Fixing the housing problem:  leave the state out of it.

Timothy L. Coyle
Consultant specializing in housing issues

On these pages recently, Joe Matthews penned an essay advocating more state intervention in local housing markets.  Matthews should be forgiven for endorsing such an absurd proposition.  After all, it’s true that in California, as Matthews writes, housing approvals are left up to locals, who regularly play havoc with their land-use and permitting power.

Local governments get away with murder.  They can slow the permitting process down to a virtual crawl; they can require ever-changing building design standards; they charge outrageous fees for the privilege of developing in their communities – over $160,000 per unit in one Northern California haven; and, if all else fails they will look the other way while NIMBY (Not In My Backyard) groups rise up and, using state law and municipal courts, grind building progress to a halt.

You need to have your head examined – or be awfully rich, with remarkable staying power – to want to build in California.  But, as bad as it is, having the state elbow its way into the process is a dumb idea.  It’s bound to compound the current offense.

First, no one wants more government involvement in California real estate markets.  On top of the mischief of locals, the state, among other things, already  mandates ever-changing, development-chilling standards for construction; density requirements; energy and water usage; where and what housing type you can build; and, now, how much greenhouse gas your subdivision can emit.  Just think what with all its new power it will now demand.  That’s not to mention the restrictions they have tried to place on rents, telling landlords when and when not they can quit the business and myriad other requirements that affect a building owner’s ability to run his or her business of providing rental housing to individuals and families.  Let’s face it, a state-sponsored, one-size-fits-all state housing plan – presumably headed by a new “housing czar” – will only make matters worse, much worse.

Second, just as they do now, state politics are sure to play a role in local development plans – and they will surely affect the decisions of a new state czar.  Overnight, the office of the housing czar will be transformed from a broad-minded land-use authority into a “housing sweepstakes” entity charged with picking winners and losers.  Consider a few years ago some prominent and powerful Southern California legislators got together and passed a law that said certain environmental standards – which apply to everybody else – don’t apply to the development of a sports stadium in Los Angeles.  Two years later, those same lawmakers looked the other way while colleagues from Sacramento won similar concessions for a proposed new basketball arena.  Just think, if you play your cards right, you too can be a winner:  the czar may rule that your development doesn’t need to follow the state’s myriad requirements either.

Third, it now takes an average of five years to get a project of any consequence approved.  Just think how much longer it will take if a developer has a new state window to go to.  That headache is only compounded by the additional boxes the developer will have to check to be sure his project will be considered.

Finally, the state has already tried wielding its heavy housing hand and it hasn’t worked.  City councils and county boards abhor being told what to do – especially by state bureaucrats – and that’s why today’s state housing law is ineffective.  It’s called housing element law and while it sounds nice, it’s fundamentally unworkable.  Housing element law utilizes what’s known as the regional housing needs assessment (RHNA) to spell out for about 540 units of local governments how much lower-income and market-rate housing to build.  By design, however, the law lacks any enforcement mechanism and is, therefore, regularly ignored.  In Sacramento, lobbyists for local government have been very effective in keeping changes to housing element law minimal and largely insignificant, something that’s sure to continue.

What the state doesn’t get is how housing markets work.  Rewards go to the developer who has some sense of the housing potential in a given market and is willing to take a risk.  He or she enters a market prospecting for sites, hopefully, in the right location.  Find the right location and housing type to go on it and the developer can keep the remunerative proceeds, the theory goes.  The signals to consumers that the completed housing sends are supreme and, the result is that the risk-taking developer is compensated and new housing gets built.

Sure, it matters that local government cooperates and makes the permitting process runs as smoothly as possible.  Trouble is, locals have forever considered housing to be a fiscal loser and, despite a homebuilder-sponsored study of about 10 years ago which shows new housing more than paying its own way, that argument still wins the day.  Consequently, locals regularly drag their housing-approval feet.

In the name of “housing”, the state would love to get its paws on the local permitting process.  We’ll be writing cost-effective, market-rate housing’s obituary if that happens.  If the state really wants more housing, it will get rid of all of its land-use and development requirements, amend CEQA and start making it economical for local governments to approve new construction.  That’s right. The state needs to start sending some of its fiscal largesse to the locals – as a reward for approving new housing.  It can begin by spending some of its new gas tax revenues on building local infrastructure that supports new housing.  And, bring back redevelopment.

But, that should be the extent of the state’s involvement in new housing.

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