Tuesday, July 01, 2008

Killed housing projects yesterday; less cash in your wallet today.

Killed housing projects yesterday; less cash in your wallet today.
By Sam Bhagwat
of the Valley Mirror
What does new housing do for Glenn County?
Well, a few things.
First, says Glenn County Title’s Rick Thomas, people often look at trying to attract commercial development, ignoring the necessary housing backbone.
“You’ve got to have rooftops to support businesses,” he said.
Problem is, it’s night on impossible to figure out what extra commercial development would have come here if only housing project X was built.
A few times, it has become an issue. In 1978, when a coal plant in Clark’s Valley was proposed, one main objection was the lack of housing for people who would come here to build it – 1,600 during peak construction season.
That would increase the population of Orland and Willows by 20 to 25 percent, planners then worried.
Second, new housing reduces rents. More places to live, so the price of living is cheaper.
Third, other new housing is less likely to be constructed, because housing project X is already helping satisfy demand.
One is a positive effect on the economy. Three is a negative effect. Even if we wave our hands and assume they cancel out, we are still left with two, a positive effect.
So, how much will rents go down?
Economists have a term called price elasticity of demand.
It measures: if widget prices go up one percent, then how many fewer widgets will people buy? Half a percent less? One percent fewer? Two percent less?
A good is more elastic the more people react to price – the more they stop buying widgets, in this case.
So with elastic goods, when price changes a little, consumption changes a lot.
With inelastic goods, in contrast, consumption only changes a little when price changes a lot.
Let’s take an example. A mobile home park proposed in 1982 near Artois would have housed 1,100 people. That would be 4 to 5 percent of the county population.
Several hours spent by this Stanford econ major perusing the academic literature on the matter reveals an array of material.
First, there is no local number. The state association of realtors don’t calculate it; the planning department doesn’t. Chico State urban economics professor Fredericka Shockley said the best bet was probably just to use a number found in the literature for 1975 Sacramento.
That number is from a 1979 study, conducted at the same time as most of the research on this subject – about 30 years.
Third, a variety of numbers were given in such papers, from around 1 to about 0.33, for urban areas.
That is, when the amount of housing increases by one percent, it will decrease prices from somewhere between one and three percent.
Then-planning director Ed Howard said at the time that the project “will probably not bring additional people to the county.”
And Dr. Shockley notes that there are more usually alternatives in urban areas than rural ones.
Each statement indicates that local housing is more inelastic than elastic, which would indicate that the true figure is closer to three percent than one.
Still, we’ll be conservative and say one percent. No, more conservative than that, say three-quarters of a percent.
Four hundred and fifty-seven houses would be a 4.28 percent increase in today’s housing stock.
Which would mean a 3.21 percent decrease in prices, and rents by extension.
The median rent for one-bedroom apartments was in $439 in 2006, according to online data.
Multiplying those two numbers (0.0321 x $439), every one-bedroom apartment renter in Glenn County could take home, very conservatively, $14.09 extra each month, if the Artois mobile home park appeared on the parcel of land today.
And more for renters and recent buyers with families.
That’s why development history matters, by the way.

We’re going to use the figure of rents going down 0.75 percent for every one percent of additional housing for the rest of this series. Keep in mind that though it’s only an educated guess, it’s a pretty conservative one.

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