Zoning

California Enacts Two Important New Zoning Reform Laws

Senate Bill 9 and Senate Bill 10 would make it easier to build new housing in much of the state.

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Yesterday, California Governor Gavin Newsom signed into law two bills that significantly diminish zoning restrictions that block the construction of new housing in that state. This is a significant step because zoning and other regulatory barriers are the main cause of housing shortages and resulting high prices that lock millions of people (particularly the poor and lower middle class) out of areas where they could otherwise find valuable job opportunities. In addition to preventing many people from "voting with their feet" and finding job opportunities, these policies also greatly diminish overall economic growth and productivity, thereby harming the nation as a whole, not just those immediately effected. Recent evidence suggests that the problem is even more severe than previously recognized.

There is a strong cross-ideological case for ending exclusionary zoning. It would simultaneously massively expand opportunities for the poor and minorities, eliminate major violations of private property rights, and boost economic growth.

California has some of the most restrictive zoning in the entire nation. Because of the state's size, location, and economic significance, its restrictions cause more harm than those anywhere else in the country. Until now, zoning reform in California has been stymied by opposition from "NIMBY" interests, progressives suspicious of free markets and property rights, and some conservatives (though the latter have little power in the overwhelmingly Democratic California legislature). But the enactment of SB 9 and 10 is a major shift. Here is a helpful overview of the two bills. And here's a more detailed description of SB 9, the more important of the two laws.

To briefly summarize, SB 9 allows owners of lots in areas currently zoned for single-family residences only, to build a second housing unit on the property. In addition, they can also divide the lot into two separate properties. A property owner who takes both steps can increase the number of units on his or her plot from one to as many as four.

Significantly, SB 9 exempts the new housing it authorizes from a variety of constraints often used by local "NIMBY" groups to block new construction, such as the CEQA law, which local activists have leveraged to stymie all kinds of new development, including even forestalling an increase student enrollment at a major state university.

A study by the Terner Center for Housing Innovation at UC Berkeley, which is more pessimistic than many SB 9 supporters, still finds that the bill would allow the construction of some 700,000 new "market-feasible" residences, though it also warns that the actual results are likely to fall short of this figure, because it will take time to do all that building, and many owners won't take advantage of their new rights. Still, even if the true figure turns out to be only half that many, that's still 350,000 new homes, enough to house a million or more people.

In addition, the passage of SB 9 by large majorities in both houses of the state legislature could generate momentum for further zoning reform. Given California's political and economic significance, reforms that succeed there could also be copied in other states.

Orange County Register and Reason columnist Steven Greenhut, an expert on California politics and public policy, has some additional thoughts on the potential benefits of SB 9 here. Among other things, he rightly criticizes those conservatives who have betrayed their own supposed commitments to property rights and family values by allying with NIMBY Democrats to oppose the bill.

SB 10 is a much less sweeping bill. It allows, but, unfortunately does not require, local governments to upzone parcels located in "transit-rich" or "infill" areas for up to ten housing units. SB 10 is a considerably watered down version of previous reforms offered by its principal author, State Sen. Scott Wiener, California's—and perhaps the nation's—leading legislative advocate of "YIMBY" housing policies. The obvious limitation is that the decision on whether to proceed with  upzoning rests in the hands of local governments—the very entities most responsible for blocking new housing construction in the first place.

Still, a large part of the state fits in the areas covered by SB 10, and at least some entrepreneurial jurisdictions might take advantage of it. And, like SB 9 (though probably to a lesser degree), the passage of SB 10 could help generate momentum for further reforms.

Even under the most optimistic assumptions about the effects of SB 9 and 10, these reforms will fall well short of fully addressing California's housing crisis. But they are major steps in the right direction, as are similar recent successes in other jurisdictions. Hopefully, reformers can learn from and build on these victories.

 

 

 

 

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  1. Orange County Register and Reason columnist Steven Greenhut, an expert on California politics and public policy, has some additional thoughts on the potential benefits of SB 9 here. Among other things, he rightly criticizes those conservatives who have betrayed their own supposed commitments to property rights and family values by allying with NIMBY Democrats to oppose the bill.

