The Suburban Squeeze: Land Conversion and Regulation in the San Francisco Bay Area

By David E. Dowall

This title is part of UC Press's Voices Revived program, which commemorates University of California Press’s mission to seek out and cultivate the brightest minds and give them voice, reach, and impact. Drawing on a backlist dating to 1893, Voices Revived makes high-quality, peer-reviewed scholarship accessible once again using print-on-demand technology. This title was originally published in 1984.

• Language: English
• Publisher: University of California Press
• Release date: Apr 28, 2023
• ISBN: 9780520327986

David E. Dowall

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The Suburban Squeeze

California Series in Urban Development

EDITED BY PETER HALL AND PETER MARRIS

California Series in Real Estate

Economics and Finance

EDITED BY KENNETH T ROSEN

The Suburban Squeeze

Land Conversion and Regulation in the San Francisco Bay Area

David E. Dowali

UNIVERSITY OF CALIFORNIA PRESS

Berkeley • Los Angeles • London

University of California Press

Berkeley and Los Angeles, California

University of California Press, Ltd.

London, England

© 1984 by David E. Dowall

The Regents of the University of California

Printed in the United States of America

123456789

Library of Congress Cataloging in Publication Data

Dowall, David E.

The suburban squeeze.

(California series in urban development)

Includes bibliographical references and index.

1. Land use—California—San Francisco Bay Area.

2. Urbanization—California—San Francisco Bay Area.

3. Suburbs—California—San Francisco Bay Area. 4. Land use—Law and legislation—California—San Francisco Bay Area. 5. Building permits—California—San Francisco Bay Area. 6. Housing policy—California—San Francisco Bay Area. 7. Zoning—California—San Francisco Bay Area.

1. Title. II. Series.

HD266.C22S23 1984 333.77'15'097946 83-17945

ISBN 0-520-04968-3

To Diane

Contents

Contents

Tables, Figures, and Maps

Acknowledgments

CHAPTER ONE The Local Land Use Planning Dilemma

CHAPTER TWO San Franciscos Suburban Slowdown

THE BAY AREA’S SUBURBAN LAND SQUEEZE

HISTORICAL GROWTH PATTERNS

LOCAL POLICIES ARE THE CULPRIT

THE ADVERSITY OF SUPPLY RESTRICTIONS

THE PROBLEMS OF CONTINUED URBAN SPRAWL

PRESSING REGIONAL PROBLEMS

A SURVEY OF LOCAL PLANNING DEPARTMENTS

WHY LOCAL LAND USE POLICIES HAVE CHANGED

CONCLUSION

CHAPTER THREE Profile of Growth and Land Conversion in Six Bay Area Cities

FREMONT AND CONCORD: GROWTH CENTERS COME OF AGE

NAPA AND SANTA ROSA: DIFFERING RESPONSES TO GROWTH AT THE URBAN FRINGE

SAN RAFAEL AND NOVATO: MAINTAINING THE GOOD LIFE

CONCLUSION

CHAPTER FOUR Responding to Growth: Local Land Use Controls in Six Bay Area Cities

STEADY AS SHE GOES: CONTROLLING DEVELOPMENT IN CONCORD AND FREMONT

STOP-AND-GO: DEVELOPMENT POLICIES IN NAPA AND SANTA ROSA

MARIN GROWTH PUSHES NORTH: COPING IN SAN RAFAEL AND NOVATO

CONCLUSION

CHAPTER FIVE The Direct Effects of Land Use Regulations on New Housing Costs

THE COST OF NEW HOUSING

THE MOST FUNDAMENTAL FACTOR: LAND

HOW PUBLIC POLICY AFFECTS LAND SUPPLY

SUBDIVISION IMPROVEMENTS

THE DELAY PROBLEM

CALCULATING THE COSTS OF DELAY

FEES AND CHARGES

CONCLUSION

CHAPTER SIX More Subtle Effects: Market Readjustments and Spillovers

THE TYPES OF INDIRECT EFFECTS

GAUGING INDIRECT EFFECTS

EXPLAINING RESIDUAL VARIATIONS: HOUSING AND LAND MARKET PERFORMANCE

CONCLUSION

CHAPTER SEVEN Are the Same Land Use Constraints Showing Up in Other Metropolitan Areas?

