ARTICLE
If you follow the Santa Cruz County Chamber through this weekly eNews digital communication resource, you know that we spend a lot of time talking about housing. The cost of housing, access to housing, affordable housing, housing near the river, in the downtown, mixed-use housing projects, and how housing developers should build more and more affordable housing units per project regardless of whether the development can be built. It is no mystery to those in the housing world that California and Santa Cruz County do not meet our regional housing needs. There is fundamental question that is left dangling in the proverbial wind. We hear about the nascent state law that requires cities and counties to build a specific percentage of housing for very low, low, and moderate income households. This law is buried in administrative policy led by each region’s planning agency, in our case, the Association of Monterey Bay Area Government (https://www.ambag.org/plans/regional-housing-planning) AMBAG prepares the Regional Housing Needs Assessment (RHNA) plan for Monterey and Santa Cruz Counties. The RHNA plan establishes the total number of housing units that each city and county must plan for within an eight-year planning period. The amount of housing a region must plan for is largely determined by the California Housing and Community Development Department’s (HCD) housing needs assessment. Since 1969, California has required that all local governments (cities and counties) adequately plan to meet the housing needs of everyone in the community. Every four years or so, the housing elements of cities and counties are reviewed and scoped out to establish new guidelines by a community’s current housing make-up. A few years back, State Senator Scott Wiener on a visit to Santa Cruz to discuss housing legislation called out the RHNA housing numbers as a shell game between the state government that set the standard and the local government planning department executives who “wink and nod,” suggesting that sure we can produce those units in eight years. All you have to do is look at the results in our region. Not very transparent when everyone knows we are not meeting the standards. A coalition of concerned housing advocates in the tri-county region (Santa Cruz, Monterey and San Benito), led by the Monterey Bay Economic Partnership, kicked-off a planning discussion on how to help local government address our housing assessments. This is the beginning of a long process that could bring more clarity to how these housing elements actually reflect on the real-world, present-day state of housing accessibility and affordability in our county and region. Recently, I was provided a link to a very curious article in The Atlantic about the housing and rental market in America. Derek Thompson, Staff Writer, entitled his article: ‘This Is Unprecedented’: Why America’s Housing Market Has Never Been Weirder. Even the title sparked my interest so I dug into the short few-minute read. Thompson opens up his storyline with, “In almost any other year, a weak economy would cripple housing. But the flash freeze recession of 2020 corresponded with a real-estate boom, led by high-end purchases in suburbs and small towns. Even stranger, in America’s big metros, home prices and rents are going in opposite directions. Home values increased in all of the 100 largest metros in the US, according to Zillow data. But in some of the richest cities—San Jose; Seattle; New York; Boston; Austin; San Francisco; Washington, DC; Los Angeles; and Chicago—rent prices fell, many by double-digit percentages. In many cases, the gap was absurdly large. In San Jose last year, home prices rose by 14 percent (the sixth-largest increase in the country) but the area’s rents fell 7 percent (the sixth-largest decline).” We hear the constant chatter, that it is the high income earners (think Silicon Valley techies) who can working remotely and are pushing out the locals in the housing market — because they are cash ready to buy where the local workforce doesn’t have the immediate capital to invest. I called a couple of local real estate agents to get their take on our market. Understandable — one agent said — of course the folks with money in hand are buying up the $2 million property at Pleasure Point as a second home. There is influence from buyers outside the county, but there are many locals who are moving from apartments to condos and condos to single family homes. The agents said it is a confluence of issues — a shortage of available properties on the market, low interest rates, and an urgency that buying property is a better long-term investment strategy than relying on a stock market that has been up and down like a yo-yo this past year. All of this, of course, being somewhat fueled by the uncertainty of the coronavirus and the possible move to increase rates. All told, what was a strong housing market in a whirling economy last year is now red hot. Today, millennials are entering the housing market for the first time as they are learning fast that a median-priced house will have 20+ offers, further sending the prices upward. Thompson’s article asks the question — “What’s going on?” Some observers have pointed to the severe shortage of single-family houses that has resulted from the slower pace of building in the U.S. since the last real-estate crash. Short supply is clearly pushing up housing prices. Others point to plummeting interest rates that have encouraged people to seize the opportunity to get a cheap mortgage. And then there’s the wave of new young families seeking more permanent housing, as more millennials enter their 30s.” These factors are all relevant. But none of them quite explain why the pandemic has created such an unprecedented disconnect between rents and home prices. Understanding this divergence begins with understanding the broader divergence of our “K-shaped” economy, in which the K represents the forking