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.”

The federal government has supplied California with additional funds and time to continue its multi-year foreclosure relief program.

The effort “intended to prevent home foreclosures that was expected to shut down next year is instead being expanded and extended following a new influx of federal funding,” the Los Angeles Times reported. “Keep Your Home California, which already had been awarded nearly $2 billion, will receive up to $463.5 million in additional federal money to aid troubled borrowers.”

“Treasury announced the increase [Feb. 19] as part of a $2 billion expansion of its Hardest Hit Fund, which launched in 2010 and earmarked $7.6 billion to 18 states and the District of Columbia. California will receive about $213.5 million in the first distribution of new funding. The state could get an additional $250 million in a second phase, which the department expects to award by the end of April.”

California recently shook off the stigma of the country’s highest rate of foreclosures. But the lingering effects of the housing bubble will take years to mitigate, even with a stable economy. Last year, the state “had the nation’s fourth-highest inventory of foreclosures ready to sell,” according to the Orange County Register. “38,000 vs. 48,000 in 2014. New York was first (91,000); then Florida (87,000) and New Jersey (66,000). Nationally, the foreclosures inventory ended 2015 at 689,000 – down from 881,000 a year earlier and the lowest level since 2006.”

“Since 2007, 7.1 million homes were lost through foreclosure nationwide,” the Register added. “Some 1.2 million of those actions were in California, the state hardest hit by the Great Recession’s mortgage meltdown. Next was Florida (872,000) and Michigan (407,000).”

New legislation

In Sacramento, a bill has recently been introduced to extend greater foreclosure protection to widows and widowers. State Sen. Mark Leno, D-San Francisco, sought to provide “protections against foreclosure that are available to other homeowners but not to spouses and children of deceased kin,” the San Jose Mercury News observed. Lenders, Leno’s office indicated, said “survivors who are not on the loan are not covered by California’s Homeowner Bill of Rights[.]”

New data has brought a new urgency to the souring fortunes of California’s middle class.

“Not only are Californians leaving the state in large numbers, but the people heading for the exits are disproportionately middle class working families — the demographic backbone of American society,” the American Interest recently noted.

Looking at labor force categories provides more evidence that California is losing working young professional families,” argued Hoover Institution research fellow Carson Bruno; “while there is a narrative that the rich are fleeing California, the real flight is among the middle-class.”

“Knowing that net out-migrants are more likely to be middle-class working young professional families provides some hints as to why people are leaving California for greener pastures. For one, California is an extraordinarily high cost-of-living state. Whether it is the state’s housing affordability crisis — California’s median home value per square foot is, on average, 2.1 times higher than Arizona, Texas, Nevada, Oregon and Washington’s — California’s very expensive energy costs — the state’s residential electric price is about 1.5 times higher than the competing states — or the Golden State’s oppressive tax burden — California ranks 6th, nationally, in state-local tax burdens — those living in California are hit with a variety of higher bills, which cuts into their bottom line.”

Real estate indicators

“In 2006, 38 percent of middle-class households in California used more than 30 percent of their income to cover rent. Today, that figure is over 53 percent,” according to Christopher Thornberg, director of the UC Riverside School of Business Administration Center for Economics Forecasting and Development. “The national figure, as a point of comparison, is 31 percent. It is even worse for those who have borrowed to buy a home — over two-thirds of middle-class households with a mortgage are cost-burdened in California — compared to 40 percent in the nation overall.”

Recent studies illustrated a continuing plunge in homeowning among traditional buyers in-state. “California’s middle class is being hammered,” wrote Joel Kotkin at the Orange County Register. “The state now ranks third from the bottom, ahead of only New York and the District of Columbia, for the lowest homeownership rate, some 54 percent, a number that since 2009 has declined 5 percent more than the national average.”

Low on houses

Some analysts looking to explain the trend have pointed to a so-called housing shortage statewide. “With supply falling far below demand, California needs to build at least 1 million more homes for low- and middle-income Californians in the next 10 years,” CAFWD suggested, adding that, although Gov. Jerry Brown “did not mention housing in the State of the State address,” he has “not explicitly ruled out addressing the issue in the next three years.”

