Regional Housing Analysis
Issues and Options
Table of Contents
Population and Employment trends
Historical and projected population trends
Current and projected employment trends
Population growth projected by income category
Housing Market Conditions
Housing Indicators
Leveraging Ability by Income Category
Projected Housing Market Conditions V. Existing Housing and Economic Development Programs
MorroBay Housing Analysis
Governmental Constraints
LocalLand Use Controls
Growth Controls
Building and Housing Codes
Permit Processing Times
Permit Processing and Development Fee
Non- Governmental Constraints
Land Costs
Site Improvement Costs
Construction Costs
Finance Charges
Sales and Marketing
Taxes
Profit
Local Housing Resources
Vacant Land Assessment
Financial and Administrative Resources
Review of existing Policies and Programs
Proposed Constraint Mitigation
Proposed Strategies
State and Local Efforts
References
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Morro Bay 2002
Regional Housing Analysis
Issues and Options
Population and Employment Trends
Historical and Projected Population Trends
The community of MorroBay which according to the General Plan, increasingly serves as a tourist and retirement destination, has experienced relatively little growth in the past 20 years (Figure 1). Over the past two decades, the population has increased from 9,064 to 10,350 an increase of just over 1,000 residents. This equates to a growth rate of less than 1% per year for the last 20 years. The rate of growth within the community of MorroBay has remained low for two main reasons:
- The physical location and geography of the city. MorroBay is nestled between coastal hills and the shoreline which is made up of sensitive coastal habitat.
- The strong desire within the community to preserve the quality of life that served as the motivation for many to move to MorroBay in the first place.
Figure 1. Population Trends.
Source: U.S. Census Bureau, Census 2000 ,
PismoBeach(of similar size) has experienced greater growth thanMorroBay over the past two decades. The consistent slow rate of growth in MorroBay may be attributed to the limited amount of developable land in the City. According to MorroBay’s existing General Plan, the City has allotted 200 acres for future development, with 30 acres to be designated for commercial land uses. With limited room for new development to occur, MorroBaywill remain the quaint tourist and bedroom community that currently exist today.
Current and Projected Employment Trends
MorroBay was once considered a major port-town for the import of commercial goods into the nation. However, unlike port cities such as San Francisco and Long Beach, MorroBay has grown into a quiet fishing town and tourist destination. The City has experienced only small amounts of growth with little or no change in its service industry; therefore, employment trends have remained consistent for the past few decades. Nearly 12% of employment is in retail trade, which predominantly caters to the weekend traveler and holiday tourist. Similarly, almost 15% of MorroBay’s industry is comprised of overnight accommodations (hotels and motels) and food services. The beautiful natural scenery that surrounds the city attracts thousands of travelers to stop and enjoy MorroBay’s surrounding scenery along the Pacific Ocean. Along the City’s water front is the Embarcadero, which supports a variety of restaurants, gift shops, and novelty stores. These attractions employ a high percent of the year-round service industry that Morro Bay is so greatly known for, and because of this, the City will most likely remain a popular stop-over destination for “pass through” tourists. With little room for future growth, employment trends should remain as consistent as they have in the past.
Population Growth Projection by Income Category
Almost 50% of all households in the City are comprised of non-family residences. These non-family households have an average combined income of $34,380. In comparison, only 37% of all households in the County of San Luis Obispo are of non-family residences (Figure 4)(U.S. Census Bureau, 2000 Census data). This indicates that an above average amount of non related people in MorroBay are forced to live together because of the relatively high cost of living in proportion to wage earnings. This problem is compounded due to the fact that only a small percentage of homes will be built within the City’s limits, andvery few homes that will be built will be considered affordable. With the limited types of industry employment that MorroBay offers, the City attracts elderly people that don’t necessarily rely on high paying jobs, but rather they chose to live in MorroBay because of the quiet “laid back” atmosphere. Currently, the majority of occupants are low income renters and high income retired home owners (U.S. Census Bureau, 2000 Census data). In 2000, 40% of the homes in MorroBay were selling for $200K-$300K, and 14% were selling $300K-$400K (U.S. Census Bureau, 2000 Census data). Since then the City has experienced a dramatic increase in the lack of affordable homes. The City is attracting second home buyers from areas such as the Bay Area, SiliconeValley, and Southern California. Many of these people are from high income careers and are looking to purchase second homes for retirement. These groups are able to chose where they wish to live without the same concern of “affordability” that restricts the local residences.
In the past, MorroBay was considered an affordable place to live, especially in comparison to Southern and Northern California beach communities. Recently, MorroBay has become an unaffordable place to live (especially to the local work force), similar to the rest of the County. Middle class blue collar workers that were once able to afford a single-family home in MorroBayare forced to look elsewhere or stay in MorroBay and rent. With the limited amount of jobs in the area, MorroBay will see less and less middle class families moving to the area, and instead, higher income elderly people would be moving to the City for retirement.
