Quote:
Originally Posted by CAGeoNerd
I'm a little more socialistic than you guys from the sound of it. What I'd like to see is the state and cities building housing themselves, not relying on private developers or "the market" to do it. I'd like the City of Sacramento to build housing on parcels throughout the grid. If they can build it non-profit or low profit then it should be cheaper than private developers who need to extract profit for their investment. It seems like a clear piece of the solution to me, but there is so much entrenched interests that either frown upon or outright combat that from happening, it's a shame.
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I understand what you're saying. Whenever we're faced with tough economic issues like this, we tend to turn to Mama Gubment to make everything better. However, I think government solutions are a very black and white, one-size-fits-all band-aid for a much bigger problem, that has a lot of gray area and complications.
The main issue is prices... they are too damn high. But that's what you get when the market is not allowed to truly sort things out. We call problems like this a "Market Failure" but that is an incorrect label. The market is not failing at all. It is responding (as it should) to the complications that we have created.
Labor and materials are roughly 2/3 the cost of construction:
The construction labor shortage goes all the way back (at least) to the last economic downturn. You had workers that were paid well (probably too well) who lost their jobs and did not come back to the construction labor market. (I guess they all learned to code.) The new generations do not want to do manual labor. Why would they, when they can get a loan for college? Plus, the construction labor unions make it kinda hard to break in to the business. I read somewhere that construction labor costs are roughly 20% higher in California than they are in other western states.
California requires that buildings be made from much more efficient and stronger materials than other states. These materials cost more. Add in the effect of tariffs, and they cost a lot more. Add in the fact that materials are now demanded all over the globe (ghost cities in China), and they cost a sh$t load more.
In addition to higher labor and materials prices, then, you have contractor licensing requirements. Then, you have local impact fees that can be as high as $20,000 per unit. (Local government impose impact fees because the property taxes they levy each year are not enough. This is usually where the anti-Prop 13 people rear their heads and say, "See! We need higher property taxes." Yeah...that sounds like a good idea. Instead of streamlining government and cutting costs, the state and cities should be allowed to raise them so high that a retired person can't keep his house.) Then you have CEQA lawsuits. Then you have every other barrier to entry that you can imagine.
You think that removing the profit motive, by having state and local governments be the investor, will work? The last thing you want to do is subsidize high prices. They just get higher. The more dollars you have chasing after a finite resource, the more that resource costs. The cure for high prices (in a "free-er" market) is... high prices. People stop seeing the value in investing or consuming high priced goods, they pull back and the market has to adjust. OR competition comes in and says "I can do it cheaper," and the market has to adjust. Unfortunately, we keep printing and spending money, while we increase barriers to entry for competition. Consequently, there is no incentive for prices to drop.
I mean, wasn't there a report recently about "affordable" housing in California costing somewhere around $500,000 per unit to build? These are subsidized, affordable housing units! Think about that. Why are they so expensive? Well, those units still have to meet California's strict standards; and they are still built by laborers who are in short supply and cost too much. Plus, only a select few contractors even qualify to build affordable units.
You want to gubment-built housing to be the standard in California? In addition to everything mentioned above, you'll have to pay
California
Rental &
Affordable
Places board members and bureaucrats (probably 1000s of them) to administer such a large government program.
Where would the state and local governments find the money? How many units do we need to build in California? Tens of thousands? At $500 K a unit, you're looking at $5 BILLION dollars for just 10,000 housing units. Good luck.
Again, there is a major pricing problem that has been created by a lack of labor, too many regulations and inflation. Should we be sending so many kids off to college, to major in Lesbian Dance Theory? Does every new unit really need to have $10-15 K solar system built into it? Should interest rates be so low?
As an aside, I really don't think that asking for a 15-20% return on your investment over 10 or 15 years, while the government is inflating our currency, and you can do much better in the stock market, is greed. I think it's smart.
If I had one criticism for business in the United States, I would say that it is waaay too focused on the short-term and not interested in the long-term. However, I understand why. As I said in a previous post, when the dollar you make today is only worth 90 cents tomorrow, you kinda have to focus on the "right now."
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