WP4
Aidan Banan
Professor Dochterman
Writ 150
4 December 2021
Drawing Parallels: The Santa Barbara Housing Market
The housing market has felt the symptoms of the COVID-19 pandemic. Housing prices have skyrocketed due to demand increases and negative supply shocks. Demand is soaring and supply is historically low, causing home buyers to drive up prices in this incredibly competitive market. This issue is evident 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. With the advent of at-home working, job flexibility has changed dramatically and, consequently, employees are beginning to move away from their offices. Why would I spend an arm and leg for a small apartment in downtown Los Angeles when I can live in a much nicer area for three-quarters of the price while keeping my current income? This question has led to a clear trend of rising prices, and in conjunction with the already competitive COVID-19 stimulated global housing market, there has been a 25% increase in median residential sale price in Santa Barbara (Fidelity National Title). This trend is not universal though, and despite rising demand across the world, Tokyo, Japan stands as a notable exception, as it’s seen no significant price increases in the past two years. Why the difference and what lessons can Santa Barbara extract from the Japanese model?
The United States government has a few distinct features that stand apart from comparable international governments. One of the advantages of America’s federalist system is that its cities have a high degree of regulatory independence, but this is a dual-edged sword. American cities can change their housing policies without needing federal approval, restricting the building of homes in ways that international cities do not. Tokyo lacks this individualized approach and it demonstrates the downsides of the United States’ more autonomous policy. Specifically, Tokyo keeps its real estate prices low due to its less constrictive zoning laws. Therefore, Santa Barbara should adopt a more progressive housing policy in the same vein as Tokyo, Japan, this policy would facilitate the development of more reasonably priced homes and allow current residents to stay in the city.
The unprecedented jump in global housing prices has been caused by several different factors. Beyond just changes in the work environment, international economic conditions have led to record-low mortgage rates. According to the European Central Bank, there has been a significant global “increase in housing lending volumes” and extremely “reduced interest rates” as a result of the COVID-19 crisis. These low-interest rates have caused people to enter the housing market leading to increased demand and subsequent upward price pressure. Specifically, in America, 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-19, 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. Data from the Mortgage Banker Association shows a 33% increase from last year in mortgage applications for new homes. The consequences of this demand increase are staggering. For instance, 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.
Santa Barbara is no exception, as it has also seen a marked increase in demand, but as touched on previously these reasons are multifaceted. Santa Barbara has received an influx 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, densely populated cities have confined their inhabitants for over a year, prompting many to rethink where they want to live (Meunier). Companies across the globe continued to practice remote working even as COVID-19 died down, and it is clear that companies are starting to shift more toward an online or virtual platform. According to Laura French of World Finance, a near-unanimous switch to remote working across the globe has led many “employers and employees waking up to the reality that the office-based 9–5 may have finally passed its sell-by date.” As remote working becomes more permanent, the uptrend in remote working opportunities is likely to continue. Therefore, employees who are trapped in large cities because of work are moving to places like Santa Barbara for slower-paced living, warm beaches, large mountains, and comfortable weather year-round. However, there is one glaring problem: we don’t have the housing to accommodate these newcomers.
The housing shortage is rooted in Santa Barbara’s somewhat antiquated zoning policy which aims to keep the architecture stylistically uniform over time. Santa Barbara is subject to multiple laws restricting the building of homes and apartments. The Santa Barbara City Council capped the height of new apartments in downtown Santa Barbara to 45 feet for the past 50+ years only meagerly changing the policy to 48 feet in December of 2019 (Days). This is a step in the right direction but these changes are far from what is necessary to cure the housing plague infecting the city. At the moment, it is virtually impossible for Santa Barbara to build any legitimate vertical housing, which would dramatically increase the amount of people per square foot. These height limits are compounded by other restrictions which limit the number of buildings that are allowed per plot of land. Not only does Santa Barbara lack the regulatory infrastructure to generate cheaper real estate, but they also have failed to provide a substantial safety net for the disenfranchised. 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. Unfortunately, this view is short-sighted and has forced many families out of the area due to increased expenses.
Looking globally to Tokyo, Japan can give Santa Barbara great insight on how to keep real estate prices low amid a globally tumultuous 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. To quote 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. This of course contrasts Santa Barbara, which is clearly neglecting to take the actions needed to lower prices. 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). Here we see again the advantages of national regulations, they are more optimized towards economic efficiency. 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. This kind of economic mismanagement is a symptom of a short-sighted local-based outlook that would likely be moderated if Santa Barbara was subject to national or state-wide regulations.
