California

California's Unfixable Housing Mess Is Years in the Making

At least now we're arguing over the right thing: the need to hike housing supply.

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Whenever I write about complex public-policy problems, I hear from readers who ask something like this: "OK, wise guy, if you're so smart then tell me how we fix the problem."

Unfortunately, there aren't many vexing issues that can be resolved in an 850-word column or a 50-word email rebuttal. Most of California's myriad "crises" have been years in the making, and they will take years of unraveling—provided they are fixable at all.

The best example is the state's housing mess, which recently has sparked angry debates in the Capitol as home prices soar, homeownership rates plummet and homeless encampments become ubiquitous.  You know the problem has gotten severe when lawmakers have moved beyond the usual superficialities and false solutions designed mainly to give politicians cover.

As journalist H.L. Mencken wrote, "There is always a well-known solution to every human problem—neat, plausible, and wrong." In California, that simple, well-known and wrong solution is to provide more subsidies and programs. There will never be enough taxpayer money to subsidize an apartment for every Californian who needs one.

At least now we're arguing over the right thing: the need to hike housing supply. The crisis is caused by years of local and state regulations that make it tough to build new developments. In 2015, the Legislative Analyst's Office reported that California is falling 100,000 units short each year to house its population. A new study from UCLA finds that zoning restrictions make it infeasible to meet the housing goals set by Gov. Gavin Newsom. Something has to change.

The change agent is Sen. Scott Wiener, D-San Francisco, and his laudable Senate Bill 50. Last year, a similar measure—to require localities to approve high-density apartment buildings and condos around transit lines, provided certain conditions are met—died a quick death. This year, the bill passed out of committee, but has an uncertain future. Suburbanites, even in elite suburbs of Los Angeles and San Francisco, and community activists are uniting to stop it.

The former don't want their single-family neighborhoods surrounded by apartment buildings, nor do they want more congestion. The California Dream drew me to Southern California from the Midwest 20 years ago. But as the state grows, holding on to that low-density, suburban vision means depriving younger Californians of their shot at the dream.

By contrast, urban activists fear that these loosened development standards will further gentrify their neighborhoods by replacing older buildings housing lower-income residents with upscale condos that bring in wealthier people. These groups tend to dislike anything that helps those dreaded "developers," even though more development is exactly what's needed to lower the state's housing prices. Both groups are using government to keep others out.

Despite its attempt to tackle the supply issue, SB 50 is a far cry from a straightforward, market solution. A Vox writer even argued last year that the bill will "fix" California's housing problem, but it will do nothing of the sort. It's the equivalent of trying to unravel a giant hairball by giving one strand a solid tug. Instead of reducing construction regulations—something that would never get off the ground in the current Capitol climate—the bill imposes pages of new regulations, formulas, subsidies and caveats in exchange for the by-right approvals it is granting. Its legislative analysis is 19 pages long.

As Curbed San Francisco reported, Wiener has complicated it further by making "sweeping revisions." This includes language promoting new developments around ferry lines and ports, a requirement that 15 percent to 25 percent of the new "inclusionary" housing units be set aside for low-income people, and complex regulations for building near "job-rich" areas.

The legislation avoids bigger issues. As Randal O'Toole wrote in his Anti-Planner blog, higher density housing alone won't solve the affordability problem because "high-density housing costs more to build per square foot than low-density housing—up to 650 percent more depending on the density." That doesn't even account for soaring land costs in urban centers.

The main problem: urban-growth boundaries that restrict development throughout entire metropolitan areas. O'Toole reports that only 31 percent of the Bay Area's six counties has been developed. I've addressed this issue when then-Attorney General Jerry Brown touted Marin County a model for land use, even though most of that wealthy county's land area is off limits to development. Is it a wonder that one must spend upwards of $1 million to live there?

Indeed, past policies—including Brown's attempts to stop suburban development as a means to battle global warming—have much to do with current problems. The housing crisis is a complicated mess with many causes and no easy buttons. It will require myriad solutions over many years, most of which will run up against interest groups that will derail them. SB 50 should help things, but one must be delusional to think there's a simple "fix" to anything.

This column was first published in the Orange County Register.

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35 responses to “California's Unfixable Housing Mess Is Years in the Making

  1. The housing crisis is a complicated mess with many causes and no easy buttons.

    Oh come now Mr. Greenhut. We all know there is an easy button – more subsidies!