CONCERNS WITH REGULATORY IMPACTS: NOTHING NEW

MORE RECENT NATIONAL STUDIES

PROFILES OF SEVERAL METROPOLITAN AREAS

CONCLUSION

CHAPTER EIGHT Living with the Suburban Squeeze

LEARNING TO COPE WITH THE SUBURBAN SQUEEZE

WHAT IS THE ROLE OF THE LOCAL LAND USE PLANNER?

THE HIGH COST OF INACTION

APPENDIX A Survey of Local Planning Departments

APPENDIX B Choosing the Case Study Community Pairs

Notes

Index

Tables, Figures, and Maps

TABLES

1. Annual Rates of House Price Increases, United States, 1968-77 5

2. House Price Increases Compared with Other Price and Income Increases, United States, 1968-77 6

3. Annual Rates of House Price Increases, 1968-76 7

4. Average Purchase Prices for Conventionally Financed New

and Existing Units, 1977, and Percentage Change, 1976-77 8

5. Bay Area Cities with Significant Population Increases, 1950 to 1960 18

6. Region’s Population Distribution by County, 1950,1960, and 1970 19

7. Projected Population, Density, and Urbanized Land Area, San Francisco Bay Area 23

8. Housing Supply/Demand Estimates for the Bay Area, 1970-79 25

9. Pair-Wise Comparison of Selected Attributes for Case Study Communities 36

10. Population and Housing Growth in Concord and Fremont, 1950-80 38

11. Population and Housing Growth in Napa and Santa Rosa, 1950-80 48

12. Population and Housing Growth in Novato and San Rafael, 1950-80 60

13. Fremont’s Residential Zoning Categories 72

14. Concord’s Residential Zoning Categories 74

15. Concord: Land Area by Use, 1979 75

16. Required Subdivision Improvements in Concord

and Fremont 77

17. 1978 Novato Residential Development Potential by

Census Tracts 97

18. Submission Requirements for Novato Planned Districts 100

19. Selected Housing Characteristics in the Six Bay Area

Communities 109

20. Land and Improvement Costs 114

21. Comparative Costs per Unit for Hill Area and

Bay Plain Development 119

22. Required Subdivision Improvements 120

23. Subdivision Map Approval Periods, 1978-1979 126

24. Effects of Approval Delays on New Home

Construction Costs 128

25. Residential Development Fees and Charges 131

26. Combined Direct Cost Effect Estimates of Local Land Use

Controls and Fees on New Housing 133

27. Jobs and Housing Potential in Santa Clara County 137

28. Per-Square-Foot New Housing Prices for Selected Bay Area

Cities, 1978-79 138

29. Average Size of New Housing in Selected Bay Area Cities 142 30. Average Price of New Houses in the Six Case Study

Cities, 1976-79 144

31. Per-Square-Foot Price of New Houses in the Six Case

Study Cities, 1976-79 144

32. Residual Values for Six Bay Area Cities, 1976-79 146

33. Concord Land Supply and Housing Unit Capacity, 1978 150

34. Santa Rosa Land Availability by Planning Area and

General Plan Density Category 154

35. Napa Development Potential by Planning Area 157

36. MarinCounty Growth, 1975-80 164

37. Vacant Land Supply in the Marin Urban Corridor 165

38. Lot Size Ranges of GAO Surveyed Cities 175

39. Single-Family Minimum Lot Size by Region 177

40. Median Single-Family Lot and Raw Acreage Prices in Selected Metropolitan Areas, 1975 and 1980 179

41. Land Price Models: Summary of Regression Analyses 182

42. Exclusionary Zoning in Suburban Northeastern New Jersey 184

43. Distribution of Permitted Densities in Ten Northern Towns Combined, 1969 187

44. Land Available for Development in the Boston Metropolitan Area 191

B-l. Dimensions and Variables Selected for Identifying Community Characteristics 217

