Building infrastructure is key to lowering housing costs

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Lawmakers could also address a more fundamental obstacle to making housing affordable in California. Our state needs more energy, water and transportation infrastructure. Even if private investors were not operating in a hyper-regulated environment, it’s beyond their capacity to upgrade and expand the public infrastructure that supports their projects.

Housing. Shelter. Room at the inn. A hearth and a home. From the moment neolithic humans emerged from caves to build structures in the open, they needed some place warm and dry to call home. It is a primal necessity and a prerequisite for civilization.

This imperative is not lost on California’s legislators and elected officials. In response to a chronic housing shortage that has only worsened, California’s lawmakers in the past few years have approved and Gov. Gavin Newsom has signed several new laws designed to facilitate construction of new housing.

Yet California’s Legislature created this housing shortage by engineering a regulatory environment that made it almost impossible for unsubsidized developers to build homes that people could afford. Some recent laws reduced a few regulations – but only for the high-density projects they prefer.

There are plenty of more-substantive things lawmakers could have done to rectify what has become a structural barrier to building affordable market housing, such as relaxing zoning laws that all-but-prohibit housing on open land outside of existing cities, capping local building fees and broadly restricting the ability to file California Environmental Quality Act (CEQA) lawsuits.

They could also address a more fundamental obstacle to making housing affordable in California. Our state needs more energy, water and transportation infrastructure. Even if private investors were not operating in a hyper-regulated environment, it’s beyond their capacity to upgrade and expand the public infrastructure that supports their projects.

The economic argument goes something like this. The cost to build, for example, an aqueduct to transport winter floodwater from the Sacramento-San Joaquin Delta to quick-charging storage aquifers in the San Joaquin Valley is enormous. If 100% of the construction costs were paid for by a private company, the ratepayers who eventually consumed that stored water would pay a price too high for most households to afford.

Read Edward Ring’s Free Cities Center article about California’s housing shortages.

Read Pacific Research Institute economist Wayne Winegarden’s column about people fleeing California.

Agricultural clients might be able to grow pistachios and almonds, which fetch a high price per pound, but tomatoes, which bring in less revenue by weight, would disappear from California’s fields. The principle expressed by these examples extends to all enabling infrastructure. When end-users have to pay too much for energy and water, the standard of living goes down, the cost of living goes up and economic activity falters.

Californians thus have to answer a tough question: Do they want businesses to leave and residents to struggle financially, or do they want to subsidize the cost of public works in order to bring down the amount that private partners have to recoup from ratepayers? In the 1950s and 1960s, so-called Pat Brown Democrats answered this question unequivocally.

The state of California built the most magnificent system of water storage and interbasin transfers in the world. It built the best network of universities in the world. And it built freeways and expressways that connected every corner of the state and facilitated an era of spectacular growth. There was surplus energy and water, the state was affordable and millions of people moved here to follow their dreams.

What’s changed? Californians remain willing to spend massive amounts of public money on infrastructure. But the choices the state is making are terrible. Elected officials are not pouring billions of dollars into enabling infrastructure, but rather into disabling infrastructure. Instead of upgrading our natural gas pipelines, the Legislature has declared war on natural gas, and is spending tens of billions of dollars to subsidize solar farms, battery farms and offshore wind. These technologies remain unproven at scale and may be obsolete within a few decades.

Instead of permitting desalination plants on the Southern California coast – plants that could be built with a minimal infusion of public funds – or developing creative ways to divert flood waters from the Sacramento-San Joaquin Delta, California’s Legislature is building a 45-mile long tunnel under the Delta to transport water from just one river, the Sacramento, to southbound aqueducts.

This brings to mind a third example of hideous waste, California’s High Speed Rail project. It was sold to voters as a way to move passengers from San Francisco to Los Angeles in two hours at a cost of $30 billion to build. Estimated travel time has expanded to four hours, and the estimated cost is now over $130 billion. Pat Brown Democrats would have upgraded our railroads, widened and resurfaced our freeways and built a few more freeways – and spent a fraction as much doing it.

The problem isn’t just that leaving projects to public agencies breeds inefficiency. It does. But in the 1950s and 1960s there was a consensus that California needed to grow. The state built practical energy, water and transportation infrastructure that made everything else possible. The farm economy grew. Suburbs expanded around the cities and homes were affordable. The state thrived.

The spirit of our age is different. The consensus among California’s elite is the state has grown quite enough. Now everything affecting land development, land management, or energy and water policy must be evaluated through the filter of the climate crisis. So the state is funding “renewables” to the exclusion of clean, ultra-efficient natural gas power. And pushing water rationing instead of building water-supply infrastructure. It’s building trains, light rail and high-density housing instead of new roads and suburbs. No wonder everything costs so much.

Ironically, the results run counter to all the human values (equity, inclusion) that California’s elites purport to cherish. When the public subsidizes energy and water infrastructure, and deregulates land development, ownership is decentralized. When infrastructure is inadequate and prices soar, the only winners are the corporations and rentiers, who invest in artificially inflated assets and artificially overvalued commodities, making excessive profits as consumers struggle.

We’ve come full circle. The state government, failing to invest on the front end to make life’s essentials within the reach of ordinary households, finds itself captured by politically connected corporations that prosper when prices are high. At the same time, it finds itself spending more public money merely to subsidize, in perpetuity, those millions of low- and lower-middle-income households that can’t pay their rent or their mortgage. What great irony.

Edward Ring is a co-founder of the California Policy Center and the author of “The Abundance Choice: Our Fight for More Water in California.”

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.

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