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California Has a Housing Crisis and Can’t Figure Out How to Solve It
Here’s just one tidbit from California’s housing affordability crisis: According to the US Department of Housing and Urban Development, families in the northern California counties of San Francisco, San Mateo, and Marin who make as much as $117,000 a year are eligible to live in low-income housing projects. Want another one or two? Well, here you go: California’s median home value has increased by almost 80 percent to $544,900 since 2011, while more than half of renters spend more than 30 percent of their income on housing.
Not that there’s much of a mystery of what’s really happening. As the Los Angeles Times notes, “Academic researchers, state analysts and California’s gubernatorial candidates agree that the fundamental issue underlying the state’s housing crisis is that there are not enough homes for everyone who wants to live here.”
A few examples: UCLA researchers find, “Opposition to new housing and increased housing density are major components of California’s current housing problem. In many of the state’s cities a vast majority of residential land is zoned only for single-family housing, which drastically limits potential supply.” Likewise, experts at UC Berkeley conclude that “it is clear that supply matters, and there is an urgent need to expand supply in equitable and environmentally sustainable ways.”
I mean, this is just basic supply-and-demand economics. As Edward Glaeser and Joseph Gyourko wrote in the Winter 2018 edition of the Journal of Economic Perspectives: “When housing supply is highly regulated in a certain metropolitan area, housing prices are higher and population growth is smaller relative to the level of demand. . . . The great challenge facing attempts to loosen local housing restrictions is that existing homeowners do not want more affordable homes: they want the value of their asset to cost more, not less.”
And as the above chart suggests, Californians are either ignorant of the economic forces at play here, or they choose to engage in an act of self delusion. An initiative on the ballot next month, Proposition 10, would repeal prohibitions on rent control in many cities and counties. This is exactly what the state doesn’t need. As a Brookings analysis finds: “While rent control appears to help current tenants in the short run, in the long run it decreases affordability, fuels gentrification, and creates negative spillovers on the surrounding neighborhood.” And yet a recent survey finds voters are closely split on the measure, although it is expected to lose.
And why should non-Californians care? It’s a big state, and it generates a lot of economic growth and innovation. And with better housing policy, it could be generating even more. As Chang-Tai Hsieh and Enrico Moretti wrote in a 2017 New York Times op-ed, “How Local Housing Regulations Smother the US Economy“:
Published in GeneralLand-use restrictions are a significant drag on economic growth in the United States. The creeping web of these regulations has smothered wage and gross domestic product growth in American cities by a stunning 50 percent over the past 50 years. Without these regulations, our research shows, the United States economy today would be 9 percent bigger — which would mean, for the average American worker, an additional $6,775 in annual income. For most of the 20th century, workers moved to areas where new industries and opportunities were emerging. . . .
What allowed this relocation to places with good-paying jobs that lifted the standard of living for families? Affordable housing. Today, this locomotive of prosperity has broken down. Finance and high-tech companies in cities like New York, Boston, Seattle and San Francisco find it difficult to hire because of the high cost of housing. . . . More housing in a region like Silicon Valley or Boston would raise the income and standard of living of American workers across the nation. The cost for the country of too-stringent housing regulations in high-wage, high-productivity cities in forgone gross domestic product is $1.4 trillion. That is the equivalent of losing New York State’s gross domestic product.
The ballot initiative, Prop Ten, that seeks rent control in Calif will pass with flying colors.
Should it? Probably not, but people are so fed up living inside cramped two bedrm, 950 sq feet, for $ 2K plus, that they will vote up even the maddest possible thing to show some type of protest.
https://ballotpedia.org/California_Proposition_10,_Local_Rent_Control_Initiative_(2018)
If they (the CA legislature) would shift their stupid high speed, LA-to-San Fran rail project to one of getting the middle class and working poor to and from jobs in San Fran (where they can’t afford to live), they might have a prayer.
I’m willing to bet California goes bankrupt as a state before “man-made global warming” raises the sea level one foot, much less one inch . . .
We’re getting a lot of Californians out here in Utah. Why? Because some Silicon Valley companies have been eyeing Utah’s “Silicon Slopes” as a better place to do business. In addition to a relatively laissez-faire environment, housing is much cheaper of course.
The downside is that it’s the high desert here, and as the population grows, water is becoming a huge concern — we’re in emergency drought conditions at present. But as long as California prices themselves so high, businesses are going to look elsewhere. The Valley is going to want the best new talent, but if new talent can’t find housing — which rent control will make impossible to find — they won’t take the job.
