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SOAR The economic consequence

of growth controls in Ventura County

By Mark Schniepp

Director, California Economic Forecast

mark@californiaforecast.com

April 30, 2018 Summary SOAR is an acronym for Save Our Agricultural Resources. It is an ordinance in Ventura County which limits development within city jurisdictions to their spheres of influence, typically the city boundaries. And SOAR does not allow boundary expansion without a public referendum.

§ There were a spate of ballot initiatives in the 1995 –1999 period which put SOAR into place in 6 cities of Ventura County including the unincorporated area: Oxnard, TO, Ventura, Camarillo, Moorpark, Ojai.

§ Two more cities adopted SOAR measures a few years later: Santa Paula in 2000, and Fillmore in 2002.

§ The ordinance had a sunset duration of 20 years. In 2016, SOAR was renewed in all jurisdictions by voters for the next 30+ years, or until 2050.

The general notion is that SOAR restricts new development and therefore, it is a local growth control. It is well known by economists that asymmetric application of growth controls on economic activity almost always result in unintended consequences. The early warnings regarding SOAR At the outset, there were no studies conducted to assess whether local governments could implement planning goals and objectives of the general plans with the SOAR growth management policies in place. There were no studies of housing capacity in the “buildable areas.” Effectively, SOAR was put into place without regard for any possible deleterious impacts it might have on land prices, housing prices, the ability to produce more housing, the ability to produce new commercial structures, or the growth of

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business in Ventura County. The SOAR initiative was adopted with the “hope” that it would not become a major obstruction while improving the quality of life in the county. But the Reason Public Policy Institute prepared a study on this issue and produced a formal report in December 2001 finding that cities had not adjusted their general plans or their entitlement processes to accommodate expected housing demand in view of current population growth and credible population projections.1 The study also determined that SOAR would begin to have significant effects on new housing development in less than 4 years, or by 2005, especially if cities did not raise zoning densities or change their General Plans to enable more housing. There would be too little housing produced, and tight housing markets and high prices would be the consequence. Certainly enough, in the aftermath of the Great Recession, vacancy rates for rental housing began to fall precipitously as the economy recovered, tightening to less than 2.5 percent by mid 2015. Currently, rental vacancy rates in Ventura County are the lowest among all Southern California regions except Santa Barbara. Average rental rates soared 20 percent in 3 years.

1 Smart Growth in Action: Housing Capacity and Development in Ventura County, The Reason Public Policy Institute and the Solimar Research Group, December 2001

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4.1 4.3 4.4

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2.5

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3.5

4.0

4.5

5.0

Santa Barbara

Ventura San Bernardino

San Fern Valley

Antelope Valley

Riverside Los Angeles

San Diego

Santa Clarita Valley

Orange

Apartment Vacancy Rates / Southern California percent 2018 Q1

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Housing production remained at recession lows through 2016, unlike most other Southern California counties where new housing accelerated. Recently, the permitting of new housing has only just begun to pick up, largely in projects that have been in the entitlement queue for many years. The lack of housing in Ventura County along with continued population growth has created high average household sizes which frequently signal evidence of overcrowding.

Estimates of Losses due to SOAR There were 11 ballot measures from 2002 to 2008 to expand the SOAR boundaries so that housing development could be accommodated within cities of Ventura County. Six of these referendums were approved and five were not. The five that were not were: Adams Canyon, Santa Paula (twice): 495 units North Park Village, Moorpark: 1680 units Alamos Canyon, Simi Valley: 400 units Ventura Hillsides, Ventura: 1,390 units

2.2 2.4 2.6 2.8 3.0 3.2

Ventura

Orange

Los Angeles

Santa Barbara

San Mateo

San Diego

Santa Cruz

San Luis Obispo

Marin

San Francisco

Average Household Size / Coastal Counties 2017

ratio of popualtion to housing stock

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Prior to these particular ballot measures in July 1999, a superior court judge decided to overturn the annexation of land in Moorpark for a 3,221 unit housing project.2 The total number of units directly impacted by SOAR that can be identified are 7,186.

