California is on the verge of passing three big bills to address the severe housing shortage, as Rick Frank writes on Legal Planet. Two of the bills will help fund affordable housing and one will streamline local review of projects in cities and counties that haven’t met their regional housing goals, as set by the state and regional agencies.
While the affordable housing bills will help, even the billions they would set aside would be essentially a drop in the bucket compared to the need. The state is not in a position to subsidize its way out of a multi-decade long process of under-building homes.
That’s why the most effective solution is also the cheapest: take the shackles off homebuilders and let them build. That is the approach of the streamlining bill, Sen. Scott Weiner’s SB 35. Those shackles primarily involve local government policies that restrict development. They also involve myriad fees placed on developers to fund infrastructure improvements that used to be paid for by local governments, in the pre-Prop 13 days. And in other instances, they involve duplicitous, counter-productive “environmental review” mandated by a CEQA process that hasn’t caught up with current environmental needs.
But these shackles also involve high construction costs. Some of these costs are unavoidable impacts of the market and land scarcity. But many in the development community cite California wage standards as a major hurdle for building new units. And it’s greatly affected the debate around SB 35 to streamline project review, which includes a controversial prevailing wage provision (unions are still opposed to the bill though because without the local review, they lose a bargaining point to extract more worker benefits).
Liam Dillon in the Los Angeles Times has a helpful rundown of the impact of these “prevailing wage” standards that construction unions have helped put in place. Here’s a chart showing what this means in practice in a market like Los Angeles:
The article notes how challenging it is to estimate how much prevailing wage requirements add to construction costs, but it cites the following studies:
|Author||Percent Cost Increase|
|UC Berkeley||9% to 37%|
|The California Institute for County Government||11%|
|National Center for Sustainable Transportation||15%|
|San Diego Housing Commission||9%|
|Smart Cities Prevail||0%*|
The bottom line is that prevailing wage adds costs, although we don’t know quite how much. But we do know it will slow housing production to some extent.
Of course, these requirements also bring significant benefits in paying good wages and helping to overcome the severe income inequality in the state. We want construction workers who are paid fairly for their work. But we also need more housing to lower costs for everyone else in the state. Hence the controversy.
More research on the impact of these wages would be helpful, as would discussions about alternative policies that could achieve the same ends without limiting housing production. For example, prevailing wage in hot markets like Los Angeles and the Bay Area probably won’t impact construction much. But in some of our more challenging markets that are most in need of infill development, like the Central Valley, and which are also most at-risk for sprawl, any additional requirements can sink a project before it starts.
In some ways, the prevailing wage debates fit into a larger discussion about how we ensure better living standards and wages for all in this country. Do we do it through mandates on the private sector? Or through taxes that we redistribute through social programs, to supplement private wages and benefits without directly burdening companies?
Ultimately, the state will need more creativity about how to address both challenges: wage growth and housing production, as well as more information about the scale of the impact and the potential alternative solutions available. But for now, the controversies are slowing the progress of major housing bills and potentially limiting their scope.
California isn’t building enough housing to meet population growth, while the new housing that does get built is happening too often in the wrong places, like on open space far from jobs. Meanwhile, new climate legislation for 2030 will likely rely on the average Californian reducing his or her driving miles by allowing residents to live closer to jobs and services.
So how do we reconcile these two trends?
Certain leaders in the building industry — primarily sprawl developers — have cried gloom and doom, claiming that the state’s climate goals will drive up costs for everyone and result in less housing getting built.
But a new report releasing today from UC Berkeley Law’s Center for Law, Energy and the Environment (CLEE) and the Terner Center for Housing Innovation at UC Berkeley, commissioned by Next 10, found the opposite result.
Right Type, Right Place is the first academic, comprehensive evaluation of the potential economic and environmental impacts of infill housing development — compact housing in already urbanized land near transit, jobs and services — on California’s 2030 climate goals under Senate Bill 32 (Pavley). We examined three scenarios: business-as-usual housing development, a “target” infill scenario with more multifamily and attached housing in close-in neighborhoods near rail transit, and a mixed scenario in between the two.
