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.
One common refrain among housing advocates and politicians is that high-rise construction is a solution to the problem of housing affordability. The causes of the problem, however, are principally prohibitions on urban fringe development of starter homes. Critics also note that high-rises in urban neighborhoods often replace older buildings, which are generally more affordable. One big problem: High-density housing is far more expensive to build. Gerard Mildner, the academic director of the Center for Real Estate at Portland State University, notes that development of a building of more than five stories requires rents approximately two and a half times those from the development of garden apartments. Even higher construction costs are reported in the San Francisco Bay Area, where the cost of townhouse development per square foot can double that of detached houses (excluding land costs) and units in high-rise condominium buildings can cost up to seven and a half times as much.
There is no debate or question that we have a serious housing affordability crisis in this state, and we didn’t get here overnight. Each year, we need to build roughly 180,000 homes just to keep up with population growth, and over the last decade we have fallen short by at least 1,000,000. At the core of our exploding housing affordability crisis is basic economics: we have spiking demand coupled with stagnating supply, this leads to skyrocketing housing prices. This is a critical issue for small businesses who are seeing their workforce driven out of this state due to prohibitively high housing costs.
Unfortunately, Senate Bill 2 (Atkins), Senate Bill 3 (Beall), and Senate Bill 35 (Weiner) do nothing to address these fundamental economic realities, but instead raise more taxes on struggling small businesses and working families, put California further into debt, and drastically raise labor costs to build a home.
The bad news is: there’s very little housing in this housing package.
The new funding will produce only a tiny fraction of the affordable housing Californians need. And given the economic and regulatory pressures on housing, such housing won’t be produced quickly or cheaply.
The bills leave in place the tax, environmental, and regulatory regimes that add so much to the expense and difficulty of building housing in the state. And in some places, legislators have offered goodies, in the form of wage and other protections to labor interests to get their buy-in. Such incentives may add to the cost of housing, when the state desperately needs to make housing cheaper. The way that the building trades, in particular, have leveraged this crisis would be shameful, if organized labor in this state were still capable of shame.
More than 100 local governments have inclusionary ordinances. But a 2009 state appeals court ruling exempted rental units.
So as part of an overall package of housing bills, Democratic lawmakers want to overturn that exemption. Two identical bills are under consideration in the Legislature, AB 1505 and SB 277.