B-2. Means and Standard Deviations of the Twenty-Nine

Variables Used for Community Typing 218

B-3. Community Cluster Dimensions 220

B-4. O-Type Mean Cluster Scores 222

B-5. O-Type Membership 223

B-6. O-Type Membership for Twenty-Three Other Communities 225

B-7. O-Type Membership for Case Selection 227

FIGURES

1. Population and Housing Growth Trends in Concord and Fremont, 1970-79 44

2. Napa and Santa Rosa Housing Unit Additions 51

3. Concord’s Permit Processing 80

4. City of Fremont Development Process, April 1979 81

5. Napa and Santa Rosa Residential Development Approval Process 85

6. Residual Value Trends in the Six Cities 149

7. Housing Starts in Novato and San Rafael, 1970-79 167

MAPS

1. San Francisco Bay Region 16

2. Location of Six Case Study Cities 35

3. Fremont: Its Five Districts and Median Year Housing Built, by Census Tract 40

4. Concord: Median Year Housing Built, by Census Tract 41

5. Napa: Median Year Housing Built, by Census Tract 50

6. Santa Rosa: Median Year Housing Built, by Census Tract 55

7. San Rafael: Median Year Housing Built, by Census Tract 57

8. Novato: Median Year Housing Built, by Census Tract 58

Acknowledgments

This book originated out of a research project commissioned in 1979 by the California Air Resources Board to assess the potential for employing land use controls to improve air quality. That project provided me with the opportunity to closely examine various sets of local land use regulations and to gauge their effectiveness. Since then I have also received funds from other sources that indirectly supported research used to prepare this book: the U.S. Department of Housing and Urban Development, the Solar Energy Research Institute, the Construction Industry Advancement Fund, the Institute of Urban and Regional Development, and the Center for Real Estate and Urban Economics.

Many people helped me to carry out my research, including Noreen Ambrose, John Landis, Jesse Mingliton, and Pamela Westing. Landis deserves special mention: he conducted much of the field work and assisted in preparation of earlier drafts of the case studies. Melvin M. Webber, Director of the Institute of Urban and Regional Development, provided seed money to help me get started on the research for the book and also provided ample typing support over the years as the manuscript took form. Kenneth Rosen, Director of the Center for Real Estate and Urban Economics, provided both financial and intellectual support. Several people read the entire manuscript and provided useful substantive and editorial advice: Marion Clawson, Peter Hall, John Quigley, and Melvin Webber. Brigitte Stelling did a wonderful job preparing the manuscript for submission to UC Press.

Finally, I want to thank my wife Diane for putting up with me while I finished the manuscript, especially when we were in Negril, Jamaica.

CHAPTER ONE

The Local Land Use Planning Dilemma

Land use planners across America are facing hard choices. Should they exert strict control over development, as environmentalists and neighborhood groups demand? Or should they aim for more housing at affordable prices, as employers, housing advocates, and tenants urge? Since the early 1970s, the arguments of well-organized environmentalist and homeowner associations have prevailed in many of the nation’s communities. Buttressed by federal and state regulations such as the Environmental Protection Act of 1970, local planners have controlled the use of land far more rigorously than ever before.

The virtues of this policy have been evident. The quality of the environment has improved, and people appreciate it. But now the costs of this policy are also becoming clear: wherever stringent land-use controls have come up against burgeoning demand for housing, land and home prices have skyrocketed.

Ever since 1975, when the first twinges of a housing and land squeeze were felt, pro-housing groups have argued that most land use controls are too restrictive, and that such controls are stifling suburban growth. They have predicted dire social and economic consequences if nothing is done to dismantle the apparatus of growth management. A number of prestigious and influential studies have also warned of the seriousness of the suburban squeeze.