Source: http://www.soarvc.org Most of these housing units during this time period were single family detached homes. The median price for a single family detached home in Ventura County over the 2002 to 2008 period was $566,000.3 This total value of residential homes denied because city boundaries could not be expanded under SOAR is therefore estimated at $4.067 billion.4 Based on a property tax + average bond measure tax rate of 1.06 percent in Ventura County, the potential foregone property tax revenues are $43.1 million for the 6 projects. About 43 percent of this total would have gone to schools and 22 percent to the County general fund. The Cities and special districts would have been the beneficiaries of the remaining 35 percent. 2 The Hidden Creek Ranch project was halted because the annexation of the land into Moorpark was deemed improper in view of the SOAR ordinance. See: http://articles.latimes.com/1999/jul/16/local/me-56445 3 According to the average median selling price for detached homes as reported by the California Association of Realtors from January 2002 to December 2008. See Appendix A. 4 This is a conservative estimate representing the low end of the impact because we don’t know how many other projects in planning were not proposed at the city level by the development community because awareness of the constraints of SOAR were known or developers were simply deterred by the unpredictable, expensive and time consuming public referendum process.

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Absent the construction of more than 7,000 homes is the inability of the county to create construction jobs and the associated income and spending by these workers. This volume of new homes would support 1,942 construction jobs. The income associated with these jobs during the last 5 years would have been $106 million.5 It is important to note that these estimates do not include any other residential projects that would have been proposed by developers but were not due to SOAR. The volume of those projects is unknown. The estimates do not include commercial structures, nor the devaluation of agricultural lands that, under SOAR, no longer have the possibility of being alternatively zoned residential or commercial in the future. Both of these land use designations would triple or quadruple farm land values prior to any development entitlement. An empirical study by NAHB reported that 22 percent of residential subdivisions contain retail and other commercial developments.6 Commercial developments would have to sized to accommodate the number of subdivision units. While there is no estimate of the extent to which non-residential square feet would have accompanied the housing, it is clear to note that additional development would have prevailed which would have created new jobs, income, and property taxes in the County of Ventura. The effects of SOAR do not include the amount of commercial space left vacant in Ventura County because companies choose not to expand or move to Ventura County. High vacancy depresses the value of commercial real estate, reducing the assessed valuation and property tax obligation to the County. Other Consequences predicted by Growth Controls Economic theory predicts that with urban growth controls in place, land becomes more expensive, and housing and population growth are diverted to uncontrolled areas. Firms will expand, but in the uncontrolled areas, to access a diverse labor pool that is not constrained or limited by housing. A paper by Boaz Nandwa and Laudo Ogura discussed these effects.7 The authors found that when the controls on growth become widespread in a region: (1) existing workers and newcomers will find it difficult to obtain appropriate housing in the region, and (2)

5 https://www.zillow.com/research/construction-job-growth-8734/ 6 Emrath, Paul, Typical American Subdivisions, National Association of Home Builders, September 2, 2014, http://www.nahbclassic.org/generic.aspx?genericContentID=235108&fromGSA=1 7 Nandwa and Ogura, Local Urban Growth Controls and Regional Economic Growth, The Annals of Regional Science, December 2013

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businesses might start to divert production to other regions where there is greater labor supply growth. Therefore “considering these negative effects of growth controls on employment,” housing programs are needed to enable businesses the ability to expand. But local entitlement processes for housing have not been adjusted to enable more housing to offset the consequences of growth controls, or in the case of Ventura County, SOAR. The authors further wrote: “Local growth controls can generate inefficiencies that hinder not only the regional economy but also other regions as businesses relocate across regions.” Employment, population, and production growth tend to be over-restricted. This happens because of the lack of planning by local governments to offset the inefficiencies on the regional economy caused by growth controls.

