Saturday, November 17, 2007

Why Is Santa Monica Real Estate So Expensive?

As a renter in West L.A, I continue to think about the supply and demand for real estate near UCLA. I understand why demand is high. This is paradise. I have lived in Chicago, Boston, New York City, and London and there is no comparison.

There are some supply side barriers. There isn't much "empty land" but there are plenty of golf courses and land zoned for commerical purposes (and much of these lots are ugly and look unprofitable) that could be rezoned to allow for housing. Land is not being allocated to its highest value use. Would negative externalities really be exacerbated by residential growth? At a price of $1,000 per square foot in Santa Monica, it is time to examine the case study of the challenges of building. This discussion below hints at the role that "historic preservation" plays in limiting the supply of new housing. Who has an incentive to balance the desires of the incumbent community for preserving the past (and their home values!) against the demands for "affordable" housing from people like me who want to move to their community?

A historic decision

Re "In historic district, a conflict builds," Nov. 11

The Third Street Neighborhood Historic District's efforts in Santa Monica to stop the building of a two-story Modernist home that is three times the size of nearby structures should not be confused with favoring "faux historic" architecture.

If the proposed structure followed the established guidelines of being sensitive to surrounding structures, its design would not be such an issue. Those who buy in a historic district enter into a social contract with the city, wherein they agree to maintain the structure and preserve the character of the neighborhood by following established guidelines.

The structure intended for the heart of Santa Monica's only historic district simply does not fit the guidelines.

I hope the city of Santa Monica will listen to the concerns of residents who have shown up at commission hearings to voice their opposition and request that the city enforce the guidelines. If the city allows this structure to be built, it will have ignored its own mandate of historic preservation.

Candace Veach

Santa Monica

Here is a history from the Santa Monica city government;

"Preservation of historic resources has been important to the City of Santa Monica and its residents for decades. The local preservation movement began in earnest as the City responded to the increased development pressures taking place in Southern California cities during the 1960s and 1970s. One of the early catalysts was the threatened demolition of the Santa Monica Pier. Constructed as two separately owned adjacent piers - the Municipal Pier, built in 1909, and the Pleasure Pier, built in 1916 the fishing pier and amusement park was one of the focal points of the City. The Pier, as the two separate structures were known, was acquired by the City in the 1950s. Soon thereafter, several developments were proposed which would have led to demolition of the Pier.

The first two proposals, a large boat harbor, and an ocean causeway to Point Dume, ended after some controversy. But the third, a man-made island, with commercial and recreational uses, a 1500-room hotel, and a convention center, was approved by the City Council over public protests. Opposition increased, a "Save the Santa Monica Bay” advocacy group formed, and a lawsuit was filed. The City Council responded by approving a motion preventing development of any kind near the water, which would have meant that the Pier would have to be removed. Several more groups formed with the objective of saving the Pier, and on February 27, 1973, the City Council voted 6-0 to not demolish the Municipal Pier, followed by a 6-1 vote on May 8, 1973, to rescind the order to raze the pleasure pier.

Preservation politics began to change in 1973 as the Santa Monica Centennial approached, and the City Council created the Historical Site Committee. The committee's primary responsibility was to help develop standards and procedures for designating and preserving historic sites in the city. The City Council, following the community interest in preserving local landmarks, adopted the Landmarks and Historic District Ordinance on March 24, 1976. Even prior to the adoption of the formal ordinance, the City designated its first Landmarks: the Rapp Saloon/Old Town Hall on August 20, 1975 and the Miles Playhouse on October 15,1975. Since that time, the city has designated a total of 35 city landmarks, including the Santa Monica Municipal Pier which was designated in 1976.

The Santa Monica Landmarks and Historic Districts Ordinance was amended in 1987 and again in 1991, to create a more comprehensive preservation program. The ordinance established a Landmarks Commission with the power to designate Structures of Merit and Landmarks, and to make recommendations to the City Council regarding the designation of potential Historic Districts. It established criteria and procedures for designating historic resources and instituted requirements for Certificates of Appropriateness for alterations or demolitions of historic resources. Other sections of the ordinance include an economic hardship provision, requirements and exemptions for maintenance and repair of resources, and procedures to respond to unsafe conditions. In addition to regulatory requirements, the ordinance provides for preservation incentives including waivers of fees and zoning regulations, use of the California Historical Building Code, and the Mills Act property tax reduction contracts. A comprehensive architectural and historic resources survey of the City of Santa Monica had been a goal of the City since the late 1970s.

