Sunday Commentary: Housing Package Passed but Experts Question Whether It Will Increase Supply, Improve Affordability

Governor Jerry Brown on Friday at a huge ceremony signed the 15 bills that make up the comprehensive legislative package to increase the state’s housing supply and affordability.

He announced, “These new laws will help cut red tape and encourage more and affordable housing, including shelter for the growing number of homeless in California.”

While Assembly Speaker Anthony Rendon acknowledged it was “not a magic wand,” the belief is that it will help.  As Senate Leader Kevin de León put it, “No one should have to work three full-time jobs just to provide a home for their family.”

But how much impact will the legislation actually have on the key issue facing housing in California, “unaffordability”?

The Sacramento Bee this week, for instance, argues that the package, while ambitious, will not bring down housing prices any time soon.

The legislature believes, as UC Berkeley Professor Ken Rosen put it, “Over the past 30 years, we’ve made it very difficult to build new housing and wages have not kept pace with the rising cost of
house prices or rents, to the point it has grown into a crisis. It’s the single biggest problem California faces.”

However, the Bee argues, “Californians should not expect the effects to be felt immediately. Even years down the road, the measures will not stop rents from increasing or home prices from trending upwards.”

“It’s very hard to get enough housing built to lower the price,” Professor Rosen said. “New funding may build several thousand units, but that’s very small compared to the size of the need. If we make it easier for developers to build housing, the market will be able to better keep pace with demand, and therefore we may be able to slow the rate of increase.”

The Bee cites several reasons why prices are unlikely to fall any time soon.

One problem is the lack of funding.  While SB 2 will generate $250 million per year through a fee on real estate transactions and SB 3 will generate a one-time $4 billion in revenue through a housing bond that needs voter approval in 2018, the $6.5 billion that the two bills will generate over a decade is a drop in the bucket compared to the needs.

The Bee cites the cost of affordable housing at $300,000 per unit with the state picking up 20 percent of that overall cost, about $60,000 per unit.  That means this would produce 90,000 housing units or five percent of the total needs over the next decade.

Brian Uhler, the chief housing expert at the state Legislative Analyst’s Office, said, “It’ll make some dent, but there will still be a large number of people who for the foreseeable future will be having a hard time affording housing.”

The Bee reports, “The state says production now is at its lowest point since 1965.”

It adds, “Production of multi-family housing is also stagnant, and renters, particularly low-income families, have been hit hard. Current estimates show there is a shortfall of 1.5 million low-income rental units across the state.”

“There are still going to be a lot of people struggling,” Mr. Uhler said. “Nothing is going to fix this overnight, and nothing is big enough to make rents go down.”

The Bee notes, “One way to directly lower rents is by freezing how much landlords are allowed to raise prices. Assemblyman Richard Bloom of Santa Monica this year wanted to clear the way for stronger rent control measures, but he pulled his proposal citing political opposition from the California Association of Realtors, which argues that rent control stifles development. It could come up again next year.”

The issue of rent control could become a big issue in Davis in 2018.  That is an issue that Lucas Frerichs raised on Wednesday, and at least one candidate for city council could make it a centerpiece of a 2018 campaign.

“We should consider rent control,” Councilmember Lucas Frerichs said.  “I don’t know if the council is going to act on that, but there is definitely a drumbeat in the community for rent control.”

But past discussions of affordable housing in Davis illustrate that the challenges they face are at least twofold.  One is funding, which may be helped by the affordable housing fund, but the other is the availability of projects in Davis.

While the legislation may make it easier to approve infill housing in Davis and the council has been able to add some projects in recent years, the barriers to housing are restrictive land use policies like Measure R that require voter approval for projects that convert agricultural land to urban uses – and this legislation will not impact that.

The Bee cited two other barriers, one is that land is expensive which makes it more expensive to build in California – something that will not change with the new legislation.

The other is the need for a “radical” shift in attitudes.

“There’s no overnight, magic wand solution to this,” said David Shulman, a senior housing economist for the UCLA Anderson Forecast. “If the state really wants to deal with this, it needs to do whatever it can to fast-track development. It made some real progress that would have been unthinkable a few years ago, but no one should be deluded into thinking that this is going to solve the problem.”

The Legislative Analyst’s Office, in a report this year, found that California cities “use their local control to limit the supply of housing and that has drastically driven up its cost, worsening the shortage.”

