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Trends, Issues Evolve Over Time But State's Planning System Remains Unchanged

William Fulton on
Nov 1, 2006

Twenty years ago this fall, the population of California stood at slightly north of 27 million people – an alarming increase of 4 million since the 1980 Census. Many people were wondering how the state would be able to accommodate such a huge population.

When you take a look at this world – the world that California Planning & Development Report was born into in 1986 – it looks on the surface to be dramatically different from today. Yet in many important ways, not much has fundamentally changed. Cities and counties play politics and think about revenue in creating plans; developers try to bust the plans to respond to the market and make money; citizen groups use the ballot and the lawsuit to try to get what they want. Everybody operates under a land use planning and entitlement system that was set up during the 1970s, when California was a suburban state.

In 1986, George Deukmejian, a Republican prosecutor from Long Beach, was governor. Dianne Feinstein was the mayor of San Francisco; Tom Bradley was the mayor of Los Angeles. Willie Brown had turned speaker of the assembly into maybe the most powerful job in the state. Arnold Schwarzenegger was basking in the success of the first “Terminator” movie and was filming another movie, “Predator,” about U.S. commandoes facing off against an alien in Central America; one of his co-stars was wrestler Jesse Ventura, who was killed by the alien in the movie. (At the end, Arnold cornered the alien, which then blew itself up, kind of like Phil Angelides.)

After close to a decade of sluggishness, a real estate development boom had kicked into high gear. The average home price was $133,000 – up almost 12% from the year before. In super-expensive areas like the Bay Area and Orange County, the average home price had crept up above $160,000. One of California’s U.S. senators, housing champion Alan Cranston, introduced a bill loosening federal mortgage requirements to make houses more affordable to first-time buyers. At President Reagan’s insistence, Congress had just passed a tax reform bill that virtually eliminated the tax advantages of building apartments – and which would set off a 15-year trend toward single-family home construction.

No one ever used the word “infill” in 1986. There was no such thing as a “mitigated negative declaration.” Few people talked about endangered species in the context of private real estate development. Everybody complained that “blight” was a loose term but nobody could do anything about it. Fewer than 20% of California’s cities and counties had a certified housing element and nobody much seemed to care.

In November 1986, the state’s voters cast ballots on a $500 million prison bond, a $100 million water bond, and a $400 million school bond. In the wake of Proposition 13, which required a two-thirds vote for most local tax issues, nobody could figure out how to pass a local bond for schools or anything else.

The hottest thing in the real estate market was office space. Business was booming, and companies of all sizes had an insatiable appetite for space — both downtown skyscrapers (as exemplified by the 70-story Library Tower in L.A.) and suburban office parks (such as the gigantic Hacienda Business Park in Pleasanton). Indeed, the suburbanization of offices and jobs was one of the biggest stories in California, because nobody had ever seen such a phenomenon before. And average folks weren’t always happy about it. Enraged by six-story office buildings on Ventura Boulevard towering over adjacent backyard swimming pools, voters in the City of Los Angeles rebelled by passing Measure U in November 1986, which cut the size of allowable commercial buildings in half all over the city.

Measure U was the tip of the iceberg. Having been granted easy access to the ballot on land use issues by the California Supreme Court only a few years before, citizen groups around the state responded to the real estate boom with an unprecedented wave of ballot initiatives aimed at restricting growth. Starting in the 1970s, there had been a few local ballot measures dealing with land use issues each year. But in 1986 the number ballooned to 51.

The California Environmental Quality Act (CEQA) was still regularly used by environmentalists around the state to kill projects, and mitigation wasn’t a concept people thought about all that much. Environmental lawyers frequently dragged CEQA lawsuits into the appellate courts in hopes of expanding the law’s requirements and had little reason to believe they wouldn’t keep winning. Most California Supreme Court justices were liberals, and the Chief Justice was Rose Bird, the ultra-liberal who had been appointed by Jerry Brown. In a sign of things to come, Bird and two colleagues were ousted in a recall election that November.

The legal backlash against strict land use regulation had barely begun. It was unclear just how much power local governments had to regulate private landowners, or how strong those landowners’ rights were. But two key takings and exaction cases from California were pending before the U.S. Supreme Court – First English Evangelical Lutheran Church of Glendale v. County of Los Angeles and Nollan v. California Coastal Commission – and land use lawyers around the state were eagerly awaiting the outcome.

In looking back, it’s fair to divide this score of years since CP&DR published its first edition into four periods of approximately five years each, reflecting the economic cycles and political change of the era.

