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The Independent Institute
Commentary

How to Make Monterey County More Affordable


The prospect of more affordable housing in Monterey County brightened this month when the county Board of Supervisors rejected the rightly controversial General Plan Update. As written, the plan would have made housing less affordable, discouraged development, and harmed farmers. Despite the plan’s $5 million cost, the county is better off for having walked away from this disaster-in-the-making—provided it steers clear of similar proposals in the future.

The plan had two incompatible goals: to make housing more affordable and to limit development. The plan sought to restrict growth in many parts of the county, but this would have caused buyers to pay even higher prices for the available housing supply. A recent study of home prices nationwide by Harvard and Wharton economists Edward Glaeser and Joseph Gyourko concluded that 90 percent of the difference between home prices and physical construction costs was due to restrictive land-use regulations. More land-use regulation will only make Monterey County’s affordability crisis worse.

Affordable Housing Mandates, another flawed feature of the General Plan Update, do not make homes more affordable either. By requiring builders to set aside a portion of their projects for affordable housing, these mandates (also known as “inclusionary zoning”) act like a tax on builders, imposing losses on parts of their new developments. This both increases the price of the market-rate homes and decreases the amount of new construction.

In the first year after affordable housing mandates were adopted throughout the San Francisco Bay Area, new home production fell more than 30 percent and the price of a new home increased by up to $44,000 in the typical city. Because these mandates push builders away, few “affordable” units even get built: fewer than 15 units per year have been built in the typical Bay Area city. In short, affordable housing mandates help few while making homes more expensive for the vast majority of homebuyers.

The General Plan Update raised concerns that new development in outlying areas would strain local government finances. This concern is based on the faulty premise that all new developments must be provided with “full government services.” Yet the private market has a long and successful history of providing services such as street construction and maintenance, water and sewer provision, and even security and fire protection. Homeowners associations are often created in the new developments to manage these services.

The next general plan should adopt a policy of allowing any new development that can “pay for itself.” If builders are willing to provide the services, the county should not stop them from building. Allowing all self-financing projects will make housing more affordable without burdening local government finances.

A final lesson to be learned is that “preserving” farmland by preventing farmers from selling it for development hurts both farmers and the regional economy. A farmer’s most valuable asset often is his land. Farmers sell their land only when they believe they will gain more from its sale than from the crops they could produce on it. Farmers are made poorer, not richer, when their options are taken away.

Limiting farmland conversion also slows economic development by locking the county into its current mix of jobs and businesses. When farmland is developed jobs are not “lost”; new jobs are created that better reflect the natural advantages of Monterey County. Even the economic impact analysis of the rejected plan admitted that the number of new jobs created by the transfer of farmland to other uses would exceed the number of jobs lost. Preventing agriculture - or other industries—from adapting to market realities would slow new business and job creation and make Monterey County residents poorer as a result.

By starting over, Monterey County has the opportunity to develop a general plan that will allow for new development without placing a fiscal burden on local governments. It can allow the economy to develop and create jobs, help farmers preserve the value of their most valuable asset, and make home ownership more affordable. Let’s hope the lessons have been learned.


Benjamin Powell is a Senior Fellow at The Independent Institute, Director of the Free Market Institute at Texas Tech University, and former President of the Association of Private Enterprise Education. Dr. Powell received his Ph.D. in economics from George Mason University. He has been Assistant Professor of Economics at San Jose State University, Associate Professor of Economics at Suffolk University, a Fellow with the Mercatus Center's Global Prosperity Initiative, and a Visiting Research Fellow with the American Institute for Economic Research. He is also the editor of the Independent Institute books, Housing America: Building out of Crisis and Making Poor Nations Rich.