California’s Housing Crisis Also Hurts Our Business Climate

When asked which factors influence their decisions about locating their businesses in California, the top concerns, according to a group of surveyed executives, are housing and real estate costs.

No surprise, there. This state’s housing crunch is an enormous problem that threatens the future.

The California business climate survey included 200 corporate executives from research and development firms, technology companies, clean-tech interests, and the green-energy sector. These are the types of businesses that have been identified by public officials across the state as the industries they want to attract.

But the attraction isn’t mutual. For many executives, California is a destination to be avoided. Survey results show that the state’s “poor quality education system, and expensive costs to do business are among the primary reasons why they are not locating or expanding in the Golden State.” California’s burdensome regulatory regime and high taxes were also mentioned as hurdles too high to clear.

The biggest problem, though, is a lack of affordable housing; 88 percent identified the steep cost of real estate and homes as a key factor. In response to a question asking what California policymakers could to do to make the state more attractive for business, one executive said “make the housing affordable.” Another complained that “construction workers cannot afford housing” due to there being “no low-cost housing.” Yet another cited the “cost of housing” as “a big factor in California” because “employees can’t afford to live” here.

Lawmakers could enact public policy that would improve the conditions. But they tend to nibble around the edges. Last year, late in the session, the Legislature passed more than a dozen bills that lawmakers claimed would ease the crisis. It was all just a lot of political noise that won’t bring relief.

PRI, however, has recommended several solutions that would actually work. They include:

  • Policies that would shorten construction approval times and lower the regulatory hurdles for multi-family housing projects. The McKinsey Global Institute found that cutting the permit timeline could save $1.4 billion in costs each year “and accelerate project approval times by four months on average.”“Reducing construction permitting times could cut another $1.6 billion, and raising construction productivity and deploying modular construction techniques up to another $100 billion.”
  • Requiring greater transparency when the California Environmental Quality Act is used as a legal means to block development. The international law firm of Holland & Knight has “found repeated examples of intentional efforts to cloak the identity of CEQA litigants behind environmental-sounding names of fake and even unlawful ‘associations.’” CEQA plaintiffs are too often businesses using the law to obstruct their competitors. Plaintiffs in CEQA lawsuits, and their environmental and business interests, should not be able to hide from scrutiny.
  • Revising fee assessments on new housing projects that are used to pay for school construction. “Those fees make it more expensive to build and the costs are passed on to home buyers, increasing an already expensive housing market,” says Joel Fox, president of the Small Business Action Committee.
  • Modifying building codes to allow for higher-density developments, which would encourage more multi-family housing units to be built with smaller footprints in high-rise structures.
  • Eliminating policies that deliberately promote residential exclusivity by raising costs out of the range for many.
  • Cutting permit fees, and when possible, waiving them. Law professor and Hoover Institution senior fellow Richard A. Epstein suggests removing “any and all permit restrictions on housing that are not related to public health and safety, narrowly defined as under traditional nuisance law.”
  • Stop new local and state rent-control initiatives and eliminate existing rent-control laws. Developers don’t want to build and own housing that restricts their freedom to earn profits. At the same time, landlords whose property is under rent-control laws have an incentive to turn it into something else entirely, which would reduce the state’s already-low housing stock.

For more about California’s housing troubles, see PRI’s “Unaffordable: How Government Made California’s Housing Shortage a Crisis and How Free Market Ideas Can Restore Affordability and Supply.”

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

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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