    I read his piece but nowhere does he actually name any conservatives/Republicans opposing it. Nor does he give a number. So I’m guessing maybe one RINO in the CA Legislature spoke out against it over coffee one time.

  2. ” . . . SB 9 exempts the new housing it authorizes from a variety of constraints . . . ”

    The need for “exemptions” is the clearest indicator of a bad law. Either the law containing the exemptions is a bad idea, or the law being exempted is worse. Those exemptions make a definite statement that the law will not be “fair” in the sense of ‘equal justice under the law’.

    1. “Exemptions” are a way to restore the dictate part of dictator, allowing the executive to speak the law from his mouth, in exchange for fun and profit with cronies or politically powerful groups who won’t like you, like your rich NIMBY donors.

      1. This voids equality before the law. Saying you’re still all equal, and you can equally make your case for exemption, is like an anti-gay marriage yokel facetiously saying gay men are equal under the law with straights, as they both have the same right to marry a girl.

  3. This is a significant step because zoning and other regulatory barriers are the main cause of housing shortages and resulting high prices that lock millions of people (particularly the poor and lower middle class) out of areas where they could otherwise find valuable job opportunities.

    Skeptical of that; sounds more like the voice of free market ideology than the voice of experience. But glad to add another chance to test it in the wild.

    Problem is, whatever the regulatory barriers are, high or low, they tend to be a fixed cost per development project, but maybe higher the more units you put in. Why wouldn’t the economics of the development business always favor fewer units sold for more money each? Also, projects based on high-end sales will tend to suffer less exposure to happenstance, such as economic downturns, mortgage rate fluctuations, and local opposition.

    Why would anyone but an idealist struggle to get rich building low end housing and selling to the poor, when he could more easily get rich by selling to the rich?

    1. Because eventually you run out of rich people? Why do markets generally result in lower prices of goods? (I mean, why doesn’t Coke charge $5 a can? Someone would surely buy at that price, right? So why isn’t it optimal? I’m being facetious, but you begged the question in favor of an obviously wrong answer).

      1. This. “Why would anyone try to sell stuff to the poor?” is such an obviously dumb argument that I can’t believe anyone makes it, and yet it comes up all the time in housing arguments.

      2. Squirrelloid, a problem to look at is that the free market has not run out of rich people, and it is not building much inexpensive housing. If those things were happening, we would not be hearing unfounded attacks on zoning, based on counter-factual free market assertions which nobody even tries to prove with examples.

        For free market zealots, experience which challenges ideology always gets blinked at. They defend their ideology. They disallow or explaining away facts to the contrary.

        Problem is, where the criticism is that there is little or no supportive evidence (come on, why are folks complaining about no affordable housing if the free market is supplying it?), you really do have to put up or shut up. Naked appeals to rationalistic ideological constructs are not evidence. At best, they offer plausibility as a substitute for facts.

        I don’t reject free-market principles. There are circumstances and cases when they work fine, and prove useful. In such instances, free market principles can be the very best guides to policy. It is always socially advantageous when problems get solved that way, instead of requiring government interventions.

        Unfortunately, free market zealots lack flexibility to reciprocate. They lack willingness to criticize free market principles in instances where they do not work. Bystanders don’t even dare hope that will happen. Scorched earth defense is what they have learned to expect.

        Ordinary people can see that free market solutions are not in sight for housing problems, health care supply, workplace safety, pollution problems of many sorts, generic drug problems, automation-caused job loss, social welfare challenges, climate change, public health emergencies, ecological problems, and a host of other policy challenges. In response, all the free marketeers seem to do is deny such problems exist, or insist that the free market would fix them, if only ideal market conditions were put in place.

  4. “‘market-feasible’ residences”

    That could mean apartments, tiny houses, shotgun shacks…

  5. Destroying single family zoning is actually an attack on “property rights and family values”.

    Single family homes are the best thing for families. Space and privacy and quiet enjoyment.

    Zoning in 1930 did diminish property rights as they existed then but now, 90 years later, the value of a single family home includes zoning protection. The right to enjoy your home will now by destroyed by tenaments to your left and right. Increased noise and less privacy.

