ECA NEWSLETTER 8-8-19

John’s Soapbox

Fellow ECA Members-we are in a housing emergency. I do not believe this is the first time you have heard this.

What is insane is that we need housing, and local government is moving towards adding costs to building that housing just like they did in the 1990’s when housing became too expensive to sell and developers stopped building. We should be making it easier to buy entry level housing for young working families trying to buy their first home.

We seemingly have forgotten why the developers stopped building in the late 1990’s and early 2000’s when local, State and Fed laws added costs to new housing construction (that’s when California tiger salamander, wetland, urban growth boundaries, and other local regs. added costs to building new housing). Our workforce could not afford the cost of new homes, so developers stopped building them. The cycle of local government adding costs to new hosing repeats itself as we are now looking at required solar and required all electric houses in 2020. Insanity. I predict the same result will come from raising the prices via Government interference and our already critical housing crisis will only get worse.  If you think the price of housing is not related to the well being of our community, think again. Your workers need a place to live, and we need to install infrastructure and services to those needed new housing starts. Long-term, we need to keep building or risk a cut in services by Cities and County that could affect our lifestyle.

Where do I come up with this outlook? Much of it is from the Sonoma County Economic Development Board studies that are available on their website.

1. The 3 largest employment sectors in SoCo are: Trade & Transportation, Education & Health Services, and Leisure & Hospitality
2. All 3 of SoCo largest employment sectors pay below average salaries compared to the rest of California
3. More than 1/3 of SoCo residents commute out of County to work
4. More than 1/3 of local SoCo jobs are filled by workers who live outside of SoCo
5. 74.4% of all SoCo businesses are businesses that have less than 10 employees
6. Minimum wage has increased and there is pressure from Progressives to increase minimum wage to $15 or $20/hour.
7. SoCo was 15,000 housing units short of demand before the fires of 2017 hit. In the nearly 2 years since the Tubbs Fire, about 1400 homes are under construction or completed. We are on a pace of approximately 800 housing units per year being built.
8. The State of California, in response to climate protection groups, has made it a law starting on Jan 1, 2020 that all new houses and apartment buildings have solar panels installed. This adds $10-20,000 minimum cost to each housing unit.
9. Local Cities and the County of Sonoma are considering new REACH rules as a result of climate protection groups that include a requirement for all electric houses-no gas, by Jan 1, 2020. This “all electric” requirement adds $20-40,000 to the price of each housing unit in 2020 and beyond.
10. Contractors building fire rebuild housing have had to rely on out of town trade workers to come in to meet the building demand. Those out of towners get compensated for living expenses which in turn drives up the cost of our local workforce wages. Housing costs are up 10% – 20% and most of the increase is due to increased labor costs rather than increased material costs.
11. The main reason for being 15,000 housing units short in 2017 is that in the 1990’s, local government initiated a lot of additional restrictions on housing starts such as: impact and development fees, Open Space restrictions, Wetlands restrictions, California Tiger Salamander restrictions, Urban Growth Boundaries, and some Affordable Housing fees. Developers were running out of easily developed land, and many projects ceased to “pencil out” for the developers and housing units slowed to a “crawl”. A decade later, the Recession of 2008 hit, and all housing starts stopped being built.

What do these facts indicate to me as related to the housing crisis? 

1. With wages in the top 3 employment sectors paying below average salaries, it will be harder to qualify for a mortgage because housing costs are high in SoCo. This is true even though mortgage rates are quite low. Lenders are tougher following the Recession of 2008 in lending money.
2. Many of our jobs in SoCo are in lower paying leisure & hospitality sectors so those workers are not likely to qualify for a home mortgage even if housing was available.
3. With 33% of the workforce coming in to SoCo to fill the jobs, and with many of these workers at the lower end of the pay scale, I see an even higher percentage travelling in to SoCo in the near future as folks at the lower end of the pay range can afford to live in areas of Mendo, Lake, Napa, and Solano Counties easier than in SoCo and Marin Counties. This will put pressure on Highway 101, Highway 12, and Highway 37 in excess of the traffic pressure those roads are already getting.
4. Increasing minimum wages to $15 or $20/hour will really hurt the 74.4% of all SoCo businesses that have less than 10 employees. In other areas where minimum wages were increased, businesses laid off many of the lower wage workers so less jobs were available. I suspect we will see some unemployment numbers rise if minimum wages are raised.
5. Because of the pressure climate protection groups are putting on our State and local legislators, laws are being passed that are adding $30-$60,000 to the price of a newly built housing unit. This increase will eliminate a large segment of the lower paid first home buyer market as they will not be able to qualify for the mortgage.

I do not know what they are thinking. Seems to me, if you do the exact same thing you did in the 1990’s and the result was a construction slowdown, do it again in 2020 and you get—–ANOTHER CONSTRUCTION SLOWDOWN. I hate to be the one to say no to these climate protection groups, but someone must at least raise the question if we can afford to increase the cost of housing to “protect” our carbon levels. I think we cannot afford it.

If you would like to see “insanity” in action, please look at the flyer linked below where the local “climate protection” folks will explain why it is such a great idea for all electric houses at an additional cost of $20-40,000 a unit. August 14 is the date to see the insanity! Click here for the pertinent info—

That’s All Folks

John