Why are today's new homes so expensive?
Clearly a relevant question, and one posed by the San Diego Building Industry Association (BIA) in an ad on Page 10 of this month's San Diego Metropolitan magazine.
“Maybe it's the $115,466 paid to government bureaucracy,” the ad alleges, stating that, with the median price of a new home in San Diego hovering around the mid-$400,000 range, a full 26 percent (or $115,466) of the final cost is attributable to government-to “paying for someone else's affordable housing, reports, studies... applications, consultants, staff time, permits...” etc. This “fact,” the ad asserts, “was confirmed by a university study.”
Provocative, no doubt, yet vague in the way that only an ad can be.
BIA Director of Communications Donna Morafcik credited the university study to one Louis H. Masotti, a former professor at Northwestern. Titled “The Economic Impact of Government Regulations,” the 37-page study looks at government-imposed fees and the impact they have on the cost of the hypothetical “Smith family” home, hypothetically located in Carlsbad and hypothetically built in 1997. (It should be noted that Masotti himself is a real estate guy who heads Louis Masotti, Ltd., a real estate consulting firm and also sits on the board of directors of Manufactured Home Communities, which, well, owns and operates manufactured home communities).
The study, said Morafcik, “looked at everything from hillside ordinances, all the costs of every ordinance, every fee, all the soft costs and hard costs associated with government to produce that case study house.”
Masotti's conclusion, then, is that city “regulations, policies, ordinances and practices” impact anywhere from 19 to 33 percent (or a median of 26 percent) of the cost of a new home.
So what does the city have to say about these findings?
San Diego's Development Services Department spokesperson Cynthia Queen countered Masotti's study with a more recent one put together by the University of California, Berkeley. “Pay to Play: Residential Development Fees in California Cities and Counties” was commissioned by the State of California Department of Housing and Community Development in 1999 (Masotti's study, on the other hand, was independent). The Berkeley study found that government-related fees account for around 7 percent of a home's price and that San Diego carried some of the lowest fees in the state.
“These government fees pay for necessary services,” Queen said. “We work closely with the BIA, and they are very nice people, but they are never going to be happy with how government regulates their industry.”
There's already plenty of bickering over skyrocketing home prices apart from additional pot-stirring about fees and such, so despite the 19 percent discrepancy in fees, there's hope that one day public and private organizations can just all get along.
“We have more in common than we have against each other,” said BIA's Morafcik. “We want housing of all types and at all levels.”