I happened to be in Santa Barbara, Calif., this week to give a speech, and at the lunch afterward, I found myself talking to a local real estate agent. She told me that trailer park homes in the town can go for $600,000. “They’re really lovely,” she said, of these mobile homes. “There’s a private lake.”
I’m sure the view is splendid. Nonetheless, $600,000 is an insane price to pay for a trailer and a place to park it.
Yet this sort of insanity is found all over California, to the point where it is approaching collective madness. That’s because California laws make it so expensive and difficult to build new homes. Between the environmental mandates, the building codes, the parking minimums, and the lawsuits filed by querulous neighbors who want everything to stay exactly as it is, forever, it’s small wonder that so many California cities top the list of places where rents are rapidly outstripping incomes.
To economists, the solution to this problem is fairly obvious: Build more housing. Or rather, pare back the laws that make it so appallingly expensive for private developers to construct homes. That was the thinking behind SB-827, a law that would have given the legislature the power to increase density in mass transit corridors. It died last month, unable to even get out of committee. The state Energy Commission, meanwhile, just steamed ahead at full speed on a plan to require that all new homes built in California feature solar panels.
One can certainly sympathize with the Energy Commission’s goals. Even if you are skeptical of the more extreme predictions about global catastrophe, it’s best to be leery of running a one-way experiment with the only climate we’ve got. Weaning our homes off fossil fuels seems like a good place to start.
However, solar panels cost money — about $3.00 per watt the system is capable of generating. It’s hard to say exactly how much this new mandate will cost, since the requirement will vary by the size and location of the house. But it is safe to say that buying and installing panels, and paying the energy consultant to tell you how much capacity you need, will be in the high-four or low-five figures, even with the commission’s unproven assumption that the cost of solar installations will continue to fall.
But what about the fabulous savings these homes will enjoy on electricity? A conservative skeptic might retort “If the saving are so fabulous, how come the market isn’t already installing the solar panels without regulatory prodding?” But I won’t. Consumers can be shortsighted, and developers stuck in their ways; it is not impossible that they are looking past their own self-interest.
And yet, I wouldn’t be too sure that’s the case. The cost estimates do indeed promise fabulous lifetime savings from the solar panels and other energy-efficiency requirements — an average of $80 a month, reported the LA Times. Meanwhile, they say the average mortgage payment will only go up by $40 a month.
But I am unable to replicate the commission’s analysis. At an average cost of $9,500 for all that efficiency, using today’s mortgage rates, I get a number that’s closer to $50 a month. And we probably shouldn’t use today’s mortgage rates, which come at the end of a decade in which housing debt has been unnaturally cheap. If mortgage rates were where they were in 2003—the last time that inflation was roughly at its current level—we’d all be paying 1.5% more a year.
If we assume that mortgages will return to pre-crisis levels as the Federal Reserve Board unwinds its heroically expansionary monetary policy, the monthly cost inches up towards $60, even before we factor in the increase in the size of construction loans developers will have to take out. And if the commission turns out to have been as optimistic in their estimates of the benefits as they have been about the costs, the net benefit to homeowners could easily turn into a net cost.
There’s also the matter of the downpayment to consider, an average additional cost of almost $2,000. The effects of all this will be highly regressive; adding $10,000 to 20,000 to the cost of a $1 million home is trivial, but it will be a significant burden on starter homes — which is to say, exactly the sort of homes needed to alleviate California’s housing crunch.
A cleaner environment is, of course, a laudable and important goal. Unfortunately, governments are rarely in the position of weighing good against bad, important against unimportant; more often, they have to decide which good goal is more important when two or more come into conflict.
It’s always tempting to say well, this is only a fraction of the total cost of a new home, and we’d all be much better off in a low-carbon world. But that’s how California got to its current conundrum. Every regulatory hurdle placed in the way of developers has been aimed at achieving some worthy goal; every hurdle has, by itself, raised the price of housing by only a fraction. But little fractions quickly sum up to big numbers if you string enough of them together.
Unfortunately, no one in government ever does string them together, or ask “Each of these goals is worthy — but are all of them more worthy than housing our citizens?” Every provision is debated independently, without anyone taking responsibility for the whole (this latest decision, tellingly, was a rule made without legislation, and by a body that isn’t even responsible for housing). Unless California steps back and focuses on the cost of housing, even at the expense of other good aims, then the state will keep plowing down the road to disaster, step by step, rule by rule.