California is currently in the process of publishing statewide housing laws, the most notable one being Senate Bill 9 coming into effect on January 1st of 2022. On September 1st, 2021, Governor Gavin Newsom signed, “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. These kinds of policies will help combat the housing issues that Santa Barbara is experiencing because the city can no longer prevent landlords from subdividing their real estate. This is a good start, but much more needs to be done. As discussed previously, the 48-foot height has to be modified to allow for vertical housing. These are the kinds of policies that should be enacted to provide sufficient housing supply for the city.
Some argue that Santa Barbara should maintain the current character of the city by restricting real estate development. While I’m more than sympathetic to these concerns, I think this analysis mistakes the buildings for the people. Many long-time residents are being forced out of Santa Barbara by people with bigger wallets because they cannot afford the incredibly high housing prices. It’s the people that define the character of the city, so if these regulations are forcing them out, we clearly need a new solution. Compromises can be made to satisfy both sides; the city doesn’t have to loosen regulations everywhere. These lesser-regulated areas would ideally be on the outskirts of the town allowing for Santa Barbara to maintain its iconic landmarks and architecture. We get the best of both worlds, Santa Barbara retains its architecture and most importantly keeps the people that defined its character in the first place.
COVID-19 has forced the radical reimagining of economies all across the world. It has forced many cities to look at themselves in the mirror and ask what they want their future to look like. Santa Barbara must keep up with the times and draft a new housing policy that both keeps the spirit of the city and allows for the development of affordable housing. Tokyo, Japan acts as the blueprint for this redrafting, as they did not suffer from the global housing crisis due to clever policy decisions. They faced the same demand for housing but managed to keep the market under control by encouraging development through mass permit distribution. This Japan-inspired forward-thinking strategy will create a Santa Barbara where we can maintain the city’s architecture and continue to house its long-term residents.
Works Cited:
Battistini, Niccolò, et al. “The Euro Area Housing Market during the COVID-19 Pandemic.” European Central Bank, 9 Nov. 2021, https://www.ecb.europa.eu/pub/economic-bulletin/articles/2021/html/ecb.ebart202107_03~36493e7b67.en.html.
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Crawford, Alan. “The Global Housing Market Is Broken, and It’s Dividing Entire Countries.” Bloomberg.com, Bloomberg, 19 Sept. 2021, https://www.bloomberg.com/news/features/2021-09-19/global-housing-markets-are-hurting-and-it-s-getting-political.
Demsas, Jerusalem. “COVID-19 Caused a Recession. so Why Did the Housing Market Boom?” Vox, Vox, 5 Feb. 2021, https://www.vox.com/22264268/COVID-19-housing-insecurity-housing-prices-mortgage-rates-pandemic-zoning-supply-demand.
French, Laura. “Out of Office: The Global Shift towards Remote Working.” World Finance, 3 Mar. 2021, https://www.worldfinance.com/strategy/out-of-office-the-global-shift-towards-remote-working.
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Lee, Timothy B. “Tokyo May Have Found the Solution to Soaring Housing Costs.” Vox, Vox, 8 Aug. 2016, https://www.vox.com/2016/8/8/12390048/san-francisco-housing-costs-tokyo.
Meunier, Joe. “Employees Are Leaving Big Cities, and for Good Reason.” Allwork.Space, 12 Nov. 2021, https://allwork.space/2021/08/employees-are-leaving-big-cities/.
“Mortgage Applications Increase in Latest MBA Weekly Survey: Mortgage Bankers Association.” MBA, 24 Nov. 2021, https://www.mba.org/2021-press-releases/november/mortgage-applications-increase-in-latest-mba-weekly-survey-x287934.
Rile-Schmidt, Matthea, and Ashley Chacon. “Lack of Affordable Housing Drives up Homelessness.” The Santa Barbara Independent, 13 Dec. 2020, https://www.independent.com/2020/12/13/lack-of-affordable-housing-drives-up-homelessness/.
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“Uses Permitted In Various Zones.” City of Santa Barbara, City of Santa Barbara, 10 Sept. 2014, https://www.santabarbaraca.gov/civicax/filebank/blobdload.aspx?BlobID=17638.
