WP4 Rough Draft
Aidan Banan
Writ 150
Dochterman
December 4, 2021
Santa Barbara Housing Crisis
Covid-19 has skyrocketed the value of houses across the world, worsening the global housing crisis. Demand is soaring, and supply is historically low, causing home buyers to drive up prices in this incredibly competitive market. This is true in places like Japan, and even locally, in Santa Barbara, California. Remote working as a result of Covid-19 has driven people out of large cities like Los Angeles, and to smaller, more suburban areas, like Santa Barbara. Workers started to realize the flexibility their jobs offered, and many are willing to live farther from work because they can work from home or they can commute less often. They are able to live in a nicer area, with more land, for three quarters of the price, while still having the same job. This trend, combined with the already competitive global housing market Covid has created, led to a 25% increase in median residential sale price in Santa Barbara over the past year (Fidelity National Title). However, in Tokyo, Japan, these housing increases are nearly non-existent.
While some may argue the Santa Barbara housing market was due for a boom regardless of Covid-19, I argue that the effects of Covid-19, and the migrating trends that are apparent as a result, have had a clear and direct impact on Santa Barbara’s red hot Real Estate market.
Looking at the issue from a more global perspective, the unprecedented jump in housing price boils down to a record low in mortgage rates, which is largely due to Covid-19 weakening economies across the world. Chief Economist, Daryl Fairweather of Redfin, believes the, “increase in home values is mostly a demand story: People are scrambling to take advantage of plummeting mortgage rates that make the cost of buying a home much cheaper.” Mortgage rates have slowly declined over the past few years, reaching a record low of 2.65% in January of 2021 (Demsas). To put this into perspective, if you were to buy a $1,000,000 home, with a 3.7%, 30 year fixed mortgage rate before Covid, you would pay $1,657,080 over 30 years. However, if you were to buy that $1,000,000 home at the record low mark of 2.65% for a 30 year fixed mortgage rate, you would pay $1,450,800 over 30 years. This major reduction in mortgage rates saves homebuyers money, which can explain the high demand currently in America. According to the Mortgage Bankers Association, data shows a 33% increase from last year in mortgage applications for new homes. Continuing on with this data, in 2020, the average home would sell in 16 days, compared to 28 days a year before, and a shocking two-thirds of homebuyers attempted to purchase a house they had never seen in person.
While this broader theme of low mortgage rates has increased the demand in Santa Barbara’s market, it is also impacted by a more unique factor. As touched on previously, Santa Barbara is getting a large amount of traffic from Los Angeles, and other major cities in the United States. As Covid-19 introduced remote working policies to keep workers physically distant from each other, densely populated cities have become a confinement for over a year, prompting many to rethink where they want to live (Meunier). Companies continued to practice remote working even as Covid died down, and it is clear that companies are starting to shift more toward an online or virtual platform. This has created a serious uptrend in remote working opportunities, and this sustained way of working has helped employees discover that they can live in places other than where they work. Unfortunately, Andrea Hsu explains the impact remote working has had on the Great Resignation, as over 4 million workers quit their jobs in April, 2021, to find jobs that gave “more money, more flexibility, and more happiness.” The importance of job flexibility has never been so apparent, as people are leaving their jobs to have more control over how and where they work, because they realize remote working is popularizing. Therefore, these employees who are trapped in large cities because of work, or simply want to live in another area, are moving to Santa Barbara because of its warm beaches, large mountains, and comfortable weather year round. However, there is one major issue with this. We don’t have enough housing to accommodate all of these newcomers.
This is in large part due to Santa Barbara’s public policy, and their primary goal to keep Santa Barbara a small, and touristy town. Santa Barbara is subject to multiple laws restricting the building of homes and apartments. For example, in December of 2019, the Santa Barbara City Council decided to increase the building height of new apartments in downtown Santa Barbara from 45 feet to 48 feet (Days). This low height limit, which has been in place since the early 1900’s, makes it virtually impossible for Santa Barbara to build any legitimate vertical housing that can help provide more supply for the housing market. The zoning restrictions set in place by the city also work toward the issue at hand, as they are limiting the amount of buildings that are allowed to be built on certain property sizes. For example, (City of Santa Barbara). Affordable housing is also a popular resource used to lower housing prices, however, Santa Barbara has not made any commitment to provide it. For years, there has been serious community opposition against affordable housing, and before 2013, the city hadn’t built any affordable housing for a 40 year stretch (Rile-Schmidt & Chacon). Again, this is because of Santa Barbara’s priority to keep Santa Barbara as it is. If it were to provide housing for all these newcomers, the character of the city would change, and it would grow into a much larger city. Unfortunately, the downside to this prioritization is that Santa Barbara residents need to spend more money to stay put, forcing many families out of the area due to the great expense.