fortunes of the rich and poor during the pandemic. While many hourly workers in restaurants and brick-and-mortar stores have been hit hard by lost wages and unemployment, millions of knowledge workers in white-collar industries such as tech and finance rode out the pandemic by staying (and staying, and staying) at home. They relieved their cabin fever with a heavy dose of online real-estate shopping. You can read Mr. Thompson’s article here: https://amp.theatlantic.com/amp/article/618212/ One of the unique parallels of this housing market in the middle of the pandemic is the rise of younger home buyers comparable to the housing boom in the 1950s that was fueled by housing construction after WWII. “There are an unusual number of people around age 30 in America right now, and they have been unusually likely to live in central cities,” Jeff Tucker, the senior economist at Zillow, said. Indeed, the number of 30-to-39-year-olds in America is about to reach its highest point in history, and those are prime home-buying years. One analysis of New York City by the real-estate website StreetEasy found that rents, while increasing somewhat in the low-income parts of the city hit hardest by the pandemic, plummeted in richer neighborhoods. That fits one of the big stories of the pandemic: high-income millennials using 2020 to trade their downtown apartment rentals for urban and suburban homes. So how does the national trend in big cities relate to Santa Cruz and our laid-back beach communities? We are at this prime time tipping point in the next few years. In closing, Thompson made this fascinating observation: “According to Chris Salviati, an economist with the online rental market Apartment List, rents are rising again in almost all of the hardest-hit rental markets, including San Francisco, Boston, and Washington, DC. As rents increase, so will buyer’s remorse. We are already seeing the emergence of a new genre of feature profile in major newspapers: the city slicker who moved to the suburbs, and hates it there. One needn’t frame every story as a tale of generational warfare, but the generational angle to this story might be the most enduring one. The last decade has punished millennials with a Great Recession, a slow recovery, and a housing shortage. But the next decade could see Generation Z moving into cities that offer great bargains for young residents, even as they benefit from a booming economy, full employment, and a surge in housing construction.” The cities of Capitola, Santa Cruz, Scotts Valley and Watsonville are readying for the next generation of renters and home buyers with mixed-use and apartment housing projects in the pipeline. How they manage the housing planning and public vetting process is key to meeting the demand. However, there is no denying the obvious—we’ll need housing of all income levels or we will see Generation Z move to other cities and our county will be the real loser. We will see if we are up to the challenge.
If you follow the Santa Cruz County Chamber through this weekly eNews digital communication resource, you know that we spend a lot of time talking about housing. The cost of housing, access to housing, affordable housing, housing near the river, in the downtown, mixed-use housing projects, and how housing developers should build more and more affordable housing units per project regardless of whether the development can be built. It is no mystery to those in the housing world that California and Santa Cruz County do not meet our regional housing needs.
There is fundamental question that is left dangling in the proverbial wind. We hear about the nascent state law that requires cities and counties to build a specific percentage of housing for very low, low, and moderate income households. This law is buried in administrative policy led by each region’s planning agency, in our case, the Association of Monterey Bay Area Government (https://www.ambag.org/plans/regional-housing-planning)
AMBAG prepares the Regional Housing Needs Assessment (RHNA) plan for Monterey and Santa Cruz Counties. The RHNA plan establishes the total number of housing units that each city and county must plan for within an eight-year planning period. The amount of housing a region must plan for is largely determined by the California Housing and Community Development Department’s (HCD) housing needs assessment. Since 1969, California has required that all local governments (cities and counties) adequately plan to meet the housing needs of everyone in the community. Every four years or so, the housing elements of cities and counties are reviewed and scoped out to establish new guidelines by a community’s current housing make-up. A few years back, State Senator Scott Wiener on a visit to Santa Cruz to discuss housing legislation called out the RHNA housing numbers as a shell game between the state government that set the standard and the local government planning department executives who “wink and nod,” suggesting that sure we can produce those units in eight years. All you have to do is look at the results in our region. Not very transparent when everyone knows we are not meeting the standards.
A coalition of concerned housing advocates in the tri-county region (Santa Cruz, Monterey and San Benito), led by the Monterey Bay Economic Partnership, kicked-off a planning discussion on how to help local government address our housing assessments. This is the beginning of a long process that could bring more clarity to how these housing elements actually reflect on the real-world, present-day state of housing accessibility and affordability in our county and region.
Recently, I was provided a link to a very curious article in The Atlantic about the housing and rental market in America. Derek Thompson, Staff Writer, entitled his article: ‘This Is Unprecedented’: Why America’s Housing Market Has Never Been Weirder. Even the title sparked my interest so I dug into the short few-minute read.