    1. There really is an easy button, just not politically easy: Amend the state constitution to make land use zoning illegal. The problem will fix itself inside a decade.

      1. Exactly. There are two simple solutions to every problem. One is to get the government to fix it, the other is to let markets fix it. Both are unrealistic: the government fix because it just creates more problems which are seen as opportunities for yet more government fixes; the market fix because it would solve the problem and show how unnecessary government is.

  2. Just do what China does – build a new city. All the government has to do is mostly get the hell out of the way, allow some consortium of billionaire investors and developers to essentially take over a county, build it out however the hell they want to. Of course, if Googlapplafacebucks county ever got off the ground, you can be damn sure all the companies planning on relocating their facilities and their employees and their commerce and their tax revenues elsewhere would face stiff opposition from the governments that want their money but don’t want their infrastructure demands. Taxation without representation, the government’s paradise.

    1. On a much smaller scale, when Walmart wanted to move out of their cramped space and move up the road a little bit, the city here tried to force them to move over to the other, undeveloped, side of town because that’s where the urban planners wanted the development to go. The argument was that Walmart would increase traffic congestion on the “main highway” if they moved just up the road, with no grasp of the fact that wherever Walmart goes, that’s going to be the main highway. Walmart just did the exact same thing they had done a few years earlier in the neighboring city – told the city to go to hell and moved the store a little further up the road, just outside the city limits. If the city doesn’t want Walmart’s business, the county sure as hell will take it.

  3. One deeply entrenched reason for the gridlock over loosening building and zoning codes is the existing homeowner population.

    If you have invested $1.2 million in a 1,600 sq. ft. home on a 4,000 sq ft lot, you really don’t want “supply and demand” to move in anything like an unfettered manner. Putting in an additional million homes over the next 5 years would likely see the value of your little nest plummet.

    And that 75 year old condo in San Francisco that you paid $2.5 million for? How much is that going to be worth if another 25 high-rise luxury condo buildings go up in the area? Sure, it has “character”, but is that really what is driving the demand? Will it really hold its value if there are suddenly 300k luxury units of twice the size of yours on the market?

    I’d say that would be more than incentive enough for me to oppose any changes to zoning laws that might increase the supply of housing, were I to be a property owner in California.

    1. I know this is part of the problem. I just wonder how much.

      At any rate, like those NYC taxi medallion owners who borrowed against the equity and lost a fortune when the values dropped … sorry, little sympathy from me. Those who depend on government policies driving up value at somebody else’s expense, well, too bad, so sad. Unfortunately, those rich fucks in the coastal elite cities which have the worst housing problems also have the most Democratic donations. Reform just ain’t gonna happen, even over their dead bodies.

      At some point, the whole Ponzi scheme will come crashing down.

  4. At least now we’re arguing over the right thing: the need to hike housing supply. The crisis is caused by years of local and state regulations that make it tough to build new developments.

    No you are not arguing over the right thing. The only way CA is ever going to increase housing supply is to create the incentive for landowners to put their land supply on the market for it to be ‘repurposed’ into something that is a bit denser. The bottleneck is only partially at the development stage – and even then is caused earlier. The real bottleneck is on the raw supply side – as you admit That doesn’t even account for soaring land costs in urban centers.

    As long as it is profitable to speculate on increasing land prices absent development; then landowners will sit on that land and profit by doing nothing. And under some circumstances, they will be incentivized to make sure that no one else can develop anything either – ie what YOU think is the source of the problem.

    Until someone in CA has the balls to mention that Prop 13 is the source of the problem, then EVERY WORD YOU WRITE on the topic of housing in CA is bullshit. Prop 13 is what drives land prices higher – and its cronyist structure ensures that pretty much no housing changes hands after a decade or two in the same ownership. You wanted feudalism. You got it.

    1. Prop 13 doesn’t help, but the problem is the zoning restrictions, the NIMBYism, and other government obstacles to simply building more housing. As evidenced by all the landowners in SF who WANT to build but can’t. Prop 13 is small potatoes.

      1. Zoning and NIMBY exists virtually everywhere in the country. CA housing/land prices are virtually unique. Prop 13 is not small potatoes. It is THE reason CA has the oldest housing stock outside the Rust Belt despite the big difference of CA being a growing population. You can’t (re)develop what never even makes it into the market to potentially BE redeveloped thru whatever constipated regs exist.

