By Ken Magri
Greg Paquin, a real-estate consultant who runs The Gregory Group with offices in Folsom and Aliso Viejo, echoes what “we all realize,” he says. “There is an affordability issue and a lack of housing issue, and it’s widespread.”
With 25 years experience in the local housing market, Paquin understands why for-profit developers feel that building affordable housing isn’t profitable. “Builders want to build houses,” Paquin says. “But a lot of times it doesn’t work financially because the cost to build often outweighs the price you can sell a home for.”
The lack of affordable housing, he says, is especially impeding millennials and Gen Zers who need affordable living spaces either as renters or first-time homebuyers. He partly blames state fees and regulations for that high cost on housing, and would like to see the state loosen its grip on developers.
Paquin also has some other ideas that work toward addressing the housing crisis, which he explained in a recent interview with us.
Is there a problem of younger generations not being able to buy a home as early in their lives as baby boomers were able to?
Absolutely. Over the next 10 years, the growth of Gen Z and millennials in the first-time category is pretty significant. I think there is a danger that we will price a lot of those folks — if not all of them — out of the market, based on the cost to build housing. They have lower incomes, they don’t have an equity position of existing housing and they don’t have the savings.
Interest rates have increased dramatically, so it makes the cost of ownership a lot more than it was two years ago. That’s more difficult for a younger person.
What about more affordable condensed housing models, like condos or apartments that could be owned, rather than single-family dwellings? Is any of that being built?
No, not enough. … We are going to miss this group of younger folks because housing is not available for them in affordable measures. And that includes all varieties of housing, not only small detached houses, but flats or townhomes.
In Sacramento, the cost of [multi-unit complexes] does not allow for a reasonable profit for the developer to undertake that; whereas, in the coastal areas you tend to see more medium-rise condos or townhomes because the pricing is higher. That’s true up and down the coast, but it is a bit more of a challenge in inland California.
Is there something the state government can do to help mandate affordable housing, for example, in an affluent city where a young grocery store clerk can’t even afford to live in town?
I don’t always subscribe to, just because one area is affluent, that there has to be affordable housing in that specific community, when you are talking on a regional basis. If you want more affordable housing, in my mind one of the best ways to do that is to allow market forces to work and build more housing.
Are you making a supply-and-demand argument that more housing supply brings down the prices for everyone?
I don’t think there is any question about that. If the state were really concerned, I think that they would target the fee and regulation side. I was hopeful when [Gov. Gavin] Newsom took over that he was talking about that sort of thing [he campaigned on getting 3.5 million housing units built, which has dropped to 2.5 million]. But it doesn’t appear to have moved that way.
For example, in Minnesota they passed regulations allowing people to subdivide lots and build more units on them. That has helped more homeowners. They are starting to do that in California, I’ll say that. [Senate Bill 9 went into effect Jan. 1, 2022 and allows homeowners to split their lots into two parcels and develop a duplex on each one.]
I am not suggesting that developers have a free reign, but I do believe in supply and demand, and that there should be guardrails. But at the same time: Don’t make it impossible for a builder to build a house.
Can you give an example of a costly regulation?
There’s this thing called CEQA [California Environmental Quality Act]. Its purpose is to inform the public about the potential environmental impacts of all types of development, including housing. But CEQA is often used as a lever for litigation to stop or delay housing projects on environmental grounds.
There are times when development should not occur for a variety of reasons, with environmental impact being one of them. However, when the law is used in a wide-ranging manner so that development is stopped or delayed, just so there is no new development, housing becomes much more difficult to build. It adds to the cost, which in turn can lead to higher home pricing.
And fees are high. When [a developer is] paying fees of $60,000-$80,000 per unit, in some cases, it’s excessive. So, it’s regulations and fees.
Are you saying that the answer is to simply lower fees and reduce regulations?
Part of the issue is that all housing approvals are local. A city gets to decide what gets built and sets the fee structure. It’s not a state-run thing. So, for example, do we want to allow high-density housing within a mile of mass transit? Yeah, we should. But some cities may not want that much density. Is that right or wrong?
What other new affordable housing ideas, beyond what’s out there now, exist?
One alternative we haven’t explored is that we have this whole generation of commercial retail that is clearly outdated. Why can’t we use that as mixed-use and build residential, whether for rent or for sale, on those units that are underperforming as retail?
Do you mean like in Europe, where someone lives next to a bakery or a dress shop?
Yes, why not? I mean, how many parking lots do we need at a store that is 100 spaces deep? Or let’s build above it. I believe it would create a synergy that brings people in, and those retail stores would do better.
I certainly think we should be building more mixed-use, and more housing near light rail or park-and-ride sites. But I don’t feel that we are having enough conversation on that.
This Q&A has been edited for length and clarity.
This story is part of the Solving Sacramento journalism collaborative. In 2023, we are focusing on finding solutions to the lack of affordable housing in the Sacramento region. Solving Sacramento is a project of the Local Media Foundation with support from the Solutions Journalism Network. Our partners include California Groundbreakers, Capital Public Radio, Outword, Russian America Media, Sacramento Business Journal, Sacramento News & Review, Sacramento Observer and Univision 19.
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