In a Feb. 4 letter to the city of Encinitas, state housing official Zachary Olmstead said the city needed to ”amend or invalidate” a 2013 ordinance approved by voters that said developers had to get voters’ blessing if they wanted to increase the density of their projects or make zoning changes. The letter noted that this law and other city actions had the effect of blocking Encinitas from meeting state requirements that it add 1,141 affordable units. The city of 63,000 has few such units now.

While the Encinitas City Council once seemed as strongly anti-growth as the public, state threats under the Jerry Brown administration led the council in 2016 and 2018 to seek voters’ approval of what’s known as a Housing Element plan, failing both times. The plan is a formal document submitted to the state that outlines what projects will be built so that the city meets its commitment to “accommodate the housing needs of Californians of all economic levels.”

Like Huntington Beach, Encinitas could face lawsuit

Encinitas is the only city in San Diego County without a similar state-approved plan. It is among the richest cities in the country. As of the latest Zillow data, the median average home price is $1.05 million, and the latest RentCafe data puts the average monthly rent at $2,056.

While the 2013 city law targeted by the state has already been suspended until 2021 by a Superior Court judge as being pre-empted by state law, that wasn’t viewed as going far enough by state officials. Olmstead’s letter cited the cumulative effect of a “complex set of regulations” that make it impossible for new projects that would help the city comply with state requirements.

If Encinitas officials don’t change course, the letter warned that state grants might be withheld, including for transportation projects funded by the Legislature’s 2017 increase in state vehicle taxes – and that the Newsom administration would ask Attorney General Xavier Becerra to sue the city for defying state law.

In a case involving the same issues, the state and the city of Huntington Beach filed lawsuits against each other last month in Orange County over whether Huntington Beach is breaking state housing laws. Becerra says 2017 legislation passed in Sacramento clearly empowers his office to sue to enforce plainly written state mandates. Huntington Beach City Attorney Michael Gates, however, says as a charter city – one with its own voter-approved de facto constitution – Huntington Beach has the authority to reject some state edicts that infringe on the city’s right to self-govern its “municipal affairs.”

Can charter cities claim exemption from mandates?

A League of California Cities primer on the rights of charter cities offers ammunition for Huntington Beach’s claim. It notes that with “some exceptions,” charter cities control land-use and zoning decisions. But a 1975 Loyola University of Los Angeles Law Review analysis cited by the league said ambiguous language in state law left it unclear precisely when charter city ordinances took precedent on land-use issues.

Encinitas is a general law city not eligible for charter city protections from some types of state interference. But if Encinitas officials proposed and city voters approved a charter city amendment in a special election, Encinitas could become a charter city within months.

Last year, after disputes with the state, officials in Menlo Park in Silicon Valley considered a quick push for charter city status before putting the issue on hold for the time being.

While California, with its vast housing market, suffered grievously during the Great Recession, its economy – and that of its Northern California tech heartland – has largely boomed in recent years. Compared to the overall sub-5 percent state unemployment rate, the San Francisco-Oakland-Fremont area currently boasts a 2.4 percent unemployment rate.

When asked if they felt “things in the Bay Area are going the right direction,” only a quarter said yes. This figure represents a stark decline from previous years: 42 percent and 57 percent agreed with the statement in 2017 and 2014, respectively.

Skyrocketing housing costs were largely to blame for this dented confidence, with 42 percent citing it as the biggest regional challenge. In comparison, in 2015, only 18 percent held the view and 28 percent last year.

Eye-popping statistics bare these fears. In San Francisco, home values have risen 10 percent in the last year alone, with the median home price being nearly $1.2 million, according to Zillow. Renters aren’t any better off, as the median rent is currently $4,500.

Whether or not these problems are enough to cause demographic changes remains to be seen. A plurality, 46 percent, see themselves moving away in the next few years, a moderate increase from last year; 42 percent expect to stay, a moderate decrease.

