The California Coastal Commission and Gentrification Along the Coastline

Jonathan Zasloff and I have published a paper about  the housing market effects of Land use regulation . It has just been published in the mighty Journal of Housing Economics.  In case you don’t subscribe to that journal, permit me to sketch why it interests us.

The housing market effects of discrete land use regulations: Evidence from the California coastal boundary zone

Matthew E. Kahn, Ryan Vaughnnext term  and Jonathan Zasloff

Abstract

The California coast line borders some of the most beautiful and expensive land in the entire world. The California Coastal Commission was created in 1976 to protect the coast line and to regulate land use within the coastal boundary zone. This well defined regulatory boundary offers a unique opportunity to study the consequences of land use regulation on nearby housing located in the same political jurisdiction. Using two different geocoded data sets, we document gentrification within the boundary and discuss possible explanations for these patterns.

Urban economists such as Edward Glaeser and John Quigley have argued that housing regulation is a crucial determinant of why housing prices are high in cities such as San Francisco, Boston and New York City while they are low in unregulated areas such as Houston.    In the regulated cities, population growth is slow while it is high in the unregulated cities (elastic housing supply). The challenge here for empiricists is how to measure the intensity of housing regulation.     Now, it is certainly true that demand side factors (temperate climate) will bid up rents in San Francisco relative to Houston but such demand side factors would predict more population growth in San Francisco.  The fact that we see slow population growth in the desirable coastal locations has nudged economists to think about why this is the case.  Does regulation slow housing growth? Does regulation make coastal locations more desirable?

I had read Jonathan’s wise quotes in the New York Times about the California Boundary Zone.   After reading that article, I asked Jonathan to work with me on this project.

This regulation is serious stuff for coastal housing markets.   As reported in the New York Times, “Created by a ballot initiative three decades ago as the protector of the state’s 1,100-mile coast, the commission has long been a thorn in the side of developers, municipal governments and wealthy beachfront property owners, its dominion lacking in comparisons in other states.”

As a data nerd, I became quite excited about the possibility to use the Coastal Commission’s regulatory zone as a discrete measure of regulation.  We know when the regulation started to bite (in the late 1970s) and we know the exact geography of where the regulatory line goes. Using GIS software, we were able to partition coastal communities such as Santa Monica into geographical areas just inside the line and geographical areas also in Santa Monica that lied just outside the regulatory boundary.  We used two different data sets to document gentrification within the coastal boundary over time.  

My favorite story for the new facts we have generated is that the Coastal Boundary Zone represents a commitment device.  Rich guys know that if they buy coastal property that guys like me won’t be able to build new homes near them without facing huge amounts of red tape.  This barrier to entry means that they can live in paradise without having the “middle class” crowd around them.  This regulation induced buffer zone is valuable to these folks and this bids up the price of existing homes within the Coastal Boundary Zone.   So, the regulation both limits new housing supply and raises local housing demand because the community becomes more exclusive.    In addition, I do believe that this regulation also maintains the local beauty of the coast and this is also reflected in the high home prices.

A free older version of the paper is available here  .

Comments

  1. says

    Allow Eli to ask a simple question. All those who would rather live in Houston than San Francisco, Boston or New York City please raise your hands.

  2. Alex F says

    Population of Houston, TX: 2.3 million. SF: 800,000. Boston: 600,000. NYC: 8.0 million.

    As a first choice city, it looks like Houston is pretty darn popular. A lot of raised hands. It's not NYC, of course — nothing else is. (Houston is more populous than Manhattan, though).

    And yes, this is where you would "rather live" given housing prices, job opportunities, costs of moving, etc. You know, in the real world, not a post card. FWIW, my choice is San Francisco, mostly because it's close to where I go to school. I do imagine I'm much happier than if I studied and worked in the Houston area.

  3. says

    Sounds interesting. Of course, one could expect somewhat different pricing trajectories over time for land on/near the coastline versus land not-quite-so-near the coastline, but the article's behind a paywall so I'm not sure how that factor was controlled. Comparing northernmost California coastal prices versus southernmost Oregon coastal prices would be interesting.

    The other way to look at it is that the Coastal Commission forces private developers to internalize the external costs to the public from coastal development in terms of lost views, access to the coast, and other enviro impacts. There's a price to that.

  4. says

    There's a hidden assumption in that story, namely that even without the regulation pricing and sales would be such that ordinary people could get into the market. If prices are lower it also means that a rich person can simply buy the land they want for a buffer zone; the only difference here is that they don't have to. (And of course for another rich person buying, the price of the red tape is simply factored into the overall cost.)

    Having lived in a town on the connecticut coast that became attractive to rich folks, I'd also be interested to see the extent to which clever architects and lawyers were able to subvert the Coastal Commission's rules. (In that town, a virtual moratorium on new construction was rendered meaningless by "renovations" and "additions" to existing structures.)

