Making Housing More Affordable

Gov. Jerry Brown is an easy target for the conservative- and libertarian-minded, both from within and without of California. He’s in many ways the quintessential big-government Democrat.

But not everything Brown does is wrong.

Consider, for instance, his level-headed plan for getting government out of the way of developers who are simply trying to increase housing stock in areas where anti-growth laws restrict supply.

Building a new home in California has become a grueling slog. Government has made it a byzantine, strangled-in-red-tape, saddled-by-bureaucracy process. It’s such a grind that one wonders why anyone even tries.

“With building codes, regulations and requirements, inspection schedules, environmental impact statements and the like, the time between recognizing the need for a new home and completing construction of a new home can take as long as seven or more years,” Pacific Research Institute economist Arthur B. Laffer wrote in “Eureka! How To Fix California.”

In some parts of the state, Laffer adds, “just the permit fees alone are higher than the price of an equivalent home in other regions of the country.” These and other government constraints on housing development add up to “unfulfilled demands for housing” in California. Simply put, the state has a long-term housing shortage produced by poor public policy.

Affordability is another significant hitch in the unhappy California housing story. Using government and private data, Laffer shows that housing affordability in the state is significantly higher than the U.S. average. This is “not explained away,” he said, “by personal income differences.” He’s right. Even the middle class, which is being hollowed out in California, can have trouble finding affordable homes.

Brown aims to fix the problem. He has proposed legislation that would require local governments to make “regulatory concessions,” and produce a permit process that’s simpler and faster to navigate.

“The general idea,” Brown said at the May news conference announcing the proposal, is to “reduce some of the regulatory burdens that are faced by developers.”

This is a far better solution than using public money to fund “affordable” housing, a ruinous idea that Brown has vetoed in the past. Housing subsidies, Brown has acknowledged, became a futile exercise of “spending more and more tax dollars and getting very, very little.”

That “more and more” is actually quite an astronomical sum, one observer says.

“We’ll never be able to subsidize our way out of this mess,” Shane Phillips, a Los Angeles urban planner, wrote on his blog Better Institutions. “Those eligible for subsidized housing based on their income number in the millions of households, and building them with public money would cost hundreds of billions of dollars that we don’t have.”

Carson Bruno of the Hoover Institution tells us the state’s artificially created shortage of affordable housing has caused a crisis for business. With housing prices so high, companies have difficulty recruiting workers, says Bruno, and in some cases keeping them, as middle-class workers quit California, relocating to more lightly regulated states, where they’ll have more house for less money.

The Legislative Analyst’s Office has made a similar observation: “The state’s high housing costs make California a less attractive place to call home, making it more difficult for companies to hire and retain qualified employees, likely preventing the state’s economy from meeting its full potential.”

The solution is to allow the market to increase the housing stock. That would energize the state’s economy, which has peaked and is expected to slow a bit, according to the governor’s office, and clear the way so that it can actually reach its full potential.

The Legislative Analyst’s Office has determined that Brown’s ideas “have the potential to be an important first step toward addressing California’s housing shortage” and warrant “serious consideration from the Legislature.” The office also suggests that lawmakers “strengthen and expand” the governor’s proposal.

But Brown’s proposal won’t cure all of California’s housing ills. Rent control has to be eliminated. So do construction delays caused by the California Environmental Quality Act, a law that established a regulatory regime that Michael Haley, one-time president of a taxpayers’ group in Napa Valley, has accurately described as “a political football that left-wing environmentalists can use to throw back and forth with developers in order to shut them down.”

Prevailing-wage laws that drive up construction labor costs by 15 percent to 30 percent also need to be abolished.

Brown isn’t ready to tackle these monuments to left-wing ideology and probably never will be. But he is at least trying take one brick out of California’s housing wall.

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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