Giving ammunition to the housing shortage thesis, meanwhile, was “a new report from the California Legislative Analyst’s Office that found that poorer neighborhoods that have added more market-rate housing in the Bay Area since 2000 have been less likely to experience displacement,” the Washington Post noted. But experts have differed significantly on how to read the tea leaves of the data, and analysts disagree on whether increasing density — or what kind of density — is the right answer.

A cloudy picture

The Golden State has been haunted in recent times by sharply mixed economic indicators. “While California has added 2.1 million jobs since 2010, employment in six industries is still below 2007 levels, before the Great Recession, according to the center’s analysis. Those sectors — including construction, finance and manufacturing — generally pay more than the service-type jobs that we’re adding in droves,” the Sacramento Bee noted late last year.

Economic growth concentrated in Silicon Valley has also not done much to relieve the income or jobs picture for middle-classers. “In a recent survey of states where ‘the middle class is dying,’ based on earning trajectories for middle-income cohorts, Business Insider ranked California first, with shrinking middle-class earnings and the third-highest proportion of wealth concentrated in the top 20 percent of residents,” Kotkin observed.

Google has broken into the real estate industry.

Convinced that a big market still exists for bargain-seekers, the tech giant launched a mortgage calculator and recently debuted a new mortgage comparison feature. “Google predicted that nearly one in two borrowers still don’t shop around for their mortgage and set up the tool to help people make ‘more informed financial decisions.’ It said that it would be rolled out to more U.S. states after launching in California,” CNBC reported.

Disrupting real estate

The consequences could be substantial, increasing already hot competition among California sellers. Now, “people interested in the California real estate market can use Google to browse over 300 mortgages from more than 75 different lenders for their house hunting,” according to Time. “Note that Google is limiting its services to that of a broker, not a lender,” the magazine added. “In order for the service to be free to consumers, Google says it is ‘compensated by mortgage lenders’ without endorsing any lender in particular.”

For that reason, the company has tapped several big, recognized industry leaders for key partnerships. “Powering Google Compare for mortgages will be Zillow Group and LendingTree, both of which announced Monday that they will be partnering with Google to provide mortgage information to the search engine monolith,” Housingwire noted. “According to Zillow, lenders who use Zillow Group Mortgages for their marketing efforts will now have their rates, ratings and reviews prominently displayed on both ‘the world’s most popular search engine’ and ‘the most visited real estate media network in the country.'” LendingTree added that, “after users provide a few additional pieces of information, such as loan amount and home value, Google will display relevant mortgage rates from LendingTree and other lending partners.”

Burning up or burning out?

California’s real estate outlook has become increasingly complex. While some regions have experienced sluggish growth, if any, the housing market in many urban areas has been robust, and in Silicon Valley it has remained exceptional. “Speaking to members of the Silicon Valley Association of Realtors, National Association of Realtors chief economist Lawrence Yun likened Silicon Valley to Florence during the Renaissance period,” the San Jose Mercury News reported. “Is Silicon Valley’s housing market experiencing a bubble? Are homes prices overpriced? Yun admitted he does not know, but he believes the momentum will likely continue as Google, Facebook, Yahoo and other tech companies and start-ups here continue to grow, innovate and produce results,” the paper added.

Despite a surge of big technology investment in real estate in and around Los Angeles, the broader housing market in Southern California has not performed nearly as well. CoreLogic analyst Andrew LaPage said, “Southern California home sales lost steam in October, dipping more than usual from September,” according to CNBC. “Sales remain constrained by a tight inventory of homes for sale and lower affordability,” he observed. Even setting aside tech buying, Los Angeles real estate had been on a tear. “Tight inventory kept home prices on the rise,” with the city’s median home price climbing “5.8 percent from a year ago to $490,000,” CNBC noted. Eventually, a lack of inventory can slow markets even where sellers can turn a substantial profit.

The trend reflected a growing statewide challenge faced by those in the market for a home. “The percentage of homebuyers who could afford to purchase a median-priced, existing single-family home in California during the third quarter of 2015 slipped to 29 percent from the 30 percent recorded in the second quarter of 2015, and was flat from the 29 percent in the third quarter a year ago, according to a new report from the California Association of Realtors,” The Business Journal observed. “According to the CAR report, home buyers needed to earn a minimum annual income of $98,350 to qualify for the purchase of a $487,420 statewide median-priced, existing single-family home in the third quarter of 2015.”

