The State’s unrealistic, dysfunctional housing regulations demand that cities and counties “build” more housing, even though 98% of California’s cities and counties don’t build any housing: never have/never will. But, for all the anti-NIMBY, gavel pounding, and stomping of feet the state’s “trickle-down-the market will solve everything" approach has been an utter failure.
Let me repeat that. The state's approach to increasing affordable housing has been an utter failure.
New ideas have been suggested but the state continues to double down on its counterproductive approach. A day of reckoning is approaching.
Over the past 15 years that the state has added regulations on top of regulations, penalties on top of penalties, and even resorted to having a special task force suing municipalities for Regional Housing Needs Allocation (RHNA) compliance, California housing production today (about 1 new house for every 656 people with a population of 39.4 million) is worse, on a per capita basis, than it was when all this started with the passage of SB 375 in 2008 (about 1 new home built for every 610 people in 2008 with a population of 36.3 million). And it's a lot less than we were building 40 years ago (about 1 new home per 265 people with a population 23.8 million).
In other words, we're building less housing today than 40 years ago.
There have been booms and busts along the way but the graph above shows no positive correlation between the massive state housing legislative agenda that started in 2008 and new housing creation. And the rebound in construction in California after the 2008 recession has been the slowest on record.
(Also, note that the chart above is similar everywhere in the country, where zoning laws vary considerably.)
Skeptics will say this is somehow all about supply and demand. But if one wants to blame less development and high prices on supply and demand, then how does one explain the booms of the late 1980s and 2007? I know that the argument is that there are too many impediments to development in California, like our environmental laws and local zoning. But California's environmental laws (and local zoning laws) have been in place since the 1970s and that hasn't stopped the housing booms we've experienced.
The truth is that the data shows housing development is more accurately correlated with the cost of money and economic conditions, in general, than local zoning laws. In addition, charting the statistically high cost of housing we read so much about clearly correlates with the decrease in "real" wages for the average middle-class family since the 1980s.
All this considered, how can the state justify that increasing mandated quotas and increasing penalties and punishments for cities and counties will fix this? Isn't it time to reconsider the state's approach?
The question of the day should be, where are we now and what can we foresee ahead? The answer to that is not hopeful if we follow our current path.
Money can’t buy me love?
As I've said, there has never been and will never be any significant amount of affordable housing built in a market-driven economic system, without subsidy. Period, end of story.
Historically, the only major provider of that subsidy has been the federal government - the only entity with the horsepower to make a difference. Unfortunately, after wasting trillions of dollars fighting pointless wars in Iraq and Afghanistan, $800 billion more bailing out big banking in 2008, and needing to spend $4+ trillion more reacting to a pandemic that looked like it might end us all, the federal government is pretty tapped out.
Now, add to that the worst inflation in over 40 years, the worst 6-month start of a year for the stock market in the market's entire history and piles of public debt and the potential sources of much-needed affordable housing subsidies have all but vanished.
When supply and prices fall at the same time, it means the economy is slowing
The housing market is sending clearer signals that the
pandemic-driven housing frenzy is coming to an end. Nearly one in five
(19.1%) home sellers dropped their price during the four week period
ending May 22—the highest level since October 2019. ~ Redfin Reports
The Federal Reserve is raising interest rates so rapidly that the mortgage market recently crashed and builder sentiment and housing starts are collapsing. (Look for the June report to be much worse.)
U.S. home builder confidence has also fallen for the sixth consecutive month, according to the NAHB/Wells Fargo U.S. Housing Market Index, reflecting an increasingly pessimistic outlook.
Yet, as market commentator Adam Kodeissi recently noted,
“If the Fed raises rate aggressively, then markets fall on recession fears, and if the Fed pulls back on their hawkish tone then markets fall on inflation worries,” adding that the central bank will “remain pedal to the metal this week and for the rest of this year as they have no option.”
All this adds up to a California single-family housing market in trouble: luxury home sales have declined the most since the start of the pandemic in 2020 and a multifamily rental market that is not far behind. Some may rejoice in the fact that single-family housing prices are softening, but they're missing the fact that all that is really happening is the prices are being discounted against the rising costs of interest rates: the overall affordability remains unchanged.
At the same time, paradoxically, as companies reduce their hiring plans (most big tech companies already have) and layoffs begin in earnest, rents may continue to rise anyway because the costs of financing, operating, insuring, and developing housing are rapidly rising and will be passed on to renters.
This brings us back to the question of the efficacy of the housing policies the state has been pursuing unsuccessfully for the past 15 years.
How will these policies work in an economic environment teetering on the brink of recession? How will the state's housing policies be an incentive for future housing production if the U.S. falls into a protracted period of “stagflation” or worse, a long recession?
The answer is the state’s approach will continue to fail to produce affordable housing while under-staffed, revenue-starved, unfunded pension obligation-burdened cities and counties are buried under paperwork and onerous litigation at a time when they can least afford it.
Similar to my comment about housing, last week, something has to give.
The state needs to rethink its housing policies. It has to either abandon its present methodologies or subsidize housing quota mandates so cities and counties can fund infrastructure improvement and public services costs and offer subsidies to make affordable housing development financially feasible and economically sustainable.