Indeed, much evidence linking restrictive land use regulations to higher housing prices has surfaced over the past ten years. Two major federal studies, one by the US. General Accounting Office and another by the US. Department of Housing and Urban Development, concluded that local land use regulations, building and subdivision codes, and permit-granting processes are frequently excessive and inefficient.¹ Both recommended that development controls be reformed, with the HUD report calling for especially strong medicine—federal limits on local land use controls.

While these studies attracted a good deal of attention from the media, they were hardly novel. In fact, numerous studies since the 1950s have illustrated the inflationary effects of local development controls. The performance of the housing industry in the San Francisco Bay Area was analyzed by Colean and Grebler in 1950, and by Maisel in 1963. They concluded that housing production could be more efficient if regulations were relaxed.² The 1960s spawned the Douglas and Kaiser Commissions. Both examined the inflationary effects of local land use controls on housing costs and availability, and the Douglas Commission proposed a variety of reforms to local land use and zoning controls.³ More recently, several public interest research groups, most notably the Suburban Action Institute and the Potomac Institute, have assessed the exclusionary effects of local development policies and lobbied for sanctions against communities with restrictive development policies.⁴

Will the latest studies be met by as much indifference as the former ones? I think not, because it is no longer only the poor who are hurt by overly restrictive and exclusionary land use controls, but the majority of first-time home buyers. There is a growing constituency for relaxed land use controls and more affordable housing.

In this book I propose, first, to add my own voice to that chorus. I believe that the highly restrictive controls on growth do harm communities, businesses, and individual citizens. Second, I wish to demonstrate the reasons for this conviction, using new data from a region where the inflationary effects of land use regulations have been especially severe: the San Francisco Bay Area. Third, I want to give practical help to local land use planners and communities struggling to preserve environmental quality while also providing reasonably priced homes. Until now, it has been impossible to know just what too restrictive means. We have not known how specific land use controls translate into land and housing prices. By pairing communities that have similar geographic and demographic profiles but contrasting land use policies, I have carried out—as far as is possible in the real world—a controlled experiment in urban planning. Finally, I want to speak out for new land use policies at the regional and national level, for the problem is one all of America must reckon with. Legislation and judicial decisions at the state and federal level directly influence the choices open to local planners. And, although housing prices vary markedly from town to town, from region to region, the areas that endure the greatest inflationary increases have a disproportionate effect—both psychologically and statistically—on the nation’s economy. Land use planners and housing developers are apt to look nostalgically upon the halcyon days of simple zoning ordinances. From 1926, when the Supreme Court upheld the use of municipal zoning as police power, to 1970, when the National Environmental Protection Act was passed, communities relied chiefly on zoning, in conjunction with a general plan, to guide development. By indicating the type and density of land use—one unit per 10,000 square feet, or thirty units per acre, for example—zoning ordinances succinctly told developers what projects would be acceptable. Developers could easily get permission for projects conforming to the zoning regulations. The process for challenging a particular zoning designation was time-consuming, but reasonably straightforward. Once they learned how to gauge their chances of winning zoning approvals, developers did not mind going through the procedures.

For all its simplicity and straightforwardness, though, zoning had real flaws. It was too insensitive and crude a method of regulating development. It reinforced patterns of economic and racial segregation. It set aside land for uses no one honestly expected to occur. It did not control the timing of development and it prevented multiple uses of land, even if those uses were compatible. Above all, zoning was indifferent to environmental issues, with unhappy results that were all too plain.

Reacting to citizen pressure in the late 1960s, planners began seeking new ways to regulate development and suburban growth. The most important of these was the requirement, imposed by the National Environmental Protection Act, that environmental impact statements be prepared for major federal actions significantly affecting the quality of the human environment.⁵ The California Supreme Court (in Friends of Mammoth vs. Mono County, 1972) expanded the requirement to include all large development projects, private as well as public. To the EIRs demanded by the federal government, the states and local communities added their own layers of rules and regulations.

