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The mystery of Newsom’s 3.5 million housing units shortage

Posted by: Zelda Bronstein - October 9, 2020 - 11:16 PM PDT

The data shows that the figure the governor still to justify his policies uses is just wrong.

“Today,” tweeted California YIMBY staffer Louis Mirante on September 28, “the Gov signed 3 CA, YIMBY-sponsored bills. That’s more than any other housing organization successfully sponsored this year.”

Newsom also signed twelve other housing bills. In 2019, he signed a “housing package” of 18 bills. In 2017 and 2018, Jerry Brown signed a total of 31 housing bills into law, including draconian measures such as Wiener’s SB 35 and SB 828, and Nancy Skinner’s SB 330 and SB 167. That adds up to 64 new housing laws in four years.

To justify this legislative onslaught and the rollback of the California Environmental Quality Act and local say in land use that it authorizes, its proponents claim that California has a gigantic housing shortage.

In late September, that claim took a hit. The Palo Alto-based Embarcadero Institute released a critique of the state’s Regional Housing Need Assessment (RHNA) quotas, the amount of housing that each region must permit, divvied up among the region’s cities. Embarcadero showed that “as an unintended consequence of Senate Bill 828,” the California Department of Housing and Community Development (HCD) had used “an incorrect vacancy rate and double counting.”

The result: 900,000 excess housing units allocated in SoCal, the Bay Area, and the Sacramento region. HCD’s “[e]xaggerated targets…encourage market-rate housing development at the expense of affordable housing,” where the real housing crisis lies.

The Embarcadero study, wrote Dan Walters, “clearly sets the stage for a legal and political showdown on how far the state can go in forcing reluctant local officials to generate more housing construction than they want.”

It’s already sparked a Twitter storm of dismissive comments from Mirante, UC Davis Law Professor Chris Elmendorf, UCLA Professor of Urban Planning and Public Policy Paavo Monkkonen, and Palo Alto Mayor Adrian Fine. On September 30, Embarcadero analyst Gab Layton responded.

The 3.5 million homes hype

Last December, Walters wrote about another Embarcadero exposé of housing shortage hype—the assertion that California needs 3.5 million new housing units by 2025. Gavin Newsom ran for governor on that claim. The figure came from a 2016 report published by the McKinsey Global Institute (MGI), “A Tool Kit to Close California’s Housing Gap.”

Embarcadero zeroed in on the flawed methodology underlying the 3.5 million goal: MGI compared California’s housing needs to New York’s, “but California is not New York.” Moreover, McKinsey was calculating housing per capita—as if each person needs a separate residence. “[I]n any universe,” Embarcadero reported, “3.5 million is an outlier.” HCD’s model “suggests the additional housing needed by 2025 is around 1.1 million” For another critique of McKinsey’s methodology, albeit one that doesn’t treat affordability, see this 2017 brief by a team of USC demographers.

In a column published on September 29, Walters offered Newsom’s “flat campaign declaration that he would solve California’s chronic housing shortage by building 3.5 million new homes” as “[t]he classic example” of the Governor’s “fondness for headline-grabbing pronouncements of ‘big hairy, audacious goals.’” The declared housing goal “was impossible,” Walters wrote, “…and after his election, “Newsom backed off, calling it an ‘aspirational’ goal. Actually, housing production has declined during his governorship.”

At a press conference last January, a reporter asked the Governor how close he was going to get to “realizing” the 3.5 million target. Newsom replied: “That was established by a report McKinsey put out. I said at the time [during his gubernatorial campaign] that it was an audacious stretch.” He then referred to the future announcement of a “new statewide goal broken down by regions.”

A new goal has yet to be published. Or maybe it includes the bloated RHNA numbers. Newsom hasn’t said. In any case, whether he’s really backed off the 3.5 million figure is unclear.

Newsom, McKinsey, and California Forward

Although “A Tool Kit to Close California’s Housing Gap” appeared under the McKinsey imprimatur, it was prepared in collaboration with the statewide growth lobby, California Forward. Since 2012, California Forward has partnered with the California Stewardship Network to host an annual conference, the California Economic Summit. Newsom is always on the agenda.

In November 2016, Justin Ewers wrote on the Summit website:

“With the assistance of the California Economic Summit network, McKinsey spent this summer identifying 15 levers that could allow California communities to close the affordability gap. In its final report, McKinsey highlights how these changes could produce as many as five million new units in the next several decades, many of them in ‘housing hot spots’ where, as the report puts it, ‘large numbers of housing units could be built with attractive returns.”

McKinsey’s ideas will be featured at the next Summit on December 13-14 in Sacramento, and the Summit is also working to ensure their analysis is included in state policy conversations in the coming year.”

Four years later, the Summit is still flogging McKinsey’s estimate, but you have to dig to find it. The 2020 conference will take place online on December 3-4. Attendees will consider a “2020 Roadmap to Shared Prosperity.” As described on the Summit website, the Roadmap “combines the best thinking and strategies from across the state and details priorities for 2020 and solutions that can help more Californians gain access to their California Dream.”

One of the seven “building blocks of the California Dream” is “Housing, Mobility, and Connectivity.” Under that heading, scroll down to “Priority Actions for 2020,” and click on “CAECONOMY.ORG/WHERETOBUILD.” Up comes a list of presentations from the 2019 Summit.

The top entry is a lengthy report that California Forward commissioned from an Oakland consultancy, Economic & Planning Systems (EPS), to answer the question: “’Is there enough available land in urban-served areas to meet the governor’s goal of 3.5 million units by 2025?’”

The report’s answer: No.

Don’t think, however, that California Forward has abandoned the governor’s goal. Backed up by the EPS paper, the organization is sticking to the discredited number but revising the terms of its achievement. It now contends that policymakers “need to encourage housing developments in other existing areas—such as ‘skipped over’ vacant lots, abandoned malls and underutilized commercial and industrial land.” In other words, the push for transit-oriented development was just a ploy. Growth was always the end game. California Forward also argues that “a longer time frame is in order, perhaps as long as 2050.”

The EPS paper ignores the objections to McKinsey’s methodology raised by the Embarcadero Institute and the USC demographers. In support of its own claims, it cites,

To reach the goal of 3.5 million homes, EPS recommends among other things further rollback of CEQA (30); the creation of “a regional housing appeals boards…that could overrule local land use decisions limiting growth or not approving projects consistent with State and regional housing production objectives” (30); and having “the State of California …adopt legislation that integrates the existing EIFD [Enhanced Infrastructure Finance District] legislation with other land assembly powers, particularly related to the use of eminent domain and disposition of disposable land” (34).

Governor Newsom styles himself a number-cruncher. He needs to say, then, whether he’s still chasing the chimerical 3.5 million housing units.

If so, why? If not, why is his name all over the EPS report commissioned by California Forward?