ON THE HORIZON: A Residential Building BoomOct 22, 2020 02:47PM ● By Harper Klein
While life has changed dramatically since last March—working from home, social distancing, virtual learning—Bay Area rents, in most places other than San Francisco, have not declined. According to Zumper, the average price for a one-bedroom apartment in Walnut Creek is currently $2262/month, up 1% from last October. The challenge for the future is how to build housing that is affordable.
“In order to afford housing in Walnut Creek, a minimum wage earner must make $32.68 per hour, which at current rates equates to a 148-hour workweek,” explains Margot Ernst, housing program manager for the City of Walnut Creek. Middle-income earners, like teachers and firefighters, she says, are living with roommates and taking on multiple part-time jobs, as well as cutting back on eating out and non-essential purchases to live within a reasonable distance to where they work.
“In a healthy economy, you’re spending 25% of your income on housing,” says Ed Del Beccaro, executive vice president and Bay Area regional manager at TRI Commercial.
“At present, anyone earning under $80K/year is spending over 50% of their paycheck on rent. To qualify for the purchase of a $1 million condo, for example, your income needs to be $300K/year." As a result, Del Beccaro says "we are seeing a mass migration of Bay Area residents to places like Bend, Phoenix, Salt Lake City, and Denver in search of a more affordable lifestyle.”
HOW DID WE GET HERE?
Tech companies are widely blamed for causing the housing crisis with an avalanche of Bay Area IPO’s that created thousands of new millionaires, flush in cash and ready to spend it, driving up home values and apartment rents. However, policy experts say it is rooted in decades of resistance by local communities to build new housing. “Over the past six years, Bay Area rents have skyrocketed so high, two people working full-time minimum wage jobs cannot afford housing in the nine-county Bay Area," says Ernst. “Beginning in 2007, we were not permitting enough housing to be built in the state to meet the projected need. This trend hit crisis mode in 2015 as the population and job market continued to grow, but housing inventory did not keep up with the demand. It continues to unfold today—1.5 million more affordable rental units are needed in California to meet the current demand.”
If you’ve followed the debates surrounding California’s housing crisis, you’re probably well versed in the term NIMBYs—the “Not In My Backyard” crowd who staunchly oppose new development, fearing it will threaten the “character” of their suburban/urban communities. Historically cities and counties played a significant role in determining development patterns. When residents became concerned about new housing, they used the community’s land use authority to slow or stop housing from being built or require it to be built at lower densities. “The days of city and county control over housing are coming to an end,” says Del Beccaro. “The state of California is on a mission to enforce RHNA (Regional Housing Needs Allocation) requirements—the mandate requiring all California cities, towns, and counties to plan for the housing needs of residents—regardless of income.”
Currently, Walnut Creek has about 500 units of affordable housing in its portfolio. New developments like the 135-unit NOMA project (above) on the former Fuddrucker’s site will add 11 affordable units, while St. Paul’s Commons on Trinity added 44 units—a mere drop in the bucket to meet the rising demand.
BUILD MORE HOUSING
While constructing more housing seems like an easy solution, multiple layers of lengthy government reviews, local growth controls, community resistance, land shortage, and CEQA (California Environmental Quality Act) inhibit the process and contribute to the high price of rental development.
As it stands, the housing situation is getting worse, especially since the pandemic, with homeless counts rising in cities like Los Angeles, San Francisco, and Oakland. The pace of California's development is slowing, with some developers suspending projects because costs are so high that even multimillion-dollar condos and $4,000-a-month rents won’t yield a profit. Construction of a single subsidized unit of affordable housing in California is estimated at $450,000—a figure that jumps to $650,000 in Walnut Creek.
Despite surging demand, cities across the state continue to fight against state-mandated housing development citing infrastructure constraints and increased congestion. “Housing is fundamental to a good quality of life and a strong local economy. People need places to live,” says Councilmember Cindy Silva. “Walnut Creek is growing but at a very slow pace. Over the last 20 years, our growth has averaged about 0.5% per year or 325-350 people. To minimize local impacts, through the General Plan process, the community made an informed decision to focus new housing near the downtown and sustain Walnut Creek's 2,700-acres of open space and protect the character of single-family neighborhoods.”
According to a widely cited figure that originated in a 2016 report by the McKinsey Global Institute, California needs to build 3.5 million housing units by 2025—more than three times the current pace—to address its shortage and regain any semblance of affordability. Cities across the state are facing the hard reality that making sacrifices—upzoning, raising height limits, increasing density—are the only paths forward to housing their growing populations.
In October 2019, Governor Gavin Newsom signed Senate Bill 330, dubbed the “Housing Crisis Act of 2019” which took effect January 1, 2020. Designed to speed up construction over the next five years by slashing the time it takes to obtain building permits, limiting application fees, and barring local governments from reducing the size and scope of projects. “The state requires more housing be built,” says City Manager Dan Buckshi. “The number of units built in Walnut Creek will be going up perhaps as much as 100%.”
(Sources: Yardi Matrix, CoStar, Federal Reserve Bank of St. Louis, California Association of Realtors, San Francisco Business Times, Mercury News)