While the business-as-usual scenario results in more car-dependent housing farther away from jobs and schools, the infill target scenario meets the same demand, spurring economic growth with a much smaller carbon footprint. Target scenario benefits include:
- Annual economic growth that’s over $800 million higher than business-as-usual
- Annual reductions of 1.79 million metric tons of greenhouse gas emissions compared to the business-as-usual scenario, which is the equivalent of taking 378,000 cars off the road and almost 15 percent of the emissions reductions needed to reach the state’s Senate Bill 375 (Steinberg, 2008) targets from statewide land use changes
- Lower overall monthly costs for average households
Meanwhile, residents — both new and existing — would see significant quality-of-life benefits in the target scenario. More housing would be available close to good jobs, meaning shorter commutes in better neighborhoods, while existing residents would see more retail and services coming to their neighborhoods to accompany the new residential growth, further reducing overall driving miles.
But this development won’t happen on its own. It’s not because of market forces though. Most people would like a walkable neighborhood close to more amenities, and many households (particularly without children) simply don’t need a big suburban house, with all the upkeep and costs.
But local governments simply don’t allow this kind of housing to get built, and the state has been lax on trying to force their hands and address the housing shortage and traffic problems. Meanwhile, in under-performing markets near transit, the state has not provided local governments with the needed financing tools to jumpstart private investment.
As California lawmakers consider over 130 bills this year to address the state’s housing crisis, the report provides several recommendations for policymakers to consider, such as reducing barriers and increasing incentives for regions that generate infill housing, creating anti-displacement policies to protect affordable housing, and directing more funds towards public transit and affordable housing.
You can access the report via CLEE’s website or Next 10. So far, the report has gotten media coverage from sources such as the Los Angeles Times, San Jose Mercury News, and Sacramento Business Journal. I also co-authored an op-ed on the report in today’s Capitol Weekly, along with Next 10’s Noel Perry and Terner Center’s Carol Galante, which summarizes the findings.
Hopefully the report will inform housing debates going forward, resulting in a California that builds enough housing to meet environmental goals while benefiting the economy at the same time.
Next 10, a nonpartisan research entity (with whom I’ve worked on studies in the past), released a trio of reports that shows how California’s housing shortage and resulting high prices have chased middle class and low-wage residents out of the state:
California experienced a negative net domestic migration of 625,000 from 2007 to 2014. In other words, 625,000 more people moved out of California to other states than moved in to California from other states.
The vast majority of the out-migrants went to just five states: Texas, Oregon, Nevada, Arizona, and Washington.
California was a net importer of residents from 15 states and the District of Columbia from 2007 to 2014.
Californians 25 years of age and over that do not possess four-year college degrees accounted for over 469,800 out-migrants. However, California was actually a net importer of nearly 52,700 residents with a bachelor’s degree or higher.
California remains the top state attracting international migrants, many of which are low-income earners and those that have obtained a bachelor’s degree.
While conservatives love to blame environmental laws for gutting the industries that support these kinds of workers, the data indicate that high housing costs dwarfs all other taxes as a drag on these workers. For many of them, they’d rather take a lower-paying job in a place with cheaper housing than get paid more in high-cost California.
It would be great if conservatives (and progressives) would focus their ire on the policies that restrict in-state housing, namely local zoning and height restrictions and Prop 13.
I won’t hold my breath though.
It’s easy to see how San Francisco has become one of the country’s least affordable housing markets: Zillow’s analysis showed that for every 1,000 new residents, there were just 193 new housing units permitted. Residents of the San Francisco metro can expect to spend 44 percent of their income on rent, or 39.2 percent on a monthly mortgage payment.
Los Angeles is the worst just 187 new housing permits for every 1000 new residents. Residents in Los Angeles County spend 40.1% of their income on a mortgage (if they’re homeowners) and 48.2% of their incomes on rent. Ouch.
The best solution? Deregulate local land use policies, allowing more well-planned compact housing near transit, and build new offices near transit stations as well. Otherwise, we can expect more of these same results going forward, with all the attendant environmental destruction and economic inequality.