What California Should Do To Ease Housing Crisis – Pacific Research Institute

What California Should Do To Ease Housing Crisis


In September, Sacramento lawmakers passed more than a dozen bills aiming to begin healing the state’s housing sore. It was, to their thinking, “Housing Day” in California.

Two weeks later, legislators joined Gov. Jerry Brown in San Francisco as he signed what he called “15 good bills.”

“Today, California begins a pivot — a pivot from California’s housing-last policy to our future housing-first policy where housing matters,” said Sen. Scott Wiener, D-San Francisco.

But it was a Shakespearean act — a lot of sound and fury, signifying, well, not much. Because the crisis will roll on.

Despite policymakers’ promises, that legislative package isn’t going to be of much help. They passed the wrong bills. Rather than liberating the market, which is the only solution, they chose to add more layers of government. If government intervention were the answer, then there’d be no crisis in the first place.

The National Association of Homebuilders/Wells Fargo Housing Opportunity Index shows that in the third quarter of 2017, 9 of the 10 least-affordable large housing markets in the country are in California, with metropolitan San Francisco ranking as the second-least affordable.

Eight of the 10 most unaffordable housing markets in areas with fewer than 500,000 residents are also in California.

The future holds more of the same. The California Association of Realtors forecasts rising home prices next year. Median home prices are forecast to jump 4.2 percent to $561,000 in 2018.

The association calls California’s home affordability problem one of the state’s “slow-moving disasters.”  The problem will surely grow worse due to the recent devastating wildfires in Northern California, which caused the loss of more than 14,000 homes.

The California Association of Realtors said last year that only about one-third of households across the state can afford to buy a median-priced home. Data from the nonpartisan Legislative Analyst’s Office show that most low-income households spend more than half of what they earn to stay in their homes.

Renters have it tough, too. Roughly a third spend half their income on housing.

These problems are the result of an unmet demand that’s produced a severe housing shortage. To ease the pressure, the LAO says that 100,000 new units must be built every year on top of the 100,000 to 140,000 units that are expected to be built — or building nearly the equivalent of Rhode Island every four years.

But they’re handcuffed. Decades of poor public policy have created a legal and regulatory morass that discourages building.

At the governor’s signing ceremony, Assemblyman Richard Bloom, D-Santa Monica, conceded that “we know we have much more work to do,” and promised “we will keep working this issue for as long as we need to.”

For Bloom, “more work” appears to be his persistent campaign to expand rent control, policy that would make our housing affordability problems much worse.

If lawmakers are to finish the job, they must:

  • Stop dictating what kind of housing to build. The LAO says that any increase in supply, and this includes new luxury homes, “places downward pressure on prices and rents.”
  • Unroll the red tape that drags out building approval times. The delays often kill the profit motive needed to build.
  • Ease restrictive zoning laws, make permit fees less financially burdensome and abolish rent-control laws since they depress the housing stock.
  • End all the talk about reforming the California Environmental Quality Act and do something about it. CEQA is the single-biggest impediment to increasing the supply.

The “15 good bills” Brown signed won’t do much. The “work to do” is the hard work lawmakers want to avoid. Until that changes, California’s housing crisis will never be resolved.

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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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