  5. koreyel says

    This barrier to entry means that they can live in paradise without having the “middle class” crowd around them.

    Paradise? That's a highly temporal opinion…

    I know rich republicans want us to think global warming is bunco at best, or a faraway problem at worse…

    So yes, I tend to chuckle when I read stuff like this:

    The effort by the city of Ventura is the most vivid example to date of what may lie ahead in California as coastal communities come to grips with rising sea levels and worsening coastal erosion. As the coastline creeps inland, scouring sand from beaches or eating away at coastal bluffs, landowners will increasingly be forced to decide whether to spend vast sums of money fortifying the shore or give up and step back.

    And this:

    The "managed retreat" marks a reversal with profound implications for a state that has for more than a century crammed its most valuable homes and businesses on the edge of the ocean.

    "There's the old-school mentality that when nature threatens you, you fight back," said Paul Jenkin, Ventura campaign manager for the Surfrider Foundation and a longtime advocate for the project, "so this idea of retreating and moving back was really quite a radical proposition."

    Such a decision would be far tougher for private property owners, but they too could eventually be in the position of giving up billions of dollars of desirable real estate.

    "The challenge is, we have built most of our civilization within a few feet of sea level or right at the edge," said Gary Griggs, a coastal geologist at the University of California-Santa Cruz, who co-authored the book "Living with the Changing California Coast." "It's either going to be managed or unmanaged, but it's going to be retreat."

  6. Dan Staley says

    Alex, in order for you to show that Houston is more popular, you may want to look at density/mi^2, as the land areas are not equal – HOU metro can spread out, maintaining cheaper housing for working class folks.

    Eli's (excellent) point is more germane when you think about how high rents are bid up to obtain property (equilibrium rents), which Matt points out above are what you look at to get an idea of desirability. That is: sure, lots of people move to HOU for a job. Do they move there for the beautiful beaches, mountains, world-class art, vibrant neighborhoods? Given a choice, waaaaaay more people would prefer Bay Area over Houston. Or Seattle/Portland over Houston. Not even close. Amenities are very important for locational choice. We report, you decide.

    Nonetheless, the conclusion of the paper asks about the "regulatory tax" and points out the "effects that on net have gentrified the area", but doesn't disentangle the supply-demand functions. The question for me – aside from the effects on supply – is: is this OK? Is it OK for rich people to limit supply (and create demand) and drive up prices for outsiders? And can we, at a distance, honestly criticize them for it?

  7. says

    The Mediterranean coastline offers almost the complete range of possible coastal development policies, from democratic laissez-faire on the Spanish Costa del Sol – basically one 200-km strip of apartment blocks and hotels – to the Aga Khan's oligarchic Costa Smeralda in Sardinia, preserved in aspic as a rich-guy playground. I don't like oligarchy, but the result of democracy is not optimal.

  8. DCA says

    Two comments from an inhabitant of the Coastal Zone:

    1. Yes, the additions and renovations approach is a loophole that one can drive a fairly large house through.

    2. The coastal-bluffs problem is related to climate change–not now, but the end of the Ice Age, which moved

    sea level up a lot, and created many of the high bluffs along most of the coast. Any cliff is a sign of ongoing

    erosion–otherwise it wouldn't be there in the first place. For some parts of the coast there is also the problem

    that loss of sand (concrete river channels, and harbors that catch the longshore drift) means narrower beaches and

    more rapid cliff erosion.

  9. NCG says

    Absent the CC, there'd be no one worrying about public access to many beaches. And private owners seem to get away with a lot even now.

    So if the CC raises prices a bit here and there, who cares? I doubt the owners of beach property would look much different without them. I thought the whole point of a free market is that the poor and middle class get pushed out of desirable areas, absent governmental interference. Are y'all a bunch of Socialists now? ; >

    I haven't been able to read the article, so this may be irrelevent, but there are a bunch of other factors impeding housing in places like Malibu, such as that it's in a fire plain and it's hilly. 'Course, that may describe large swaths of LA itself. Anyway, I look forward to reading more of this article somewhere.

  10. says

    Optimal for whom, James? Certainly, lots more people are enjoying the Costa del Sol than the Costa Smeralda. Is there something somehow inferior about their enjoyment, that would improve if only fewer people were to partake of it? And if so, where, exactly, would that golden mean lie, between too few/too rich and too many/too plebeian? It couldn't possibly be at the level of, "exactly enough enjoyment for people matching James Wimberley's social status, but no lower", now–could it?

  11. says

    "Absent the CC, there’d be no one worrying about public access to many beaches."

    This is an important point – the same CC restrictions that make it harder for the somewhat rich to buy (middle class didn't have a chance under any scenario), mean the middle class and working class are present on the coast – on the trails, on the beaches, and enjoying views from roads and public access points. Looking at disadvantages for the somewhat-rich is only part of the balance sheet.