1986-1991: The Go-Go Years

The boom of the late ’80s was a sight to behold. After more than a decade of sluggishness – including an absolute halt to population growth during the late ’70s – California saw record levels of housing construction, a hot office market, and a mini-mall boom. This, predictably, led to a backlash against growth.

Part of the reason for the backlash was that Proposition 13’s passage in 1978 had left the state bereft of the capacity to build new infrastructure – especially roads – so congestion was on the rise. Part of the reason, as well, was that the office boom of the period created some early infill strife between developers and neighbors, particularly in older strip commercial areas. But the biggest reason was simply that, back in 1980, the California Supreme Court had made it easy for citizens to put general plan amendments on the ballot in Arnel Development Co. v. City of Costa Mesa, 28 Cal.3d 511.

In particular, 1988 was the zenith of the political frenzy over growth. That year, 89 growth-related measures were on local ballots, including major growth-control proposals in Orange, Riverside, and San Diego counties. Growth was a major topic in the Legislature, and Willie Brown even took a flier on the idea of eliminating local governments and replacing them with powerful regional governments – elected, of course. Meanwhile, the median home price ballooned from $133,000 in 1986 to $168,000 in 1988 to $196,000 in 1989 – a 50% increase in only three years.

By 1990, the governor’s race featured two big-city mayors – Dianne Feinstein of San Francisco and Pete Wilson of San Diego, who by then had moved onto the U.S. Senate – who were considered experts on managing growth. In the debate that year, Feinstein, prohibited by the rules from using notes, wrote “growth” on her hand to remind her to hammer Wilson about it. Wilson won, and everybody expected him to bring the same innovative growth management efforts to Sacramento that he had used in San Diego.

1991-1996: At The Bottom

By the time Wilson was inaugurated in January of 1991, however, the growth boom was past its peak. Housing prices began to flatten out and production began to decline. The joke was Wilson just wished he had some growth to manage. As expected, Wilson moved forward with his “Strategic Growth” initiative, but it did not come out until 1993.

By then, with California in the depths of the recession, Wilson had become a more conservative, business-oriented Republican and the focus of his growth management effort was an attempt – unsuccessful, as it turned out – to weaken the California Environmental Quality Act. He also rejiggered the property tax allocation formula so that cities and counties got even less property tax than before, thus making housing development in particular a money loser for almost every local government.

This was the era of gloom, especially in Los Angeles, which was hit hard by both an economic downturn and other disasters, such as the riots of ’92, the fires of ’93, the earthquake of ’94. At one real estate developers’ conference during this period, the keynote speaker told each developer to look to his left and his right and make note of his neighbors, because within two years, neither of them would be in the real estate business. The speaker turned out to be right. Home prices, which had risen 70% in the six years before 1989 (from $114,000 to $196,000), dropped 10% in the six years afterward (from $198,000 to $178,000). Developers told themselves to “stay alive ’til ’95.”

As is often the case during recessions, traffic congestion alleviated and housing affordability improved dramatically. And this took the edge off of growth-control madness. There were 79 land-use measures on local ballots in 1990; the next year there were 18.

In retrospect, however, the world of planning and development in California used this breather to right itself. A major redevelopment reform passed the Legislature during 1993. Local governments gradually figured out how to win the two-thirds elections required by Proposition 13 to pass local bonds for public improvements. The use of Mello-Roos bonds and other alternative methods of financing infrastructure became popular. State and federal biologists refined the process of habitat conservation planning, leading to more up-front plans to set aside sensitive land. The California Supreme Court, gradually becoming more conservative because of Republican appointments, put an end to the endless tape-loop of CEQA analysis in Citizens of Goleta Valley v. Board of Supervisors, 52 Cal.3d 553 (1990), thus converting CEQA from a project-killer into a mitigation machine.

1996-2001: On The Rebound

Beginning in 1996, housing production began to increase and home prices started to rise again. The Bay Area had never really crashed – prices had stayed high all through the recession – but Los Angeles had gone deeply into a hole and was finally, gradually, beginning to emerge.

The office market was no longer hot. Coming out of the recession, the biggest driver of real estate was retail – and, more specifically, “entertainment retail.” Old Pasadena, Third Street Promenade in Santa Monica, the Gaslamp District in San Diego, Irvine Spectrum and Valencia Town Center all came to life. The success of these places suggested a renewed interest among Californians in experiencing urban places, either real or fabricated. It also led to the greatest movie-theater construction boom since the 1920s, much of it financed with redevelopment dollars by cities desperate to anchor either a real downtown or an ersatz one.

