Does California Even Know How to Fix Its Housing Problem?

Does California Even Know How to Fix Its Housing Problem?

New Gov. Gavin Newsom’s budget asks for $500 million to boost construction of housing for “moderate income” Californians. Housing, he said while introducing his first budget, “is the issue.”

He is correct. Everyone is aware of the grim state of housing in California. But no one, at least those with enough political influence to shift policy, seems capable of putting forth changes that will make a bit of difference.

It would help if policymakers stopped targeting segments of the housing market for special attention, as Newsom did with his $1.75 billion request for housing initiatives that includes $500 million for middle-income housing and $300 million for a low-income home-building program.

Though a focus on “affordable housing” might seem a good starting place, it’s a distraction.

Yes, those at the lowest income wealth levels are hurt the most in an environment in which even the middle class is increasingly priced out of the market. But a preoccupation on expanding “affordable housing,” defined by the federal government as housing costing less than 24 percent of an area’s median income, will not end the suffering.

What California needs are homes of all types: large, single-family houses on big lots, medium-sized houses on modest lots, small homes on small lots, McMansions, suburban tract homes, high-rise apartments, townhomes, condominiums, duplexes, triplexes, quadplexes and granny flats.

The fixation on “affordable housing” misses an important trickle-down effect. Though it’s typically assumed building new homes for higher-income households does nothing to increase the supply of lower–end housing, documented evidence refutes that claim. According to the non-partisan Legislative Analyst’s Office, “facilitating more private housing development in the state’s coastal urban communities” — where the practice of NIMBYism is a most vicious art — “would help make housing more affordable for low–income Californians.”

“Building new market-rate housing,” the LAO continues, “indirectly increases the supply of housing available to low–income households in multiple ways.”

New housing causes existing housing to become less desirable, and therefore drives down prices. It also “eases competition between middle- and low-income households.” As more affluent households that had decided to stay in low-income neighborhoods due to limited housing choices are able to move up, their homes become available for lower-income households.

Focusing on affordable-housing programs has only a limited effect, says the LAO, as it is “extremely challenging and prohibitively expensive.” The annual funding commitment would be “roughly the magnitude of the state’s largest General Fund expenditure outside of education (Medi-Cal),” which spends roughly $20 billion a year in General Fund dollars.

California policymakers truly have odd ideas about how to relieve the housing crunch. More than a dozen cities have rent-control laws, which make the problem worse by taking out the incentive to build.

A few politicians think that price-gouging laws applied to rental housing will be helpful, while others call for more public housing funds, convinced the state can spend its way out of the crisis.

Some lawmakers believe raising the cost of real-estate transactions is the answer. Yet, hiking residential and commercial property taxes, and forcing contractors to include below-market rate housing in their developments are two more ideas that are incorrectly considered to be correct pieces to the housing puzzle.

Meanwhile, Oakland’s city hall operates under the delusion that forcing landlords who want to move into their own home to pay their tenants as much as $9,875 for the privilege of doing so is a reasonable solution. The city’s Uniform Relocation Ordinance clearly an illegal seizure of private property by the government.

It’s no surprise that a few other cities have similar ordinances. The penalty in San Francisco can be as steep as $19,897.15 per unit, and it would have been much higher — $50,000 — had not the First District Court of Appeal ruled against the higher fee in 2017, rightly blaming the city’s rent-control laws, not homeowners, for the city’s housing shortage.

What’s particularly galling about California’s housing misery is that lawmakers in both parties know the only remedy is to remove government hurdles to building. Yet those holding the political power to make corrections move in the opposite direction. Until they sharply change course California will continue to be a hard place to live.

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Nothing contained in this blog is to be construed as necessarily reflecting the views of the Pacific Research Institute or as an attempt to thwart or aid the passage of any legislation.