The television cameras were rolling and the press was taking notes.
The chief executive of the city housing commission was in attendance, as were representatives of the nation’s largest bank. We were celebrating the opening of a successful 184-home community in Southern California.
And we should have had every reason to be happy: Willing buyers were lining up. Local officials had given us almost unprecedented cooperation, in part because almost 20 percent of this new project of $750,000 homes were set aside for low and moderate income people.
My company was being praised for building many of these homes. But beneath all of the good feelings, I felt something was wrong. At first I couldn’t figure it out. Then I realized exactly , and obviously , what was that was bothering me: Everything.
Everything we were doing, everything we were praising, represented everything that is wrong with California housing policy today: Lots of great words backed up with lots of harmful actions.
The topic occupying our attention that day was inclusionary zoning, an increasingly popular practice where local governments require homebuilders to set aside 15 percent to 20 percent of their units for low and moderate income people in return for the entitlement to build.
Ignoring The Obvious
Maybe that was the first thing that bothered me: We had to pretend we were not being forced to do something that would have been done anyway, if the people who were forcing us would just get out of our way.
At the risk of stating the obvious , but in setting housing policies, the obvious is usually ignored , all of the costs of providing these subsidized homes for the 38 families were picked up by the remaining 146 families.
Some people believe the builder pays these costs. But as builders, we know we don’t pay fees, we just collect them.
And here are some of those costs for these 38 homes:
– Land: $1.52 million.
– Cash subsidy from developer: $315,000.
– School fees: $243,000.
– Development impact fees: $346,000
– Plan check fees: $18,000
– Water and sewer fees: $95,000
– Project total: $2.54 million
Now, divide this among 146 people who bought new homes, and you have a total cost of $17,387 per homebuyer. Finance this over 30 years, and that adds about $170 a month to their mortgage, for a total extra cost of $61,000.
Putting a $61,000 tax on new homes is a curious way to make new homes more affordable.
Fairytale Solution
The second thing that bothered me is that the people who created this fairyland solution thought it was OK as long as they believed they were socking the builder with the cost. Even if that were true , and we know it is not , that would give us the worst of both worlds: Higher prices and lower profits. Both guaranteed to destroy new housing, not create it.
It gets worse: To qualify for one of these homes, the new residents have to prove their income is below a set amount. If they move and start making more money, they lose their house. Housing disincentive, thy name is inclusionary zoning.
But if builders and new homebuyers have to take a financial hit from this Eastern bloc practice, you may be sure local governments are still getting a full slice of their piece of the cake: They collected full fees on the homes they were trying to make more affordable.
In 1984, my company produced new homes with a starting price of $39,000. As late as 1989, we were still building homes for as little as $69,000. These were the condos and townhouses that were the critical first homes that most people could afford , and amounted to about 50 percent of all the new homes built. No one had to force us.
Today, abuses in construction defect law have almost eliminated the condo builder from California. Almost every condo project built in California over the last ten years has been hit with a construction defect lawsuit. The Legislature has consistently refused to intervene and fix this problem. Result: no moderately priced housing.
So today, the same government that drove the builders of real homes out of the market of real low-income property is trying to foist inclusionary zoning on us because somehow they say we are to blame for not building enough of these homes.
If California homebuilders had the chance, we would be building enough high-density, high-quality homes for everyone who wished to buy one. And there would be no need for local governments to foist Alice in Wonderland solutions on a housing market desperate for homes, not pipe dreams.
Instead, we get inclusionary zoning. If we want a housing policy that will actually create more buyers and more sellers, it’s time we start insisting on the obvious. If we want to make housing more affordable, let’s make it less expensive with fewer fees, not more. If we want more people to afford homes, let’s encourage them to earn and save more. Not less.
Killing New Homes
Local governments cannot kill thousands of units of housing on one day, and the next add a few low cost units to another project and think they are actually making a difference.
Inclusionary zoning , and the kind of thinking that created it , kills new homes. That is obvious. And while it is also obvious to say inclusionary zoning is accomplishing the exact opposite of what it was intended to do, maybe we should consider another explanation.
Many of the people who fight so hard for inclusionary zoning are the same ones opposing our projects in other places. And inclusionary zoning is a very effective way to help them achieve their goals of fewer homes.
And that is why they were celebrating. And why the rest of us should not.
Pattinson is the president of Barratt American in Carlsbad and the past president of the San Diego County Building Industry Association.