The eagerness with which communities adopted their own controls on growth was impressive. In 1972, a nationwide survey conducted by the American Society of Planning Officials identified about a dozen communities using growth controls.⁶ Two years later, another study found that over two hundred municipalities and counties, from California to Pennsylvania and Florida, were controlling population growth.⁷ During the 1970s, growth control efforts became commonplace, especially in California . According to a recent survey of land use planning activity, over 50 percent of communities in the San Francisco Bay Area are actively limiting population growth.⁸ Current controversies over neighborhood preservation, farmland preservation, and industrial park development suggest that these trends will continue. Moreover, as citizens resist the imposition of new taxes to pay for the services and infrastructure new development requires, the fiscal arguments for limiting growth become as persuasive as the environmental ones. Many communities now require assessment and mitigation of a proposed project’s fiscal impact before granting permission to build.

The whole process of land development has been altered radically by the proliferation of environmental regulations. And while all types of projects have been affected, residential development has been hardest hit. Residential construction is not only the most prevalent form of community development, but also tends to be the most closely regulated. For example, growth rationing systems, such as those used in Petaluma and Davis, California, and Boulder, Colorado, generally limit only residential building permits, not those for commercial or industrial projects.

The increasing reliance on permits and assessment programs to regulate development has also taken a toll on housing construction. The so- called permit explosion prolongs the time needed for obtaining development approval and increases both the uncertainty of project approval and the cost of compliance. And, like zoning, permit processes restrict the supply of residential lots granted development permission. Like those in Petaluma, Davis, and Boulder, growth control programs limit the number of lots that can be developed per year.

It would be irresponsible and inaccurate to say that these changes in local land use control are entirely pernicious. On the contrary, land use controls sensitive to the environment are an advance over the blunt instrument of zoning, and on the whole they have fulfilled their original intent. But it is the very success of these new methods that makes it so difficult to respond to concerns with overregulation and to inflationary land and housing prices.

Ironically, it was just as restrictive land use and environmental regulations became more common that demographic forces came more into play. The housing market was overwhelmed as those born during the postwar baby boom began growing up and seeking homes of their own. The consequence, as became evident by early 1975, was an alarming surge in the cost of shelter. Rapid price increases were first seen in the metropolitan areas of California, but the phenomenon soon spread to other parts of the country.⁹

Between 1975 and 1977, U.S. home prices rose at an annual rate ranging from 10.3 to 12.8 percent for new houses, 10.8 and 11.5 percent for existing units (table 1). These increases were far swifter than those experienced in the late 1960s and early 1970s. For example, the rate of annual increase between 1968 and 1970 was only 5.6 to 7.5 percent for new units, and 7.4 to 8.3 percent forexisting units. Since 1975, the rise in new and existing home prices has outpaced both the general inflation rate and gains in disposable income (table 2).

However, the rate of housing inflation has varied considerably across the country (table 3). And since 1972, it has consistently been highest in the West, the statistics for which are dominated by California. The differences among regions can also be seen in the average housing prices for various metropolitan areas (table 4). With the recent surge in housing prices, many households—particularly first-time buyers—have been

TABLE 1

ANNUAL RATES OF HOUSE PRICE INCREASES,

UNITED STATES, 1968-77

(COMPOUND RATES)

New Houses

SOURCE: Leo Grebler and Frank H. Mittelbach, The Inflation of Housing Prices (Lexington, Mass.: Lexington Books, 1979).

a Federal Home Loan Bank Board.

bFederal Housing Authority.

cNational Association of Realtors.

dThe rate was zero, with prices averaging $26,600 both in 1968 and in 1970. The 1969 figure was $27,900. The statistical fluke of identical prices in 1968 and 1970 is discussed in the text.

influenced by revision of the series in 1973.

