Where and What Are the Most Affordable New California Homes?

No issue defines both the affordability and climate challenge in California more than housing. High housing prices have pushed many prospective homebuyers to what some consider to be “affordable” outlying locations far from jobs and services, necessitating expensive commutes, and often in areas of heightened climate risk.

As policy makers seek to stabilize housing prices and improve home ownership opportunities of all types by increasing supply, where are the best locations and optimal new construction housing types that will provide the least-cost and most affordable similarly situated homes for homebuyers?

To address this question, UC Berkeley Law’s Center for Law, Energy, and the Environment (CLEE), with support from The Nature Conservancy and technical support from Economic & Planning Systems, Inc. (EPS), is releasing the new policy brief Affording the California Dream: Optimal Locations and Product Types to Increase Home Ownership Opportunities.

The brief is based on three case study geographies, using an assessment of the differences in the cost of home ownership in California based on two criteria. First, location: what are the costs of living in an urban area with existing infrastructure services vs. in an exurban area without such services? And second, product type: will a single-family detached home be more or less expensive than a single-family attached housing, like a townhome (with less indoor square footage but the same number of bedrooms and bathrooms)?

The research team then utilized available data on the full costs of home ownership, including not just home price but transportation costs and annual “carrying” costs like taxes, utilities, and insurance. We used data from three diverse but representative case studies: the City of Fresno and the surrounding county, Palmdale/Lancaster and surrounding areas in Los Angeles County, and the City of Beaumont and surrounding areas in Riverside County.

Based on the data, the report found the following:

• New single family attached homes in existing urban areas are roughly 30 percent less expensive in all-in annual home ownership costs than new single family detached homes in ex-urban areas.
• New single family attached homes in existing urban areas are roughly 18 percent less expensive based on all-in annual costs to homeowners than new single family detached homes in existing urban areas.
• Single family attached homes in existing urban areas therefore represent a less expensive for-sale home ownership option.

This result might sound counter-intuitive, given that attached homes in existing urban areas typically cost more to build on a per square foot basis and have higher land costs. But their more compact overall size and smaller lots and land requirements result in lower base prices, along with lower one-time infrastructure costs and/or ongoing special tax payments. They also generally have lower average property insurance, utility, and household transportation costs.

Based on these findings, policy makers wishing to expand the lowest-cost new home ownership opportunities should encourage attached single-family homes in urbanized areas instead of detached single-family home development outside of cities and in ex-urban areas.

Yet this more affordable type of development is often not the focus of many developers and policymakers. Even when significant capacity for new home development exists inside urban areas, developers and policymakers often focus on developing land well beyond the urban edge, where the location and substantial cost of new infrastructure increase the overall cost of home ownership and often put residents into harm’s way in the face of climate risks from flooding, wildfires and other hazards.

State and local policymakers looking to address the state’s housing crisis would therefore be better served by focusing on policies and incentives to encourage developers to build the lowest-cost market-rate home ownership development, as opposed to higher-cost development. And state policy could recognize that least-cost home ownership options must reflect all costs to homeowners — not just the home purchase costs but the all-in annual costs of owning a home in an urban or ex-urban area.

Otherwise, the California dream will remain just that for too many residents.

You can download Affording the California Dream: Optimal Locations and Product Types to Increase Home Ownership Opportunities here.