    1. Imagine you have just signed up for a mortgage on a one million dollar detached ranch house – not especially unlikely in California – and your neighbors on both sides sell to a developer who tears their old homes down to build duplexes.
      The value of your home just dropped 30%, putting you deep under water. This will not happen in Newsom’s neighborhood because values are too high to speculate on a duplex, so no harm there. The only people to suffer are middle class. And Newsom might just pick up some Latino votes.

      1. The purpose of my lot and home is to house me and my family, not to boost your already excessive property value.

        You want to control the land around your house, buy it. And it was kind of foolish to invest $1M on the premise that you’ll be able to control the behavior of all your neighbors.

      2. “The only people to suffer are middle class.”

        Yes, its a left wing attack on the middle class. Aided and abetted by rabid libertarians for some reason.

    2. It said one of the options is divide a lot into two lots. That means two single family houses. Each of which has as much right as you, Bob, to enjoy a home.

      If I encounter a new neighbor who thinks they’ve “bought” control over everyone else’s property use, I start planning another tire garden or maybe put one of my extra vehicles up on blocks. Best to drive those people out before they put down roots.

      1. Four units on most suburban lots often will be tiny.

        But that’s just the mandatory law, localities can go further.

        “local governments to upzone parcels located in “transit-rich” or “infill” areas for up to ten housing units”

        Its a developer profit act.

        “I start planning another tire garden or maybe put one of my extra vehicles up on blocks. ”

        You seem nice.

        1. I’ve got some sympathy…well more like tolerance… for private developments that were planned in advance for people want to live in a gated community where no one can have an unauthorized species of tree or the wrong color brick. If they put that into deed restrictions and all the residents knew it up front I would say the state should not override it.

          But a city annexing neighborhoods inhabited by people without OCD and putting zoning laws on it to satisfy the Karens? I’m happy to see the state override that.

  6. I think you are misusing “fixed costs”. Fixed costs by definition are ones that *don’t* scale with the quantity produced or sold.

    “Why would anyone but an idealist struggle to get rich building low end housing and selling to the poor, when he could more easily get rich by selling to the rich?”

    The buyers would not be the poor, and this legislation is not a means to solve homelessness.

    The buyers would be middle-class people who could afford a home if a shortage of supply was not driving prices out of range. There are plenty of them and in “normal” parts of the country develops get filthy rich catering to that market. The new law is an attempt to nudge California a little bit in the direction of normal.

    1. Sorry, this was supposed to be a reply to Steven Lathrop.

      1. ducksalad, do you suppose property ownership ought to confer unlimited scope for any use of the property you choose? The zoning law says single-family residence, but you insist you can operate a rendering plant?

        If not that, how do you draw the line? And who should draw the line?

        1. These are reasonable questions. I’d say that if the uses are truly incompatible, for example a rendering plant, then whoever was there first should generally win. And such a rule does not require zoning. More like “no new rendering plants within 500 feet of an existence residence”. And even then, there’s no need for a the rule to be a general law. Many people are blase about such things, I live next to a power plant. It could be addressed by a notice of construction requirement giving people a chance to file a lawsuit against the proposed nuisance.

          However, that’s a bit of red herring with respect to this CA law. I don’t see that the mere existence of a duplex or quadplex in the neighborhood makes life unbearable for anyone. If someone really can’t stand seeing one, they should seek counseling to help deal with the stressful fact of other people’s existence.

          On your last question: if there has to be a collective decision and a rule enforced by police, of course it should be done through democratic mechanisms. The libertarian premise is that most things should not be decided collectively and most things should not be enforced via the police. Not as an absolute, but always as the initial premise and the start for negotiating on whatever new imposition you’re dreaming up.

    2. This or that local market won’t change much w.r.t. rich or middle class or poor housing.

      However a developer earns most of the money from building and selling the house. It is very tempting to squeeze in as many homes as possible, as they will get sold, so people wanting a roomy subdivision will probably want to buy an old farm instead. And sell to a developer when growth encroaches anyway.