The more California tries to legislate ways to make it better, the worse it’ll get for everyone.
Another factor is so-called affordable housing mandates, which are in place in a number of California’s metropolitan areas (and elsewhere). They produce less housing at higher rental and purchase prices.
As a manager in the software industry in the DC area the late 198os I interviewed Northern Californians fleeing the high costs of housing, and accepting a salary cut to do so. Given that DC was also one of the top jurisdictions for housing costs, I was surprised until I did a little digging. A brief and entirely unscientific survey of real estate prices showed that the best one was likely to do was pay a 40% premium over DC for housing in California, and 100% was very possible.
When the opportunity came to move to the San Jose area, the “Mecca” for software guys like me, I passed on the opportunity with no hesitation.
Ben Carson (HUD Secretary) recently endorsed YIMBY movement. Maybe the idea of increasing housing supply will catch on. Go Ben Go.
Earlier this year, Calif. had a bill to promote YIMBY near mass-transit zones. Genius of having states override local zoning! It was killed.
They needed academic researchers to figure this out? A couple of my friends and I could have told them that for the price of a box of donuts.
Until recently business took me to Palo Alto on occasion. Land use in 2017 was exactly the same as it had been in 1967 – single story houses on lots of 6000 – 8000 square feet each, commercial buildings of no more than two stories along El Camino Real. The hotel I stayed in was an updated one story motel built in the 1960’s around a central parking lot. No multi-story apartment or condominium buildings; no multi-story hotel; no row houses; no multi-story office buildings. No underground (or above ground) parking garages. No indications that there had been any thought at all that there was more demand for housing in 2017 than there had been in 1967.
This is probably what will need to happen. The benefits of localism has its limitations, and one of the worst ones is zoning laws. It’s time for state governments to slam down on their local government’s unjust laws. And this is coming from a libertarian.
We bolted CA for NH 10 years ago – the tax target on our back was just too painful to carry any longer. We lived in the heart of Silicon Valley and saw the evolution of the state to a truly feudal society. In short – it’s simply not possible to overstate the extent of individual delusion in voter behaviour. Otherwise intellligent individuals have hopes of becoming a part of the group excepted from the results of their votes: the truly wealthy who can structure their income to avoid high taxes and use their protected wealth to pay to keep their living environment a comfortable park. Just think of a whole state of voters with their hands over their ears saying: “I can’t hear you! LALALALALALA…….” and then becoming aggressive – really aggressive – about anything they don’t like to hear.
And I can tell you how I really feel about escaping the state with our pocketbooks intact.
California state government is an economic and political drunk. It’s going to have to hit bottom before it recovers. Just hope the rest of us don’t get stuck with the bill.
This is exactly how Victor Davis Hanson talks about California. Same with Joel Kotkin. They are very hard to argue with and very interesting.
Who is going to bail out the Illinois and California pension systems? I say it will be the Fed.
For us it was five years ago, and Idaho, and for just the same reasons. If you have some wealth, but enough to pay the protection money to the Progs, there’s a big target on your back in CA.
Every new thing they come up with like a “head tax” is really just asset seizure, not taxing income or capital gains, or paying for services that make your home valuable.
I read a very compelling article that there will be net worth taxes someday.
On top of that, the entire San Francisco metro area has to deal with the fact that it is a peninsula. So if traffic is backed up anywhere on 101 in the direction you are heading, you are stuck. Often for hours.
Having moved to Palo Alto from Chicago in 1981, until I made the move, I didn’t appreciate how natives in Chi town could always zoom off a freeway and utilize any number of other roads by which to get home. No such ability in San Fran.
Then there is the Bay Area’s other transportation issues. Every single fiscal measure of the BART system is a disaster. So are most of the non-fiscal metrics. Crime. I never meet a local that doesn’t complain about it. Now that salesforce transportation hub thing can’t be used. $1 billion or whatever it is. What a mess.
My favorite BART story is after all these years they have to build taller turn styles because people are jumping over them now. Why now? It’s costing them millions of dollars. It’s nuts.
Mass transit is a very popular amongst liberals, but so many systems just bleed revenue. Even though I like Salt Lake City’s light rail system (better than most!) it still suffers major funding problems.
I am not making this up. When I go out there I always get a bunch of massages. Half of the massage therapists love talking about how much they hate BART. They can read you chapter and verse.
