California’s Smart Plan to Let Homeowners Be Homebuilders
(Bloomberg Opinion) -- California just gave single-family homeowners more control over their property and, for those in high-demand cities, the potential for a big financial windfall. Eight time zones away in the U.K., the Conservative government is revising its planning bill in ways that could give homeowners a similar boon.
The details and contexts differ, but both approaches recognize a political reality. The way to relieve housing shortages is to build more homes, and it’s easier to legalize construction if existing homeowners realize benefits.
California’s new law is known as SB9, not exactly a catchy title. If California’s legislature were as fond of strained acronyms as Congress, they might have named it something like the Homes Act, for promising Homeowner Money for Expanded Supply. It gives potential Nimby resisters a financial stake in new housing.
With some exceptions, such as historic districts and fire-prone areas, the law allows people who own single-family homes to add a second unit on their property, either by constructing a new building or turning an existing house into a duplex. In addition, they can split a lot in two, with two units permitted on the second lot. In areas where housing is in great demand, that flexibility promises to make the land more valuable.
Most local rules about heights and setbacks would still apply, but the new construction would be exempt from challenges under the California Environmental Quality Act, a favorite tool of housing opponents. The property owner would have to live in one of the units for at least three years after the project was complete.
“Any change in use requires the cooperation of the owner, either to sell the site or to redevelop it themselves,” noted a report from the Terner Center for Housing Innovation at the University of California at Berkeley. In most of the state’s single-family neighborhoods, individual houses will remain the most profitable use of the land. So those places won’t change.
In job-rich areas of Los Angeles, San Diego and Silicon Valley, however, SB9 enables more housing while still preserving neighborhoods’ low-rise, leafy feel. Although Southern California is famous for its single-family suburbs, many historic L.A. neighborhoods include attractive duplexes and four-plexes dating to the 1920s and 30s. “If more of the city just looked like that we probably wouldn't have a housing crisis,” said Michael Manville, an urban planning professor at the University of California at Los Angeles. “And those are beautiful buildings.” The Terner Center estimates that about 700,000 new homes would become economically feasible under the law’s provisions, including 126,000 in Los Angeles County.
To see how it might work, consider the post-World War II bungalow whose open house I visited while researching this 2018 column on housing expansion. Dark, rundown and strangely laid out, it sold for $1.52 million. The real estate agent rightly predicted that it would be a complete teardown. The five-bedroom house that replaced it sold for $3.75 million.
Under SB9, the same lot might instead be occupied by four three-bedroom townhouses, selling for $1 million each and sharing a yard. The old house’s sales price would presumably go up accordingly. A million bucks is hardly cheap, but it’s more accessible than a multimillion-dollar mansion with a pool — housing for the 10% rather than the 1%. And that new supply, in turn, reduces upward price pressure in more affordable neighborhoods where the new owners would otherwise have settled.
It will take time for developers to figure out how to make such projects work smoothly. “We haven't done it on any scale for 70 years,” Manville said. “And one thing that means is that no one knows how to do it.”
Big business isn’t the only option. SB9 is about legalizing small-scale projects driven by existing homeowners’ interests. Parents could divide their lots to enable their children to stay in the area. Empty nesters might convert big homes into duplexes to derive income from renters.
Individual builders might even find their way back into markets like L.A., where only large, abundantly capitalized companies have been able to negotiate complex regulations, multiple appeals, and resulting project delays. Starting with their own lots, construction-savvy homeowners could build working capital from there. Keeping the scale small and the regulation simple opens up room for new players.
But all of this depends on SB9 actually taking hold. Opponents are working to put an initiative on the November 2022 ballot that would give local zoning laws primacy. They’re appealing to Californians who equate change with loss rather than opportunity, and who worry about what might happen to their neighborhoods — never mind the potential financial upside.
“I cannot begin to tell you how thrilled I am at the possibility of having at least two new units on either side of my SoCal house’s backyard filled with people who otherwise wouldn’t live in my community,” Santa Clarita Valley resident Gwendolyn Sims wrote sarcastically for the conservative PJMedia, denouncing the measure as an example of “tyrannical leftist policies” despite its expansion of homeowners’ property rights.
How widespread the negative reaction is remains to be seen. But it does undercut the common theory that financial considerations drive opposition to new housing. Existing homeowners aren’t simply working to keep supply low so the value of their property goes up. Nimbyism is more emotional than that.
“What it really is, is that they like their neighborhood,” Manville said. “They like the way it looks. They like the single-family home. They are risk averse. And the risk aversion is about the fact that they don't want to move, and they don't want to see it change.”
Where money comes in, he observed, is “that they know that if they fight for a fairly antisocial purpose, which is to keep their neighborhood from changing, they won't suffer any financial consequence.” Repealing SB9, however, would entail giving up significant financial advantages. The law alters the political economy. But is it enough to trump fears of neighborhood change?
The British proposal addresses these worries directly. Known as “street votes,” it would allow residents of a single street — essentially a long block of no more than about 120 homes — to vote by a supermajority to permit more housing.
They could, for example, legalize additional stories. To assuage anxieties about out-of-place buildings, the proposal includes rules about blocking light and allows a street to impose its own design code on the new construction. The goal is to push planning down to a level where all the decision-makers feel both the costs and the benefits.
A February white paper from the Policy Exchange think tank elaborated:
A street of suburban bungalows, for example, could agree on the right to create Georgian-style terraces. In many cases, an adopted “street plan” would greatly increase the value of residents’ homes, giving them strong reasons to agree on it.
The proposal emphasizes legalizing the historic forms that mark many of the country’s most beloved and valuable urban neighborhoods — an appeal to heritage that resonates with conservatives who would otherwise oppose development.
Under both approaches, the house-rich get richer. That might not seem fair, but it’s practical politics. “The status quo is also unfair,” Manville said. “And so if we're going to have unfairness, we might as well get some housing out of it.”
Giving single-family homeowners a stake in creating more housing enlists the interests of the past to benefit the future.
The likely losers are people like me, who own condominiums but not land in high-demand neighborhoods dominated by single-family homes.
This column does not necessarily reflect the opinion of the editorial board or Bloomberg LP and its owners.
Virginia Postrel is a Bloomberg Opinion columnist. She is a visiting fellow at the Smith Institute for Political Economy and Philosophy at Chapman University and the author, most recently, of “The Fabric of Civilization: How Textiles Made the World.”
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