Should people start leaving, however, it could be a loss for the state as a whole. A little less than a quarter would stay in the Golden State, while 64 percent would look elsewhere in the country.

Finally, those hoping these attitudes would translate into a paradigm shift at the ballot box may be disappointed. The majority polled look toward public entities and the government to solve problems such as housing costs and traffic – not the business community, tech industry or other private actors.

Passed in 1970, CEQA requires state and local agencies to assess the environmental impact of projects and, if possible, mitigate these impacts. While some argue it merely protects the environment, CEQA has attracted critics from both sides of the political spectrum. It’s blamed for contributing to the state’s insufficient housing stock and some argue it has resulted in frivolous red tape and litigation that bogs down and deters development.

According to the study, however, CEQA doesn’t come into play unless approval of the development is at the discretion of the local government.  “As of right” development – projects that need only to meet zoning and planning regulations – do not generally trigger the CEQA process.

In the five cities studied – Oakland, Palo Alto, Redwood City, San Francisco and San Jose – only 23 of 287 projects required a full environmental impact report.

The crux of the problem is that all the cities studied required discretionary review for residential projects. Some of the cities maintained minor exemptions, such as for single family homes, while San Francisco had no exemptions. Combined with the inefficiencies resulting from the byzantine review processes of these cities, developers face significant hurdles when embarking on projects.

“A single project might need to obtain Design Review approval and a Minor Variance from the Director of the Planning Department and a rezoning from the City Council. This requires navigating multiple levels of local government where only one approval process would be sufficient to pull the project within the scope of local discretion.”

The result is that more land use/planning approvals were issued than the number of projects. Additionally, parceling up the land would lead to even more review processes.

Even when cities use the same regulatory tools, the outcomes can vary drastically. Both Oakland and San Francisco rely on Community Plan Exemptions to mitigate CEQA compliance obligations. Yet the process takes only 7 months in Oakland, as opposed to 23 months in San Francisco.

The authors concluded that “these five local governments are choosing to opt into CEQA through their choice to embed discretionary review into the entitlement process,” and “the problem (and potential costs) associated with environmental review do not appear to originate with state environmental regulation.”

The implications of the study are a bottom-up and local focus might do more to ameliorate the state’s affordable housing shortage than the more popular top-down, “reform CEQA” approach.

“This is much more than CEQA,” Eric Biber, one of the study’s authors, told the L.A. Times. “Really if you just went after CEQA, you’re not going to solve the problem.”

But the housing package – a spate of measures that increase funding for subsidized housing programs and reduce regulations for building certain high-density projects – is unlikely to halt debate about housing policy as home prices remain high.

For instance, median home prices in the Bay Area topped $740,000 last month and topped $700,000 in Orange County – breaking records and raising concerns about a new housing “bubble.” Statewide, median housing prices have topped $469,000, which is driving down homeownership rates and keeping the state’s cost-of-living-based poverty rates above 20 percent.

Virtually everyone, left and right, agrees that the state is facing a crisis. Candidates for the 2018 gubernatorial election, which is starting to heat up, are likely to make housing a core component of their campaigns. So far, Republican candidates John Cox, a San Diego-area businessman, and Assemblyman Travis Allen, a Huntington Beach conservative, have largely called for reducing housing regulations, but have not offered detailed plans.

Democrat John Chiang, currently the state treasurer, has touted his efforts to promote affordable housing programs. Former Los Angeles Mayor Antonio Villaraigosa has focused on bringing back government-directed redevelopment-style low-income housing programs. The partisan approaches are not surprising – and not particularly detailed, at least not yet.

The big surprise so far is that Democratic candidate Gavin Newsom, the current lieutenant governor and leader in the major public-opinion polls, has released a fairly thorough housing blueprint. It suggests that housing will be a top priority in his high-profile campaign – and his proposals embrace the main concepts touted by Democrats and Republicans alike.

