The California Housing Crisis

Richard Rubin
Attorney Richard Rubin has taught public policy at USF, UC Berkeley and other institutions and is Chair of the California Commonwealth Club Board of Governors

While the U.S. Congress is setting records for futility in passing important measures, the California legislature just completed one of the most productive sessions in its history.

Immigration, transportation, climate control, medical and recreational marijuana, public safety, health care and much more got attention as Governor Jerry Brown, riding a popularity wave most governors can only dream of, signed numerous ambitious bills in the closing hours.

Far and away the biggest focus was on what many think is the most pressing issue of the day—a lack of adequate housing. No less than 130 bills were introduced to deal with the issue—a record.

The statistics reveal a mixed picture.

Though the percentage of the state’s population growth easily averaged 3% or more annually every decade since 1900, starting in 2004 it has continued to decline with last year “marking the 11th in a row in which the population grew by less than 1%,” according to a recent Sacramento Bee review.

The same article reported that 15 states grew faster than California in 2016—with Texas being the biggest gainer.

However there seems to be little correlation between population decline and the housing crunch.

In fact if we take seriously the urgency behind dozens of bi-partisan measures that have just become law, the lack of low-income housing for millions of Californians has reached crisis proportions.

While much of the debacle is traced to the 2008 recession when new construction came to a halt, a shortage of adequate housing stock—and especially affordable and below market rate housing—has been spiraling for many years.

The reasons are multifold:

New Housing & Job Opportunities Go Together

Begin with the fact that many regions in California offer the priciest real estate in the nation—much of centered in and around the two most affluent coastal megalopolises, Los Angeles and the San Francisco Bay Area, where the most lucrative jobs are.

While some large companies have migrated to other states particularly in the southwest where the climates are likeable and tax policies more favorable, emerging digital age industries continue flocking to these financial and cultural centers attracted by developer incentives, ready employment pools and advanced communications and transportation networks.

Housing follows job growth and thriving cities are a magnet for new development. But it also has the side effect of increasing competition for limited living space among those who have the means to buy anything and others who feel lucky enough to have a roof over their heads.

That’s the positive side. Hundreds of municipal regulations can strangulate good projects as well as bad ones causing delays that add costs to development which are inevitably passed on to homebuyers and business owners, or wary developers may simply give up after investing millions with little to show for it but abandoned lots.

Where housing activity is accelerating you are sure to find high-paying jobs and expensive homes that are scooped up rapidly in boom or bust times by those who can afford them and by investors who know how to make a buck in a down economy.

This is what happened when thousands of homes went into foreclosure after the recession, further reducing housing inventory while millions were being thrown into unemployment—and in some sectors—particularly manufacturing–the state is still in recovery.

Those most in need of hiring who tend to have less education or skills that are becoming obsolescent are not getting in on the bounty and can barely afford the down payments let alone the homes being built in more prosperous regions typically at inflated costs.

The Housing Crunch Affects All Income Levels

The Los Angeles Times reports 50-year-old housing law that in the Bay Area and San Diego cities and counties particularly, “low-income housing production falls way behind new homes targeted to those earning higher wages.”

But according to authorities it’s not just low income housing that is falling behind. It’s all housing. state’s legislative analyst.

That’s real head-scratcher.  If you travel around San Francisco it is one giant construction site with cranes and bulldozers seemingly on every block an creating traffic nightmares as buildings for residential and office use rise everywhere at a pace so furious that it is giving the city a new skyline.

If you cannot buy into a posh downtown 2-bedroom condo to the tune of $2 million going at $1,523 per square foot just drive out to one of the city’s many neatly landscaped neighborhoods such as Noe Valley where you can pick up a 2-bedroom rebuild complete with bathroom (no garage) for less than $1 million. Now there’s a bargain!

Or another alternative is a nifty apartment rental which average about $3,737 monthly—a 3.45% decrease from 2016 according to real estate sources.

But that does nothing to bolster the housing stock.

Nor will developers find much lure in affordable housing projects when the California Housing Partnership estimates that state and federal subsidies for low-income housing in the state dropped 67% to $892 million annually between 2009 and 2015.

Much of the blame can be placed on California’s antiquated housing law which has not been revamped in over 50 years, is no longer based on real-world calculations, and is using 10th century demographics.

One reason the state’s housing metrics are so out of kilter results from fundamental misunderstandings about the housing market which are actually multiple dissimilar markets.

Planners devising utopian housing quotas in their tax-funded Sacramento silos are forgetting that one suit does not fit all and blatant disparities abound. I will take just one example.

Antiquated Housing Policies Make Little Sense

Bakersfield in laid-back Kern County with a population approaching 900,000 is experiencing 40.6% population growth– one of the fastest of any city in California or the nation.

Even with this growth spurt, the city can boast that is has a healthy amount of housing inventory at affordable prices for the majority of its residents with four and five bedroom homes selling for well under $500,000 which is the medium price of a California home today.   California Home Prices & Home Values

By comparison the medium list price for a home in Los Angeles is $633,600 where home values have risen 7.5% over the past year.

In San Francisco with a population very comparable to Bakersfield at 880,00 —are you seated—the medium home price today is a whopping $1.5 million! San Francisco median home price

However in San Francisco a family of four earning $100,000, according to latest HUD figures, is considered “low income” whereas in Bakersfield the same family must be at the $45,500 level before it qualifies as low income.

Though only 12% of San Franciscans live below the poverty line according to the latest statistics, not including the homeless, the dearth of housing is amplified for those in both low and middle income brackets as hundreds of thousands of new jobseekers are pouring into the Bay Area. California, Bay Area poverty rates 

By contrast, in Bakersfield 17% fall below the poverty line, but the housing affordability demand is less severe.

These examples point up the fallacies in trying to create workable housing formulas that do not differentiate important regional and local anomalies.

Abstract housing quotas look good on paper but are not very useful. And while NIMBISM is still alive and well in some communities, mortgage interest rates, construction costs, over-density, lack of developable land, environmental constraints and many other factors are also important.

The result is housing policy that has failed. California appears ready now to do something about it. But will it be enough?

Housing Crunch only part of a Much Bigger Puzzle

Developers are building an average of 80,000 new California homes a year, but that falls well below the 180,000 that are needed, according to the latest figures from the California Department of Housing and Community Development.

According to one study, California will need more than 1.8 million additional homes by 2025 to keep pace with the state’s ever-growing population expected to top 50 million by 2050.

Aside from numerous local restrictions on development, permitting delays and intense disagreements over where new housing should go and whether certain segments of the population deserve priority over others, one fact is inescapable: any fix will not be cheap.

Another report from the nonpartisan Legislative Analyst’s office estimates that to build affordable homes for 1.7 million low-income California households would cost as much to finance annually as the states total spending on Medi-Cal!state’s legislative analyst.

But that’s only one piece of a bigger puzzle.

As more and more people flee crowded urban centers for the hinterlands having abandoned hope of ever buying a home, housing policies will have to deal with new demographic shifts equally challenging. The best jobs may not migrate with them, and transportation systems, economic development and highway infrastructures will also have to follow.

The housing shortage is real. Let’s hope there is no shortage of creative minds.

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