Briefing Report: Attack On The Suburbs

SB 375 And Its Effects On The Housing Market
Wednesday, April 25, 2012

A debate is raging among demographers who study how cities have developed and will develop in the future.  How will California cities and counties look based on the trends that these scholars predict? How do legislative efforts to shape these trends affect how Californians will live?

A study by the Urban Land Institute’s Arthur C. Nelson, The New California Dream: How Demographic and Economic Trends May Shape the Housing Market,  is contradicted by scholars like Joel Kotkin, a distinguished presidential fellow in urban futures at Chapman University, and Wendell Cox, a visiting professor at the Conservatoire National des Arts et Metiers in Paris.  Mr. Cox served for eight years on the Los Angeles County Transportation Commission in the late 1970’s and early 1980’s.  Both have written extensively on demographics and urban trends in California.

The Urban Land Institute Study

Briefly, the contention of the Urban Land Institute study is that the demand in California for traditional large suburban lots will significantly decrease over the next 25 years.  This is due to Californians’ belief that access to public transit is more important than other factors in choosing where to live.  The study also asserts that Californians’ desire for rental housing will increase by 5 percent immediately and by perhaps 10 percent over the next 25 years, which will cause a complete paradigm shift in housing preferences from single family to multi-unit housing.  The study concludes that the smart growth philosophy embodied by SB 375 (Steinberg-2008), which encourages transit oriented development and discourages urban sprawl, neatly fits into what is needed to meet these new housing demands. 

The Kotkin/Cox Contention

The Kotkin/Cox contention is the complete opposite of the conclusions drawn by the Urban Land Institute study.  In books such as War on the Dream: How Anti-Sprawl Policy Threatens the Quality of Life (Cox) and The City: A Global History (Kotkin), they point out the flawed conclusions of those who believe that the future lies in vibrant new urban centers that rely on tourism, the arts and entertainment to sustain local economies.  They point out the trend of the last 25 to 35 years of job creation moving into the suburbs and even into rural areas and the consequent movement of job seekers and young families into those areas.  While urban advocates contend that transit is the key to housing preferences today, Kotkin and Cox point to numerous surveys noting the continued preferences of young people to move to the suburbs to raise children, taking advantage of lower crime rates and better school systems that exist there.  In addition, contrary to the belief of many urbanists that the now aging Baby Boom generation will leave the suburbs and move downtown, the exact opposite seems to be true. 

Where Do People Want to Live?

If it is true that most people desire open space and suburban lifestyles, the push downtown will fail.  If it is true that the trend is changing and most people want to live in more dense urban neighborhoods, then the continued development outside of the urban core has failed and many of these areas will become ghost towns. 

A Pew Charitable Trust survey in January 2010 found that 73% of Americans thought it was important to own a home.  The National Association of Realtors 2011 Community Preference survey found that 68% of respondents preferred to live in a suburban or rural area, and 80% wanted to live in a single family home.  A Public Policy Institute of California survey in November 2004 found that 70% of Californians preferred a single family home with a commute over a condominium with access to public transit, and 86% of renters want to eventually own a home.

Kotkin and Cox use 2010 Census data to support their claims.  They note that the growth in urban areas are not in the cities central core, but in the suburbs and even further out into rural areas. 

Population Growth in Metropolitan Areas
Source: New Geography.com (from U.S. Census data)

Furthermore, among younger people, Kotkin and Cox show that 20-somethings tend to move out to suburban an exurban areas as they get older, get married, have children, and start businesses. 

Age 25-34 in 2000: Change by 2010
Source: New Geography .com

The Crux of the Debate

The debate between these two visions is over whether the future of housing policy lies in the continued development of new suburban areas with mixed commercial and residential zoning to provide a job and housing balance, or an increased emphasis on “infill development” where singles and families are encouraged move closer to central urban areas. 

The environmental movement has fully embraced the infill side of the debate to reduce what they consider the consumption of new land for development that increases commuting and thus the production of greenhouse gases that effect climate change. 

The truth, however, likely resides somewhere between the environmentalists concern over sprawl and the development community’s desire to satisfy the demands of the market.  Therefore, from a public policy standpoint, what can or should legislators do?  In 2008, the Legislature passed and Governor Schwarzenegger signed SB 375, authored by Senator Darrell Steinberg (D-Sacramento). 

SB 375 requires regional transportation plans developed by regional transportation planning agencies to include, and transportation funding decisions to be based on, sustainable communities strategies (SCS) in their regional transportation plans (RTPs).  It also requires those plans to achieve unspecified reductions in greenhouse gas (GHG) emissions determined by the California Air Resources Board, and provides incentives, such as relaxed environmental regulations and an 8 year housing element process, for local governments to adopt SCS’s if they align transportation and housing.

