California

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

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

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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.

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  1. Unions pull the strings in California (among many other places). It is instinctual for a politician to cater to their demands over whatever the claimed goal of their legislation is.

    1. By contrast, Trump doesn’t even take the Presidency yet and cities across the country declare themselves as sanctuary cities. Sure, they’re pricing the lower-class employees out of jobs and allowing the them to voluntarily deport on their own dime, whether they’re native or not and have papers or not, but Trump is the one lining up cattle cars.

      The City of Chicago is so broke it can’t afford to educate inner city youth to sub-par standards in their self-segregating school system and won’t let them graduate without proper documentation saying where they’re going and what they’re doing, but they’ll take all comers as long as they aren’t President Trump (who will be gone in 4-8 yrs.).

  2. Yep, there he is, the union thug lurking in the background. Every time.

    1. If you zoom/enhance on the third window from the left in the picture you’ll see a teamster’s soulless eyes eating a hoagie.

        1. What’s really weird is his mouth is also a mouth, but his ears are hands holding the hoagie and each of his hairs is a screaming clown.

          The more I look the more I fear I jumped to a conclusion labeling this is teamster.

  3. 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.

    Haha, oh you.

  4. In the future, all wages shall be above average.

  5. SB35 is bad for housing affordability and terrible for local communities and democracy. While the elimination of local control may sound like a good thing- especially if you are a developer- it actually hurts the community who has legitimate interests in their schools, tax base, traffic and environment. SB 35 suppresses local democracy in favor a single private interest. Zoning has its legitimate place in maintaining the “commons” of a community and to discourage incompatible uses (such as a car wash on a residential street). The word “NIMBY” is used as insult to de-legitimize local voices of people who care for the community as a whole. The debate over affordable housing will not be won by trampling the rights of others, harming the environment and giving developers veto power over the community. It will be won we we adapt private deed restrictive covenants that explicitly state the limits on neighborhood development. This is the way it is done in Houston, TX.

    1. giving developers veto power over the community

      But the community should have veto power over the individual?

      1. It is not “veto” power, it is the legitimate voice of the neighborhood preference for certain uses. Zoning always gets blamed for unaffordability but the real culprit is development fees that can add literally 150K to the cost of a house.

        Everyone knows the value of “neighborhood” but how can it be maintained without set limitations on uses?

        1. Zoning always gets blamed for unaffordability but the real culprit is development fees that can add literally 150K to the cost of a house.

          Not to mention that the developer frequently represents an inherently more statist or social(istic) system to begin with. It’s not at all difficult to find two identically-sized and resourced lots right next to each other, one with a $500,000 home sitting next to an empty lot that differs in price by well less than $500,000. At least part of the assumption/implication/inflation being that the developer can put more units on the lot or eventually purchase the other lot with the house and develop the whole subdivision as one integrated unit.

          It’s like saying the developer in Kelo v. New London was in the right as long as he had lease agreements signed.

        2. the real culprit is development fees

          You don’t know what you’re talking about.

          Development fees are part of the cost of construction, and are governed by the market.

          It’s the restriction in the market that causes the swell in housing prices, including development fees. Full stop.

    2. Maybe not the best example right now?

      1. You mean Houston. I actually think it is a great example. Lets see what happens during the recovery. Houston has huge problems with non conforming uses such as residential next to industrial areas. There is a need for consistent uses for the efficiency of public services and environmental safety. Let’s see how Houston recovers.

  6. California is firmly i the pocket of the unions. They don’t even try to pretend differently any more.

  7. The bill would just end new developments. There wouldn’t be any buyers, so no one will build. Housing prices would continue to go up, which is what California voter/homeowners really want anyway.

    1. which is what California voter/homeowners really want anyway

      Don’t forget those who collect property taxes.

  8. One needs to ask himself why nobody builds 3-flats anymore.

    The answer isn’t “the market doesn’t want them.”

  9. As much as the prog elites in places like SF might complain about lack of affordable housing or living wage, they subconsciously or not, don’t really want anything to change that might bring the icky people in and threaten their hip urban lifestyle. So they unload the “problem” on the government, which will guarantee that nothing will change. If they do build any affordable housing, you can be sure that it will be far away from the desirable neighborhoods and they’ll probably use eminent domain to bulldoze small businesses where they will build it.

  10. I was in construction for a while, and those jobs for California state projects were sweeet! You dint’ have to be union, in fact, you were more likely to get hired NOT being a union since some projects actually wanted people to actually, like, work. But you still got union wages.

  11. I know it wasn’t the point of the article, but in the interest of accuracy in economic terminology: ” ‘California is in a housing shortage due to decades of underproduction of housing at all income levels’…. It’s hard to argue with that.” Actually, it’s pretty easy to argue with that, since there is no housing shortage in California. A shortage exists when there are people who want to buy at the prevailing price, but can’t because supply has been restricted in some way. That’s not the case here. Anyone who wants to buy a house at the prevailing market price can.

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