According to the US Census, the state of California is home to 12% of the country’s population and only 10% of the housing stock. The difference might not seem too jarring but it is the equivalent to an inventory shortage of hundreds of thousands of units required to meet the demand of renters and homeowners in California.
In the middle of 2017, the total inventory for sale in all of California’s large metro areas decreased compared to the same time in 2016. In San Jose for example, home inventory for sale was 29% lower compared to one year ago.
Weathering the current inventory shortage requires a joint effort between builders and the government. The good news is that progress has already started – several bills were passed recently in California for increased housing targeting low to moderate-income residents. Included in these bills are elements that modify current local zoning codes in order to:
- Increase density in strategic areas
- Create a more streamlined approval process
- Develop more sustainable communities
Graduated zoning changes
At the University of California Los Angeles (UCLA,) researchers suggested another idea: graduated zoning changes. The term “graduated zoning” represents a two-step process – changes in zoning are made by the government to increase housing and get the attention of private developers. This is a stark difference to the government’s use of eminent domain to take property for a different purpose.
For example, let’s say the government wants to use an underutilized area to build a low to moderate-income housing development, but several dilapidated single-family homes need to be dealt with first.
Under eminent domain, the government will simply seize the properties and compensate their owners. Under graduated zoning, developers will buy out the owners and build the units. This is an organic approach that can help the city achieve their desired level of density, as it results in a more seamless and gradual change and is backed by private enterprises.
Incentive for owners
Researchers from UCLA analyzed the effects of graduated zoning on Simi Valley, the first city to implement the plan.
Four years after the zoning change was introduced in an underused section of the city, the area (which encompasses more than 30 acres,) went from housing eight single-family homes to more than 200. Once the local government changed the law, the private developers handled the rest. It offered benefits for multiple parties, including the newly housed residents, the construction workers, the builders and of course the city which gained more taxpayers.
For cities which want to encourage builders to create more low-tier housing, graduated zoning is an ideal solution. Builders who include a percentage of low or moderate-income units in their new developments may be motivated by tax incentives provided by the local government. This approach isn’t perfect however, as it results in loss of taxes for the city and has only a minimal effect on its overall housing shortage.
While graduated zoning may take some time before it’s widely accepted, it is something that can greatly help local governments dealing with a shrinking housing stock.