Meanwhile, paradoxically, both housing prices and housing production began to go upward quickly, the apparent result of a long period of housing underproduction during the ’80s and early ’90s. Critics of planning also blamed the growth control measures that were put into place during the boom years.

Unlike previous boom times, however, this one went forward without apartments. A variety of factors – including the change in the depreciation laws during the ’80s, construction defect liability laws, and growing political resistance to density – led to an almost exclusive focus on single-family homes during the late ’90s. But there was a growing mismatch between new homes and people. Mostly because of land availability, single-family construction drove deeper into the Inland Empire and the Central Valley. But because of the maturing of immigrant families from the ’70s and ’80s, most of California’s additional residents lived in older and increasingly crowded areas closer to the coast, such as Los Angeles, Santa Clara, and Orange counties.

Once the recession was over, everything seemed to kick-start. Home prices rose by half during this period, reaching the quarter-million-dollar mark in 2001. Construction of infrastructure, including parks and public open space, moved forward rapidly. New freeway and tollway segments were built; local governments passed transportation taxes and bonds; and state voters approved bond issues in vast numbers. At some point during the 1990s, pollsters realized that California voters were not sensitive to the amountin any proposed bond issue; if they were for, say, schools or parks or prisons, they’d pass a billion-dollar bond issue just as easily as a million-dollar one. The size of state school bonds grew from $800 million in 1988 to $3 billion in 1996 to $13 billion in 2002.

Land-use ballot measures picked up again during the late ’90s – as would be expected by the uptick in development. By 2000, there were 70 measures on ballots around the state. But this time the effect was different. Ballot measures on growth were not, generally speaking, radiating more broadly across California. Instead, they were appearing again and again on the ballot in the same areas – San Diego, Ventura, Alameda, Contra Costa, and Sonoma counties especially. California was developing two different political cultures about growth – one along the coast, where everybody expected to vote on land use, and one inland, where they didn’t.

2001-2006: The Infill World

During the last five years, the median home price has doubled to more than a half-million dollars. Although prices have leveled off in the last year or so, they have nevertheless tripled since the low point a decade ago and they’ve almost quintupled since CP&DR was founded in 1986. In fact, home prices have gone so high, 2% of all California adults now have licenses to sell real estate.

This rapid price rise has had huge ramifications by making home purchases almost impossible for even upper-middle-class folks, and fostering the widespread use of negative amortization, interest-only mortgages, and other creative finance tools. But the half-million-dollar house has also revolutionized planning and development, at least in coastal areas, in one important way: It makes residential infill projects profitable.

As a result, California has seen more condo construction during the last five years than in the previous 20. And those condos have not, by and large, been in suburban locations. Generally speaking, they’ve been in existing urban areas like Oakland, San Jose, Pasadena, and San Diego. In many cases – including Old Pasadena and downtown San Diego – they have piggybacked on entertainment retail and new transit lines that were built during the ’90s. And these condo developments often include retail, office, and other mixed-use components.

The bottom line is that home prices aren’t the only thing that have changed in California over the last 20 years. Population demographics, the economy, and the built environment have begun to change in significant ways that the first issues of CP&DR could only hint at. The best way to say it is this: California in 1986 was still a mostly suburban state – growing fast but in a fairly conventional way. Today, California is undeniably urban, and it will only become more urban in the future.

Yet the planning system itself – which is, of course, the underlying subject of every CP&DR story – doesn’t bend to this new reality very easily. The world of general plans, the Subdivision Map Act, CEQA, and redevelopment was pretty much fixed by the end of the 1970s. This system has received a few nips and tucks since then, but there has been no fundamental change. And for many reasons – among them term limits in Sacramento – there is likely to be no fundamental change in the near future.

It’s not easy to predict the trends that lie ahead. No one really knows how deep we’ll go into a real estate recession now, or how long it will be before we bounce out of it, or even what bouncing out of it will look like. Nor can we predict whether inspired political leadership will lead to sweeping reform – as has happened in some states.

Looking back, however, it is clear that CP&DR came on the scene toward the end of a 20-year period of pretty significant change in the land use system – general plan law was revised, CEQA was born and expanded, redevelopment came into common use, Proposition 13 fouled up everything. The last 20 years have been a period of creeping incrementalism. Right now, the next 20 don’t look much different. And that means that, more and more often, planning in California will seems like a workaround of the system rather than constructive use of it.

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