Housing Market Conditions
MorroBay has a total of 6,251 housing units and a total of 4,986 households, which equates to 4,986 occupied units and 1,265 vacant units. The relatively high vacancy rate is attributed to the large percentage of houses that serve as vacation homes or part time residences. Tables 1 and 2 provide a summary of the vacancy rates along with the various reasons.
Table 1: Housing Unit Summary
Total Housing Units / Occupied Units / Vacant Units6,251 / 4,986 / 1,265
Source: U.S. Census Bureau, Census 2000 Summary File 1
Table 2: Reasons for Vacancy
For Sale / For Rent / Seasonal Use2.7% / 7.7% / 77.5%
Source: U.S. Census Bureau, Census 2000
The current high rate of vacancy has many social implications as well. The most immediate affect is the shortage in available housing stock that is the result of people from outside areas buying up housing. This in turn results in a relatively high rental rate at prices that are above the average wage earned for the area. This is the reason why over 38.7 % of renters pay over 35 % of their income for rent and 34.4 percent of home owners pay less than 15 % of their income as rent (U.S. Census Bureau, 2000 Census data). This disparity between owners and renters is highly visible in Figure 2, which illustrates the vast differences that exist between the relative amount that owners and renters pay for their housing.
Figure 2. Living Costs as Percentage of Income
Source: U.S. Census Bureau, Census 2000
Using the State Department of Housing and Community Development definition of overpayment(which is where more than 25% of household income is spent on housing), over half of all renters overpay for housing. This wide variation in housing costs as a percentage of income creates a skewed owner to renter ratio. Over 55% of housing units are owner occupied and 44.4% of housing units or renter occupied. Of the owner occupied units, 33% of them are owned by residents 65 years or older (U.S. Census Bureau, 2000 Census data). MorroBay’s General Plan expresses concern over this segment of the population even though they control over half of the housing and generally pay a smaller proportion of their income housing costs.
While MorroBay has maintained a very slow growth rate over the last two decades, they have not met the previous housing allocation. The 1988 General Plan called for an additional 622 units to be built between 1991 and 1997. Table 3 depicts the ratio of housing allocated for each income category. The housing allocation called for the majority of the houses to be in the above moderate price range. This is in light of the fact that the average household income is in the low income range. This type of housing allocation is yet another factor in the high rental rate, as well as the high over payment rate.
Table 3. Housing Allocation Ratio
Income Groups / Housing Units / PercentageVery Low / 0 / 0%
Low / 69 / 11%
Moderate / 174 / 28%
Above Moderate / 379 / 61%
Total / 622 / 100%
Source: MorroBay General Plan, 1988.
During this time however, only 182 building permits were issued for the construction of residential units. While they did not meet their initial goal, an additional 447 building permits have been issued since 1997, bringing the total number of units up to 629. This brings MorroBay up to its 1997 goal, approximately four years behind schedule. In addition, the vast majority of all building permits issued were for single- family homes, which demonstrates an overall lack of interest among developers to develop anything other than single-family dwellings. Figure 3 illustrates the number and rate at which building permits have been issued along with the proportion that have been single family homes.
Figure 3. Building Permits
Source: Construction Industry Research Board, 2001
In order for MorroBay to meet the current housing allocation, the amount of building permits issued would need to more than double. The new allocation would require an additional 778 units by the year 2008. However, the previous 11 years have only seen 629 residential building permits issued.
Housing Indicators
In order to consider future housing conditions, it is necessary to establish key housing indicators. These indicators can give clues as to steps that are necessary in order to plan for future housing opportunities. The indicators chosen to identify housing conditions are the number of family households in relation to the number of non family households along with their perspective sizes, the number of households with children under the age of 18 years old, and the average population per household and family. All of these indicators will be compared to those of San Luis ObispoCounty, as well as with California.
There generally exists a rather large margin between the number of family and non-family households within the State, as well as within San Luis ObispoCounty. However, this margin is significantly smaller in MorroBay. MorroBay has proportionally fewer family households and proportionally a greater number of non-family households, which is clearly demonstrated inFigure 4 below.
Figure 4. Total Family and Non Family Households
Source: U.S. Census Bureau, Census 2000
The large percentage of non-family households can be attributed to the high cost of rent. Since most residents cannot afford the average cost of living, they are forced to live in non-family households by taking on room mates. The total number of households with children under the age of 18 years old also reflects the amount of family households and can also be relevant to the overall percentage of retired residents within MorroBay. MorroBay has a much smaller percentage of households with children under 18 years old than bothSan Luis ObispoCounty and the State of California. Figure 5 illustrates the number of families with children under the age of 18 in relation to the County and the State.
Figure 5:
Source: U.S. Census Bureau, Census 2000
Only 16.7% of households in MorroBay have children under the age of 18, while there are 35.8% state-wide. From this, it may be assumed that MorroBay has a much higher percentage of retired residents or other non-traditional households. The retired residents have the ability to afford higher priced housing that is not within the price range of most families with children under the age of 18 years old. If this trend continues families with children will be completely priced out of the housing market.
