California cities should stop new stores and build more homes – Orange County Register
If California legitimately wanted to get serious about building homes, it would have to impose a moratorium on building new stores.
The pandemic has boldly exposed the vast oversupply of California malls. New consumer habits and online shopping have reduced the need for hectares of stores.
Consider how much empty store space Californians could see this year of recovery, according to projections from brokerage Marcus & Millichap: Orange County vacancy rate drops from 4.8% to 5.5% ; San Francisco 5.9% vs. 4.9%; San Diego 6.4% vs. 5.1%; Los Angeles 6.6% vs. 5.8%; and the Inland Empire 9.9% versus 9.2%.
Until we transform cities and counties from commercial developers into stewards of a broader housing supply, California’s exorbitant cost of living will not be blunted.
You see, it’s far too easy for local municipalities to build commercial space by default. Remember that the main source of revenue they control is sales tax. So, by law, they are paid to build stores.
This helps explain why, despite rising vacancy rates, these five California markets mentioned above are expected to get 3.3 million square feet of New retail space this year – development about the same size as three giant malls.
Now, shutting down all new retail space is an extreme measure. But after watching California struggle for decades to build an adequate supply of housing for its residents, it’s clear that the rules of the game must be tilted in favor of housing.
Yet, at best, we see band-aids for the housing shortage. State lawmakers are considering bills that would make it easier for mall owners to convert their space into housing. The governor’s new budget also throws in a few billion dollars to meet the challenge. Let’s not forget that there are also new state “goals” for each city and county to approve more land for new housing.
So when will we see even bolder moves?
Cut bad habits
The ban I suggested for retail development could simply stop new construction projects from a certain date for a set period.
Of course, “simply” is politically impossible. So there should be allowances to appease cities and developers – not to mention citizens who might see the need for more shopping options.
Maybe a carrot? The intensity of a municipality’s retail ban could be linked to the achievement of certain housing production goals.
Or a cap? Cities cannot exceed their current supply of retail square footage. Still, if a mall owner wants to redevelop commercial spaces, as long as they stay the same size, that’s OK.
There may be some wiggle room. If a developer wants to demolish their commercial building, another commercial project elsewhere in the city could be approved – as long as the city remains below its allotted commercial area.
We could even get really innovative: Allow municipalities to exchange their commercial space with each other. This would help new and/or growing communities that rightfully need more retail. Additionally, shrinking cities with too many stores could take advantage of their excess supply.
Yes, that sounds a bit crazy. But so are the many barriers to building new homes for Californians.
No perfect solution
I admit that my idea has some flaws.
Retailers may not like a limit on the number of choices they have when locating a new store. This would likely drive up store rents.
A government-induced shortfall could also drive up prices for currently depressed commercial property values.
Is this sort of quasi-bailout of shopping centers fair? Worse, would these commercial valuations dissuade certain promoters from swapping shopping centers for housing?
The bottom line is that city leaders need to be incentivized to build homes, and limiting their ability to build more stores would require serious rethinking.
California could change the financial structure of cities so that they are more closely tied to property taxes. You can bet that housing would be built faster. Of course, then we may have to talk about reforming Proposition 13 so that cities can collect even more property taxes. Yes, I know that’s a political non-starter.
Or we could allow cities to collect income tax. This would clearly motivate municipalities to fight for jobs and more housing for the workforce. But would there be support for any increase in income taxes?
Unfortunately, I fear that we will continue to try incremental changes to housing policy.
But letting cities continue to fight each other for extra sales tax dollars is a no-win, zero-sum game for the state’s economy.
Jonathan Lansner is the business columnist for the Southern California News Group. He can be contacted at [email protected]