Looking across the globe to Tokyo, Japan can give Santa Barbara great insight on how to keep real estate prices low in the midst of a globally competitive market. While Tokyo is much larger than Santa Barbara, both cities experienced a similar increase in housing demand with limited supply. However, Tokyo was able to deal with the crisis better than just about every American city. According to Timothy Lee, “Tokyo issued permits for 142,417 new housing units. In contrast, the entire state of California — which has three times the population of Tokyo — issued permits for only 83,657 new housing units.” Strategies like this make it clear that keeping housing prices low is a serious priority in Japan. They are building the vertical housing necessary to do so, and as a result have had only modest increases in price, while California, and Santa Barbara are neglecting to take the obvious actions needed. Another reason for Tokyo’s success compared to Santa Barbara’s is that, “Japan sets housing regulations at the national level. As a result, if a Tokyo landowner wants to knock down his single-family home and replace it with a six-unit condo building, there’s little that his neighbors can do to stop it. That can be annoying to individual homeowners, of course. But it also has the huge upside of keeping housing costs under control” (Lee). While Tokyo is subject to national regulations, Santa Barbara is controlling its own regulations completely. Due to zoning restrictions, a Santa Barbara landowner is unable to knock down a single-family home to build a six-unit condo building unless their property is in a certain zoning area, and the lot size is big enough for Santa Barbara regulations. Even then, it is still unlikely the project will go through, as the landlord would have to go through a lengthy process with the city to get their condominium approved. These specific rules set in place by the city make it difficult to develop more housing supply in Santa Barbara. However, if the city were forced to listen to national, or state-wide regulations, the problem could be solved.
California is currently in the process of publishing statewide housing laws, the most notable one coming into effect on January 1st of 2022. On September 1st, 2021, Governor Gavin Newsom signed into law Senate Bill 9, “a landmark law that allows for the ministerial approval of certain housing development projects containing up to two dwelling units on single-family zoned parcels”(Leaderman & Ashe). This means landowners can split their property into two lots, and build a new house on that new land, as long as it meets a series of reasonable criteria. Since this is a statewide law, the city of Santa Barbara is not allowed to stop any landowner from splitting their lot and building if their project abides by state requirements. Statewide laws, like the one just approved by Newsom, will help combat the housing issues that Santa Barbara is experiencing because the city can no longer override the building of more homes to fit its personal agenda. Therefore, as more statewide housing laws are passed, Santa Barbara’s housing supply will increase, levelling the incredibly high rise in prices. Another potential solution to housing is to loosen the zoning restrictions set by the city, specifically the 48 foot height limit. Tokyo fixed their housing crisis through building over a huge number of housing units, however these restrictions prohibit Santa Barbara from doing so. We cannot build more than five stories high, and we need to find specific plots of lands in specific areas to have the possibility of building multi unit complexes. Therefore, achieving mass developments that actually impact the housing supply is not possible with Santa Barbara’s specific rules.
The worldwide housing crisis provides insight on how different parts of the world can benefit from each other. Every part of the globe dealt with an increase in home prices, but different places dealt with the issue in contrasting ways. Santa Barbara is doing an extremely ineffective job of controlling the real estate market, and as a result, many long time residents, or lower income families are being forced out of the city because of the housing expense. However, Tokyo, Japan, which has an even larger population and higher demand for housing, was able to build many housing units to keep their market under control. We can look at the effectiveness of Tokyo’s strategy, and implement statewide laws and loosen Santa Barbara’s zoning restrictions to bring housing prices back to normal. As a result, the city will be able to keep its longtime residents and accommodate newcomers flocking to Santa Barbara.