      1. Krayt, let’s explore some implications.

        A probably incorrect assumption in the OP is that zoning artificially inflates real estate prices. In many areas, and especially in prospering cities where there is heavy housing demand, the reverse has proved true.

        Present zoning caps real estate prices, by restricting density, and thus enables real estate purchases by people of lesser means. Without the zoning, development would push density potential higher, and proportionately increase per-lot prices, restricting ownership to richer buyers, encouraging landlord-style ownership, and reducing opportunity for real-estate driven wealth gains by ordinary people.

        Urban area residential zoning has actually served as an egalitarian wealth generator for many ordinary Americans. Folks who started out with ordinary homes purchased at blue collar prices got a free ride on the escalator of neighborhood change, as decades of improving urban opportunity gradually upgraded the status of their neighborhoods. There are many such neighborhoods in the Boston area. Georgetown in Washington, D.C. stands as the most conspicuous example of similar trends there. That happens all over the nation. Seattle has seen it. Denver has seen it. Portland OR has seen it. Portland ME has seen it. Except in a few unfortunate areas in active decline, it has happened nearly everywhere.

        A flip side of that is that demand for relaxed zoning does not come from ordinary working people. It comes from real estate speculators and developers, who hope to time investments to take advantage of lower prices which present low-density zoning affords them, and then cash in after zoning relaxation boosts prices. Speculators well understand the value of an investment which pays for itself over time, and which also affords a big upside if rules change in their favor—or can be made to change.

        You may hear those folks extolling zoning changes in principle, as a means to lower housing prices. That is not what they hope for. It is not what they intend. It would dis-serve their interests. And collectively they have the power to make sure it does not happen.

        What speculators and developers calling for zoning relaxation intend is to reorganize housing ownership and management in existing urban markets. The aim is always to multiply existing rents times higher density, and then to raise those rents later. Quite often that happens with little change to anything but the law—little or no new construction, maybe some renovation. After which, investors can cash out at will on the basis of an enormously multiplied property price—which has put property ownership in that neighborhood permanently beyond the means of ordinary purchasers with ordinary jobs—while the renovated housing stock has been made unsuitable for family-style living, thus boosting complaints of housing shortages.

        It would be nice if free market nostrums worked in urban real estate markets the way promoters say they will. Too much experience shows the opposite.

        1. So let me get this straight – limiting housing stock decreases house prices? Increasing supply increases prices? I call BS. No market works like that.

          1. Squirrelloid, urban housing markets with heavy rental demand and approximately 100% lot build-out work like that. The high build-out hampers adding more buildings; limited-occupancy zoning decrees depress the market prices of existing buildings.

            You may have overlooked that I was talking about the price to purchase the real estate, not the rental price. As a practical matter, what happens is this: after you relax the zoning, landlords cram more people into a house by renting per-bedroom. They try to keep the rent where it would have been anyway, per rental, but raise it in the aggregate, per building. Tenants who need to be there pay the rent they would have paid before, even though they are getting much less for the money—they have no choice.

            The value of the real estate goes through the roof. At the same time, you lose available housing for families, because they cannot even pay the new per-bedroom rental rates, let alone pay to buy the real estate. Later on, the landlords raise the rental rates. Before you know it, everyone is complaining that only yuppies (singles and couples, not families with kids) can afford to live there.

            I saw that happening in New Haven 50 years ago. I have seen it over the years in D.C, for almost as long. It has been a widespread pattern in the Boston area since I first moved there, more than 3 decades ago, and even despite rent control (now gone). Of course it happens in New York. It’s everywhere.

            Most of those places there has been concurrently ongoing condo construction, putting up so-called, “luxury,” buildings. Sometimes those have been built courtesy of urban redevelopment which wiped out less-expensive housing that was more urgently needed—for instance, the infamous story of the Boston Scollay Square district. Somin is right to oppose projects like that, but apparently ideologically blind to the insight that he is calling for a solution on the free-market process which makes that happen.

