California Tries To Fix Housing Affordability Crisis By Making Housing More Expensive

The state government should instead just get out of the way.


Multi family housing construction framing
trekandshoot /Dreamtime

"California is in a housing shortage due to decades of underproduction of housing at all income levels," says state Sen. Scott Wiener (D–San Francisco).

It's hard to argue with that. California is producing about 100,000 too few housing units a year, resulting in median home prices of $500,000—double the national average. About 1.5 million households in the state spend over 50 percent of their income on rent.

Unfortunately, Weiner's proposed solution will only drive up the costs of housing still further.

Back in December, Weiner introduced S.B. 35, a bill that would create a state-level permitting process for new multifamily housing developments, preempting much of the discretion that local governments have in greenlighting or denying new developments.

If you're familiar with the NIMBYism and red tape that characterizes local housing regulation in California, that may not sound like such a bad thing. But then you see the bill's details.

For example, developers going through the state approval process will have to pay a prevailing (that is, union) wage. In an August 2017 study, the California Building Industry Association estimated that such a requirement would increase the average labor costs for residential construction by 89 percent, adding $84,000 to the cost of a new single-family home.

Estimates vary for prevailing wages' impact on the cost of multi-family developments. A 2014 study conducted by the State of California found that affordable housing project costs were 11 percent higher for projects paying prevailing wages. A similar study in New York, conducted by the city's Independent Budget Office, found that prevailing wages increased project costs by 13 percent.

"If you try to shove prevailing wage on top of a project, those properties are only going to become more unreachable for working families," says Tom Scott, executive director of the California branch of the National Federation of Independent Businesses.

Scott is also skeptical that there is any real liberalization in S.B. 35, saying that "I don't see it streamlining or reforming a single regulation."

Indeed, the requirements for projects going through the supposedly streamlined state approval process are incredibly burdensome.

The developments must include subsidized affordable housing offering below-market rents. They must conform to local government density standards, must be an urban in-fill site, and must comply with a host of environmental regulations. Nor could these projects develop or redevelop any sites that have had any tenant occupants within the last 10 years.

There is nothing inherently wrong with state laws that scale back local regulations. (For some examples, see Reason's coverage of minimum wage and bag ban preemption laws.) The goal, after all, is individual control, not local control. But given S.B. 35's heavy regulatory burden, the bill doesn't curb local regulation so much as it layers on some new state regs that will drive housing costs still higher. That hardly seems like the best way to address a housing crisis.