TABLE2

HOUSE PRICE INCREASES COMPARED WITH OTHER PRICE AND INCOME INCREASES, UNITED STATES, 1968-77 (COMPOUND ANNUAL RATES)

SOURCE: Grebler and Mittelbach.

aRates of price increases for new and existing houses were averaged for each type derived from the directly reported dollar volume of existing home sales and the computed dollar volume of new home sales (number of homes multiplied by the average sales price). The weights forexisting houses are 78 for 1968-77, 75 for 1968-70, 76 for 1970-72, 78 for 1972-74, 81 for 1974-76, and 80 for 1975-77. The weights for new homes are the reciprocals of these numbers.

bAll items, including the housing component, shown separately under Housing component of CPI. The weight of the housing component in the total CPI has increased in recent years. Computed from old CPI.

cThe GNP deflator is a broader measure of price changes than the CPI. It reflects price movements for investment goods, export and import goods and services, and government purchases of goods and services, as well as those for consumption.

dTotal housing component including rent, homeownership expenses, fuel and utilities, and household furnishings and operation.

excluded from the housing market. This problem has not gone unnoticed by employers. In areas with relatively high home prices, recruitment of employees has become increasingly difficult. Concern is running particularly high in the San Francisco Bay Area, which has the highest median housing prices in the nation. In response, business leaders there have created a multidisciplinary task force to study housing costs and their implications for employee recruitment, labor costs, and continued expansion of the regional economy. In Santa Clara County, the home of Silicon Valley, the booming electronics industry is having trouble attracting employees. The Santa Clara County Manufacturing Group has been studying the land use and housing policies of the fifteen cities in the county, as well as surveying

TABLE 3

ANNUAL RATES OF HOUSE PRICE INCREASES, 1968-76 (COMPOUND RATES)

Four Major Census Regions

SOURCE: Grebler and Mittelbach. aConstant quality house, 1967.

its members to determine their plans for expansion. The group’s aim is to reshape local land use and development policies so that industry can be assured of an adequate supply of land and housing to meet future expansion needs. While Santa Clara County is an example of economic hyperdevelopment, untypical even of regions with high housing prices, its experience does suggest the private sector might come to play a greater role in land use and environmental planning.

What are the long-term consequences of very expensive housing? One, mentioned above, is difficulty in attracting employees. If California’s housing prices remain well above national levels, firms will either have to pay a premium for new talent or rely upon the local labor pool. In the first instance, labor costs will increase immediately; in the second, it will become commonplace for firms to pirate workers from other firms. But in either case, the long-term impact of high housing costs is the same: higher costs of doing business. Ultimately, those firms able to relocate to lower- cost areas will do so. Those that cannot will have to absorb higher operat-

TABLE4

AVERAGE PURCHASE PRICES FOR CONVENTIONALLY FINANCED NEW AND EXISTING UNITS, 1977, AND PERCENTAGE CHANGE, 1976-77

SOURCE: Grebler and Mittelbach.

ing costs and lower profits, or else try to offset these costs by increasing productivity.

Then there are those enterprises, such as local governments or educational institutions, that can neither relocate nor merely pass on higher labor costs. These may find themselves suffering a brain drain as bright young talent is wooed to areas where the cost of living is lower, or to professions in which the salaries are higher.

If housing costs continue to spiral upward, and rental rates follow suit, the impact on wage scales will ultimately push up the costs of all manner of goods and services. An entire economy can be sapped by the lack of a single basic necessity—housing—while only those who own a piece of the scarce resource benefit. In this context, the high price of housing, whether rental or owner-occupied, is actually a pure economic rent—a return to owners of a scarce, fixed supply of land and housing.

The vision of an enormous economic rent being levied on regions with a scarce supply of housing and residential land is a frightening, but not unimaginable prospect. In some areas of California, lot costs today represent 40 percent of a home’s total purchase price. Far higher than what people would pay in more competitive and well-supplied markets, these excessive payments for land and housing impose enormous costs on society. Resources are funneled into exorbitant rents and mortgage payments, and away from other areas of the economy, such as retailing, recreation and entertainment, and savings and investment. Under these conditions, raising capital for reindustrialization becomes a particularly difficult task. Some critics have suggested that Americans are overconsuming housing, but it would seem that in many housing markets across the country, there is all