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]

16 comments

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  1. Queeg
    Queeg 26 July, 2017, 10:01

    Comrades

    Expect little-

    Reply this comment
  2. Dude
    Dude 26 July, 2017, 10:58

    Hmmm, simple solution; deport the THREE MILLION ILLEGAL ALIENS from our state and eject the liberals that fight to keep them here. Then Americans would be able to take walks through our neighborhoods again without fears of drive by shootings, rape or robbery.

    Reply this comment
    • Hcat
      Hcat 28 July, 2017, 16:59

      There are plenty of shooters, rapists, and robbers who are citizens or legally here. I’d say the preponderance of them. But you’ll have no one to take care of your lawn, and the U S Army as it goes door to door checking everybody’s documents will cause traffic problems, and they’ll have to stop by YOUR house while they’re doing their job.

      Reply this comment
      • Dude
        Dude 28 July, 2017, 18:52

        I’ll be fine… I do my own lawn. We’ll be far better off without illegal aliens taking up space on our roads and businesses, not to mention our school systems.

        Reply this comment
  3. Sean
    Sean 26 July, 2017, 18:52

    Jerry Brown is already working on this. He is making living in the golden state so expensive, anyone not earning above average wages will have to leave.

    Reply this comment
  4. Queeg
    Queeg 27 July, 2017, 10:53

    Comrades

    Pass on this red meat article…..nothing will happen

    Don’t be led like a lamb……you know better-

    Reply this comment
  5. LB1
    LB1 27 July, 2017, 13:15

    Nothing new here, Democommies want to raise taxes on people that work to provide for the gimmies that don’t work. As far as Brown going to help someone, YEAH, HIMSELF. This is all a joke, they are a joke. I say, DEPORT, DEPORT, DEPORT.

    Reply this comment
  6. NormanB
    NormanB 28 July, 2017, 23:14

    Many of us older people with only 1 or 2 people living in a highly price appreciated house would gladly move into smaller quarters if capital gains taxes wouldn’t eat up 25% to 39% of our home’s value which we could avoid through death. So, cut the tax rate to 5% and many, many homes would become available. The state and country aren’t getting those taxes any way as we will hold on until we die.

    Reply this comment
    • S Douglas 47
      S Douglas 47 29 July, 2017, 09:08

      What kinda house you got? I wish I had your problem. The first $250,000 of gains is excluded ($500,000 for a couple).

      That’s gains, not sales price.

      Reply this comment
    • gkl
      gkl 2 August, 2017, 11:42

      An important exception to the capital gains tax on real estate kicks in when you are selling your home. You can exclude $250,000 of your profit from the sale of your home if you are single and $500,000 of the profit if you’re filing taxes jointly as a married couple. However, you do have to meet specific requirements to claim this exclusion:

      Reply this comment
    • Hcat
      Hcat 7 August, 2017, 19:03

      Good point. Capital gains taxes should be lower on houses up to $1 million. Capital gains over $1 million should be taxed as ordinary income.

      Reply this comment
  7. Think Outside the box
    Think Outside the box 2 August, 2017, 07:22

    How about we consider stopping house flipping. Low priced houses are snatched off the market with cash offers that a normal family can’t compete with… only to be put back on the market 30-90 days later at unaffordable prices. OR Perhaps we put a moratorium on how long one must keep a house before they can sell it for a profit or how much profit a house can make over a certain period of time. While we’re at it, a cap on rental prices vs morgage would be good. It’s ridiculous that a house with a morgage of $1200 is being rented for $2800. Greed is pushing good people out of California.

    Reply this comment
    • Queeg
      Queeg 2 August, 2017, 10:04

      Comrade

      Greed is good…..ask your Plutocrats…….

      Just a thought….without high real estate values and a well oiled refi business propping up values State tax collections stagnate and the kids, government workers and immigrants suffer….

      Reply this comment
    • Johnny G
      Johnny G 2 August, 2017, 10:23

      I agree that housing prices in the Bay Area are absolutely insane. (as is the cost of living in general) I wasn’t aware of this, but New York has mandated rent control. It’s a pretty old idea there too, dating back to 1920. Their current rent control program was officially introduced in 1943 in which cities could either opt in or out of participating in rent control. Not surprisingly, New York City opted in and currently enforces rent control within the city’s jurisdiction. Despite this New York City still has some of the highest rent in the country, third only to San Francisco and San Jose. (see this article from July 2017 https://www.apartmentlist.com/rentonomics/national-rent-data/) So California could potentially try something similar but it doesn’t seem like it makes that big of a difference. This is partly due to the fact that location, cost of maintenance, and real estate taxes in that area are all factored into the formula for how much land lords are allowed to charge. This is a complicated issue that is a function of several variables that include cost of living, market value of property, and state taxes. Getting this issue under control will likely require much reform on all three of those areas, not just in the housing sector.

      Reply this comment
      • Queeg
        Queeg 9 August, 2017, 09:53

        Comrade G

        Expecting Plutocrats and their favorite Publicans to provide cheaper energy, housing, food, drugs, health care for the exploited masses is laughable. History of Obamacare, for example.

        Kali is rotting from the inside out due to ripping off the poor-

        Reply this comment

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Steven Greenhut

Steven Greenhut

Steven Greenhut is CalWatchdog’s contributing editor. Greenhut was deputy editor and columnist for The Orange County Register for 11 years. He is author of the new book, “Plunder! How Public Employee Unions are Raiding Treasuries, Controlling Our Lives and Bankrupting the Nation.”

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