“Simply put, we’re experiencing a housing affordability crisis, driven by a simple economic argument,” Newsom argued in a new post on the Medium web site. “California is leading the national recovery but it’s producing far more jobs than homes.” Here’s where the plan makes headlines: He’s calling for the development of 3.5 million new housing units by 2025, which would mean a near quadrupling of the state’s annual housing production.

That’s not an unreasonable number. In the last dozen years, “California has only produced 308 housing units for every 1,000 new residents,” he explained. Given continued population growth, “it’s obvious we’re not on pace to meet that demand.”

Typical of a Democratic official, Newsom called for more funding for affordable housing, including support for the $4 billion housing bond that is going on the November 2018 ballot. It was part of the Legislature’s housing package. Newsom also called for increasing the state’s funding of affordable-housing tax credits from $85 million to $500 million.

Taking a similar line as Chiang and Villaraigosa, Newsom called for replacing local housing programs that had previously been funded through the state’s controversial redevelopment agencies, which were shut down by Gov. Jerry Brown during the 2011 budget act, as a means to help the state plug its then-gaping budget hole. The agencies had siphoned around 13 percent of the state’s general fund budget to subsidize economic-development projects including housing.

But the real news is Newsom’s focus on “regulatory reform and creating new financial incentives for local jurisdictions that produce housing while penalizing those that fall flat.” Under the old redevelopment system, cities did indeed subsidize low-income housing. But the tax-increment financing scheme, by which cities were incentivized to permit tax-generating retail complexes, led to the overall underdevelopment of housing projects, according to various state analyses.

Those problems still exist. “Cities have a perverse incentive not to build housing because retail generates more lucrative sales tax revenue,” Newsom wrote. “The bigger the box, the better, because cities can then use the sales tax for core public services.” He doesn’t offer many details, but Newsom wants to revamp the tax system to “financially reward cities that produce housing and punish those that fail.” He’s reviving the old debate about the “fiscalization of land use,” but there’s little doubt that local incentives have a major impact on housing permits.

Echoing Gov. Brown, Newsom notes that solving the problem will take more than “throwing money” at it. He calls for “implementing regulatory reform and creating new financial incentives for local jurisdictions” – issues that will bolster conservatives who want to see more market-based housing.

Indeed, California builders have argued that they are more than capable of meeting the needs – if only government regulations and local land-use controls were loosened enough to enable them to build more. His plan will annoy conservatives, though, as he also calls for stronger tenant protections as the state streamlines the permitting process.

Most significantly, the Newsom plan – with its myriad details and mixture of elements from right, center and left – is sure to focus the early campaign on this significant issue. An energized housing debate should warm the hearts of all Californians who are concerned that housing prices are soaring beyond the reach of most California families.

Steven Greenhut is a Sacramento-based writer. Write to him at stevengreenhut@gmail.com.

It’s just the latest piece of evidence on the state’s housing crisis, as residents confront a shrinking supply of homes and rising costs, leading many to wonder if they’d be better off elsewhere.

“When you then ask them where they would relocate, they’re often throwing up their hands,” poll director Mark DiCamillo said, according to the LA Weekly. “Millennials seem to be the most likely to say they’d consider leaving.”

The uneasiness about the market appears most dramatically in the Bay Area, where 65 percent of those polled said they’re facing an “extremely serious” housing affordability problem.

But even in Los Angeles and San Diego, 59 percent and 51 percent, respectively, have considered re-locating over housing affordability issues.

The IGS poll sampled 1,200 registered California voters from late August through early September.

In Los Angeles specifically, a recent analysis found that a person needs to earn over $109,000 per year to afford a two-bedroom apartment in the city, with the assumption that renters are spending 30 percent or less of their income on housing.

Across the entire state, the median rent for a one-bedroom apartment is $1,750 and a two-bedroom averages $2,110.