With limited opportunities for more affordable housing and access to a diverse labor force, Ventura County firms have transferred their growth and production to other areas that are not controlled, namely, Santa Barbara and Los Angeles Counties. Or they have moved entirely out of the area.8

And by diverting growth elsewhere, or by not choosing the growth controlled area to operate in, there has been much less job creation in Ventura County during the economic recovery and expansion over the last 7 years, largely because defections and downsizings of firms from Ventura County over the last 5 years have been unprecedented.9 8 Over the last 5 years, the notable departures from Ventura County include Amgen, Waterway Plastics, Harbor Freight, Zodiac Pool, Move, Inc., Kythera Biotechnology, SolarWorld, Technicolor Video, Farmer’s Insurance, and most recently: Baxalta. 9 See the WARN reports published by the California Employment Development Department. The September 2017 edition of the Ventura County Economic Outlook summarizes the downsizings by firms in Ventura County from 2014 to 2017. The table is reproduced here in Appendix B.

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1

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2010 2011 2012 2013 2014 2015 2016 2017 2018

Job Growth by Southern California County

San Diego Los

Angeles

Inland Empire

Ventura

2010 - 2018 percent per year

Orange County

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Furthermore, there is much greater office sector vacancy in Ventura County because companies are not growing organically as they have in the past, nor are they migrating there. For the last 6 years, office sector vacancy in Ventura County has led all other Southern California regions. In the most recent reporting (first quarter 2018), vacancy in the office sector of Ventura County (as reported by CBRE) leads all other counties.

A Recession in Ventura County, during an Economic Expansion ? The current economic expansion has been underway since the Great Recession that ended in June of 2009. And the state and national economies have been in a clear growth mode since 2011 with the creation of millions of new jobs. But not all regions within the state or the nation are benefitting from the current economic vitality. According to the Bureau of Economic Analysis, the growth of gross regional product for Ventura County turned negative in 2015 and 2016 effectively signaling that the regional economy was in a recession while the rest of Southern California was clearly experiencing expansionary growth in tandem with the state and nation.10

10 Bureau of Economic Analysis, Gross Domestic Product by Metropolitan Area, https://www.bea.gov/newsreleases/regional/gdp_metro/gdp_metro_newsrelease.htm

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Santa Barbara Orange County Inland Empire Los Angeles County

San Diego County

Office Vacancy by Region / Southern California 2018 Q1

percent vacant

Ventura County

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inflation-adjusted inflation-adjusted Metro Area 2015 GDP growth 2016 GDP growth United States 2.9 1.7 California 4.4 2.9 San Francisco/Oakland 4.9 5.4 San Jose/Santa Clara 10.4 5.9 Los Angeles/Orange 4.7 2.1 San Diego County 0.4 0.3 Inland Empire 4.0 2.6 Santa Barbara County 4.9 -0.7 Ventura County -0.2 -2.7 ----------------------------------------------------------------------------------------------------- Source: U.S. Bureau of Economic Analysis The “recession” or relative economic slowdown in Ventura County is the direct result of weak job growth, the lack of new development (and in particular, housing), substantial downsizing by the largest private employer Amgen, a spate of downsizings or defections by many other companies, a sluggish resale housing market, and the lack of higher paying job formation. See also California Gross State Product, at FRED: https://fred.stlouisfed.org/series/CARGSP#0

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0

2

4

6

8

2001 2003 2005 2007 2009 2011 2013 2015 2017

Real Gross Regional Product / Ventura County 2001 - 2017

percent change

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Ventura County is the only region in Southern California where the labor force has actually declined during the

economic expansion due to limited housing and population growth The Amgen Departures The largest biotechnology company in the United States has downsized by nearly 3,000 workers since 2007. More recently, Amgen announced another 500 layoffs (in March 2017) due to relocations.11 Most of the more recent downsizing in Thousand Oaks is due to company relocations to Massachusettes, San Francisco or to the new Services Center that has opened in Tampa, the

400

405

410

415

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435

2002 2004 2006 2008 2010 2012 2014 2016 2018

Labor Force / Ventura County 2002 - 2018

thousands of people

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latter employing 450 people. Why the Tampa Florida location and not Thousand Oaks? An internal Amgen email to employers stated that the location was chosen because of “availability of skilled talent, … high quality and affordable cost of living for staff, and potential to grow in the future.”12 Of course this implies that Thousand Oaks is deficient in one or all three of these attributes that Amgen was looking for. Certainly the housing affordability issue is not unique to Thousand Oaks, but availability of skilled talent and potential to grow in the future are directly related to SOAR.