I’ve got an obsession with hating passenger rail systems. It’s a fun topic to study. There are some new ones in Florida that I think are going to work out. The ones in Minnesota are a disaster or they are going to be a disaster.
One time on Twitter I saw a poster or a pamphlet for someone that was running for commissioner of BART. I’m sure she was sort of a socialist because she was from Oakland. It was really sophisticated. She made 10 points, but the thing about it was five of them indicated that they never, ever should’ve built that thing.
If all of the shelter and parking prices go to the Moon by your spiffy Choo Choo train, what have you accomplished economically? Not a hell of a lot.
I lived in Minnesota when they “broke ground” on the light rail there (I recall it being mid-winter so they had to bring some un-frozen ground to break) and there were notes that they were looking to imitate Portland’s system. Portland has the worst mass transit in the world. It’s no wonder Minnesota’s is bad.
As far as I’m concerned, there’s only two ways trains make sense. One is like New York City: you put it in before the country is very wealthy. It obviously raised living standards and economic activity. When you put one in after 1945 or whatever it doesn’t work that way.
The other way is if you have to shoehorn people into an area or past an area. Minneapolis could actually use a one spoke train system in this sense. You could use it to get past the Lowry Hill tunnel, access to the airport, and then also use it for the Mall of America area and downtown. That would be great. All of this social engineering they are trying here is completely nuts. It’s completely failing. They think it’s a big Sims game. Madness.
Yes – and the saddest thing about reading Hanson is to feel how deeply he loves the state and how desperate he is for something different. He will never leave – he will have to be dispossessed (which seemingly might happen given the demographics of the Central Valley) but he is so very attached to the land. It’s hard to read sometimes. We were incomers with no serious ties to the state (after his first year at prep school in the east our son told us he wasn’t coming back to CA to college or live….) so could pick up sticks and not look back.
Yes instead of dealing with the issue the way a real market would deal with it, folks (especially those who already own homes) want affordable housing and rent controls which are part of the problem not part of the solution. More density would reduce energy consumption and green house gases as well, showing again that for most people the issue is phony. Of course if there were greater density there would be water problems which California doesn’t want to deal with either. Maybe it’s better for California to lose population to places that can deal with such problems. Of course if they bring their California attitudes with them it will be a net loss for everyone.
Supposedly, they could put up five dams in the Sierra Nevada mountains for electricity and water. The Mediterranean climate is like a Berlin Wall of stupidity and taxation.
There is an actual economist term for people that stay in those types of places, but I can’t remember what it is.
I’m willing to bet they consider imputed income as a revenue source . . .
I agree. Some seem like little power trips to prevent growth or the “wrong kind of people” from moving in. I read years ago that an environmentalist is someone who already got his cabin in the woods. I’ve seen that in rural areas where a retiree moves to, gets on the zoning board, and helps create the same conditions they left. And then they wonder how to get people to stay or keep the little town alive.
Stein’s Law
“If something cannot go on forever, it will stop.
To which Adam Smith would remark,
”There’s a great deal of ruin in a nation.”
I foresee a great deal of darkness in California’s future.
With scattered light before morning. (George Carlin)
Was the word you were trying to think of a word that begins with “D” and ends in oh! ?
Also this is the state wherein the legislature allowed major hospitals to lay off Licensed Vocational Nurses by the tens of thousands.
The idea was that nurses’ aides could do the job of the nurses as well or better, as long as they had special training.
Around the same time, the hospitals hired mostly newly arrived, non-literate in English nurses’ aides.
When the public finally caught on that this was a bad idea, in terms of patient mortality, the state legislature met for one entire season, while they tried to figure out what category of worker should be created to solve this problem. Not once did they say “Hmm, maybe we should simply go back to using Licensed Vocational Nurses.” No of course not. Instead they spent that entire season ruminating about what requirements the new position would have, and what the title would be.
The actual difference between a nurses’ aide and a LVN is a mere six months of college. Of course, it is important that the individual speak English, which is actually mandated through laws on the books. But the laws are not followed.
Your statement rings true.
It is also true that sometimes retirees buy 4 to 6 acres of land, with a summer home on it, in the years leading up to their retirement. They plan on building an additional one to three homes on the land, and selling the new homes, to help with having retirement funds. Then they find out that the land was zoned so that only one home per every four acres are legally allowed.
But California elected officials just don’t know what to do to solve the housing crisis!