Leveraging Ability by Income Category
Overall, most people within MorroBay do not have much leveraging ability to afford housing. For people living and working in the area, housing is out of proportion with the income, and as a result the average person of working age cannot easily afford housing. Most of the housing market is open to people of retired age, which already own a proportionally high percentage of housing in Morro Bay (see figure 6).
Figure 6. Percentage of Homeowners 65 and older
Source:U.S. Census Bureau, Census 2000
In addition to a high proportion of housing being owned by people 65 years and older, the problem of affordable housing is compounded by the fact that the median household income is only $34,379. This combined with the fact that the average house price is around $300,000 leaves very little options available to the median income earner. Table 4 below demonstrates mortgage payments affordable to the median income earner.
According to the State Department of Housing and Community Development, over payment occurs if more than 25% of the household income is spent on housing. At this rate, the maximum that should be spent on housing by a median income earner without overpayment is approximately $716. This means that the most that could be borrowed is between $100,000 and $125,000, far below what would be needed to acquire an averaged priced home in MorroBay.
Table 4. Monthly Mortgage Payment
Monthly Mortgage PaymentAmount
Borrowed / Interest Rate
6% / 7% / 8% / 9% / 10%
$50,000 / $268 / $300 / $333 / $402 / $438
$55,000 / $295 / $330 / $404 / $443 / $483
$60,000 / $332 / $360 / $440 / $483 / $527
$65,000 / $390 / $432 / $476 / $523 / $570
$75,000 / $450 / $498 / $550 / $603 / $658
$100,000 / $600 / $665 / $734 / $805 / $878
$125,000 / $749 / $832 / $917 / $1,005 / $1,097
$150,000 / $899 / $998 / $1,101 / $1,207 / $1,316
$175,000 / $1,049 / $1,164 / $1,284 / $1,408 / $1,536
$200,000 / $1,199 / $1,331 / $1,468 / $1,609 / $1,755
Source: MorroBay General Plan, 1998
In conclusion, the prospects for the average person owning a home in MorroBay are not good. A household earning the median income would have to establish a down payment of around two-thirds the price of an average priced home in order to be able to afford it.
Projected Housing Market Conditions
vs. Existing Housing and
Economic Development Programs
The current housing market and existing employment are severely out of balance in MorroBay. This is primarily due to the fact that jobs local tend to be on the low end of the pay scale, while houses remain to be on the high end (when considering affordability). The City is not experiencing a greater supply than the demand for homes. The housing market condition and employment trends will most likely never be in balance in MorroBay, and this is partially because of the high majority of the population which is retired. Homes are still being bought at the recent increased cost, and as a result, the affordability of homes and the wage of employment are becoming further out of equilibrium.
With the limited amount of employment in the region, MorroBay may become an even more desirable destination for those seeking retirement. Low employment often equals low cost of living, low populations and low volume traffic conditions, this is true in Morro Bay with the exception of the low cost of living. Many cities in the County such as Atascadero and Paso Robles will experience a significant increase in development of residential units, where MorroBay will not. As previously stated, MorroBay has limited growth potential because of geography and environmental constraints. As a result, the City will continue to experience a steady population, and because of the recent increase in housing costs fewer young families will be attracted to the area, while retirees may be even more attracted to the area than in the past.
MorroBay Housing Analysis
There are many governmental and non-governmental constraints on the development of housing in San Luis ObispoCounty. These constraints can add to the burden of meeting the County’s housing allocation, which is divided among the cities and unincorporated area’s within the County. The City of Morro Bay, is required to take on 778-housing units of the currently proposed18,035 housing units allocated to the County as a whole. This will involve unprecedented development within the city. In considering such growth, it will be paramount to determine both the governmental and non-governmental constraints that can impede the development of housing within the city.
Governmental constraints
The first part of the constraint analysis will involve identifying any associated governmental constraints pertaining to MorroBay. While there is no doubt that governmental constraints can act to inhibit housing, governmental constraints are also areas that the City has the ability to influence and make necessary changes. The City of Morro Bay has identified five major governmental constraints (1995 Housing Element and Mike Prater, Associate Planner, Personal Interview, November 13, 2002). These five constraints include: 1) Growth controls; 2) Local land use controls; 3) Building and housing codes; 4) Permit processing times; and 5) Permit processing and residential development fees. The first of these constraints discussed is local land use controls, because it determines not only where development is to occur, but what type of housing will be located within the city.
Localland use controls
Local land use controls determine the size of lots for housing, where the lots should be located, density of each lot, and the required setbacks for houses upon the lot. In order to embrace some of the unique attributes of the City, MorroBay has allowed for flexibility in some of its land use regulations. MorroBay has allowed for a wide degree of variation from the standard minimum of 6,000sq feet for single-family lots. This helps to accommodate lots created to serve as second homes before the implementation of the city’s zoning regulations. The setbacks on these smaller lots are in turn smaller, thereby allowing housing to occur on many different sizes of lots.