is well aware that we disagree on this point 🙂
Thank you for the clarification Tim. I stand by my original comment. If you and Jim sat down together, I suspect you woul have a whole lot more agreements than disagreements
Seperate point: I agree with Richard’s comments above that place and context, and proximity to other services and transit are all important factors. You cannot just say “more density” and expect it to work like a magic bullet.
For example, I was playing with my density map around the village farms development and found that my previous metric of an average 20 units / acre density across the entire project probably doenst make sense in the real world, because the property is so long north-south that the upper parts arent within walking distance of a reasonable transit line that you might be run across the property’s southern edge.
Getting to an average density of 20 / acre is critically important for sustainability and making effective use of transit… but if you cant serve the area with transit, you are by default asking for a lot of cars… which is counterproductive. So if we are going to ask for density in that project, we need to be asking for density in the areas that CAN be served by transit, and then asking ourselves seperatley if it makes sense to zone for car-accessed housing.
Two quick final points:
1) We should be happy to zone a LOT more projects that are closer to 26 du/ac. No arguments here. That isnt a problem. Its a big step up from single family. I will take 26du all day long.
but
2) Despite his analysis, the market in our city is showing that this isnt a limitation on successufl projects here, because we have multiple successful projects that have come in above 26 du: The Identity project on russell is 82du / acre, Sterling is 32 du / acre, the downtown projects I havent calculated but they are all going to be in the 60+ range as well.
We dont “need” high-rise or even mid-rise structures that exceed 40 du/acre… EXCEPT in core / arterial areas where they make implicit sense. For the rest of the city, we primarily need townhomes, co-ops / low-rise condos, more student apartments, etc.