The intent of SB 375 is to give the California Air Resources Board the authority to approve a community's "sustainable community strategy" as part of a regional transportation plan and to steer state transportation funding toward communities that adhere to these plans.  In short, the "sustainable community plan" is a plan that meets a set of state imposed guidelines that result in the reduction of vehicle miles traveled by automobiles. The further intent of the sponsors of SB 375 is to change the development patterns of cities and counties inward, and away from "sprawl" that in their mind encourages long commutes and increases traffic, air pollution and global warming.

Senate Republicans unanimously, and the overwhelming majority of Assembly Republicans, opposed SB 375.  Republicans attacked the measure as centralized planning and social engineering that took away from locally elected officials their traditional role of planning for growth and development in ways that are desired by their constituents.  Local officials by and large enact community plans that satisfy local demands for various types of housing and commercial and industrial areas adequate to provide services and employment to their residents. SB 375 actually discourages this balanced approach to community planning and development.

SB 375’s intent is to restrict the supply of new homes in outlying areas in an effort to encourage the construction of housing in already existing neighborhoods.  If consumer demand supports this effort it will be commercially successful. On the other hand, if Californians continue to desire larger lots in suburban areas, then the only way to build housing projects in infill areas will be to subsidize them with taxpayer dollars, thus increasing the cost of housing to everyone else. 

The Effect on Affordability

We do not yet know the full effect of the SB 375 scheme on the overall cost of housing.  If we start to increase the supply of housing in the urban core, what will that do to the people who are currently living there?   Low income families will be forced to compete for housing with higher-income, higher-end developments.  The result could be to drive these families out of the urban core to outlying communities where the cost and time to travel to work will increase.  This is the exact opposite of the stated effect that the proponents of SB 375 desire.  In fact, this possible consequence of the social experiment that SB 375 envisions would discourage positive developments that communities within the state are undertaking. 

Because of large population increases in California since World War II, urban areas have been expanding further and further from the central core areas.   In California, this balanced approach to development has actually resulted in development of various "job centers" both downtown and in suburban areas. Local officials have sought and continue to find employers who wish to locate developments in these areas with good schools where families with children prefer to live. And these families’ commutes are shorter than those who choose to live downtown.  If SB 375 increases competition between low, moderate, and high income families to purchase housing, this longtime trend could be upset. 

Which brings us back to the original argument:  Will Californians move inward toward central cities and meet the dreams of environmentalists who advocated for SB 375, or will they continue to desire the relatively wide open spaces of suburban towns such as Roseville (Placer County) and Murrieta (Riverside County)?

Professors Kotkin and Cox believe that the desire to live in suburbs will continue, and point to examples of high density infill projects that have been abject failures.  In his article The Suburban Exodus: Are We There Yet? Cox states:

“Misleading ideas sometimes have bad consequences. The notion that suburbanites were afflicted with urban envy led many developers to throw up high-rise condominiums in urban districts across the country. Sadly for these developers, the Suburban Exodus never materialized, never occurred. As a result, developers have lost hundreds of millions, if not billions of dollars and taxpayers or holders of publicly issued bonds could be left ‘holding the bag.’”[1]

After citing several examples of failed condominium projects throughout the United States, he goes on to say:

“Around the nation, condominium prices have been reduced steeply to attract buyers. New buildings have gone rental, because no one wanted to buy them. Other buildings have been foreclosed upon by banks; and units have been auctioned. Planned developments have been put on indefinite hold or cancelled….Looking at the data, there remains little evidence that the stated preferences on which the predictions relied have been translated into the reality of a shift in preferences toward smaller lots in cores or inner ring suburbs. Domestic migration continues to be strongly away from core counties to more suburban counties. Core cities are growing less quickly than suburban areas. Exurban areas are growing faster than central areas, including inner suburbs.  Clearly, the Suburban Exodus has not begun and there is little reason to believe that it will anytime soon. ”[2]

Clearly, before the California Legislature decides to take over the community planning duties of local governments and engage in social experimentation with the housing market, it should perhaps look at both sides of the argument to see if the experiment will be successful. 

For more information on this report or other Housing issues, contact Doug Yoakam, Senate Republican Office of Policy at 916/651-1501.

 


[1] Cox, Wendell; The Suburban Exodus: Are We There Yet; New Geography.com, June 4, 2010.
[2] Ibid.