Tackling California’s Housing Shortage

Californians are used to dealing with natural disasters: record droughts, floods, earthquakes wildfires mudslides, even a periodic cyclone or two. Now we are facing a different kind of disaster – one that is anything but natural and in many ways a result of our own making. Though less dramatic than an earth-splitting earthquake, the ongoing housing shortage in our state endangers our long-term economic vitality and threatens to turn this great state into a gated community for the very wealthy.

Housing in California is Very Expensive

Housing prices across the country have more or less recovered from the epic plunge during the great recession. At the same time, more and more people are choosing to rent, driving rents through the roof. These factors have resulted in higher prices across the country. Nevertheless, California stands out: As of 2015, the typical California house cost $437,000, more than twice as high as a typical American house, which cost $179,000. Median monthly rent here is $1,240, nearly 50% higher than the national average. And we are talking about the median, not a sprawling mansion in Montecito or a penthouse in San Francisco.

Some argue that this is just another one of California’s natural occurrences resulting from too many people wishing to live in our coastal paradise. But unlike an earthquake, California’s housing shortage is a result of bad policy.

Housing prices, like all prices, are a product of the supply and demand for the particular good or service. There is simply not enough housing in California’s most desirable areas where new developers face a three pronged attack: community resistance and a “not in my backyard” mentality of incumbent landowners resistant to any newcomers and any change to the status quo; misguided environmental policies that actually discourage environmentally friendly denser development; and a lack of financial incentive for local governments to approve new construction. As a result, supply is restricted. The mere act of proposing a new development is so costly that it drives away developers wishing to develop additional housing stock. If new housing is ultimately built, the number of new units is usually far below what was originally proposed or what the market is able to support.

Priced out of the most desirable areas, many turn to far out inland communities. This drives prices up in those previously more affordable areas as well. It also leads to increased road congestion and air pollution.

Affordable Housing Programs Alone Won’t Help

Unfortunately, affordable housing programs are both too costly and insufficient to address the shortage. Most programs require a direct cash infusion from already strapped local governmental bodies. There is simply no political will to increase funding for most of these programs. In addition, most only help narrow groups of people: the working poor, the disabled, the elderly.

Blame Zoning

The only policy that can help all Californians is encouraging additional infill development in developed areas that are seeing the great outflux of residents fleeing increasing rents. Local zoning ordinances and environmental regulations need to be revised to promote high density, small lot infill development. Local community groups, the source of much of the opposition of new construction, can no longer have veto power over new entrants into their areas. Finally, planning needs to be done at the regional or even state level so that California’s many municipalities are not making decisions without taking their neighboring communities and state interests into account.