Modesto is a wonderful, quiet, but growing community. Housing, until recently was comparatively cheap versus the rest of California. Now that San Fran is closing down, people can work remotely instead of going to an office, the city has experienced a housing boom—pricing out locals who want to stay in town.
“In Modesto, the housing inventory has been shorting by over 1,000 units a year since the recession, said Daniel Del Real, a broker associate with PMZ Real Estate.
Add to that a nationwide rise in lumber and construction costs, which in turn increases selling prices even further, and homeownership for couples like Jones and her fiancé looks increasingly out of reach. For a young couple on a budget of roughly $250,000 to $300,000, securing a house in a market where the median sales prices routinely exceed $400,000 is a challenge.
“We need to find the right house for us and something that we’re comfortable in, rather than getting stuck in something that we can’t afford later on down the road,” she said.
While this story is about Modesto, the price of homes in San Diego has risen 25% in just the past year. California has become totally unaffordable.
An unwinnable bidding war: How Modesto’s housing crisis prices out would-be homebuyers
By Kristina Karisch, Modesto Bee, 7/22/21
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For Tiffiny Jones and her fiance, the past few months have been marked by milestones. The couple is expecting their first child in the next few weeks, and they’ve been looking to buy their first home together.
But months of house-hunting have proved frustrating: With high prices and even higher demand, finding a home in or around Modesto feels like an impossible task. After scouring homes online for months and attending showings, only to see multiple offers on properties that went well above the asking price, Jones and her fiance have put their dream on the back burner.
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“There’s not a lot of three-bedroom houses available,” she said. “The housing markets are not where they were a few years ago.”
Jones and her fiance’s experience is mirrored by many individuals and families in Modesto and across the country. A nationwide inventory shortage has sent housing prices skyrocketing, and the COVID-19 pandemic has contributed to a surge of movement from higher- to lower-priced regions as people look for houses with more space to raise their families.
According to a recent FreddieMac report, the U.S. had a housing supply deficit of 3.8 million units as of the fourth quarter of 2020. Between 2018 and 2020, the housing stock deficit increased by approximately 52%, the report found.
In Modesto, the housing inventory has been shorting by over 1,000 units a year since the recession, said Daniel Del Real, a broker associate with PMZ Real Estate.
Add to that a nationwide rise in lumber and construction costs, which in turn increases selling prices even further, and homeownership for couples like Jones and her fiance looks increasingly out of reach. For a young couple on a budget of roughly $250,000 to $300,000, securing a house in a market where the median sales prices routinely exceed $400,000 is a challenge.
“We need to find the right house for us and something that we’re comfortable in, rather than getting stuck in something that we can’t afford later on down the road,” she said.
In June, the median home prices in both Stanislaus County and Modesto reached over $400,000. Across the county, the median selling price for homes was $429,000, with a median price in Modesto at $415,000, according to data from TrendVision.
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For Del Real, these conditions spell out an uncertain future for Modesto and the Central Valley.
“If we maintain the status quo, you’re going to see an exodus of young people,” he said. “We’re going to lose residents to cities … that streamline the process and make it happen. They’re just going to go down the street.”
A crisis a decade in the making
In the Central Valley, the 2008 financial crisis decimated the housing market. California was among the states most heavily hit by the housing bubble — precipitated by mass mortgage lending, dubious subprime operations and ballooning home values.
California’s housing prices suffered their fastest and steepest fall in 25 years in 2007, sinking 6.6% in a year.
Locally, home prices dropped more than 15% in 2007 in the areas of Merced, Modesto and Stockton, marking, according to a report from the Public Policy Institute of California, “the largest one‐year decline of any California metro area in at least 30 years.” These declines reversed some of the pre-crash gains in home prices.
The ensuing recession hit the Central Valley especially hard. The financial crisis caused the local unemployment rate — which is normally above average compared to the rest of the state — to skyrocket. Modesto hit joblessness rates of over 17% during the recession, and the city, along with Stockton and Fresno, ranked among the top 10 “weakest performing” metro regions nationwide.
At the same time, construction nearly stopped.
In Modesto, housing permits fell 63% from 2004 to 2007, according to the PPIC report.
In the late 1990s and early 2000s, Modesto was issuing between 400 and 1,800 permits annually, with a spike around the turn of the millennium, according to city data.
In 2006, the city issued 415 housing permits; in 2007, the number went up to 574. By 2008, only 113 permits were issued citywide, and the numbers dropped into the double digits by 2009. It took until 2016, over half a decade later, for Modesto to once again issue over 100 permits.
In 2020, the city awarded 224.
This decade-long pause in construction has taken its toll on the region. Del Real estimates the city is short over 11,000 housing units, and with the current rate of development, it’s nowhere close to being able to fill the gap.
