First they restrict supply, then call for higher taxes to fund “affordable housing.”
It’s common to hear complaints about a “do nothing” Congress, but California’s Legislature has the opposite problem. It wants to do just about everything. Whether it’s fighting global warming or creating a new state-run mini Social Security system to bolster private pensions, California’s legislators don’t lack any sense of ambition. This week, they’ve announced their goal of solving the state’s housing mess.
For California taxpayers and wannabe homebuyers, some advice is in order. Be very afraid. State officials often identify actual crises. Their solutions are the problem. They always involve higher taxes, new bureaucracies, more subsidies, and additional regulations that inevitably make every situation worse. It never dawns on legislators that their previous policies created the problem at hand.
Housing is the perfect example. Home prices continue to soar, and now are at levels last seen at the height of the 2008 real-estate bubble. Median home prices for the nine-county Bay Area — not just within the always-costly city of San Francisco — have hit $755,000. The median price in Orange County is $695,000. Median prices for all of Southern California, which includes many down-market and inland regions, is a half-million bucks.
We’re still in the early stages of an actual legislative package and legislators are on vacation until late August. But we can take a guess at the likely approach from a series of bills that have been making their way through the Capitol. The plan — drum roll, please — is to float a $3 billion housing bond. They also want to add new fees onto real-estate purchases to fund $225 million in subsidies for affordable-housing-related programs.
Of course, there will be rules that add to the price of new construction. The new subsidized projects must pay union-scale wages. The one bill that attempts to streamline local approval processes includes a prevailing-wage requirement that undermines some of the measure’s many benefits. The unions had tried, but failed, to pass a noxious bill that could have been interpreted to require union wage rates even on privately funded housing projects.
Expect state officials to push for more “inclusionary housing” — i.e., mandates that new developments include a percentage of below-market units that can be sold to low-income buyers who are lucky enough to be selected by lottery, as columnist Dan McSwain explains. Lucky, that is, until they try to sell their homes years later and find that they aren’t allowed to sell them at market rates.
This is indeed how Sacramento solves the housing crisis. They raise taxes and build government-specified projects constructed with union work rules. They won’t let the market do its magic and let builders just build houses. The only kind of capitalism the state’s Democratic leaders apparently favor is the kind with the word “crony” in front of it.
As state attorney general, Gov. Jerry Brown sued San Bernardino County for trying to permit suburban-style housing developments as part of his effort to battle urban sprawl. Yet these clampdowns on suburbanization have exacerbated the very sprawl legislators are trying to fight. In recent months he at least has acknowledged the limits of subsidizing housing and pushed for relaxed regulations, but this governor’s market-oriented words rarely are backed up by action.
Families that can’t afford a $700,000 tract house on a postage-stamp lot in the Bay Area often choose to make the nightmarish commute over the Altamont Pass and into the hot and dusty Central Valley. Tracy and Stockton are lined with cheaper tract suburbs that cater to mega-commuters. The same thing happens in Riverside and the Inland Empire, where Orange Countians and Angelenos often move to take part in the American Dream.
And local governments make it inordinately difficult to build new housing. A 2015 survey found that “San Diego County’s many layers of government regulation may explain 40 percent of the area’s high cost of newly built housing,” according to the San Diego Union-Tribune. At the very least, fees and land-use restrictions add tens of thousands of dollars to the cost of each house.
Liberal activists have applauded growth controls for years, but now are frustrated to find that their own preferred projects — high-density condos and apartments in older urban areas — face the same hurdles as traditional subdivisions. Longtime homeowners have become part of the problem, too. Sick of traffic and congestion, they lobby councils to oppose new developments and roadways. They’ve already got their garden spot, after all.
The Brown administration has not reformed the California Environmental Quality Act (CEQA), which makes it easy for any environmental group to sue proposed new projects and drag out approvals for years, even decades. The law has also been used by unions, which see it as a convenient way to leverage higher wages. Of course, whenever influential officials want a new project built (e.g., the NBA Kings’ arena in Sacramento), the first thing they do is pass a CEQA exemption.
One proposed new development in the Santa Clarita Valley of Los Angeles County has finally gotten some needed approvals. Newhall Ranch, which will house 60,000 people, has been slowed by court rulings and environmental impact reports. Its eventual construction will be good news, albeit a drop in the bucket in the county’s housing shortage. Developers have been trying to get the OK to build since the 1980s. When it takes three decades to permit a project, it’s easy to see why this growing state has a housing shortage.
Even water shortages, often used to halt development plans for seemingly legitimate purposes, are caused mainly by government policy. There’s enough water to serve the population; it’s just that California’s government refuses to build enough reservoirs to store it, and continues to earmark excessive water supplies for environmental purposes.
So we’ll see more of the same policies that created the housing crunch in the first place. Probably the best advice for Californians who want to buy their first home: Sit tight and wait for the bubble to burst again. Ironically, last decade’s bubble was caused by the government’s efforts to promote homeownership, but don’t get me started.
Sean O'Flaherty (Seano1), Creative Commons