End-of-Session Housing Push Won’t Make Dent in State’s Housing Problem

Lawmakers haven’t yet voted on legislation they say addresses the state’s housing crisis, but it’s just as well. The proposals they were trying to pass off as solutions aren’t solutions at all.

One bill that’s key to the rest of the legislative package would add to real estate costs, while other bills would stack up more public debt, and increase the cost of homes in California.

Democrats need a two-thirds approval in each chamber to pass the bills because they would raise taxes and that requires a supermajority. Without the vote of every Democrat, the bills won’t pass if the Republicans unanimously oppose them, as many expect them to.

The centerpiece legislation is a $4 billion housing bond, Senate Bill 3. Three-fourths of the funds “would be used to finance various existing housing programs, as well as infill infrastructure financing and affordable housing matching grant programs,” while $1 billion would be directed to “a specified program for farm, home, and mobile home purchase assistance for veterans.”

Before the $1 billion was added for veterans on Aug. 28, California Treasurer John Chiang was suggesting that lawmakers pass a $9 billion housing bond. But why stop there? The nonpartisan Legislative Analyst’s Office says that “building affordable housing for California’s 1.7 million rent-burdened low–income households would cost in excess of $250 billion.”

With taxpayers already paying $8.1 billion in the current fiscal year in bond debt, and the overall debt for bonds and loans across the state reaching $426 billion, according to the California Policy Center, it’s baffling that elected officials are ever eager to add more.

The call for new debt is similar to the blinkered thinking of minimum wage supporters, who, when asked if a minimum wage of $15 is good, then why not just set it $50 or $100 an hour, have no answer. Those who want to continually issue debt because they think pouring money into problems will solve them reach a similar dead end in their thinking — they seem to be unable to say how much debt is too much.

Closely aligned with the bond proposal is Senate Bill 2, which passed in the Senate in July. If the Assembly also passes it and the governor signs, it would levy a $75 fee “on every real estate instrument, paper, or notice, that is required or permitted by law per each single transaction per parcel of real property.”

Lawmakers say SB 2 will generate $250 million toward the construction of affordable housing. But to acquire that revenue, the state will have to increase by $250 million a year the state’s already steep housing costs.

Other proposals on the table include 2 bills — Assembly Bill 1505 and Senate Bill 277 – that would allow local governments to enact inclusionary housing ordinances, which requires developers to “include a certain percentage of residential rental units affordable to, and occupied by” low- and moderate-income households.

Maybe that sounds reasonable, but experience shows that inclusionary zoning results in fewer units being built. A Reason Foundation study found that it “drives away builders” and “imposes significant costs on the housing sector,” which are “passed on to landowners and buyers of market-rate homes.” It chills developers’ incentive to build.

Not all of the ideas are bad, however. A bill to streamline local government approval processes, such as Senate Bill 35, would be helpful. But any good it would do is offset by its requirement that builders pay the prevailing wage, which is sure to increase construction costs and therefore housing prices.

California needs new houses. No one will argue to the contrary. The shortage caused by decades of public policy that has diminished the incentives to build has led to dizzyingly high prices which, according to the LAO, “make it difficult for many Californians to find housing that is affordable and that meets their needs.” Because the median price of a California home is nearly $550,000 — second in the country only to Hawaii — fewer than one-third of households can afford to buy one, says the California Association of Realtors.

Adding more layers of government intrusion is simply the wrong way to solve the housing crisis. If California is ever to have a functioning housing market, home builders will have to build nearly 250,000 units a year to catch up with the demand, says the LAO. And they’re not going to kick off a building boom unless those layers are peeled back. This is the puzzle Sacramento should be busy solving.

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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.

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