Democrats and Republicans see different solutions to California housing crisis

SACRAMENTO – Before the recent legislative recess, California Democratic leaders and Gov. Jerry Brown announced their intention to tackle one of the state’s biggest crises: housing affordability. It’s the rare instance where virtually everyone in the Capitol at least is in agreement about the scope of the problem, even though there’s far less agreement on solutions.

Real-estate prices have gotten so high that they stretch family budgets and are a root cause of California’s highest-in-the-nation poverty rates, based on the Census Bureau’s new cost-of-living-adjusted poverty measure.

The situation is so acute it’s drawn the attention of the national media. “A full-fledged housing crisis has gripped California, marked by a severe lack of affordable homes and apartments for middle-class families,” according to a recent New York Times article. Median home prices have hit a “staggering $500,000, twice the national cost.”

The problem is particularly bad in the state’s major metropolitan areas. The median single-family home price in the nine-county San Francisco Bay Area, for instance, has topped $750,000. Public-opinion surveys suggest soaring home prices – rather than job opportunities or the state’s business climate – are the key reason many people are moving to other states.

But while there’s broad agreement that housing affordability is in crisis, there are two schools of thought on how to address it. Democrats are primarily trying to raise taxes and fees to pay for more government-subsidized affordable housing, whereas Republicans want the state to chip away at local governmental barriers to home construction.

Legislators and the governor have made little progress in crafting a detailed housing plan for this legislative session. But there are a handful of bills moving their way through the Capitol that encapsulate their approach. Their high-priority measure, when legislators return to the Capitol late next month, is Senate Bill 2, which would impose fees of $75 to $225 on every real-estate transaction to provide $225 million in annual funding to subsidize developers of low-income housing.

“With a sustainable source of funding in place, more affordable housing developers will take on the risk that comes with development and, in the process, create a reliable pipeline of well-paying construction jobs,” according to the Senate bill analysis.

Senate Bill 3 also takes a similar approach toward building affordable housing. The measure authorizes $3 billion in general-obligation bonds to pay for low-income and transit-oriented housing. It would need to be approved by voters in the November 2018 election. There’s also talk about using proceeds from the cap-and-trade auctions to fund such programs.

One major bill embraces some of the concerns expressed by those who want to encourage market-oriented solutions to the problem. Senate Bill 35, by Sen. Scott Wiener, D-San Francisco, “creates a streamlined, ministerial approval process for development proponents of multi-family housing if the development meets specified requirements and the local government in which the development is located has not produced enough housing units to meet its regional housing needs assessment,” according to the bill summary. The streamlined process would apply where a project meets “objective zoning, affordability, and environmental criteria, and if the projects meet rigorous labor standards,” according to Wiener.

The bill circumvents local planning decisions, but New Urbanists and others say such pre-emption is needed because “not in my back yard” (NIMBY) sentiments among residents and city officials have impeded developers’ ability to add high-density housing in urban areas. The latter point – the requirement that workers receive union wage rates – has been a major sticking point for some conservatives, who believe the mandate could drive up the cost of home construction.

The building industry has neutralized another measure, Assembly Bill 199, which could have required such above-market wage rates for a wide range of privately funded housing projects. AB199 originally would have required “prevailing wage” for any project that involved an agreement with a “state or a political subdivision.”

The building industry argued that “the language was purposely ambiguous and could mean simple tasks, like a new porch, would require union labor,” according to a San Diego Union-Tribune report. The amended version removes that language and now applies only to projects that receive public subsidies.

There’s wide disagreement about whether additional mandates for affordable housing will substantially boost the supply of lower-priced homes. Even if the new subsidies pass, those dollars are a drop in the bucket, given the overall size of the state’s housing market, critics say. And government mandates that builders provide a set number of affordable units as part of their new subdivisions may ramp up the overall costs for market-based units.

The Union-Tribune’s Dan McSwain compared the process to something out of a Kafka novel: “Raise the overall price of market units, thus ensuring that fewer get built, in order to subsidize a handful of poor families … who win a lottery administered by local government agencies, with staffs funded by housing fees that inflate prices.” McSwain blamed high costs partially on city-imposed fees that inflate housing prices by 20 percent or more.

The Legislature isn’t about to tackle that broader problem. Legislators have yet to reform the California Environmental Quality Act and other environmental rules that drag out the approval process for major new developments. For instance, Southern California Public Radio recently reported that the Newhall Ranch development in Los Angeles County finally “is moving forward after recently winning key approvals.”

That Santa Clarita Valley project, which will house 60,000 people, has been in the works since the 1980s and still is a long way from a ground-breaking. It’s been delayed by environmental lawsuits and legal challenges related to its possible impact on climate change.

Southern California Public Radio quoted real-estate experts who say the project will only make a small dent in the region’s housing shortage. But is that the fault of the developer or of policymakers who have ignored the problem so long that adding tens of thousands of new housing units only amounts to adding a few drops in the housing bucket?

The good news is the Legislature and governor are paying attention to a serious problem that has been percolating for years. The question, as always, is whether state officials can craft legislation that will make a real dent in the problem.

Steven Greenhut is Western region director for the R Street Institute. Write to him at [email protected].