12 Molina, Joshua, “500 Amgen employees to be re-assigned, relocated or laid off,” Pacific Coast Business Times, March 24, 2017

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1995 1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Employment at Amgen / Thousand Oaks 1995 - 2017

number of workers

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SOAR and Traffic The lack of housing and the lack of jobs have exacerbated inefficient commuting patterns within the County. This is one of the effects predicted by Nanda and Ogura when urban growth controls are present in one region but absent from adjacent regions. The SOAR advocates claimed that the imposition of SOAR restrictions on land use would create many benefits for Ventura County, and reducing traffic was one of those benefits. This picture is taken from the homepage of the SOARVC.org website. With SOAR now in place in the cities and unincorporated area of Ventura County for the last 13 to 20 years, there has been Increased commuting flows of workers from the uncontrolled to controlled cities in the region, and this is largely responsible for chronic traffic congestion on highway 101 and route 23.13 Increasing traffic is taking on more interest as news in Ventura County. The rising traffic counts from the Cal Trans databank along with commentary from Cal Trans spokesman was the subject of a lengthy article in the Camarillo Acorn in September of 2017.14

13 According to the American Community Survey of the Census Bureau, 80,000 Ventura County residents commute to outside the county for jobs, while nearly 40,000 commute from outside the county to jobs inside the county. With fewer than 320,000 Ventura County jobs, 120,000 commuters is a significant number of daily commuters that cross county lines for work.

14 https://www.thecamarilloacorn.com/articles/stop-and-go-a-look-at-countys-traffic/

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Traffic counts are now at an all time high at the Ventura County Los Angeles County boarder on U.S. Route 101. This is also true at the Santa Barbara County Ventura County border.

I have addressed the slow recovery and expanding traffic issues in Ventura County for the last several years now, citing the regulatory environment as the natural culprit responsible for compromising many of the key economic indicators in the County compared to adjacent areas.15 At the time of these initial writings (2015), SOAR had a limited life left in many Ventura County cities. Consequently, there was hope that business conditions would improve when SOAR expired and the regulatory environment loosened. However, with the renewal of SOAR for the next 30 years, the County will have to find more creative ways to avert the stagnation that has gripped it for much of the current economic expansion. History will repeat itself The lessons of SOAR in Ventura County should be carefully evaluated in other jurisdictions that may choose to adopt similar ordinances to control regional growth patterns. 15 See for example, one of my earlier newsletters: http://californiaforecast.com/november-2015/. For a primer, taken from the economic literature on growth controls, see also my March 2016 newsletter, at: http://californiaforecast.com/march-2016/

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165

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185

1996 1998 2000 2002 2004 2006 2008 2010 2012 2014 2016

Traffic on Highway 101 at Westlake Blvd Thousand Oaks

1996 - 2016

thousands of cars per day (peak during month)

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The recent evidence for the Ventura County economy follows the classic textbook example of what occurs in a region where widespread urban growth controls are in place, and adjacent areas are without these same controls. It will become difficult for workers and newcomers to find appropriate housing in the region. Businesses will divert their production to other regions, where there is ample labor supply growth. The Reason Institute and Nandwa and Ogura were correct in their predictions about housing and employment. There would be too little housing produced. This would impact communities, home prices, rents, and availability. Firms would move outside the controlled area. And downsizings and defections would result. The consequence of restricting growth, i.e., housing is less population. But that also means less employment, firms defecting from the region, commuting pattern inefficiency, and more traffic. Local governments could mitigate some of these adverse effects by enabling higher housing densities, adopting a less restrictive entitlement process, and investing in major and more efficient transportation systems that can better accommodate cross haul commuting. None of these partial solutions is without significant political compromise and public expense.