New homes are quickly being bought at The Trails in the Village One neighborhood in Modesto, Calif., on Friday, July 16, 2021. Andy Alfaro [email protected]
New plans to revitalize old processes
Jessica Hill, Modesto’s community development manager, said the city is reevaluating its housing priorities as it works to update its general plan, or long-term outlook for the city.
Modesto is bringing on a consultant firm to look into city processes and assess opportunities to streamline development and help facilitate housing affordability.
According to the proposal, the general plan will address key issues such as expanding Modesto’s economic base, clarifying future growth areas and implementing the city’s recent downtown master plan, among others. Hill said the plan will serve as a “roadmap for us to really look at how we can improve our internal processes and how we can be proactive in different policy decisions that are coming down on the federal and state level.”
“We do recognize we’re constrained right now by the current boundaries of the city of Modesto and we understand that we still want to research and find different growth areas,” she said.
This overhaul of the general plan will allow Modesto to re-prioritize what kind of housing is developed, said Councilman Chris Ricci, because the current plans and goals have been in place for years.
Current projects in the pipeline tend toward sprawling developments of single-family homes, he said, which don’t always fit the community’s housing needs.
“These things have been planned over many decades, and so they reflect the values of the decades in which they were created,” Ricci said. “That filters all the way down from the plan to the planning commission to the developers, so that even the projects we’re working on today reflect that vision.”
The recession, coupled with the COVID-19 pandemic, have fundamentally changed housing needs. With work from home at an all-time high and thousands looking for more affordable, larger homes for their families, Modesto is seeing an influx of transplants from other parts of the state — largely the Bay Area and Sacramento.
Michael Zagaris, the president of PMZ Real Estate, said this pattern creates “a conflict in which a lot of the local people are being priced out of housing by the people from the Bay Area. It’s a cascade effect.”
Bay Area buyers bring with them more purchasing power, and low interest rates are allowing buyers to access homes that would otherwise be out of their price ranges. With a lack of supply, homes can attract multiple offers in a matter of hours once they’re on the market, and most come in above the asking price.
But Modesto, which along with other Central Valley towns has historically served as a commuter city for Bay Area workers, won’t necessarily serve that function forever.
Ricci said priorities for development need to shift away from serving “cities that work great with single-family homes” where “you get in your car and you drive to work 100 miles away.”
That model is ending, and cities need to focus more on affordability and livability, as well as adaptability to new types of housing. Ricci is a proponent of infill development — or rezoning and developing land already within a city’s boundaries — and mixed-use development, “places where you can have retail, residential and office kind of together, working together to create more livable spaces.”
New housing development will be built along Oakdale Road with the northern boundary being Claratina Avenue in Modesto, Calif., on Friday, July 16, 2021. Andy Alfaro [email protected]
‘A political and legal quagmire’
Even with plans for new types of development, those being built right now are facing their own challenges.
In Modesto, both the recession, as well as complicated rules and regulations regarding the drawn-out process of entitlement — annexing and preparing land for development — have come together to create a pipeline issue. Zagaris said this makes the housing crisis in Modesto worse “than in most other parts of the country.”
“In terms of the supply of entitled land, it is a political and legal quagmire we have here that is not going to go away,” he said. “It is so challenging that many folks who own land in what is called the ‘path of growth’ in Modesto … have decided we’re not going to pursue this.”
Jaylen French, Modesto’s economic development director, said that in terms of overhead costs, developing new land is always risky for a city. Since entitled land needs to be fitted with sewer lines, sidewalks and other utilities — which then have to be maintained in perpetuity — embarking on a large-scale development typically results in a “net negative” for a city’s budget.
“You don’t typically see (city) incentives for residential (development),” French said. “What the city would want to do is make the process as streamlined as possible, as easy as possible.”
Zagaris and PMZ are in the process of developing Tivoli, a roughly 454-acre proposed mix of homes, stores, offices, an elementary school and parkland.
The project has been in development for over a decade. When the City Council approved the development in 2008, plans included as many as 3,193 new homes ranging in size from apartments and condominiums to regular houses and small estates.
Twelve years later, Tivoli has yet to break ground.
Zagaris said he expects the project — alongside Village One in Modesto — to be among the last large-scale development projects in the city. He said fellow developers are wary of investing in projects that could take over a decade to complete and that run risks of complications in every step of the process.
Without any significant changes, Zagaris said he doesn’t “think we’re going to solve the imbalance between the needs of the families in the area and the supply, ever.”
For Zagaris, Tivoli will be the last large project in a decades-long career in Modesto. He’s in his 70s now and no longer interested in the prospect of embarking on another 10- or 15-year development process.
“I don’t want to be 95 years old when the next neighborhood happens,” he said.
