To be fair, Santa Barbara County was born beautiful—but its pioneering environmental policies have maintained a level of splendor that has helped fuel booming property values.
Nestled between the Pacific Ocean and the verdant Santa Ynez Valley with the Santa Ynez Mountains sandwiched in between, the Central California enclave of almost half a million people is nicknamed “America’s Riviera” for its year-round vernal climate and Spanish rooftops. Along the 110 miles of coastline a string of towns retain a classic California beach-town vibe; while inland, the east-to-west traversing Santa Ynez Valley enjoys 15,000 acres of vineyards, multiple wineries and a laid back, ranching lifestyle.
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“Santa Barbara has two natural buffers, the ocean on one side, and the Santa Ynez Mountains on the other,” said Andrew Plantinga, an economist at University of California at Santa Barbara who focuses on land and resource use. “Both are fantastic amenities. Add a great university and terrific weather, and pretty soon a little house costs a few million dollars.”
The region’s soaring home prices reflect that sentiment. Between 1990 and 2021, property values throughout the county steadily marched upward from a median home price of $272,000 to just under $1.5 million, an average of 6% growth a year, according to market research conducted by Renee Grubb of Village Properties and Fidelity National Financial. According to the Federal Reserve Bank of St. Louis, the national home price increased on average between 3% and 5% during the same period. Then, during the pandemic housing boom that swept the entire U.S., the prices jumped further, propelling 2023’s median home price in Santa Barbara County to $1.7 million.
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The Obstacles to Preservation
However, it hasn’t always been smooth sailing in paradise. Preserving the region’s natural bounty has always presented challenges. Sustainable growth that meets housing and infrastructure needs without overtaxing the environment has often pitted investors, developers and environmental advocates against each other.
Those issues are further complicated by a finite supply of water. When the city does experience what the rest of the country might describe as “weather” it’s of the apocalyptic variety: Years-long drought, massive wildfires, flood, mudslides and rarer, but potentially devastating, earthquakes. The regional seabed also has abundant oil and natural gas supplies, leading to the occasional oil spill drenching beaches and wildlife.
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But those environmental challenges have had a silver lining. Despite political and economic differences, residents tend to love the region’s lifestyle and recognize and value the environmental resources that enable it. The desire to protect and preserve has propelled city planners to implement proactive sustainability policies, including strict building codes that limit building sizes and urban sprawl, as well as aggressive protections of open and wild spaces and heritage farmland.
Contentions aside, one long-term benefit of the environmental policies are clear: They’ve been a boon to homeowners. Even with some of the highest prices in the country, Santa Barbara County ranked No. 1 on The Wall Street Journal/Realtor.com 2024 Emerging Markets list in the fourth quarter of last year. The sustainability policies have also created a positive feedback loop—protecting environmental resources boosts property values leading to the motivation for further protections. Santa Barbara’s ongoing commitment to environmental stewardship has not only increased property values, it showcases the symbiotic relationship between sustainable development and real estate values.
A Long History of Protecting the Environment
The region’s historic tradition of strictly limiting development and preserving open spaces began at the turn of the 20th century. Approximately 1,000 square miles of the preserved Los Padres National Forest lies within the boundaries of Santa Barbara County. The Santa Ynez Mountain range, which runs about 50 miles along the coastline was first locally preserved in 1899, then incorporated into the greater Los Padres National Forest in 1936. Preserved as wilderness, the mountainous buildable parcels have strict development limits which are further complicated by the area’s shale hillsides.
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Development along all of California’s coastline was strictly limited with the establishment of the California Coastal Zone in 1976, protecting coastal ecosystems and preserving recreational access to beaches. Santa Barbara County’s corresponding Local Coastal Program was fully implemented in 1981. In the city of Santa Barbara, the zone reaches approximately half a mile inland and requires any development within its footprint to meet strict building regulations limiting environmental impact. The zoning also leaves developers open to a particularly high level of public scrutiny, incurring extra expense and dragging development projects through long approval processes.
The Impact on Property Values
The environmental benefits of the policies are clear every time a family takes a swim or a jogger runs along the shoreline, but does the time and financial burden on developers and homeowners in that zone justify investing there?
“For the most part, we’ve found the answer is yes,” Plantinga said. He and economist Christopher Severen measured the long-term impact of the Coastal Land Act on property values. Their study found that, even with the added development and time costs, properties within and even near the coastal zones experience a bump in value. “If you take two homes in Santa Barbara and one is within the Coastal Zone and one is outside, but they are otherwise identical, the Coastal Zone property will have a 15% premium in price,” Plantinga said.
Plantinga and Severen also found that the regulation’s effective limiting of neighborhood overdevelopment further positively affects property values. If you own a property within the zone’s boundaries, “it’s more expensive to develop your property, but that goes both ways,” he said. “It also restricts neighbors from overdeveloping their property, which would diminish your asset. You’re in an area where everyone is equally constrained, which raises the overall value of the amenities.“
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Coastal Zone restrictions provide a knock-on benefit to adjacent properties outside the zone. “The elevated quality of life raises the nearby property values approximately 6%,” he said. “Overall, the regulation enhances property values. ”
Land-use restrictions have led to a straight forward limit of supply, but they’ve also led to a two-fold spike in demand. The lack of buildable space leads to higher prices, too, as does the adjacent shared green and recreational space act as a shared public amenities, further elevating property values.
“Those shared public amenities are positive externalities that are directly capitalized into property values,” said economist Douglas Steigerwald, also of UCSB. What’s more, as the value of environmental preservation plays out over time, the cycle of further protecting both open space and agricultural land continues. “If you own a home and there’s agricultural land, or open space in your area, it’s in your best interest to have that open space preserved,” Steigerwald said. “It’s in your interest selfishly because there are fewer houses added to the property supply, but also non-selfishly, because it’s creating amenities that other people can use. “
Protection and resuscitation of natural habitats also act as a shared amenity, positively impacting neighboring property values. “Providing habitat for native birds of prey or native bee species, or developing other natural amenities, from a financial viewpoint, also raises the value of homes,” says Steigerwald. “It not only raises the quality of life for individual residents but also benefits and develops the surrounding community—another public amenity that benefits individual homeowners. ” They city’s recent projects restoring native creeks to their natural habitat is an example of this cycle. “A hundred years ago, the decision to keep the foothills intact and remove dams lead to creeks with Steelhead trout flowing through the city, creating a rare natural amenity in the built environment,” says Steigerwald. “The current creek restoration projects immediately benefit housing values, but in a decade from now ecological benefits will be clear. “
Most recently, those particular publicly shared amenities collided headlong with pandemic-spurred shifts in national real estate trends.
“During and after Covid we saw growing demand for the region because of both the abundant open space and the slower pace of life,” said Tyler Mearce, an agent for Sotheby’s International Realty. Mearce grew up in Santa Barbara where his father, a local developer, built several homes—including within the Coastal Zone boundaries.
“He would shake his head right now because of the incredible difficulty of development here,” Mearce said. “Santa Barbara has always had very strict development rules, but they play a huge role as to why the valuation is so high. “
Ultimately, restrictions like the Coastal Zone regulation are a “necessary evil from a development standpoint,” he said. “Land preservation in Santa Barbara County has created one of the most pristine regions of land period; end of story.”
