Update: An earlier version of this story gave the incorrect figures for the cost of fees to developers to build a home in San Bernardino County. The range is $35,000 to $50,000. Also, percentage of crowded homes in San Bernardino County comes from the American Community Survey of the U.S. Census Bureau.
Things are bad on the homefront for California and the Inland area.
New single-family home construction is far below demand, and while new-home prices in Riverside and San Bernardino counties are lower than other Southern California areas, costs are still difficult for many Inland residents to meet.
A recent draft report from California’s Department of Housing and Community Development outlined the statewide woes reflected in the Inland area.
New-home production statewide is far below projected needs – 80,000 homes annually for the last decade, with a projected need of 180,000 homes per year. The lack of supply and associated rising costs are shutting a broad variety of Californians out of the market.
The nation’s most populous state has the third-lowest home ownership rate among the 50 states and the lowest in California since the 1940s.
An effort to streamline homebuilding permits failed last year in the state Legislature. California Gov. Jerry Brown promised in his January budget message to attack the housing issue again with a bill package he said would cut red tape, fees and other hurdles affecting the industry.
At the ground level
The average cost of all kinds of homes – new, used and condos – in Riverside County was $345,750 in December, while the median price in San Bernardino County was $299,000.
Averages for new homes are higher, but are difficult to lock down for the two sprawling counties that include urban and suburban neighborhoods as well as mountain and desert areas.
In Riverside County’s Indio, a new two-bedroom, two-bath home was offered at $246,000 on Zillow during a recent spot check, while a four-bedroom, five-bath home in San Bernardino County’s Rancho Cucamonga was listed at more than $1 million.
The annual mean wage for the Riverside-San Bernardino-Ontario area was spotted in 2015 at $45,210 by the U.S. Bureau of Labor Statistics.
“By national standards, that’s OK. By California standards, that’s not,” said Michael S. Garrison, director of government affairs for the Riverside County chapter of the Building Industry Association of Southern California. “At the very least, what our industry would like to do is build quality, single-family homes at a price that can be affordable to someone that lives in the area, preferably in line with lending limits.”
Annual single-family home permits in San Bernardino County stood at 2,806 through December; Riverside County stood at 5,520.
“That is very low,” Garrison said of the Riverside County numbers.
“No one is expecting us to be where we were when the market was booming” – nearly 30,000 starts countywide in 2005 – “and we’re not at our all-time low,” about 2,700 permits in 2011.
But the current number “cannot be the new normal – that would be very bad. We are hoping that in the coming years, if the economy in California becomes one that’s more friendly to homebuyers, we can get to the new normal of about 11,000 a year.”
Garrison said that would reflect a right-sized growth – above the current numbers, but not at the rate of the housing market bubble of a decade ago.
But those numbers depend on projected growth, and there is concern that numbers are not meeting expectations, Garrison said. Riverside County recently estimated an $8.2 million shortfall from anticipated sales and property taxes.
Cost and effect
“Barriers and constraints (such as lengthy development review, lack of certainty at the local level of where and what is economically and politically feasible to build, and local opposition) impact the type, quantity, and location of housing built,” the California Housing and Community Development draft report said. “Often these barriers delay, or prevent new home development.”
“Where things go really bad for California as a state, and Riverside County is just a reflection of the state at large, is that the homebuilder needs to pay every possible agency that has a vested interest in that property,” Garrison said.
“In Riverside County, in most communities it works out to be about $65,000-$66,000 per door, before a shovel ever touches dirt ... 30 percent of the average cost is in fees.”
The fees in San Bernardino County are about $35,000-$50,000 per home, said Gordon Lee Nichols, senior director of the Building Industry Association’s Southern California Baldy View Chapter for San Bernardino County.
Costs include police and fire services, water and sewage hookups and school district fees. There are environmental mitigation fees and countywide costs – $8,900 in Riverside County for the Transportation Uniform Mitigation Fee.
And the fees from local agencies are not consistent.
“Costs vary, city by city, region by region, drastically” Garrison said. “You can have one city – it’ll cost $6,000 in developer impact fees. Right on the other side of the town line, it can be $15,000. I can literally stand on one side of the street and pay $6,000 per door, or I can walk across the street and pay $15,000 per door.”
And many of those fees are under review and could go up, Garrison and Nichols said in separate interviews.
The costs of an environmental study of the land use can generate additional expenses. “That varies so much it would be irresponsible for me to throw a number out,” Garrison said. “It is a part of building in California, and it can be very expensive and time-consuming.”
It’s a practice in the home development industry to have “a built-in budget for legal challenges” ranging from environmental issues to neighborhood groups opposed to a development, Nichols said.
Lawsuits against developments are often based on the California Environmental Quality Act. The Southern California Association of Governments has reported that 33 percent of CEQA lawsuits in its area were aimed at residential developments.
Almost all of those were targeted at infill areas and particularly at multifamily developments – apartments – at a time when rents are rising, occupancy is high, and nearly 59 percent of Inland renters are considered “cost-burdened,” paying more than 30 percent of their income for housing.
The mounting costs for home development are more keenly felt in the Inland area, where there is pressure to keep housing prices lower.
“Not all costs get passed to customers,” by developers, Nichols said. “They do as much as market can bear and then just lose revenue.” He said while the absorption rate for new homes is good, “the margins here in the IE are really razor-thin.”
Another challenge is FHA guarantees for home loans. Home sales of all types in Riverside and San Bernardino counties currently lead Southern California for FHA-guaranteed loans, each hovering at around 30 percent in December.
The current FHA limit for the Riverside-San Bernardino-Ontario area is $379,500 for a single-family home. As recently as 2013, the FHA limit was $500,000, Nichols said. “We were one of only a handful of (areas) nationwide that had a reduction in FHA loan limits,” he said in an email.
“The down payment for some of these mortgage products is huge barrier for first time homebuyers or moderate-to-low income families,” Nichols wrote. “And because FHA is so low in the IE, new homebuilders are having difficulty building homes at the $379,000 price point, due to all the other regulatory issues.”
Nichols added that homebuilders want to sell to people who currently live in San Bernardino County, which has one of the state’s highest overcrowded home percentages.
The American Community Survey of the U.S. Census Bureau puts that number at more than 13 percent.
‘A finicky time’
Despite the challenges, developers are finding ways to get homes on the market.
The Imperial Hardware lofts project in downtown Riverside reflects a trend of younger buyers’ preferences toward townhouses in urban areas, with “walkability” for work and shopping, Garrison said.
The Ontario Ranch development in Ontario is a 13-square-mile, master-planned community that ultimately plans 46,000 new homes.
“It’s a finicky time for the industry,” Garrison said. “Homebuilders want to be in business in California. California and the communities need to set the conditions; if they set the conditions for it, we will be there to build.”