Why Buy A Modest Home in California for The Price of a Texas Mansion? – Pacific Research Institute

Why Buy A Modest Home in California for The Price of a Texas Mansion?

It can cost a half-million dollars more to build the same-size house in California as it does in Texas. The number of adults surprised by this is roughly zero.

While California ranked no. 3 in new home construction in 2017, housing supply still lags far behind demand in the most populous state in the country. Builders just can’t keep up.

Consequently, the housing shortage “has resulted in home prices that are more than 2.4 times higher in California than in Texas and 2.2 times higher than in Florida,” according to Pete Reeb, a principal at John Burns Real Estate Consulting.

“In Texas, they have one new home community under construction today for every 10,000 people. In Florida, they build one new home community for every 20,000 people,” Reeb wrote in an April 2018 report from his company.

“In California, the ratio is one community per 45,000 people. The result is that we have clients who build and sell substantially the same house in Texas for $300,000 as they build in California for $800,000,” said Reeb, who is based in San Diego.

Nearly a year later, Reeb told PRI that the gap is “probably pretty similar.”

In his report, Reeb says homebuilding in California is severely handicapped by:

“Zoning. California has a very lengthy entitlement process. According to our Northern California expert Dean Wehrli, it can easily take eight to 10 years or more to get a master-planned community approved for development, and it’s a BIG IF that you will even get approvals, while subdivisions that already have substantial conformance with local zoning laws can take three to five very expensive years.

“Fees. Most California municipalities require development fees from home builders that add $25,000 to $70,000 in some areas – substantially higher than in Texas and Florida.

“Environmental compliance. While California arguably has lots of land, wide swaths are off limits or require expensive environmental remediation per state laws, the most notable of which is called the California Environmental Quality Act, or CEQA.”

Yet again, CEQA gets the blame. And every bit of it is deserved.

To work around the barriers, Reeb says California builders have been forced to improvise and are often the “first to innovate many new home and community design features,” such as:

  • Detached townhomes, usually with 15 units per acre but sometimes as many as 30 as permitted by Los Angeles’ small lot ordinance.
  • Courtyard/green court homes that provide private outdoor space on small lots to offset the lack of a common open area.
  • California rooms, which are outdoor spaces with indoor amenities, “similar to a porch but more posh.”
  • Staggered garages.
  • Roof decks atop single-family homes.

Innovation is healthy when it’s a market response. But it’s more a survival response when forced by restrictive public policies and excessive regulation.

But that’s the burden California home builders must work under – and part of the reason a modest California house costs as much as a mansion in Texas. 

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.

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