“These are very dramatic findings,” DiCamillo added, according to the Mercury News. “In every region of California, the rising cost of housing has crept into the consciousness of voters.”

The median price of a single-family home rose around 7 percent year-over-year to $565,330 in California this past August – and in Santa Clara County, the heart of Silicon Valley, the median price jumped a shocking 17.9 percent year-over-year to $1,150,000. 

The state Legislature is taking notice, passing 15 bills this month relating to housing affordability, seeking to increase the pace at which housing construction takes place.

For example, Senate Bill 2 and Senate Bill 3 provide new funding for low-income housing, while SB35 attempts to streamline the approval process for construction in municipalities that fall behind Sacramento’s housing goals.

While California boasts some of the highest earners, it also has the nation’s highest poverty rate when housing costs are factored in, resulting in a heightened sense of urgency in a state that has some of the biggest regulatory hurdles for new home building.

SACRAMENTO – California’s redevelopment agencies were a fixture on the local political landscape for six decades, as they guided development policies and grabbed “tax increment financing” that localities used to pay for infrastructure improvements, downtown renovations and affordable-housing projects. They had some notable successes but generated enormous controversy before Gov. Jerry Brown shuttered them in 2011.

They were designed in the 1940s to fight urban blight. But the agencies were criticized for their use of eminent domain on behalf of private companies; for running up debt without a vote; for the subsidies they ladled out to developers; and for financing big-box stores and auto malls rather than helping inner cities spruce up. The governor ultimately killed them because these agencies had become a drain on the state’s general-fund budget, consuming 12 percent of the budget.

It was a shock to see such a powerful sector dry up, as local agencies morphed into “successor agencies” that had nothing left to do other than pay off existing debt. But the redevelopment industry – the developers, lobbyists, city officials and low-income housing advocates – never really went away. Each year since 2011, lawmakers have proposed and sometimes passed measures that incrementally bring back the redevelopment process.

The way that complex process worked in the past involved city councils essentially creating agencies that target “project areas” for subsidy. The agencies would float debt to fund infrastructure and pay subsidies to developers who build things within those areas. Cities often would subsidize retail projects because of the sales taxes they provided. The gain in the property taxes from the new development was designed to pay off the debt.

But those taxes often come out of the hide of other public services, such as schools and public safety. The state budget had to backfill the losses and the result was the budgetary drain that the governor plugged. But with the state’s fiscal situation having improved markedly since 2011, legislators have been less concerned about any financial impact of revived agencies.

In 2015, the governor signed Assembly Bill 2, which created Enhanced Infrastructure Finance Districts (EIFD) that have many similarities to the old redevelopment project areas. Under the old law, redevelopment officials would simply declare an area blighted before gaining new powers of subsidy and debt funding within that area. Under what some called Redevelopment 2.0, those borrowing and spending powers were limited to infrastructure projects.

To prevent some of the old fiscal abuses, the new EIFD process bans the newly created agencies from unilaterally creating project areas that would steal tax revenue from counties, fire authorities or school districts. Instead, they would have to gain the approval of the other districts, thus providing incentive for a less controversial project. These projects also lacked the affordable-housing requirement that was found in the old redevelopment law.

This year, affordable housing is the Legislature’s pet issue in its final week of session. The governor and Democratic leaders have promised a legislative package to deal with the state’s housing crisis. Lawmakers also are considering Assembly Bill 1568 by Assemblyman Richard Bloom, D-Santa Monica, which would add a housing component to those infrastructure districts. Critics say it’s creeping redevelopment, combined with an expanded ability for local governments to raise taxes.

“Local governments have been without a reliable financing mechanism to invest in economically depressed, transit-rich areas since the demise of redevelopment agencies in 2011,” Bloom said in a Senate Rules Committee analysis. This proposal “provides local jurisdictions with the authority to finance infrastructure and affordable housing using new sales and use taxes in addition to property tax increment within qualifying districts.”

