Prediction: The Future of Housing Across California’s Coastal Communities

Most of us are well aware of the wild demand for purchasing real estate nowadays. This especially goes without saying in Coastal California. Since the onset of the pandemic, many cities across California’s expansive Gold Coast experienced appreciation at astronomical rates, with some areas reaching greater than 25%! If you’ve tried to purchase property alongside the coast, or if you’re still trying to… you know it’s a skirmish competing against multiple offers and weaving through pricing, where the said property sells far over list price, as if people are buying like its Armageddon.

And yes, I understand some markets along the coast have cooled quite significantly. But my local market of Santa Barbara has shown little to no indication of a cooldown. As of May 2023, the median price for a single-family residence (SFR) is $2,090,000 and the median price for a condo is selling at $937,500. Though the price of an SFR has dropped 7% Year-To-Date since 2022, sales are also down 36% YTD since last year. Many properties in the area are still selling within less than a month and with multiple offers, commonly pushing prices above list price.

So, what's the cause for such madness? It’s quite simple, actually. First, Santa Barbara has had a shortage of housing for decades. You can even find newspaper articles dating back to the late 1800’s talking about the City’s shortage of housing! It also doesn’t help that Santa Barbara is only 42 square miles. Buildable land is limited due to the Pacific Ocean and the Santa Ynez mountains sandwiching us in. Secondly, record-low interest rates for a 30-year fixed mortgage didn't help either. Though these rates had good intentions and were meant to stimulate the economy with the goal of getting more people to buy, nearly every homeowner took the opportunity to refinance instead. So why sell your house when you’re living in one of the most desirable locations in the nation AND are practically paying no interest on your mortgage?

Additionally, we can’t forget about the homeowners who have already paid off their mortgages. Many of these homeowners have lived in their individual properties for decades, and over time, many owners gained appreciation. Because of this gain in equity, potential sellers would be prompted to pay capital gains taxes if they wished to sell their homes. So, to sum it up, you have geographical restrictions limiting building and development in the area and homeowners who are either locked into record low mortgages or are sitting on so much equity that the tax burden simply discourages them to sell. Therefore, sellers in Santa Barbara and other coastal cities have no incentive to move. *For those reading this, please keep in mind that I do not intend on discouraging you from buying and/or selling. Life circumstances change every day, prompting people to sell their homes. There is still opportunity for both sides, and a trusted real estate advisor can equip you with additional insight, strategy and guidance on navigating through this market.*

Given such shortage of inventory and high demand to live along the coast, what does the future hold for Santa Barbara and similar cities along the Gold Coast? How can cities adapt to such change? Well, in order to answer these questions, we need to understand Senate Bill 9 and 10 (SB 9 & 10). Passed in 2021, SB 9 allows owners of single-family lots to subdivide their parcels into two and create a maximum of four units. Prior to SB 9, homeowners were permitted to build up to three units on a single-family lot—the principal home, an accessory dwelling unit (ADU), and a junior ADU (JADU). SB 10 is a little different. This bill provides cities with an easier path for residential neighborhoods within the vicinity of public transit and existing urban areas. Under SB 10, cities can opt in to authorize construction of up to ten units on a single parcel without requiring an environmental review. SB 9 and SB 10 are both part of the "Building Opportunities for All" Senate Housing Package- aimed at increasing much needed housing throughout the state. Though it's only been over a year since the passage of both bills, we have yet to experience the impact of such legislation, and how it will change the landscape of living along the coast.

My Prediction: only time will tell how effective SB 9 & 10 will be. Currently, strict permitting procedures as well as the soaring cost of building and materials are direct challenges towards adding more units onto parcels. If circumstances change- which I believe they will- residents in coastal towns will take advantage of these new laws and create more multi-unit residential properties. Within the next few decades, single-family residences may become a thing of the past. I predict that for an SFR along the coast, buyers will be required to pay hefty premiums- in essence, they will become delicacies, primarily seen in high-end communities such as La Jolla, Malibu, and Montecito. Owners of multi-unit residential properties will then have flexibility in splitting their parcels, and/or selling off their units in a fashion similarly seen in condominiums/PUDs (planned unit developments) and TICS (Tenants in Common). With this flexibility, coastal cities across California can expect a bump in inventory, eventually offsetting prices in the long run.

I know to some of those reading right now, this crazy prediction sounds like a total nightmare. But rest assured, you can sleep at night because this is only a mere prediction. Maybe it comes true, maybe it doesn't. But to those who may show disdain for this prediction, I ask you to brace for a ‘new normal.’ You may need to consider accepting some form of change in the long run. Given the high demand seen along the coast, the idea of the white picket fence single-family residence is changing and adapting. Take cities like New York, London, and Barcelona, for example. If you’ve been to either of these cities, you know that single-family homes are not the typical set up. The style of living in these locations are completely different from what we're used to here along California’s coastline. The style of housing found in these individual locations are set up to meet the current demand. Maybe it’s time cities across Coastal California adopt a new style of housing, a style custom and tailored to the needs and demand required of the Gold Coast.

Citations:

1. SB 9 Fact Sheet - California, www.hcd.ca.gov/docs/planning-and-community-development/sb9factsheet.pdf. Accessed 28 June 2023.
2. “Senate Bill 10 (SB 10) Explained.” Homestead, www.myhomestead.com/blog/sb10-explained. Accessed 28 June 2023.
3. Two-Unit Residential Housing (SB-9) - Santa Barbara, California, santabarbaraca.gov/sites/default/files/documents/Services/Planning%20Handouts%20-%20updated/Two-Unit%20Residential%20Development.pdf. Accessed 28 June 2023.?
4. Statistics Provided By: Fidelity-Chicago National Title Co.