            Part of the reason that pattern persists seems to be that the free market gets to pick and choose among investments, and apparently selling real estate to people with less money is less profitable than selling real estate to people with more money. So when it comes to providing rental housing for tenants with American median incomes, the free market does not much choose to step in. It is busy making more money elsewhere, and paying lobbyists to adjust the government.

            Maybe it works differently in places where there is less overall demand for housing, and more unbuilt land. But note, those are not the places people who complain about zoning are citing as underserved.

            1. I think you are missing the big picture here.

              Yes, in your stories the landlords were collecting more total rent. But more people were housed, and individually they were not paying more rent (I’ve been in such places, and renting one room is not as costly as renting the whole place. It’s more than the original price divided by the number of bedrooms, but nowhere close to the original price.)

              Your complaint seems to be that if landlords can house more people they can collect more money. Even if I thought there was something wrong with profit, which I don’t, it would be totally outweighed by the fact that more people got to live in the neighborhood/city/state they wanted to.

              If you’re going to do social planning you could at least give some attention to where the people you prohibited through zoning are expected to live.

              1. ducksalad, I have had an example in mind, which is the city of Somerville, MA, where my son currently lives, and where my wife lived before I met her. We have lived experience to gauge the changes. Three points:

                1. The places either get rented by the bedroom, or they get family use by the bedroom. A three-bedroom place inhabited by a family would typically be inhabited by a 4-or-more person family, because at least the husband and wife share. Shared bedrooms are less common among per-bedroom rentals, so compared to family whole-unit rentals they probably average less people per unit, not more—three people in a 3-bedroom, instead of 4 or 5 for a family.

                2. The question whether the post-changeover rents are higher or lower is a bit harder to untangle for particular units at particular times. But I insist that comparing rental prices between neighborhoods—both in the Boston area and in others I have experienced—shows that the family-rental neighborhoods are less expensive per bedroom than the per-bedroom rental neighborhoods. I have done rental searches on my own under both conditions, and the comparisons were not even particularly close. Where I have been, the per-bedroom rental tenants pay more per bedroom, not just more per apartment.

                3. Those points above exclude another aspect to which relaxed zoning opens the door: out-and-out exploitation, and the law be damned. The New Have rentals I mentioned above involved off-campus private rentals in the vicinity of a state college for would-be teachers. All the tenants seemed to be young women, who were so desperate for housing they signed up for bedrooms so packed with beds that each person had to get out of bed singly, because there was room for only one person to stand and dress at a time. I heard from the tenants that some of the apartments featured 6 or 7 beds in each of 3 bedrooms.

                1. I have three responses:

                  1. If we accept your claim that loosening density restrictions increased prices, doesn’t that mean tightening restrictions would decrease prices? That if Somerville said all lots must be 10 acres, with single family houses of no less than 4000 sq ft, more people would be housed at lower prices? If you don’t think that – and I assume you don’t – then maybe we should conclude instead that real estate prices are complex and that your lived experience of higher prices and higher density was caused by other factors. Like Somerville being a hot location.

                  2. Some people need or want a place to themselves, some are OK with a bedroom, some even actively want to have housemates. I don’t see why we need a one-size fits all solution, even if we accept your theory about what minimizes rents.

                  3. And finally, the desperate exploited young women of New Haven you are so concerned about. I think you ought to very explicitly answer (a) where they would live if zoning had banned them from living in New Haven, and (b) whether they would have preferred that other place. And if you answer yes to (b), then the follow up question is what is preventing them from moving to that other place right now. If you answer no to (b), maybe you need to ask yourself why your opinion of their welfare outweighs their own.

        2. A probably incorrect assumption in the OP is that zoning artificially inflates real estate prices. In many areas, and especially in prospering cities where there is heavy housing demand, the reverse has proved true.

          Literally nowhere in the history of the universe has this ever been proved true. This is worse than your “I don’t see as many bugs on my windshield as I used to when I was 8 years old” argument.

          1. Just to clear up ambiguity, when I said “this” I meant what you referred to: “the reverse.”

            1. Don’t worry, Nieporent. I didn’t pay any attention. I know you were upset because I challenged your ideology. But I explained how it works, based on lived experience. You just spouted. Pretty much like you did after I mentioned the disappearance of too many bugs over the decades—which I also knew from lived experience, but which is also a focus of scientific study by experts, which you can look up.