Lawmakers are expected to make technical amendments Friday and then send it to the Senate floor for a vote Monday. The bill requires that the Enhanced Infrastructure Financing Districts use the new taxes to fund affordable housing on infill sites. The measure has passed its committees on a largely party-line vote, with most Democrats favoring it and most Republicans opposing. It’s backed by several planning and local-government organizations, and has a high likelihood of making it to the governor’s desk by the Sept. 15 deadline.

If that’s so, then it will be interesting to see whether Gov. Brown, who fought so hard to eliminate redevelopment agencies, is willing to let them return incrementally, albeit with a different name and somewhat different rules.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

SACRAMENTO – California’s Legislature is back from its recess and legislators kicked off the session by focusing on two highly partisan matters.

Assembly Republicans first voted to keep Chad Mayes as Republican leader, despite pressure from activists to oust him because of his vote to extend the governor’s cap-and-trade system. But Mayes said Thursday that he will step down and will be replaced by Brian Dahle, R-Bieber. Democrats pushed new legislation that would change state election rules to help Democratic Sen. Josh Newman of Fullerton thwart a high-profile recall effort.

As divisive political wrangling settles down, legislators do plan to address some substantive policy issues. At the top of the list is housing. Before the recess, Gov. Jerry Brown and the Democratic leadership promised to introduce a package of bills to help boost housing supply, given that escalating home prices have reached crisis levels.

Keep an eye on Senate Bill 35, which would create “a streamlined, ministerial approval process for development proponents of multi-family housing” in localities that have “not produced enough housing units to meet its regional housing needs assessment.” A ministerial approval would spare developers from a drawn-out process before planning commissions and city councils.

Local governments are opposed to the bill because it limits their authority, but backers say the measure is needed to jump-start some types of housing projects, given that local growth controls and environmental lawsuits have slowed housing construction.

The bill recently was amended to expand its application beyond big urban centers to include smaller cities and suburban locales. It’s a rare instance where Republicans and Democrats have some common ground, with the former wanting to encourage private companies to build more and the latter hoping to see the construction of high-density housing. The building industry opposes provisions that would require paying union wage scales.

There’s more controversy over two other housing-related measures. Senate Bill 2 would impose $75 to $225 fees on property transfers (excluding home sales) to fund government-subsidized affordable housing. Senate Bill 3 would put a $3 billion housing bond on the November 2018 ballot, which also would fund housing subsidies.

Another top Capitol priority is passage of Assembly Bill 1250, which essentially would ban 56 of California’s 58 counties from outsourcing certain services to private contractors. It is backed by a vast array of public-sector unions.

“While cheaper services and employee layoffs may appear to save dollars in the short term, the savings are often illusory with hidden costs that are not accounted for and diminished services or contractor failures that require cities and counties to ultimately re-hire and/or re-train staff to provide the outsourced service,” argues author Reginald Jones-Sawyer, D-Los Angeles.

But county governments, and companies that provide myriad services to them, argue that the bill will dramatically raise costs for taxpayers and will lead to diminished services. Given increasing costs of pensions, medical care and other employee benefits, these governments say they can’t afford to hire permanent employees. This is likely to be one of the most contentious bills to make its way through the Legislature during the final month of session.

On Wednesday, activists promoting bail reform held an event on the Capitol grounds, thus highlighting a growing reform movement. Senate Bill 10 — by Sen. Bob Hertzberg, D-Van Nuys — would replace the current system of money bail with a judicial-based pre-trial system, whereby defendants are released or kept in custody based on an assessment of their flight risk and the nature of their alleged crimes.

Opponents of the current bail system argue that it’s unfair to keep people in jail, as they await trial, based solely on their ability to post a bond. Studies show that low-income people are more likely to accept plea bargains – largely so they can get out of jail and get back to work and caring for their children. The bail-bonds industry sees the legislation as an existential threat, and Republicans fear that the new system could make it tough to keep dangerous people behind bars.

