Will Sacramento Finally Restore California’s Housing Market?

Will Sacramento Finally Restore California’s Housing Market?

Our Sacramento lawmakers are promising to finally do something about the state’s runaway housing crisis after they return from their August break. Will this finally be the year they take meaningful action? Not until they show that they understand the essence of the problem.

There’s no disagreement that California has a severe housing problem. Both parties recognize that a chronic shortage has pushed home prices to prohibitively high levels. The median price has now reached a half-million dollars, nearly twice the national median price.

The numbers are staggering. Fewer than one in three California households can afford a median-price home, the California Realtors Association reported in May. Because of the steep prices, “a minimum annual income of $102,050 was needed to make monthly payments of $2,550, including principal, interest, and taxes on a 30-year fixed-rate mortgage at a 4.36 percent interest rate.”

The Senate made an early move to address California’s housing affordability problem — unfortunately, by passing legislation that would make it more expensive. The objective of the Building Homes and Jobs Act (Senate Bill 2), passed 27-12 on July 7, is to “provide funding for affordable housing,” according to the legislative analysis. And just where would this funding come from? A $75 fee levied “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 believe the bill will generate $250 million toward affordable housing development. It’s really just another government subsidy that drains resources from the private sector while adding $250 million a year to already outrageous housing costs. Those hurt the most will be those who can least afford this new tax.

Senate Bill 2 — which could die in the Assembly because it’s a new tax and therefore requires a two-thirds supermajority for approval — and all other bills demanding more public funding in the pursuit of affordable housing clearly show why it’s hard to have any confidence that Sacramento will relieve California’s severe housing pain.

Housing will become more affordable only when there are many more homes available on the market. That should be what Sacramento is focused on rather than another government program. And another government program. And still another government program.

Increasing the housing stock isn’t complicated — the Legislative Analyst’s Office says the state needs as many as 100,000 new units each year on top of the 100,000 to 140,000 that are expected to be built annually.

As reported in the Pacific Research Institute issue brief Unaffordable, “the primary cause of California’s housing crisis is politics, which have distorted and strangled the market.” The biggest barrier is the California Environmental Quality Act, a law none dare touch. Legislators will sometimes talk about CEQA reform, but talk is all they ever do.

Other impediments to home building that need legislative attention include affordable housing mandates, or inclusionary zoning ordinances; construction impact fees, which are the highest in the nation; local anti-growth policies; rent control; and extortionately steep local permit fees. Many of these hurdles were sold politically as solutions but became contributors to the crisis after they became law.

But that’s no surprise, given that some in Sacramento have a lengthy record of passing damaging legislation, convinced that more government intervention, rather than less, is the answer. What would be a surprise is if this latest promise to fix things actually produced practical solutions.

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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.