Housing Crisis in San Diego?

The San Diego Union Tribune ran an editorial today asking of the "public willing to tackle the housing crisis?" I'm not sure the public is willing! I'm also not sure the situation is actually a "crisis." Why do we need to have lower cost housing in an area where land is most expensive? Where are the economists? Economics would say that the normal situation is for prices to rise naturally until supply and demand come into balance. In a normal situation, retirees or disabled would move to lower cost areas so they could stretch their income further. There are areas throughout California that are lower cost, and there are places all over the United States that are lower cost. As those people would move away, their housing would become available to workers in the area. Why wouldn't retirees want to move to the huge amounts of open spaces available for affordable housing in other states? Why must Southern California accomodate so many people? The problem is that governmet policies have distorted the market in such a way that aggrivates the shortage. Some of them are: 1. Proposition 13 which keeps taxes on properties low. So many owners of properties keep the homes even though they rarely use them. Buildable lots remain empty because it doesn't cost the owner much for keeping it and hoping the values will go higher. 2. Capital Gains taxes. Even though long-term capital gains taxes are lower than taxes on current income or wages, it is still significantly high on properties that were purchased in the 1970s or earlier. Why sell and pay the tax, when we can hold the property and enjoy it? 3. The tax basis "step up" at death. Many owners of properties in San Diego, particularly in the coastal zone have signficant capital gains. If we wait for the owner to die, the heirs get the benefit of the "step up" of the basis to the value at death. This is a huge tax saving! So many people are simply keeping properties off the market and are using it just for short getaways waiting for that "step up" -- 4. Affordable housing to most people means low rent. Investors would build homes, condos or apartments for rent, if they knew they had good opportunities to earn above-market rates of return. Why take the risk of building or buying a property when you can get returns on stock market investments with less risk? However the state, cities and counties have passed rent control laws that put significant caps on what could be earned. Even though the caps are not too tight, there are threats and attempts to tighten those caps -- particularly if we have significant inflation. 5. The recent changes in income tax laws have put caps on the SALT deduction which actually removes a benefit from first-time home buyers. 6. The Coastal Commission says they want to encourage affordable housing and much of San Diego County's housing stock is within the coastal zone. However their bureacracy has added another layer of paperwork, approvals, and risk involved in making those investments. The Commission puts restrictions on making minor improvements to coastal property. If an improvement is made, the property is no longer protected as "existing construction" prior to the Commission so basically loses important property rights. The commission is also pushing the concept called "Managed Retreat" for response to sea level rise. That concept prevents owners from defending their own property from sea level rise. So different from other parts of the country where, for example, the Army Corps builds levees to protect Louisiana homes. 7. The cost of buying a home in a PUD or Condo is usually less than a stand-alone single family home. The higher density, as described in the article is also considered desirable. However, the State and local governments make it very difficult for people to obtain mortgages in PUDs and Condos. The mortgage applications are subject to seemingly arbitrary standards concerning construction, insurance, association reserves, and rental occupancy. In addition, the state continues to make knee-jerk reactions to problems and passes laws which make it much more difficult for an association to be managed by volunteer boards. All of these above constraints could easily be resolved by the government. But because each of them involve short-term pain for long-term gain, the sound-bites would tend to make those changes unpopular. Until we get legislatures with guts, integrity and technical understanding, the problem will continue.