Senate Bill 54, which would turn California into a so-called sanctuary state by limiting “the involvement of state and local law enforcement agencies in federal immigration enforcement,” is another hot-button issue in the waning days of the session. As the Sacramento Bee reported, the measure “sailed through the Senate and appears likely to pass the Assembly with a majority vote,” but “it’s unclear where Brown stands on the issue.”

Its passage would put the state on a collision course with the Trump administration, which has threatened to halt crime-fighting funds to cities — and presumably, states — that refuse to cooperate with federal immigration officials.

Legislators and activists have talked about other, less-substantive but highly controversial issues, as well. Senate President Pro Tempore Kevin de Leon promised in a speech this week to hold hearings on white supremacists in California, which he called “a cancer on our nation.” Silicon Valley entrepreneur Tim Draper, who had failed to qualify for the November 2016 ballot a measure to break up California into six states, filed a new measure to split up California into three states.

There’s plenty to watch as the legislative session winds down – and as political battles heat up for the 2018 election.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

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 sgreenhut@rstreet.org.

Analysts have separated into two camps around Golden State real estate, one more bullish than the other. “Two recent reports — from Fitch Rating, a Wall Street credit reviewer, and Arch MI, a seller of mortgage insurance — attempt to gauge the stability of regional housing markets by tracking changes in real estate metrics vs. other economic measurements,” the Orange County Register reported. “Using a California prism, the studies draw wildly different conclusions. Fitch concludes California housing is among the most overvalued housing markets in the nation. Yet California is not on Arch MI’s list of riskiest places to own.”

“California was one of 10 states with overvalued housing by Fitch’s standards. Four states had the same pricing mismatch as California: Florida, Hawaii, Oregon and Utah. Next states on the dicier scale — 10 percent to 14 percent overvalued — were Arizona, North Dakota, Nevada and Texas […]. Idaho was in the worst shape at 15 percent to 19 percent overvalued. But Arch MI saw California with riskiness below the norm. California’s risk of falling home prices is ‘minimal’ or a 2 percent change of depreciation in the next two years. National risk by this math is 4 percent.”

Searching for answers

Along with an analytical split surrounding a possible housing bubble, residential options in California have been opening a gulf of their own. “California is one of the most unequal states in the country, and its housing market is similarly bifurcated, offering both multimillion dollar houses and rent-controlled apartments, but less and less of a foothold for people in the middle,” the American Interest observed. “This is a key reason so many working class families have left the Golden State in the past 25 years.” In a recent report issued by Bankrate.com analyst Claes Bell, “California ranked as the toughest state in the nation for first-time home buyers, who typically would be in the millennial age bracket of 18 to 34,” according to the Los Angeles Times. 

Policymakers grappling with the state’s compounded housing challenges have no shortage of plans to pore over — over 130 bills touching upon the issue, the Times noted. “Reams of statistics support the depth of the problem: California’s homeownership rate is at its lowest since World War II, a third of renters spend more than half of their income on housing costs and the state has nearly a quarter of the nation’s homeless residents — despite having 12% of the overall U.S. population,” the paper noted in a breakdown of some leading legislative contenders — which range from proposals to expand low-income rent-controlled units to increasing tax credits to pushing easier and less traditional permitting. 

Back to rent control?

The push toward increased rent control has been spearheaded by Assemblyman Richard Bloom, D-Santa Monica. “Bloom wants to repeal the state law known as the Costa-Hawkins Rental Housing Act, named after a moderate-leaning Democratic former state senator from the Central Valley and a short-time Republican assemblyman from Orange County,” the Sacramento Bee recalled. “During 1995, Jim Costa, now in Congress, and Phil Hawkins, who served just two years in the state Assembly, became the face of a disputed political campaign lodged largely by landlords and real estate interests to weaken – statewide – the ability of cities to pass strong rent-control laws. It came nearly two decades after the rent-control movement, born in cities like Santa Monica, Los Angeles, San Francisco and Berkeley, was spreading across the state.”

