New figures from the U.S. Census Bureau show California has the country's highest poverty rate, with nearly one in five residents facing economic hardship when factoring in living costs such as housing.
California’s political leaders, having ignored and even abetted our housing shortage, now pretend that they will “solve it.” Don’t bet on it. Their big ideas include a $4 billion housing subsidy bond and the stripping away of local control over zoning, and mandating densification of already developed areas. None of these steps addresses the fundamental causes for California’s housing crisis. Today, barely 29 percent of California households, notes the California Association of Realtors, can afford a median-priced house; in 2012, it was 56 percent. At the heart of the problem lie “urban containment” policies that impose “urban growth boundaries” to restrict — or even prohibit — new suburban detached housing tracts from being built on greenfield land. Given the strong demand for single-family homes, it is no surprise that prices have soared. Before these policies were widely adopted, housing prices in California had about the same relationship to incomes as in other parts of the country. Today, prices in places like Los Angeles, the Bay Area and Orange County are two to three times as high, adjusted for incomes, as in less-regulated states. Even in the once affordable Inland Empire, housing prices are nearing double that of most other areas, closing off one of the last remaining alternatives for middle- and working-class families.
Land-use restrictions are a significant drag on economic growth in the United States. The creeping web of these regulations has smothered wage and gross domestic product growth in American cities by a stunning 50 percent over the past 50 years. Without these regulations, our research shows, the United States economy today would be 9 percent bigger — which would mean, for the average American worker, an additional $6,775 in annual income. For most of the 20th century, workers moved to areas where new industries and opportunities were emerging. This was the locomotive behind American prosperity. Agricultural workers moved from the countryside to booming cities like Pittsburgh and Detroit. In the Great Migration, some six million African-Americans left the South for manufacturing jobs in cities like Chicago and Buffalo. Today, this locomotive of prosperity has broken down. Finance and high-tech companies in cities like New York, Boston, Seattle and San Francisco find it difficult to hire because of the high cost of housing. When an unemployed worker in Detroit today finds a well-paying job in San Francisco, she often cannot afford the cost of housing there.
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.