Gov. Newsom Takes a Very Expensive Crack at Fixing California's Housing Shortage

California Gov. Gavin Newsom has made some bold promises about fixing the state's housing shortage. Unfortunately, most of the Democrat's solutions are heavy on government spending and light on the regulatory reform that would bring rents and home prices down.

"No one should live in constant fear of eviction or spend their whole paycheck to keep a roof overhead," Newsom said in his inaugural address. "We will launch a Marshall Plan for affordable housing and lift up the fight against homelessness from a local matter to a state-wide mission."

A budget proposal released by Newsom on January 10 calls for an additional $1.3 billion in state funding geared toward kickstarting new housing production. Of that amount, $250 million will go to local governments as "technical assistance"—allowing them to hire more bureaucrats, process more permits, streamline existing permitting processes, or alter zoning codes to allow for more density. The state also set up housing production milestones, and another $500 million will be on hand to reward municipalities that hit their targets. The plan also calls for a $500 million one-off funding increase for moderate-income housing.

Zoning law reform is sorely needed in California, but Newsom's proposal is an outrageously expensive way of going about it. California's legislature already has the power to force local governments to loosen up zoning. It doesn't need to bribe them. Indeed, the past two years have seen several legislative attempts to wrest some zoning decisions away from municipalities. So far, Newsom has declined to explicitly endorse those efforts.

In addition to dangling carrots, Newsom is perfectly happy to use the stick. In February, his administration invoked powers under a 2017 state law to sue the Orange County community of Huntington Beach over its failure to zone for sufficient housing. Huntington Beach has countersued, arguing that its status as a charter city allows it to set its own housing policies, Sacramento be damned.

Newsom's lawsuit might strike some as overkill, but when local control has resulted in so many restrictions on new housing, direct state intervention can be a positive development.

That case will likely drag on for some time, as will budget battles over affordable-housing funding. Newsom's rhetoric shows a commitment to addressing California's housing shortage, and he's even willing to use new legal tools to get the job done. So far, however, he appears reluctant to embrace the types of regulatory rollbacks that would make a real difference.