In core metro areas across California, rents have risen dramatically — in part reflecting an influx of wealthier residents to downtown urban neighborhoods, but also fueling a domino effect of hikes further down the affordability chain. “Statewide, average rents have increased 60 percent over the past 20 years. In 2016, median rents in the Bay Area and Los Angeles area ranged from $2,427 to $4,508, according to a housing report from the California Department of Housing and Community Development,” the paper added. “Nearly half of California’s households rent, and 84 percent of them are considered ‘burdened,’ spending 30 percent to 50 percent or more of annual income on rent.”

The rush is on to find a way to amp up available housing in California. Amid new reports claiming that housing has become unaffordable across the state, legislators, officials and activists have begun a rush for solutions. 

“In its first comprehensive analysis since the year 2000, California’s Department of Housing and Community Development paints a bleak picture of the state’s housing landscape,” KQED reported. “While it points to some hopeful developments, the report suggests lawmakers will need to consider serious policy changes if California is going to build the projected 1.8 million new homes needed by 2025.”

Widespread burdens

Findings suggested that, until then, Californians could continue to face extraordinary pressure in matching their budgets to homes in the places they earn their living. “The U.S. Department of Housing and Urban Development defines people as ‘cost burdened’ when they spend more than 30 percent of their income on housing,” ABC Sacramento noted. “Statewide, more than 3 million households exceed the 30 percent guideline when it comes to paying rent. And more than 1.5 million households see more than half of their income going towards rent. Every county mentioned in the report — from San Francisco to San Diego — is housing burdened.”

His own initial housing plans rebuffed by the state Legislature, Gov. Jerry Brown has focused his attention around plans that don’t rely on bigger allocations of funds from Sacramento. “The governor’s office will seek approval of policies to streamline housing construction, lower the cost of homebuilding through reduced local government fees, and to create incentives for local governments to approve more housing,” according to the Orange County Register.

“The governor’s office is pursuing court certification of the ‘No Place Like Home’ program, which will use $2 billion in bond money to create affordable-housing programs for mentally ill homeless people. The budget plan, however, eliminates $400 million for affordable housing since the Legislature failed last year to approve the governor’s plan to streamline the homebuilding approval process.”

Brown laid out the logic behind his initial approach at the news conference where he unveiled his budget plan. “We’ve got to bring down the cost structure of housing and not just find ways to subsidize it,” he said, the Los Angeles Times reported. “What we can do is cut the red tape, cut the delays, cut whatever expenses we can afford to do without to make housing more affordable and therefore increase the stock and therefore hopefully bring down the costs.” The governor’s office has claimed that California suffers a deficit of 100,000 housing units a year based on current population growth projections, the Times added, with residents at the bottom of the income scale facing the most daunting challenges. 

Reshuffling the deck

In Sacramento, lawmakers have advanced a series of bills aimed at reducing the problem by other means. State Sen. Scott Wiener, D-San Francisco, has proposed to “free affordable housing projects from compliance with certain local development-related regulations,” Construction Dive noted. “Meanwhile, another state senate bill proposes garnering funding for affordable housing through a $75 tax on real-estate transactions,” while another “would end a tax break on second homes in the state to fund an existing affordable housing program there.”

In the private sector, familiar patterns of construction and opposition have been disrupted by the extent of California’s housing crunch. The crisis has prompted a surprising shift among advocates typically arrayed against the Golden State’s big players in housing, whose heft and risk tolerance are needed assets in any swift and substantial expansion of residential options. “Environmental lawyer Marco Gonzalez spent more than a decade suing real-estate developers in California,” the Wall Street Journal recently noted in a report on the phenomenon. “Now he is on the opposite side, among a growing group of advocates who are taking a once unthinkable approach to development in their backyards: They are trying to force cities to allow more of it.”