        Someone sitting on a house they bought in say the early 70’s (and I’ll use Buffett’s vacation home as an example since he made his prop tax bill public info) has a huge incentive to keep their house. A decade ago, Buffett paid $14,000 in proptax on his Omaha home (valued at $500k – NB has a very high prop tax). He paid $2200 in proptax on his $4 million CA vac home (bought in the early 70’s) – and $12,000 on a $2 million one right next to the first (bought in the mid-90’s). There is ZERO financial reason for someone else in his shoes to EVER sell that property. The more time passes, the bigger the boondoggle. Just remortgage to pay the prop taxes and appreciation more than covers it – with a tax deduction to boot.

        If they leave the state, it pays for them to just remortgage that house in order to buy elsewhere for cash. If they die, they can now pass on the boondoggle to all future generations of their family forever. And they can be the biggest NIMBY asshole on the block now too cuz they already have their sweet deal and everyone new should get off their fucking lawn.

        It is why only 6% of CA houses go to market in any year now – down from 16-20% before Prop13. If a developer can’t assemble the properties to develop small-scale (say from single family to duplex), then they have to go big and that always has a separate set of problems.

    2. Maybe you’d have an argument if the government didn’t own the majority of the undeveloped land. Just about everything around here is some kind of protected parkland.

    3. Sevo’s law:
      Whenever a third party sticks its nose in a transaction between two free agents, one and possibly both lose.
      And here’s JFree to stick his nose in many transactions to prove it.
      Fuck off, slaver.

  5. “urban activists fear that these loosened development standards will further gentrify their neighborhoods”

    1. I have never understood anti-gentrification activists. Do they want to leave the area run-down? It wasn’t intended to be a slum when it was built, why does it need to continue to be one now? If you’re worried about rents and property values rising unsustainably, one of the best ways to ensure that it doesn’t is to build new housing supply right next to the old stock.

    2. I think the wording here, calling what they’re worried about ‘loosened development standards’ is far too generous to them. If they were worried about shoddy construction practices, buildings not being built structurally soundly or up to building code, they might have a legitimate concern. But what is being proposed here isn’t that, it’s the removal or at least relaxing of some of the layers of government red tape and legal roadblocks that are crippling the ability to construct anything in the current system.

    1. I have never understood anti-gentrification activists. Do they want to leave the area run-down?

      Yes. More specifically, they’d be ok if the area improved, as long as the laws of economics were suspended and costs went down, and the “right people” moved in.

      As someone else originally said, gentrification is white kids moving back into homes their grandparents built. These aren’t the “right people” for urban activists.

  6. “holding on to that low-density, suburban vision means depriving younger Californians of their shot at the dream.”
    There are no homes for sale in southern California? I just found dozens or hundreds in pre-foreclosure.

    1. Los Angeles that is.

  7. I’m finding all kinds of housing for sale from San Jose down to San Diego. Crisis?

    1. Good point.
      What “crisis” exists does so both by government building requirements, *and* the government’s demand that ability to pay for housing should not be a factor.
      San Fran, even before the proggies took over the city gov’t, was an expensive place to live for the simple reason that demand has always outstripped housing supply; many people could not afford to live here even then.
      But now that someone’s desire to live where they cannot afford to is deemed (by the gov’t) to be a “right”, we manufacture a “housing crisis”.

      1. Exactly. My NYC dream is to live on Park Avenue within walking distance of the Met:-) There is plenty of housing and land in the South Bronx, but my right is to the Park Avenue area. Its a crisis.

  8. How dare an individual or individual investor or foreign capital purchase a single family home due to the zoning of single family homes. How dare they, thats just greed. Greed is wrong. Greed Greed Greed. Damm suburban greedy motherfuckers.

    Good luck joining forces with the socialists!

  9. This seems to be a veiled NIMBY article. and the crux of its NIMBY opposition to SB 50 seems to rest on this false statement:
    “As Randal O’Toole wrote in his Anti-Planner blog, higher density housing alone won’t solve the affordability problem because “high-density housing costs more to build per square foot than low-density housing—up to 650 percent more depending on the density.” That doesn’t even account for soaring land costs in urban centers.”

    That is simply not true, and I challenge the author to provide solid evidence to support that outlandish claim. Obviously the more units you can cram onto the same land you bought and foundation laid will cost less per SF, up to a limit. SB 50 does not permit high rise high-density housing, it only permits mid-rise moderate density, and the fact that it requires much higher inclusionary affordable units as the number to total project units goes up tells us that it is much cheaper per unit for developers to build more units than less units.

