Politics & Policy

California Needs Housing — and Won’t Get It

Single-family homes under construction in San Diego, Calif., in 2017. (Mike Blake/Reuters)
A bill to make homebuilding slightly less difficult and expensive is harshly swatted down.

Anyone wondering how sclerotic and ungovernable California has become need look no further than the failure last week of an incredibly modest attempt to reform the state’s archaic housing regulations.

California is in the midst of an enormous crisis of affordable housing. The median home price in the state now exceeds $500,000, while the median rent for a two‐​bedroom apartment tops $1,800 per month, nearly 55 percent higher than the national median. In cities such as San Francisco and Los Angeles, average rent exceeds $2,500 per month. Less than a third of Californians can afford the median house cost, while more than half face rents that economists consider unaffordable as a portion of their incomes.

The high cost of housing is largely a function of high demand and low supply. Estimates show that California needs 3.5 million housing units by 2025 just to meet current needs. Yet the state has the nation’s second-lowest rate of housing starts.

The lack of affordable housing has led to an explosion of homelessness. There are an estimated 130,000 homeless people in the state, including around 28,000 in the San Francisco Bay Area and 60,000 in Los Angeles County alone. But even often overlooked cities such as San Diego have homeless populations in excess of 8,000. By some calculations, more than 47 percent of all unhoused homeless people in America reside in California.

While many of California’s homeless suffer from drug, alcohol, and mental-health problems, many more are driven to the streets by the cost of housing. By some estimates, as much as two-thirds of the state’s homeless problem can be traced to housing costs.

Last week California lawmakers had the opportunity to take the tiniest of baby steps toward dealing with the crisis. The Housing Accountability Act, SB50, would have allowed the construction of multi-family housing in some neighborhoods near mass transit that were previously zoned exclusively for single-family housing. They failed.

It is important to understand that this bill was already the weakest of weak teas, especially after it went through many changes. In a state where 50 to 75 percent of residential property is zoned single-family only, it would have opened up barely anything. And it would have done almost nothing to deal with the suffocating weight of environmental, labor, and other regulations that have driven up construction costs. For example, environmental laws alone have driven up prices by nearly 10 percent, and prevailing-wage laws are estimated to raise median housing costs by $42,900 to $79,000. Still, it was a recognition of reality: The only way to deal with a housing shortage is to build more housing.

But even this minimal step was rejected by many state legislators and special interests. Caught between a coalition of anti-growth environmentalists and wealthy NIMBYs, pro-housing legislators could not overcome the power of the status quo. After all, the homeless and the poor, who suffer most from high housing costs, are a lot less likely to vote than those who want to keep low-income housing out of their neighborhood.

Pro-housing legislators have vowed to keep up the fight, but unless Californians begin to face up to the basic laws of economics — such as supply and demand — the future of the Golden State looks grim.

Michael TannerMr. Tanner is the director of the Cato Institute’s Project on Poverty and Inequality in California and the author of The Inclusive Economy: How to Bring Wealth to America’s Poor.


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