How California’s housing crisis happened

POSTED: 08/22/17 12:01 AM

Author: Angela Hart

Publication: The Sacramento Bee


California’s high housing costs are driving poor and middle income people out of their housing like never before. While some are fleeing coastal areas for cheaper living inland, others are leaving the state altogether.

Homelessness is on the rise. California is home to 12 percent of the U.S. population, but 22 percent of its homeless people. Cities that have seen dramatic rent increases, such as San Francisco and Los Angeles, attribute their spikes in homelessness directly to a state housing shortage that has led to an unprecedented affordability crisis.

Housing experts trace the problem back to the 1970s. Backlash began to arise – in coastal communities, in particular – from neighbors who opposed new housing in their neighborhoods.

“It started then and it’s still true today – people, just as a matter of human nature, are anxious about change and accommodating new people in their communities,” said Brian Uhler, who leads housing research for the nonpartisan state Legislative Analyst’s Office, which tracks housing trends and identifies possible solutions for the Legislature.

“California communities are vested with significant authority over land-use decisions, about how much can be built, and when and where. They have used that authority to create significant barriers for the construction of new housing,” he said. “Shrinking Rust Belt cities are the only kinds of places that are building as little housing as our coastal areas did in recent decades.”

To meet current demand, from market-rate to low-income housing, California needs roughly double the housing it currently has, Uhler said. In the Bay Area, that’s more like triple.

“We just haven’t been building enough housing – not just low-income or affordable housing, but housing of any kind,” Uhler said.

On average between 1980 and 2010, the state built about 120,000 new housing units per year, when up to 230,000 were needed to keep pace with growing population and changing demand, such as the desire to live in cities near jobs and transit. That demand has risen sharply over the past 10 years. The state now needs 180,000 new housing units per year, according to state housing officials, and it is building less than 80,000 annually on average.

It has hit poor people especially hard. There is a 1.5 million unit-shortfall between the number of low-income families who live here and the number of rentals they can afford, according to state officials.

“It would take several hundred billion dollars to address the overwhelming magnitude of the problem,” Uhler said.

So how did California get here?

Major cuts to fund affordable housing

In the aftermath of the recession, Gov. Jerry Brown in 2011 pushed the Legislature to eliminate more than 400 city and county redevelopment agencies across the state that allowed local government to use a portion of their property tax growth to build affordable housing. Agencies often fell short in meeting that goal, but statewide the cut amounted to more than $1 billion per year.

“We lost that source of ongoing revenue,” said state Sen. Toni Atkins, D-San Diego, who has proposed through her Senate Bill 2 establishing a $75 to $225 fee on real estate transactions that would generate an estimated $250 million per year for affordable housing. “You can’t underestimate the impact of that money ... if we don’t have some subsidies for low-income housing, it doesn’t get built.”

Affordable housing money from two state housing bonds, approved by voters in 2002 and 2006, totaling roughly $5 billion, has also dried up. Since 2008, the state has lost millions of dollars per year from federal grants for housing construction and rental assistance. Federal tax credits for low-income housing remain relatively stable, but state tax credits have shrunk.

Proposition 13, enacted in 1978, also reduced the amount of property tax revenue cities and counties have to build new housing. It creates incentives for commercial development – not residential – because cities and counties can benefit more from increased sales tax revenue from businesses than they can from property taxes on homes.

A $3 billion housing bond under Senate Bill 3, sought by state Sen. Jim Beall, D-San Jose, would help to stem the losses, he said. He mentioned support for past housing bonds, including Proposition 1C in 2006, which generated $2.85 billion and received nearly 58 percent voter approval.

“We said ‘Why don’t we repeat that, and do another $3 billion?’ ” Beall said.

Cost of building has risen dramatically

Buildable land in California is like gold.

The state has some of the most expensive real estate in the country, especially in desirable areas with booming economies like San Francisco. And its value continues to rise.

Residential property is valued at a staggering $150,000 per acre or more in California’s coastal regions, compared to $20,000 per acre, on average, in other large metropolitan areas of the country.

Land prices in cities like Oakland and San Diego are twice as expensive as other U.S. metropolises, and more than four times as expensive in San Francisco, according to a 2015 report from the Legislative Analyst’s Office. Restricted by the ocean and mountains in many regions, the places where most people want to live is limited, further driving up costs.