Barring doing that, the entire Housing Element / RHNA housing quota system will collapse under its own weight as fewer and fewer affordable housing units end up getting built. But, unsurprisingly, similar to the summer of 2008, the state seems blissfully unaware that anything about its policies is amiss.
Meanwhile, the Federal Reserve will keep repeating that the “economy is strong” and raising interest rates (even though raising interest rates can do nothing to lower the price of oil or food or inflation caused by China closing down its port cities) right up until the day the country falls into a recession (2 consecutive quarters of negative GDP). Of note, the Atlanta Federal Reserve just revised its second-quarter GDP estimate to 0.0% (the first quarter came in at -1.5%).
Zoning counts when they make us do it, but not when they do it
Cities and counties need to start making reasonable arguments to push back on the state's asinine quota system and the un-level playing field that state agencies have created and are abusing every day.
Every 8 years, California cities and counties suffer through a torturous ritual called getting their Housing Element certified by the Department of Housing and Community Development (HCD). Even though, legally, municipalities are allowed to self-certify their Housing Elements, they avoid doing so and grovel for HCD's blessings because it is an effective shield against third-party lawsuits. HCD takes every opportunity to abuse this situation to the fullest, regularly making up "guidelines" to suit their own ends, knowing that none but a handful of California municipalities have the financial wherewithal to contest them.
One of the more bizarre examples of this is HCD's recent "rulings" regarding units that can be counted against a city's housing quota under SB 9 and Accessory Dwelling Unit (ADU) laws. (For more on SB 9, click here.)
A basic tenet of housing law is the requirement that cities and counties rezone properties to accommodate multifamily housing. Providing that zoning has always been accepted as counting toward RHNA unit quota requirements based on a simple mathematical count of the allowable number of units per acre multiplied by the total buildable acreage. Yet, when the state recently rezoned every single-family parcel in the state for multifamily housing under Senate Bill 9 (up to 4 units allowed, by right), HCD refused to accept the same kind of mathematical unit count toward a city's or county's quota goals.
They say acceptance will require "evidence" that units will be built, such as documented proof that a homeowner has "an interest" in developing units on their property, or some track record of proof that homeowners are doing this.
What makes this even more absurd is that the law is less than one year old and the vast majority of residents don't even know that this right to split their lot and build additional units even exists. How can HCD require evidence of interest in taking advantage of a regulatory change that has no track record, yet?
Anecdotally, I did a casual survey of the neighbors on my block. The result was that not a single one of them had ever heard of SB 9 or knew that this new zoning right existed. But the point is, that shouldn't matter. Why should it make a difference if a local government rezones land to add more "by right" density (which counts toward a RHNA quota) or if the state does it (which doesn't count)? HCD applies this same illogical reasoning to ADU unit counts.
But it gets worse.
HCD is pretty much just making all these "rules" up as they go. There is nothing in the law that says locally rezoned land is any different than state rezoned land. In fact, another basic tenet of the law is that state law is superior to (takes precedence over) local law. So, state-zoned land should be even more reliable to count toward RHNA quotas than locally-zoned land.
It's time for cities to put on their game face and push back. And it's time for planners to come up with creative ways to implement local zoning regulations that can more effectively and consistently produce affordable housing for those most in need.
Last but not least
The recent, International Panel on Climate Change report came out with its most alarming global environmental assessment, yet, but it barely made the national news for more than a soundbite. The realities presented in that report are not even HCD's radar. In fact, there is nothing in any of the housing laws passed in the last 15 years that even acknowledges the impacts of the kind of development these laws envision.
The planet remains the biggest loser in the housing development story.
What we build, and more importantly, how we build are a primary driver of the alarming impacts described in that IPCC Report. We continue to build using materials and construction methods that are essentially 100 years old. Yes, we put some solar panels here and some low flush toilets there, but in sum very little has actually changed. The disastrous impacts of mining, deforestation, and resource extraction alone are essentially unregulated around the world--a fact that the U.S. development business profits from.
At the same time, the public is being lulled into a dangerous complacency by exaggerated, green-washing claims about electric
cars and wildly improbably predictions of
technological breakthroughs to sequester carbon, while our single-minded addiction to growth at any cost continues to add to the environmentally destructive, resource depleting impacts of how we build. And the idea that urbanism is somehow "green" is a fallacy without scientific basis that has been happily advanced by nonprofit housing advocates and the real estate development community.
According to the U.S. Energy Department, building operations are the
biggest energy user, using 40 percent of the nation’s energy. This does not even consider the equally enormous environmental costs of the embedded CO2 in the materials that go into building construction or the environmental "externalities" that urban development has once it's built. (A city's regional, national, and global energy, water, and waste impacts).
In truth, the overall, negative, environmental impacts of the construction methods, supply chains, and resources we presently use are a bankrupt enterprise. And do I even need to mention water scarcity? We are carelessly and endlessly dipping into "principal" with nothing in reserve.
Until these realities are integrated into our growth planning, we will continue to do more harm than good to our planet and the fragile socioeconomic system the supports us.
Bob Silvestri is a Marin County resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded by individuals and nonprofit donors. Please consider DONATING TO THE MARIN POST AND CVP to enable us to continue to work on behalf of California residents.