Thompson opens up his storyline with, “In almost any other year, a weak economy would cripple housing. But the flash freeze recession of 2020 corresponded with a real-estate boom, led by high-end purchases in suburbs and small towns. Even stranger, in America’s big metros, home prices and rents are going in opposite directions. Home values increased in all of the 100 largest metros in the US, according to Zillow data. But in some of the richest cities—San Jose; Seattle; New York; Boston; Austin; San Francisco; Washington, DC; Los Angeles; and Chicago—rent prices fell, many by double-digit percentages. In many cases, the gap was absurdly large. In San Jose last year, home prices rose by 14 percent (the sixth-largest increase in the country) but the area’s rents fell 7 percent (the sixth-largest decline).”
We hear the constant chatter, that it is the high income earners (think Silicon Valley techies) who can working remotely and are pushing out the locals in the housing market — because they are cash ready to buy where the local workforce doesn’t have the immediate capital to invest. I called a couple of local real estate agents to get their take on our market. Understandable — one agent said — of course the folks with money in hand are buying up the $2 million property at Pleasure Point as a second home. There is influence from buyers outside the county, but there are many locals who are moving from apartments to condos and condos to single family homes. The agents said it is a confluence of issues — a shortage of available properties on the market, low interest rates, and an urgency that buying property is a better long-term investment strategy than relying on a stock market that has been up and down like a yo-yo this past year. All of this, of course, being somewhat fueled by the uncertainty of the coronavirus and the possible move to increase rates. All told, what was a strong housing market in a whirling economy last year is now red hot. Today, millennials are entering the housing market for the first time as they are learning fast that a median-priced house will have 20+ offers, further sending the prices upward.
Thompson’s article asks the question — “What’s going on?” Some observers have pointed to the severe shortage of single-family houses that has resulted from the slower pace of building in the U.S. since the last real-estate crash. Short supply is clearly pushing up housing prices. Others point to plummeting interest rates that have encouraged people to seize the opportunity to get a cheap mortgage. And then there’s the wave of new young families seeking more permanent housing, as more millennials enter their 30s.”
These factors are all relevant. But none of them quite explain why the pandemic has created such an unprecedented disconnect between rents and home prices. Understanding this divergence begins with understanding the broader divergence of our “K-shaped” economy, in which the K represents the forking fortunes of the rich and poor during the pandemic. While many hourly workers in restaurants and brick-and-mortar stores have been hit hard by lost wages and unemployment, millions of knowledge workers in white-collar industries such as tech and finance rode out the pandemic by staying (and staying, and staying) at home. They relieved their cabin fever with a heavy dose of online real-estate shopping.
You can read Mr. Thompson’s article here: https://amp.theatlantic.com/amp/article/618212/
One of the unique parallels of this housing market in the middle of the pandemic is the rise of younger home buyers comparable to the housing boom in the 1950s that was fueled by housing construction after WWII. “There are an unusual number of people around age 30 in America right now, and they have been unusually likely to live in central cities,” Jeff Tucker, the senior economist at Zillow, said. Indeed, the number of 30-to-39-year-olds in America is about to reach its highest point in history, and those are prime home-buying years. One analysis of New York City by the real-estate website StreetEasy found that rents, while increasing somewhat in the low-income parts of the city hit hardest by the pandemic, plummeted in richer neighborhoods. That fits one of the big stories of the pandemic: high-income millennials using 2020 to trade their downtown apartment rentals for urban and suburban homes.
So how does the national trend in big cities relate to Santa Cruz and our laid-back beach communities? We are at this prime time tipping point in the next few years. In closing, Thompson made this fascinating observation: “According to Chris Salviati, an economist with the online rental market Apartment List, rents are rising again in almost all of the hardest-hit rental markets, including San Francisco, Boston, and Washington, DC. As rents increase, so will buyer’s remorse. We are already seeing the emergence of a new genre of feature profile in major newspapers: the city slicker who moved to the suburbs, and hates it there. One needn’t frame every story as a tale of generational warfare, but the generational angle to this story might be the most enduring one. The last decade has punished millennials with a Great Recession, a slow recovery, and a housing shortage. But the next decade could see Generation Z moving into cities that offer great bargains for young residents, even as they benefit from a booming economy, full employment, and a surge in housing construction.”
The cities of Capitola, Santa Cruz, Scotts Valley and Watsonville are readying for the next generation of renters and home buyers with mixed-use and apartment housing projects in the pipeline. How they manage the housing planning and public vetting process is key to meeting the demand. However, there is no denying the obvious—we’ll need housing of all income levels or we will see Generation Z move to other cities and our county will be the real loser. We will see if we are up to the challenge.