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References 2018 Los Angeles / Ventura County Economic Outlook, by the California Economic Forecast, September 2017. See publications at www.californiaforecast.com Typical American Subdivisions, by Paul Emrate, Economics and Housing Policy, National Association of Home Builders, September 2014, http://www.nahbclassic.org/generic.aspx?genericContentID=235108&fromGSA=1 Local Urban Growth Controls and Regional Economic Growth, by Nandwa and Ogura, The Annals of Regional Science, December 2013 issue, https://www.researchgate.net/publication/236946178_Local_urban_growth_controls_and_regional_economic_growth

Previous studies indicate that urban growth controls (local land use regulations that attempt to restrict population growth and urban sprawl) have increased housing prices and diverted population growth to uncontrolled cities. As a result, when growth controls become widespread in a region, new workers (young and newcomers) might struggle to find adequate housing.

Smart Growth in Action: Housing Capacity and Development in Ventura County, The Reason Public Policy Institute and the Solimar Research Group December 2001 http://reason.org/files/7896cdcef3f7e933eb4478ca29c834bd.pdf United States Census, American Communities Survey, Commuting Flows: https://www.census.gov/data/tables/time-series/demo/commuting/commuting-flows.html Data for Charts Rental Vacancy Southern California: CoStar reports, Dyer-Sheehan Rental Vacancy report for Ventura County, and RealFacts. Average Household Size: Department of Finance, Report E-5. http://www.dof.ca.gov/Forecasting/Demographics/Estimates/E-5/ Job Growth Southern California Counties: Labor Market Information Division, Employment by Industry by County reports, available at: http://www.labormarketinfo.edd.ca.gov/data/employment-by-industry.html

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Office Vacancy by Region: Costar, CBRE, and Newmark Grubb (RERC Quarterly reports). The data is specially requested or purchased from these organizations. Labor Force: Labor Market Information Division, Employment by Industry by County reports, available at: http://www.labormarketinfo.edd.ca.gov/data/employment-by-industry.html Gross Domestic Project: Bureau of Economic Analysis https://www.bea.gov/iTable/iTable.cfm?reqid=70&step=1&isuri=1&acrdn=3#reqid=70&step=1&isuri=1 Traffic on the 101: Traffic Volumes; Annual Average Daily Traffic (AADT), Traffic Census Program, California Department of Transportation, http://www.dot.ca.gov/trafficops/census/ Median Home Price, Ventura County: California Association of Realtors, www.CAR.org Amgen Employment, Surveys of largest employers in Ventura County conducted annually by the California Economic Forecast. See the 2017 Los Angeles County/Ventura County Economic Outlook.

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Appendix A

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1997 1999 2001 2003 2005 2007 2009 2011 2013 2015 2017

Median Home Price / Ventura County 1997 - 2017

thousands of dollars

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Appendix B

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Preparer Mark Schniepp mark@californiaforecast.com (805) 692-2498 Mark Schniepp is Director of the California Economic Forecast based in Santa Barbara, California. The company produces annual economic forecasts for all regions of California and it provides regular commentary on the California and U.S. economies. Dr Schniepp has been preparing focused economic commentary and forecasts for Ventura County annually, since 1994. Every year, his firm presents the Ventura County Economic Forecast Conference in September and February at the Hyatt Hotel in Westlake, California. The Conference is accompanied with the publication of the Los Angeles / Ventura County Economic outlook, a 100+ page book of economic indicators, forecasts, and commentary about the Ventura County and Los Angeles County economies. He also prepares detailed economic forecasts for Los Angeles, San Diego and Orange Counties at least once per year. Please visit www.californiaforecast.com -------------------------------- Word count: 2,774 Completed: 30 April 2018