Building Up California’s Urban Core

A new report from the State of California’s Department of Finance came out this month showing that the population of California is in trouble. According to the report, “The reasons for the decline during this decade were, by order of magnitude, higher domestic out-migration, lower immigration to California, and fewer births.”

Why are people leaving?

We’ve had a number of friends who have left California in recent years. I’ll break down the reasons for this into two main buckets.

1. Rapid rise in the cost of living. When we moved here in 2008, the cost of living was net about 10% different from where we lived in Michigan. But since then the housing market has gone up exponentially. Houses that used to rent for $1500 are now renting for $3500. Houses you could once buy for $300,000 are now selling for $650,000. Several of our friends cashed out. They sold houses they bought in the downturn and took their $300,000 profits to pay cash for a house in another state. Others who missed the opportunity to buy low and lock in a mortgage got tired of rent increases of 5% to 15% annually.
2. Cost of doing business. It’s just too expensive to own and operate a business in California. Over and over again I hear people say they are moving their business to Nevada or Texas and cite their sole reason as cost. So what does the state legislature do in response to that? Pass more regulations and make it even more expensive to do business. 2020 will usher in a whole litany of new rules hurting small businesses. #facepalm

Why aren’t people moving here?

In truth, people move here all the time. But the rate of migration into California has obviously slowed. I’ve met a few people who have moved here from the Bay Area, New York, and Seattle who report that Southern California is affordable. But people aren’t moving to California for the above mentioned reasons. (And some people already living here are fine with that because, they say, our population is big enough as it is.)

Birth rate

Native born Americans are having fewer children and waiting longer to have children. Until we see immigration reform and reboot refugee resettlement, I would expect the birth rate in California to continue its decline. I pretty regularly see people say on Twitter that student debt is preventing them from starting a family. Er, I don’t think that’s how sex works but OK.

Encouraging the Redevelopment of the Urban Core of San Jose, San Diego, and Los Angeles with Deregulation

So what’s the fix?

We need more housing. Pure and simple. And, if you’ve driven through Orange County or the suburbs of the Bay Area… we’ve just about run out of space for gated communities, apartment complexes, and miles of cookie cutter condos. (Cough, Irvine.)

At the same time if you drive around San Jose, San Diego, and LA you’ll see square mile after square mile of 1930s-1950s era track housing… all of which is single-family, single story ranch housing.

Obviously, I know San Diego the best. So let’s use San Diego as an example.

Leave downtown San Diego in any direction and you’ll quickly find yourself in a sea of single-family ranch housing. There may be scattered apartment complexes or more dense housing here or there. But if you really look you’ll be stunned to see how little density San Diego has for being the 9th largest city in America.

Then you head over to Zillow and see what these houses go for. A 2 bedroom, 1 bath ranch… 725 square feet selling for $699,000. Or a 792 square foot ranch for $619,000. Or one of the really big, really old (1927), homes… a 1806 square foot home with 3 bedrooms going for $1,119,000.

It’s all quite ridiculous.

But head over to the tax rolls and you’ll really see what’s up. The houses themselves (e.g. Improvements) are valued at $150,000 and the land is valued at $500,000 and up.

It’s simply an example of supply and demand. A growing population, even with paltry growth of .35%, demands more housing. But since the urban core has very low density the price just goes up and up.

Death to the Ranch

Urban sprawl can’t solve this problem. I mean, we know that.

And while I think it’d be cool to reboot the Homestead Act and create a couple brand new cities in California, I don’t think that’s likely to happen.

But one thing that could make a huge impact for creating housing inventory in the urban core of California’s major cities would be to make it financially viable for owners of single-family, single story ranch houses to tear down their current homes and build multi-family, multi-story homes in their place.

Our house was built in 1954. It’s not historic. It’s not special in the least. (Though we love it, it’s our home.) But if I could go to the bank and get a loan for $300,000 to tear it down and build a 3-story house with our home on the first floor and 4 apartments above us… I’d totally do it. And I think a lot of other owners would, too.

Why? The apartments would more than pay for the cost of the construction and equity on our investment would skyrocket.

Plus, more housing would have tons of positive impacts on the entire region. (And obviously some new challenges.)

Would it change our neighborhood if half the houses did this? Sure. But it’s going to change anyway. We’ve lived here 10 years and the entire time I’ve heard people complain about change the whole time.

San Diego is a city in its toddlerhood. At some point we’re going to need to grow UP not just OUT.

So why isn’t this happening already?

1. Zoning prevents it. Most of San Diego’s neighborhoods are zoned R-1 which wouldn’t let you just head down to the city and get permits to bulldoze your ranch and put in an apartment building. You could apply for a variance… but you’d face an expensive uphill battle you’d probably lose.
2. City fees prevent it. Let’s say I just wanted to tear down my existing house and put a new one in the exact same footprint, still a ranch at the same square footage. The cost of construction would go up nearly $100,000 just on fees and permits alone. $150,000 project goes to t$250,000. Imagine that on an apartment building? Mucho dinero.
3. Lack of vision and leadership. Let’s face it. One reason the State or individual cities won’t let this happen is because the politicians that could do it lack the vision and leadership to get it done. It’s just easier for them to do deals with the devil. Are there politicians with enough gusto to push for and kickoff a massive rebuild of California’s urban core? Clearly, there are not.

So How Does This Happen?

Chicago had a similar problem in the late 19th century. San Fransisco had a similar problem in the early 20th century.

In both cases it took a disaster to change the regulations to allow for more density.

And if I’m really honest, I think that’s about what it would take for that to happen here in coastal urban areas of California in the 21st century.

Thing is, climate change might just be that disaster.