The right Rx for California’s housing problems

Timothy L. Coyle
Consultant specializing in housing issues

Christopher Thornberg’s “Stop Dissin’ the Housing Market—Set it Free!”, which recently appeared on these pages, is just what California’s housing markets need.  Hail to this Beacon Economics PhD!  Want more housing? as Thronberg asks:  Stop messing with markets!

Thornberg’s piece, which can be found by clicking on the following link, should be required reading for all 120 legislators at the state Capitol who have the power to make housing laws.  Lawmakers – particularly those on the left – are inclined to prescribe more government involvement to compensate for the lack of housing production for low-income people.  What they don’t realize – or refuse to – is how disruptive that is to California markets.

Here’s Thornberg’s assessment:

It is true that what does get built in this [state] tends to be for higher income households.  But this is a natural outcome of the barriers to entry that afflict the system.  When supply is artificially limited, what does get produced is going to be concentrated in the highest margin portions of the market.  If supply were less restricted and fixed costs reduced, there would be a natural movement towards lower income families.  [And], in Los Angeles the overall lack of supply keeps middle income families in housing that would otherwise be available for lower income families.

Indeed, not only do government rules and regulations affect the production of housing, they profoundly upset the natural cycles that are present in existing housing markets.  The losers are the tens of thousands of under-housed middle-income California families – not poor enough to qualify for scant government subsidies and too wealthy to make the cut.

Even more losers are created by the popular program, inclusionary zoning.  Right now the program is locally administered but tenant advocates want legislation – AB 1505 (Bloom) and SB 277 (Bradford) – to make it a state mandate.  Inclusionary zoning is a classic case of creating a limited pool of winners and a much larger population of losers.  The program requires builders who want to produce new housing to set aside a certain number of homes and units and sell or rent them at below-market prices.

Of course, such a program does at least two things:  1) prohibits a builder from recouping the costs to produce the discounted units; and 2) forces up prices of the market-rate homes (to compensate for setting the lower-income units at below-market prices or rents).  Inclusionary zoning is still just more of the same:  a costly demand made upon the builder as a condition of getting his or her housing proposal approve.  Add in inclusionary zoning to the other demands – notorious CEQA approvals, sky-high fees, myriad design requirements, etc. – and one questions why anyone would attempt to build at all.

Moreover, inclusionary zoning does next to nothing to resolve the problem of inaccessible housing.   A study done a few years ago – heralded by the advocates of inclusionary zoning – showed the politically popular program, adopted in more than 150 California communities, was responsible for the production of a mere 1,100 units of affordable housing over a 35-year period.  That’s the equivalent of approximately just over 1% of the annual low-income housing need.

On the basis of that production record it would take over 100 years, another study said, to meet the state’s affordable housing demands.  Thornberg comments on the content of inclusionary zoning, saying “such efforts are tiny compared to the scale of the problem.”

Inclusionary zoning is not the answer.  It’s political window-dressing, at best.  And, lawmakers who vote to make it state law are doing nothing more than grandstanding on the backs of low-income families.

Thornberg wisely says the Legislature should tinker less with California’s housing markets.  And, he also says that until “development-unfriendly places roll back current market restrictions . . . the housing crisis will only get worse.”  Amen.  Cheers, Christopher Thornberg!

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