The first steps toward fixing the housing crisis (part 3 of 3)

In the final segment of his three-part analysis of Santa Clara County's housing crisis, Randal O'Toole of the Thoreau Institutes outlines how to start undoing the failed policies of the past that led to the current affordability debacle, with an eye toward increasing tax revenues as well.

The fears expressed in the 1960s that urban sprawl didn’t pay for itself or that it threatened farms and open space are unwarranted. The United States has 1.1 billion acres of agricultural land and only uses about a third of it for growing crops. The number of acres used for growing crops has declined not because of urban sprawl but because per-acre yields of most major crops are growing faster than the nation’s population. Only 3 percent of the nation and 5 percent of California has been urbanized, and urbanization is no threat to open space.

Santa Clara County, for example, was only 26 percent urbanized in 2010. Rural areas include hundreds of thousands of acres of low rolling hills, many of them immediately east of San Jose. These hills might be used as range for cattle but are far from prime farmland. Supposedly, the hills were excluded from the boundary because they are steep, but most of them are far less steep than fully developed hills in San Francisco. The highest and best use of these hills would be to open them up for housing and other urban development.

The question of whether growth pays for itself is complex because it depends on state and local tax rules (which means proposition 13 influences the answer) and numerous other factors. The most recent “costs-of-sprawl” study found that low-density housing imposed about $11,000 more in infrastructure costs per dwelling unit on communities than high-density housing. Since San Jose’s density policies have added hundreds of thousands of dollars to the cost of a residence, a mere $11,000 would be considered far more affordable.

Studies that claim that new residential development doesn’t pay for itself, especially in light of proposition 13, usually ignore the fact that such developments are inevitably accompanied by new retail, commercial, and industrial developments. The biggest community cost of new residences is schools, and the taxes paid by owners of those residences may not cover school costs. But retail, commercial, and industrial developments pay taxes too even though they don’t send any children to schools. When the tax revenues from all of these developments are considered, growth does pay for itself. In fact, taxes per household were far lower in 1970 than they are today.

It is useful to compare California with Texas, where counties aren’t even allowed to zone, much less impose urban-growth boundaries. Texas developers subdividing unincorporated land frequently design master-planned communities that include single- and multifamily homes, parks, schools, retail, and commercial areas. To provide the infrastructure needed for these communities, they often create municipal utility districts that sell bonds to pay for roads, sewer, water, and other utilities. Homebuyers and other property owners then pay an annual fee to repay these bonds. Irvine, California is an example of such a master-planned community, but it would be nearly impossible for a developer to build such a community in the San Francisco-San Jose region today.

Conclusions

Given the urban-growth boundary and the demand for more workers in Silicon Valley, the region appears to have little choice but to build high-density developments. But Hamann’s policy of allowing and annexing low-density housing produced more tax revenues for the city and much more affordable housing.

Fixing this problem will require action at both the state and local level. The state legislature, at the very least, should exempt changes in urban-growth boundaries from California 

Environmental Quality Act requirements for environmental impact reports. It would also help to abolish LAFCos so that cities, whose views of rural development are biased by their desire for tax revenues, have no control over rural home construction.

Once the region is allowed to change growth boundaries, it should abolish rather than simply expand the boundary. Mere expansions will lead to rapid speculative bidding on all of the land within the boundary which will keep land prices high. Elimination of the boundary will allow land prices to fall to levels determined by supply and demand rather than by artificial constraints.

Silicon Valley is one of the greatest generators of wealth the world has ever seen, and that wealth generation does not depend in any way on policies that have made housing unaffordable to most people. Building more high-density housing will not make housing more affordable both because of high land costs and because construction costs of mid-rise and high-rise housing are greater than for single-family homes. Eliminating the laws, ordinances, and regulations that restrict new developments of single-family homes will make the region’s housing much more affordable and significantly add to the net wealth generated by the region.

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Image by John ‘K’.