              1. “Lived experience” is invariably a euphemism for “made it up.” But even if a particular claim of that nature happened to be accurate, it would comprise nothing more than an isolated anecdote, and would thus be valueless.

  7. How do these laws impact deed restrictions? At least in Texas, deed restrictions (imposing set backs, minimum house size, single family only, HOAs) provide far more protection for existing homeowners than zoning.

  8. California . . . a leader in American progress.

  9. The overall effect will be the driving up of land prices, and will not lower the price of the homes in the slightest. The developer has to consider the loss from the home if the developer proposes new dwelling on the two lots, and the sellers of such property to recover the estimated value of the property to the the buyer who proposed change to the property.
    Everyone will try to maximize their profit over all of the dealing and nothing will result in lower prices to the buyer
    Buyers buying duplexes or fourplexes after to consider occupancy problems and must adjust the overall rates to recover vacancy losses. Up go the prices for everyone
    Former Senior Property Agent for State, and FHA appraiser for 30 year

    Unless, of course, the country goes into depression when everyone loses money!

    1. “Everyone” will be trying to maximize profit? You seem to be assuming there are only sellers and no buyers, or that all buyers are flipping or renting out, instead of trying to purchase a place to settle down and live.

      In the case of split lots with single family detached housing, the obvious market is resident owners. Even in the case of duplexes and quadplexes, lots of owners live in one of their own units. Furthermore, duplexes and quadplexes can go condo, and in highly desirable places that’s a likely outcome if the law doesn’t prohibit it.

      So I don’t think there will be a shortage of parties to transactions who are interested in paying less, rather than trying to drive up prices.

      “Buyers buying duplexes or fourplexes after to consider occupancy problems and must adjust the overall rates to recover vacancy losses.”

      This is equivalent to saying if a grocery isn’t able to sell their lettuce and it’s rotting, they’ll have to jack up the price to $50/head to “recover” their losses. Sure, they can try, but it won’t work. What will actually happen is they’ll get out of the lettuce business. And perhaps some duplex developers will stop if vacancy rates get high, but then we’re no worse off than if they hadn’t been allowed to build duplexes in the first place.

  10. NO, I am assuming that the real estate market will work the way it works. If you make a change in the rules that will allow more housing on a lot, then the value of the land goes up as the speculators try to get in on the market for land.
    I live in a nice area where homes are too expensive for me today. If they change the ability to build additional homes on the lot, then the developers will value my home higher as the possible income to be derived from the real estate will be seen as increasing if you can increase the housing that can be built on the land.
    No one will build additional housing unless they can make money doing it.
    Of course the government will love it, land goes up, taxes go up, prices go up, and the government has more money to spend, and the low income do not get the housing they need.
    believe as you wish.

    1. OK, I’ll readily concede that land prices (and tax revenues) *per acre* will go up if more intensive use is permitted. That seems obvious. I will also concede that the value of a large house on a large lot will likely go up, just like it would if the land was suitable for a shopping center.

      But the argument in favor is that there will be more (and smaller) housing units total. And perhaps, but less certainly, the price per unit (not per acre) will go down due to increased supply.

      It seems to me you want the government to keep land less valuable, through usage restrictions, so that it’s cheaper for you to buy a large lot with the kind of house you want. Briefly, less restrictions -> higher prices. Lathrop is saying the same thing.

      But then on this same thread, other people, who like you are also opposed to loosening restrictions, are claiming it would destroy their property. Briefly, less restrictions -> lower prices.

      And both are implying they’re real estate experts. At least one of you is wrong. When the experts disagree I’ll just go with default market principles – more supply pushes prices lower, and if prices rise instead, as they often do, it’s *despite* the increase in supply, not *because* of it.

      1. Not true, possibly, because demand, if based on a rising population, lowering interest rates, and limited growth potentiality, will seldom produce enough property to produce a sufficient supply of a goods to result in lowering of prices of goods such as housing.

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