The stakes for builders are high; failure to pass the measure could result in a doubling of local fees placed on developers building new homes in order to help pay for school improvements.

The lead role in securing the 365,880 signatures to qualify the bond initiative was led by a politically-savvy trio – Californians for Quality Schools, Coalition for Adequate School Housing and the California Building Industry Association.

The latter two support the quality schools group, and are led by boards composed of developers, school officials, architects and financial advisors.

“This bond will go a long way to ensure school districts have the necessary resources to create the best learning environments for students,” said Eileen Reynolds, who chairs the board of the California Building Industry Association and works as government affairs director for Tejon Ranch Corp., one of the largest private land holders in the state.

The group has history on its side; California voters last year passed 128 of 157 local school bond measures, or 82 percent, approving $14 billion in spending.

Voters statewide last passed a bond measure for schools in 2006 – worth $20 billion – with 57 percent of the vote. The money from that bond is now gone, with $2 billion of improvements queued up in need of funding.

Local vs. Statewide Bonds

Proponents of the spending face opposition from Gov. Jerry Brown, who set the table for the bond imitative when he permitted little outlay in his budget this year for school improvements.

Brown said he felt that local bond elections better served the people.

“I think the locals can do it more efficiently,” Brown said earlier this year.

In many of the districts that passed bond measures last year, enrollment has dropped but voters continue to fund local measures.

Voters in the Alameda Unified School District last year approved $179 million in bonds with 62 percent of the vote. Enrollment is 9,502, which is 4 percent lower than seven years ago.

Voters in Anaheim Union High School District last year signed off on $249 million in bonds for, among other things, “construction, reconstruction, rehabilitation or replacement of school facilities.” Enrollment there has dropped 4 percent since 2010.

Teacher and administrator levels have remained steady since 2010, according to figures from the state’s department of education.

Brown’s formidable political heft already has halted one effort, a $4.3 billion school bond that passed the statehouse last session but stopped at his desk. It was this move that prompted the new measure, which proponents spent $2 million getting on the ballot.

Motivation for Developers

Those proponents stand to benefit if that $9 billion in school spending is passed.

Bonds rely on property taxes on homes in an affected area, which makes it easier for developers to get the go-ahead to build.

One of the most important elements in a selling disclosure for schools is the amount of taxable property in the district.

But those developers are also in a continual battle with municipalities that are charging some of the highest developer fees in the U.S. that have led to the highest housing costs in the nation.

It puts developers in a dicey public position – yes, there is some self-serving interest but at the same time, there is a legitimate need for statewide outlay on schools and a need to be an integral part of the discussion on how to fund that outlay.

“Obviously modern schools are an important marketing item when selling homes and people want homes in good school districts and that includes the facilities,” said Dave Cogdill, a former Republican lawmaker who leads the California Building Industry Association.

He also points out that developers, large and small, are hit up for money continually, from errant legislation that would require more and more “green” fees to affordable housing mandates.

“We are expected to deal with global warming and the cost of housing in general to provide affordable housing and to pay for all new school construction,” Cogdill said. “No wonder an average home costs $440,000 in California and we have the worst affordability in the nation.”

Political Contributions

Several PACs operated by the association in the past have donated to efforts to increase voter turnout in Los Angeles County, the campaign of Secretary of State Alex Padilla and several other candidates from both parties.

Contributors to the PAC include numerous construction firms, engineering companies and home developers.

“Yes, the building lobby benefits greatly in this,” said Kris Vosburgh, executive director of the Howard Jarvis Taxpayers Association, which advocates for limited public taxation. “It spends a considerable amount to support these school bond measures and the people opposed have no money.”

The unspoken message that underlies any school bond pitch is that it’s for the kids, he said.

“But a lot of people want good schools and that’s a good thing,” Vosburgh said. “But they don’t see that in the end, these people are expecting a boost to their wallets.”

Years ago, after starting to report and editorialize on news events in an old factory city in Ohio, I was quickly dubbed a “negative” for pointing out the disastrous government spending, housing and tax policies embraced by city leaders — policies that were keeping a nice place wretched. Anyone who made similar criticisms was dismissed as a nattering nabob who didn’t care about the future of the city.

