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Suit-mail is driving price of new housing up in California
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Why is housing so expensive in California as well as the cost of doing business?
One big reason is “suit-mail” — a legal form of blackmail — used to squeeze private sector concerns that are the key to powering California’s economic engine.
All you have to do is file — and sometimes just threaten to do so — a lawsuit against a developer and you can extract loot. The economics of lawsuits are clear. Not only does it cost money to fight even those that are dubious in nature but the time the court system takes to crawl to a resolution can end up taking years and costing major money when it comes to stranded costs such as land investments and payments for engineering and other work to snake a project through the planning maze.
The California Environmental Quality Act has effectively been mutated into a legal sledge to hammer developers into submission.
A prime example is the San Joaquin County Multi-Species Habitat Conservation and Open Space Plan adopted in 2001.
It was forged by the cities in response to clear threats each jurisdiction would be sued individually every time a project came up that converted farmland or open space into urbanized uses.
The writing was on the wall. Either local agencies worked together to come up with a master land conversion fee to secure replacement open space for what was being proposed for development or risk having every project tied up in individual court cases. Given many civil court cases take years to litigate in San Joaquin County, it would end up costing developers millions, erode jobs, and by default due to an even more constricted new housing pipeline drive the price of new homes up even higher.
So the cities gave into “suit-mail”.
But here’s the problem. The solution crafted with a barrel of a lawsuit gun pointed at the collective heads of the cities, exacerbated the affordable housing crisis in California that gets worse with each passing year.
The fee to be able to develop anywhere in San Joaquin County including Manteca, Lathrop, and Ripon is now $19,400 per acre of farmland or land in its natural state.
Developers pay the bill and collapse the cost into a home’s selling price.
That now comes to $3,880 for a typical tract home built in Manteca or anywhere else in the county. It is a misleading low figure. That’s because most people don’t pay cash for their homes. They take out 30-year mortgages. So by the time the mortgage is paid off at 4 percent, the fee for open space actually costs the home buyer $6,668.54.
It gets worse. Rarely is the money collected immediately spent. That means the $3,880 collected for each home has its purchasing power seriously eroded by the time land is secured to set aside for permanent open space or is tied up in an agricultural easement restricting use of a particular parcel to farming in perpetuity. The erosion can be steep. The 8.9 percent increase in the fee for 2017 compared to the 2016 fee reflects primarily the rising value of land.
The deal was struck in political isolation away from the affordable housing debate.
That means the hard question was never answered: What is more important — open space or affordable housing?
If the answer is they are equally important, then why accept a solution that has minimal effectiveness?
Making a money settlement in the form of fees charged per acre may sound like a functional way to do things wouldn’t it have been more effective to eliminate the middle man?
Establishing a “bank” of farmers who have property they are willing to place in an agricultural easement in exchange for money upfront would lead to more land being protected from urbanization. It doesn’t devalue the land in terms of farming as it can be sold for that purpose to someone else. But it does protect it from urbanization.
The bank would be easy to set up. The county decides the area where farmland is threatened with encroachment that leaders decide is not the best place for development to occur. Then you offer farmers in the designated area the chance to sign up for the bank. As development moves forward, the fee collected goes toward protecting that land in perpetuity are paid directly to the farmer.
Let’s say there are 20 acres a developer wants to convert to urban uses. A farmer has 90 acres in the bank that are available. The payment goes directly to the farmer minus perhaps $400 an acre for management of the program leaving 70 acres available for other developments.
That way the money doesn’t sit around and shrink in value while the government tries to cobble together an open space purchase.
The way it is set up now not only is that $3,880 that the homeowner is actually paying $6,668.54 for not being spent right away but by the time it is the value of what it may buy is eroded due to escalating land values.
The plan in place now not only drives up the cost of housing but it also gets less value than what the money was expected to buy when it is paid.
In reality homebuyers ultimately are spending $6,600 to secure about $2,500 worth of open space benefit thanks to land inflation and mortgage interest.
The big winners are the banks. Right behind them come the bureaucrats assured of a job.
The big losers are anyone trying to put a roof over their heads.

This column is the opinion of executive editor, Dennis Wyatt, and does not necessarily represent the opinion of The Bulletin or Morris Newspaper Corp. of CA.  He can be contacted at or 209.249.3519.