Housing Markets and the State

Timothy L. Coyle
Consultant specializing in housing issues

Each year, the California Department of Housing and Community Development (HCD) promulgates what’s known as the RHNA (Regional Housing Needs Assessment).  As the title of the report suggests, the RHNA announces to regional governments in California – councils of governments (COGs) – their housing goals for the next eight years or so.

To complete the RHNA each year, HCD consults with these COGs and the state Department of Finance (DOF).  Through this consultation, a collective housing-need number for the state is formed, representing not simply regional projected population growth but actual new household formation – divided into four income categories.  The RHNA, the goals for which are sub-assigned by COGs to member local governments, concentrates on what zoning and land use communities should be exercised to meet the corresponding goals in eight years.

But, is the ultimate measurement component – the four income categories – properly assessing what’s going on in local housing markets?  The income categories – representing the statewide housing need – start with very low-income households (below 50% of the area’s median income) followed by low-income (50% to 80% of median income), moderate-income (80% to 120% of median income) and all others (120% and north of the area median income).

To know local housing markets is to know the trade-up phenomena whereby a renter family “trades up” to a bigger apartment or a new style of housing – say, single family – and leaves behind a vacant unit.  Newly formed households can move in and fill that vacancy if the market is somewhat balanced. Imbalances occur when more than one family competes for that one vacancy. Rents rise at that point but typically stabilize with each new housing unit introduced to the market.  In doing a RHNA, are HCD and DOF adequately considering this?

Indeed, one would think HCD and DOF account for existing housing units when they do their annual assessments.  But, do they? After reviewing the latest report on the process – Missing the Mark:  Examining the Shortcomings of California’s Housing Goals by Next 10, the non-profit research custodian of the state – it’s not clear.  At one point, the DOF procedure is described as projecting housing need “pegged to at least the level of projected household growth.”  

They must take the existing housing stock into consideration, which will present the true need.  Vacant units, ready to rent, can represent a big piece of the local need – particularly those affordable to lower-income households.  

Don’t get me wrong.  I think setting state goals for local governments to shoot for is a good thing.  If this is the best way for California to determine its longer-term housing needs, it should continue.  But, the state has long-been involved in housing policy with little to show for it. It’s had significant statutory authority for years but a majority of localities has treated the state disdainfully.

Why?  In imparting its concerns with the locals about the statewide housing imperative, could it be that the state has taken the wrong approach all this time?  Directing the how to along with the how many? Could it be that the state has been too eager to have its one-sized land-use template adopted into every general plan?  Insisting on it while not fully – or even remotely – understanding local housing markets? Responding to a legislative fiat without honoring the prevailing doctrine of local control?

And, in response to pressure from the development community and housing advocates of California, is the state too focused on achieving an annual production number – at the expense of the underlying market?

Regrettably, it seems this is the preferred approach of the Legislature.  All of this year’s housing legislation seems to show lawmakers have learned little from mistakes of the past.  They think local housing struggles can be erased by good old command-and-control tactics of the state. Lotsa luck with that approach.

Why doesn’t the state spend some of that surplus the Governor’s been boasting about.  Give them sizeable one-time grants for meeting their eight-year housing need. I mean billions to Los Angeles, San Francisco, Orange County, San Diego and other major metropolitan areas – to spend however they want.

A different approach may just be what local markets are looking for and what might right the wrongs of the past.

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