I’ve come to expect local officials to treat their critics this way, but was surprised to see Gov. Jerry Brown embrace this approach this week in his State of the State speech. Brown referred to the growing chorus of Californians complaining about a brain drain to Texas and other states with more favorable tax and regulatory climates as “declinists” with dark visions of the future.

“Every decade since the ’60s, dystopian journalists write stories on the impending decline of our economy, our culture and our politics,” he said. As he then explained, a lack of regulation caused the housing bubble, which slowed California’s recovery. But that’s over, and the state is roaring back.

“Contrary to those declinists, who sing of Texas and bemoan our woes, California is still the land of dreams. … It’s home to more Nobel laureates and venture capital investment than any other state. … California has problems but rumors of its demise are greatly exaggerated.”

Tech Sector

There’s no doubt that the tech sector remains strong, a testament to the word “despite.” Despite California legislators’ and regulators’ efforts to strangle the economy, investors and creative people still rather live in Silicon Valley than in Des Moines or El Paso. But one thriving tech industry does not reflect the overall economic situation, which is far less optimistic.

And it’s hard to see how his solutions — massive tax increases and big new infrastructure spending programs — will revive the state.

First, a point of correction: The housing bust had more to do with government policy that promoted the granting of mortgages to people who couldn’t afford them than it did with a lack of regulation.

Ironically, the policies the governor has most strongly embraced exacerbated that situation. Throughout his career, Brown has championed stringent land-use regulations designed to combat urban sprawl.

Real Estate

When the housing market heated up, in less-regulated markets in Texas and other places, developers were able to fairly quickly build new homes to meet the surging demand. In California’s excessively regulated markets, the lead time for building new houses was so long that prices for existing houses soared, and then they came crashing down with a vengeance. In cities where the market rather than planners called the shots, prices went up and came down in a far less extreme manner thanks to supply and demand. Brown’s misunderstanding of the housing market echoes his misunderstanding of what ails California.

The state’s persistent double-digit unemployment rate is not just the result of a housing bust, but of a toxic business climate that regulates the heck out of everyone and everything. It’s a result of a tax climate that sends people to other, less-attractive states, such as Texas. Those who point to Texas generally don’t do so out of a particular love of that place, but because it is the nation’s other megastate, and its officials take a more business-friendly approach, which has created a more dynamic and growing economy.

The state’s ruling Democrats respond to such comparisons by making fun of Texas culture and pointing to the many reasons no self-respecting Californian would move there. They are purposefully avoiding the point.

California Dream

Of course, California remains the land of dreams. Of course, most of us would never want to live anywhere else. But when people can’t earn a living here, they move to where they can, even if the new place is less appealing.

California is suffering from the same problems found in any number of advanced social-welfare states, where wealth creation is punished and getting a job in the government is rewarded. California’s officials don’t believe in the private sector. They are representatives of the government class, and Brown is that group’s highest-ranking member, which explains why government officials and government retirees don’t want any change. They are doing quite well under the current system, thank you very much.

“California is still the Gold Mountain that Chinese immigrants in 1848 came across the Pacific to find,” the governor said. “The wealth is different, derived as it is, not from the Sierras but from the creative imagination of those who invent and build and generate the ideas that drive our economy forward.”

He then championed the proposed high-speed rail system as a key to California’s future, apparently seeing government as the new source of gold. He then derided rail critics as declinists who would have opposed everything from the Interstate Highway System in the 1950s to the Suez Canal. Yet Reuters recently reported that lawmakers “are gagging at the rail system’s projected cost … and are anxious about the uncertain outlook for federal and private-sector dollars.”

Surely, these critics aren’t all Luddites.

Sorry, but the true declinists are the ones who believe that California’s health is dependent on spending tens of billions of dollars on a government rail project that looks a lot like a boondoggle. The true declinists are the ones who stick to the same path of taxing, spending, regulating and suing the life out of the productive and entrepreneurial class. Brown is not just a declinist but a denialist, who believes that the same old policies that led to the current mess will lead us to a bright new future. Yet it’s far better to point out the decline in the hopes of arresting it than to be party to it, regardless of what Brown calls us.

— Steven Greenhut