In 1980, the Planning Department staff began the process with a study of the Central Beach Tract neighborhood, hoping ultimately to name it as an historic district. Although this objective was not realized, in 1982-83, the City authorized a city-wide survey and a Historic Preservation Plan Element for the General Plan. This became Phase I of the Historic Resources Inventory, identifying 2,775 sites of potential significance city-wide and documenting 555 of those sites, mostly located in a strip along the western City boundary. In 1985-86, the City obtained a matching grant from the California Office of Historic Preservation to continue the process; Phase II of the survey documented the sections of the City north of Montana Avenue not previously inventoried and produced an additional 162 inventory forms. Phase III, the final increment of the Santa Monica Historic Resources Inventory, was completed in May of 1994, and encompassed the remaining 75% of the City. An additional 660 properties were recorded on inventory forms, bringing the total number of documented historic resources to 1377 (See Figure 1 on page 9).

In 1990, Santa Monica designated its first historic district, the Third Street Neighborhood Historic District, consisting of 38 contributing buildings constructed between 1875 and 1930. The small neighborhood, located in the Ocean Park section of the City, illustrates historic and architectural patterns characteristic of the larger community. Architecturally, the buildings chronicle the evolution of design from the Victorian era through the revival styles of the 1920s and 1930s. Historically, the neighborhood has ties to some of Santa Monica's most prominent early residents."


Anonymous said...

While I agree that land in LA may not be being used to its "highest value," however changing or rezoning non-residential property will inevitably change the character of neighborhoods and the Los Angeles cityscape.

Perhaps, its not rezoning neighborhoods but manipulating rental markets that will help lower residential sales prices and provide more affordable rental housing. Santa Monica and much of West LA is rent control regulated. Rent control effectively takes thousands of apartments off the market-- artificially depleting the supply of rental units. In effect, rent control raises the market rent rates by creating a shortage.

If we consider real estate valuation as a purchase price/rent ratio, similar to a stock p/e ratio, we can better understand the relationship between rent rates and property values, as well as the implications of rent control on not only the rental markets, but also real estate markets.

Before we go rezoning LA and drastically changing the unique development of the city, maybe the benefits of rent control should be reconsidered. Allow the markets to self-correct themselves, and adjust our control over them accordingly.

Anonymous said...

Historic preservation is one of the things which makes Santa Monica a desirable place to live, and, therefore, more expensive. So, indeed, getting rid of it would make Santa Monica less expensive. But there are a lot of ways to make Santa Monica a worse place to live! You could gut the police force, thus increasing the crime rate. You could close the beaches and parks. How about this: what if you banned private automobiles? How green would that be?

Study Group said...

Historic Preservation and other land use controls have driven up the cost of land and inured to the benefit of current residents at the expense of outsiders. The problem cannot be easily solved at the ballot box either: Professor Kahn can't vote to loosen construction restrictions in Santa Monica because he can't afford to live there at all.

One potential solution would be to take zoning power away from local government and give it to the county or state.

Exclusionary use of zoning laws creates other problems. By preventing new construction today, residents in affluent areas are limiting the stock of affordable housing 20-30 years in the future. The mediocre apartment you live in today was once the "luxury" construction being decried now.

Cities that don't restrict construction, like Dallas, have much cheaper real estate and much more affordable housing. Here's an interesting article from the Atlantic Monthly about the problem:

Many residents understand that designating a structure historic is just a fancy way of preventing development on that site. Just for laughs, check out this post about a man trying to stop a gym from being built by asking West Hollywood to designate a Tower Records as historic:

I hope that this problem will be recognized before more good people are kept out of nice places for bad reasons.

Santa Monica Real Estate Blogger said...

While all of the reasons you cite are valid, a simple reason is that there are almost 10 million people in L.A. County and if you asked them if they had a choice on where they wanted to live, I would bet that at least half of them would pick santa monica.

You can check out my blog on Santa Monica Real Estate at my site:

I talk about similar topics there.


Jodi Summres said...

Have you tried to drive anywhere in Santa Monica around 5 p.m.?
It can take 15 minutes to go a half mile.

Santa Monica is an 8.5 square mile City (part of that is ocean) There is an evening population of 90% - up 15% since 2002. The City's daytime population is in excess of 225,000.

There is no room for new housing in Santa Monica until the transportation issues are solved - virtually all city residents will
agree with this.

Santa Monica's property prices are so high because pretty much everyone in the world would like to live by the beach. That's why property prices are so high.


Jodi Summers

Sotheby’s International Realty
Heaven on Earth is a choice you must make, not a place you must find. - Wayne Dyer

Anonymous said...

^^ nice blog!! ^@^

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