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Santa Barbara News-Press: Economist: Housing shortage slows growth in Santa Barbara

October 26, 2016
Santa Barbara, California – Published 10/26/2016
Santa Barbara News-Press
By Emily Leslie, News-Press Staff Writer
2016 Radius Forecast Keynote Speaker, Economist Christopher Thornberg of Beacon Economics
Dr. Christopher Thornberg, founding partner of Beacon Economics, delivers the keynote speech at the ninth annual Radius Real Estate and Economic Forecast on Tuesday at Fess Parker’s Doubletree Resort. NIK BLASKOVICH/NEWS-PRESS

One of the nation’s leading economists, Dr. Christopher Thornberg, zoomed in on Santa Barbara’s housing crisis while delivering the keynote speech at the ninth annual Radius Real Estate and Economic Forecast on Tuesday morning.

To promote economic growth, Californians ought to focus more on the housing shortage than the state’s perceived unfriendly business climate and question the state’s tax structure more than its high rates, said Dr. Thornberg, founding partner of Los Angeles-based Beacon Economics, during his address at Fess Parker’s Doubletree Resort.

The “miserabilism” that Wall Street, the media, and even the presidential candidates perpetuate on a national level, he said, is an effort to convince the public that “things are bad when in reality, they’re not.”

“We are so focused on threats that don’t exist that we’re completely ignoring threats that do exist,” he said.

To help economic expansion moving forward, a conversation about the “real problems” needs to take place, he said.

Despite California’s reputation of having a bad business climate, he said, the state has the 11th fastest growing economy in the country, with the southern Central Valley the most rapidly growing part of the state economically.

“Don’t think that our bad business climate is the end of California,” he said.

Reducing regulations and giving tax perks to companies seeking to move into the county are not what drives the economy, he said.

Instead, what grows the economy is having more people participate in it, he said. noting that for Santa Barbara, that means providing more housing.

Santa Barbara has one of the slower growth rates in the state at 12 percent growth over the last five years, he explained, noting housing prices are “through the roof” because there’s so much demand.

“If you want Santa Barbara to grow faster, you have to start with a conversation about housing. And as far as housing goes, we have a big problem,” Dr. Thornberg said.

“Without additional housing, you can’t grow because you can’t bring in people from other parts of the United States.”

The state has “utterly failed” to create the policy reforms necessary to increase the supply of housing, he said, pointing to the California Environmental Quality act which allows every local “Not In My Backyard” group to fight any kind of new development.

California’s Proposition 13, which reduced property tax rates, contributes in part to its housing problem as it makes workforce housing a “bad investment” for California cities, he said.

“By limiting property taxes, you have limited the incentive of local governments to want housing,” Dr. Thornberg said.

Without creating more housing, Dr. Thornberg said the state will turn into “Country Club California” as rich people move in and low-income families move out.

Further, Californians should not worry about how high taxes are overall, but rather should raise concerns over tax structure, he said, calling for revenue reform.

“We are not a high tax state, we are a stupid tax state,” he said with a laugh.

On the Nov. 8 ballot is Proposition 55, which seeks to extend personal income tax increases on earnings more than $250,000, by extending Prop. 30 by 12 years.

“The reason this worries me, is we are becoming more and more reliant on personal income taxes, which by the way, is the most volatile source of revenue you could possibly imagine, particularly that on high earners” he said.

Income taxes contribute to 65 percent of California’s general fund, higher than it was contributing in 2000 and 2006 when there were major downturns in the state’s budget.

“We are setting ourselves up by having Prop. 55 for an even worse, much worse downturn in overall revenues. It’s a terrible idea,” he said, noting that incomes fall more rapidly than other revenues.

Dr. Thornberg is a frequent media contributer and an adjunct professor and director of the Center for Economic Forecasting and Development at UC Riverside. He was formerly an advisor to the California Controller and Treasury offices.

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