    1. Pretty sure midrise costs more than saaay a 1 or 2 story does… Skyscrapers sure as shit do. The 650 number probably is for high rises or something, so maybe not directly applicable to this law, but is legit point of discussion in downtown in a major city.

      Obviously more units is still good, no matter the cost. Rich dicks move into pricey condos to free up wherever they’re living now. It’s how it works!

      1. “Obviously more units is still good, no matter the cost. Rich dicks move into pricey condos to free up wherever they’re living now. It’s how it works!”

        I’ve been saying this for quite some time. Someone moving to a luxury condo does not burn their prior residence to the ground. Someone moves up into the now-vacated unit, and so on and so forth. It takes some time to all settle out, but new luxury housing eventually frees up housing all the way down the scale. Mandatory lower income set-asides for new housing development is an impediment to this market-driven process. However, these set asides are driven by the sociological theory that, if poor people live around rich people, the poor will acquire the habits of more affluent people and themselves also become more affluent. Regardless of the actual veracity, that narrative sounds good, and the left never abandons a good narrative.

        1. Yup. And another thing is that shiny new buildings become so-so buildings in time often. Developers have to charge top dollar when a building first gets put up, but once the initial development costs are recovered many mid sized buildings will slowly fall down the ladder naturally.

          As far as poor people being around others… I think it does rub off to a very small degree… But it also drags down the wealthier people and their quality of life. Not too keen on the social engineering there. But for the most part as far as adults go, people fall or rise to the level their intelligence and personal character allow. Living next to somebody who makes 5 times your income isn’t going to make somebody change their IQ or work ethic.

  10. There’s no “housing crisis”. We have too many people, and need to reduce the population is all. Dont allow ANY more building, and let the oversupply of humans go elsewhere.

    1. If only!

      Lots of places used to be nice before they crammed in too many people too fast… But mostly it won’t be undone.

      I do wonder why more medium/small cities don’t explode in size in nice geographic areas though. There COULD BE a city of 2 million people built 2 hours north of SF on the coast, and it would have all the natural awesome SF does. Granted no cool old stuff, but compared to building in SF you could practically build reproductions of the worlds great monuments for less than building in SF anyway!

    2. “We have too many people, and need to reduce the population is all.”

      Nope. California is about the same size as Japan, for example, but Japan has three times the population.

      1. The thing you tards miss is “Quality of life.”

        If America had half the population, it would be a FAR better place to live for the people here. For instance middle class people could still buy ocean front property in the LA area, as a teacher I know did in the Pacific Palisades in the 60s on his teachers salary.

        Also, having an abundance of natural resources per capita is awesome for the economy on a per capita basis.

        Half the reason Americans have it so good is because we’re NOT crammed in like the Japanese.

  11. “If something can’t go on forever, it will stop” applies to California housing prices, too. My guess is that development restrictions are so ingrained to California’s politics that the way the problem will ultimately stop is that development pressures will have shifted to other places more willing to accommodate them. It will remain a herculean task to develop new housing in California, but it won’t much matter.

  12. […] Steven Greenhut pointed out in a recent Reason column, SB 50 also does nothing to allow new housing on rural- and […]

  13. […] Steven Greenhut pointed out in a recent Reason column, SB 50 also does nothing to allow new housing on rural- and […]

  14. […] my housing column last week, I’ve heard from readers who oppose the legislation. Frankly, I’m frustrated by some of […]

  15. […] my housing column last week, I’ve heard from readers who oppose the legislation. Frankly, I’m frustrated by some of […]

  16. […] my housing column last week, I’ve heard from readers who oppose the legislation. Frankly, I’m frustrated by some of […]

  17. The housing crisis is destroying communities and peoples lives all over CA, and all NIMBYs care about is keeping out apartments on your block b/c you only value single family homeowners as part of your community. Such NIMBYs are the problem that has created this crisis.

    Sure, all renters wish they were land rich like the NIMBYs, but they’re being crushed and crammed into sardine roomating situations just to get by. You all live in a NIMBY bubble.

    what is a travesty is that NIMBYs are pushing millions of people into cars and long commutes. SB 50 will go a long way to get people out of their cars and living where the jobs are.

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