Developers, housing advocates and some state lawmakers say it makes sense to build higher-density housing in cities, to accommodate more people, restrict suburban sprawl and preserve sensitive environmental areas. But community opposition often kills large-scale projects and leads to less dense housing.

“Traditionally, California housing has been left almost entirely to local communities, with minimal participation from the state. Even when the state has passed laws, there’s been no teeth,” said state Sen. Scott Wiener, a San Francisco Democrat who has proposed a law that would give developers more power to build, restrict the ability of local government to stall or block projects and reduce the cost of construction. “We’re in a crisis. Communities can no longer blow off their responsibility to allow housing.”

Permit and development impact fees, helping local governments offset costs of public services like schools, police and fire, and safe water, have also increased as cities have seen their populations rise.

“Local government has pushed more and more of the cost of local infrastructure and housing-related services onto residential development, and that gets passed onto individual renters and purchasers of new homes,” said Richard Lyon, a consultant who formerly served as vice president of public policy for the California Building Industry Association, a trade group. “Those fees are getting higher and higher. It has kind of reached a crisis point. ... Fees and charges can account for 20 percent of constructing a home.”

Costs vary widely depending on size of the housing project and where it’s built, but on average it costs $300,000 to $400,000 to build an affordable apartment in California, said Robin Hughes, policy chair for the California Housing Consortium, an interest group.

That cost has risen as building supplies have become more expensive and the price of labor has gone up. Many housing projects that involve taxpayer dollars include so-called prevailing wage requirements, which mandate construction contracts pay workers higher wages that keep pace with the cost of living.

A bricklayer in San Francisco, for example, earns more than $74 per hour, state labor figures show. A tile setter earns $87 an hour and marble mason earns $99 per hour. A carpet layer in San Diego earns $47 an hour, while a plumber earns $76 an hour. A bricklayer in Sonoma County earns $74 an hour, while an electrician makes $55 an hour.

Wiener’s Senate Bill 35 would mandate prevailing wage in all affordable housing projects with more than 10 units.

“It’s important for our construction workers to not make poverty wages,” Wiener said.

State housing laws aimed at spurring development have fallen far short

State law requires cities and counties to set aside land for housing at all income levels, and create plans to allow developers to build on that land. By 2025, state housing officials say California needs 1.8 million more housing units to meet projected population growth. Building industry estimates are higher, as much as 3.5 million.

Critics say the state has not enforced laws requiring cities and counties to set aside land for market-rate, middle- and low-income housing, allowing local elected officials to cherry-pick which laws they follow. When a project does fit within local zoning and land-use rules, neighborhood opposition can delay a project, leading to lengthy and expensive appeals.

Multiple levels of project reviews can further drive up costs, delay development and reduce the number of units per development.

Sometimes projects are simply killed.

“We have seen, in many places, a lack of political will to produce new housing,” said Ray Pearl, executive director of the California Housing Consortium. “Local jurisdictions need to be held accountable, and to do more than just put out a piece of paper saying we have an approved housing element. We’ve seen strong (Not In My Back Yard) opposition from those who view housing as an evil. That leads elected officials to making a political calculation to not cross those loud voices, and they just throw up their arms.”

Lawmakers acknowledge the problem.

“I do think it’s been local opposition,” said Assembly Speaker Anthony Rendon, behind an effort in the Legislature to put forth a housing deal this year to address rising costs and short supply. “There’s plenty of blame to go around, but ... we haven’t addressed housing in a generation.”

Building industry representatives and housing advocates also point to abuses of the California Environmental Quality Act, a broad environmental law passed in 1970 that requires state and local agencies to consider a project’s impact on the environment.

“Some local ‘NIMBY’ groups do everything in their power to stop a development, so they turn to CEQA and file a lawsuit,” Pearl said. “It’s used to force a developer to do what you want them to do. It’s a huge and expensive obstacle and unfortunately is no longer about the environment.”

Lyon, the building industry consultant, said environmental lawsuits lead not only to smaller-scale developments, but higher end housing.

“You’ll have a CEQA lawsuit in an urban area, and it’ll increase the cost of that housing project,” Lyon said. “Once you’ve been through litigation, if you’re lucky enough to get your project approved, you’re now looking at a luxury type of project where maybe before it was aimed at moderate incomes. But because the costs have risen so much, a luxury product is the only thing that will pencil out.”

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