While the legislation seeks to streamline some processes, Mr. Uhler indicated that “we decided that addressing this problem is ultimately going to take a huge shift at the local level.”

“Such a change is unlikely to happen on its own,” the report found. “Convincing Californians that significantly more home building could substantially better the lives of future residents and future generations necessitates difficult conversations led by elected officials and other community leaders.”

Without that, “no state intervention is likely to make significant progress on addressing the state’s housing challenges,” it said.

And that is likely to be what Davis faces.  SB 35 will streamline “the approval process for infill developments in local communities that have failed to meet their regional housing needs.”  It would force “cities to approve projects that comply with existing zoning if not enough housing has been built to keep pace with their state home-building targets.”

But the key phrase there is “comply with existing zoning” and nothing in this legislation compels a city to annex additional land to meet housing allocations.

In the end, that limits the teeth that such legislation would have on Davis and probably other communities as well.

The question becomes whether the state will take additional steps to produce more housing in the coming years.

—David M. Greenwald reporting



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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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10 thoughts on “Sunday Commentary: Housing Package Passed but Experts Question Whether It Will Increase Supply, Improve Affordability”

  1. Ron

    From article:  “Convincing Californians that significantly more home building could substantially better the lives of future residents and future generations necessitates difficult conversations led by elected officials and other community leaders.”

    “Difficult”, indeed.  Especially since it defies common sense.

    1. Don Shor

      could substantially better the lives of future residents and future generations necessitates difficult conversations led by elected officials and other community leaders.”

      “Difficult”, indeed. Especially since it defies common sense.

      Unless you have children or regularly work with anybody under the age of 30.

      1. Ron

        Don:  “Unless you have children or regularly work with anybody under the age of 30.”

        Especially for them.  Unless one thinks that California should have 50, 60, 70 . . .(and more) million residents.  (Many of whom are “not” necessarily the children of California residents.)

        From article:  “No one should have to work three full-time jobs just to provide a home for their family.”

        This type of legislation continues to subsidize employers who won’t pay their employees a sufficient wage, at the expense of (and impact to) everyone else.

         

         

        1. Roberta Millstein

          This type of legislation continues to subsidize employers who won’t pay their employees a sufficient wage, at the expense of (and impact to) everyone else.

          This is an interesting point.  We’re trying to put a band-aid on the symptom and ignoring the underlying problem, which is rampant income inequality.

          But the band-aid is going to have trouble sticking because we’re trying to mix very strong market forces with protectionist legislation.

        2. David Greenwald

          Roberta: Good point.  Of course part of the income inequality puzzle is not on the wage side, it’s on the housing side too because housing has become so expensive that wages can’t keep up with them.

        3. David Greenwald

          “Unless one thinks that California should have 50, 60, 70 . . .(and more) million residents.”

          Some of that will depend on the laws of supply and demand.  I don’t think you’re going to curtail population growth by artificially constraining housing.

        4. Ron

          David:  To pretend that there’s no relationship between the amount of housing allowed vs. population in a given area defies common sense.  Of course there’s a relationship.

          For example, I suspect that Davis’ population would be over 100,000 at this point, if development was allowed to meet market demand.

          Entire counties (such as Marin) would also have a much higher population, if development was allowed to meet demand.

          As long as there’s demand, building more housing accommodates (and facilitates) increases in population, for a given area. (And, that given area can ultimately include an entire state.)

           

        5. Ron

          As a side note, one of the articles I posted yesterday describes an anecdotal situation, in which a woman has decided not to have children at this point, at least partly due to high housing costs where she lives (not Davis). I suspect that others have likely made similar decisions (e.g., having fewer children).

          Note that this is not something I “advocate” as some sort of “policy”, but it seems to be a reality for some.  (Actually, I would argue that those who choose to have children are probably being subsidized by those who do not, via our tax structure.  But, that starts going off into another subject.)

        6. Ron

          To clarify, I believe that the woman in the article also had a low-paying job.

          On a personal note, I cannot afford to purchase a home in the city where I grew up. However, I do not necessarily believe that any city has a responsibility to folks like me, when there’s other options (which might even work out even better for an individual).

        7. Roberta Millstein

          Roberta: Good point.  Of course part of the income inequality puzzle is not on the wage side, it’s on the housing side too because housing has become so expensive that wages can’t keep up with them.

          Whose wages are you talking about here, which housing, which location?  I think the story varies depending on those factors.

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