EDITOR'S NOTE: This post was co-authored by Dustin Schrader.
If you haven’t caught the news, there is a new bill floating around Sacramento that attempts to deal with the affordable housing crisis in California. The California Homes and Job Act (http://www.californiahomesandjobsact.org/) would create a new $75 fee on any sort of real estate recording, such as a change of title. This money would then be put into a fund that would, in turn, be used to support 10,000 subsidized housing units in the state.
There is little doubt that the bill’s sponsor, State Senator Mark DeSaulnier (D-Concord) is well meaning in his effort. But well meaning is not the same as effective—and this bill, unfortunately, will not be remotely successful in dealing with the state’s affordable housing problem. It’s a shame California lawmakers can’t or won’t support meaningful reforms—primarily altering the California Environmental Quality Act (CEQA)—instead of offering more band-aids.
This, by the way, is only the latest effort out of Sacramento to deal with the ongoing housing crunch. Last year, Governor Jerry Brown thankfully vetoed another bill that would have re-allowed cities in California to force developers to include a share of affordable housing units in any new housing development—so called inclusionary housing mandates—after a court had struck them down a few years ago.
We recognize that unaffordable housing is one of the largest economic development challenges the state faces. But when holding Senator DeSaulnier’s bill up again the scope of the problem, it quickly becomes apparent that it will do little to help the state’s massive housing shortage, the economy, or the huge number of financially strapped households. It is time to get serious about the housing fight.
Is there an affordable housing crisis in California? Absolutely. Home prices have risen sharply since they hit bottom during the recession a few years ago, and while affordability is better today than in 2005, it won’t be for long. Apartment rents never really fell throughout the downturn and today are 20% to 25% above where they were before the recession began. As a result, substantial financial pressures are being exerted on all state residents—not just low-income households. Over 50% of California’s middle-income renters (households earning between $35k and $75k per year) spend over 30% of their income on housing costs, compared to just 28% in the nation overall.
It is worse for those trying to buy—60% of owners with a mortgage in the same middle-income category spend over 30% of their income on housing costs, compared to less than one-third in the nation overall. It is no wonder. According to the NAHB/Wells Fargo Housing Opportunity Index, of the 15 most unaffordable housing markets in the nation, 12 are in California. One result is that many of these families end up leaving the state for places like Texas where housing can be found at an affordable price.
In a study Beacon Economics is currently developing through a grant provided by the California Homebuilding Foundation (CHF), we show that the cost of homebuilding dramatically drives up the price of housing in California. Permitting and fees in the Sacramento area, for example, are over ten times higher than they are in central Texas. Housing quickly becomes unaffordable when homebuilders set prices in line with those exceptionally high costs. Even middle-class families are forced to shop around in other states.
In the coming CHF study, we also find that between 2007 and 2012, roughly 228,000 more people moved out of California to other states than moved in. Care to guess where nearly one-third of those departing Californians were heading? The Lone Star State, where the median home price is 59% lower than the median home price in California.
For others who choose to stay, many end up in cramped conditions. Of all rental units in the state, 14% are overcrowded (more than one person per room). That translates into one million overcrowded households in California. The issues overcrowding raises for education, public health, and safety, are clear.
Given all this, those 10,000 units of subsidized housing that Senator DeSaulnier’s bill would support sound like sweet relief. But how much? Those units would relieve overcrowding for approximately 1% of the state’s families. One percent.
Why is the situation so dire? It isn’t because California is out of space to build. There is plenty of room for new housing, and many opportunities for infill, increasing the density of population within the state’s urban core areas. The problem is we do not build enough, and the pace of infill is frustrating slow. Despite having 12% of the nation’s population and a faster-than-average rate of population growth, the state averages just 8% of new housing permits in the United States. This has led to the lowest housing vacancy rate in the nation, and the extremely high cost of housing. This isn’t about greedy landlords or poor families—it is about basic supply and demand.
Senator DeSaulnier’s bill also provides no relief for middle-income residents who are suffering but wouldn’t be privy to these subsidized units. How many units would it take to make our chronically undersupplied housing market look more like the national housing market? By Beacon Economics’ calculations, approximately 800,000 of all price levels and sizes. In comparison, this 10,000-unit plan is not small—it’s irrelevant.
The time has come for our elected leaders to stop pretending they can fix the housing crisis from the top down – with bureaucratic rules, clever taxes, and housing subsidies. The problems are simply too big. Rather, they need to recognize that government itself has created the problem with myriad rules, fees, permits, and skewed incentives that make constructing homes in the state a very expensive proposition.
But most of all, state leaders have allowed the problem to persist and grow through their unwillingness to meaningfully reform CEQA. That well-intentioned 1970 statute was designed to promote smart development but has ended up being grossly abused by special interests looking for kickbacks and NIMBYs intent on fighting any growth. CEQA has ultimately prevented the market from being able to step in and supply what is clearly so needed. Leaders have allowed narrow interests in the state to fight tooth and nail against any sort of development. Stories of protracted legal fights and substantially reduced development plans abound. Senator DeSaulnier and his colleagues only need to look around. The real solution is easier than they think.