As an endless parade of recent reports has suggested, California is in the midst of an unprecedented housing crisis. The average home price is over $400,000 – more than twice the national average. Meanwhile, the new state housing assessment concludes that the state is down 1.5 million affordable units, meaning production will have to be ramped up, not down, in the next decade.
And this may be the year that we see some action on housing in Sacramento. In his budget address, Gov. Jerry Brown laid out some high-level ideas on regulatory reform that might increase housing production, though he yanked $400 million in housing money that he included in last year’s budget because of a looming deficit.
Meanwhile, Assembly Speaker Ed Rendon and Assembly Housing Committee Chair Stephen Chiu have teamed up to introduce a package of four bills dealing with housing, including two bills that would generate new revenue sources not dependent on the general fund. Those bills might finally create the long-sought “permanent source of funding for affordable housing,” which has been kind of a holy grail for affordable housing advocates in Sacramento for a long time.
All this commotion raises two related questions: First, is there a political deal in the offing on housing in Sacramento? And second, whatever the deal is, will it actually help put a dent in the housing production problem?
Let’s go to the politics first and look at what’s on the table.
In his budget message, Brown placed the blame for low housing production squarely on local governments, whose permit delays he claimed drives up unit costs and discourages construction. He laid out four policy principles he would like to see adopted:
- Streamlined housing construction. He proposed “reducing local barriers,” maximimize the impact of public investments, and “temper rents through housing supply increases. Last year Brown unsuccessfully proposed by-right construction for certain types of affordable housing projects.
- Lower per-unit costs. He proposed finding ways to “reduce permit and construction policies” that drive up per-unit costs.
- Production Incentives. He proposed providing jurisdictions that meet or exceed housing goals with cash or regulatory relief of some kind. This is similar to the Jobs Housing Balance Incentive Grant program that the state used to use to provide cash incentives to local governments for housing production.
- Accountability and Enforcement. He proposed that enforcement of existing laws such as the housing element should be strengthened.
However, because of a looming budget deficit Brown took $400 million in affordable housing money off the table. He proposed the $400 million in general fund dollars last year as part of the by-right proposal. This year, to the consternation of affordable housing advocates, he said that no general fund revenue could be used for housing.
Meanwhile, Rendon, Chiu, and others have come forth with a package of four bills, one of which would provide a permanent source of funding for affordable housing and two of which pick up on ideas contained in Brown’s budget message.
AB 71 would eliminate the mortgage interest deduction on second homes, creating a revenue stream of $300 million. The bill would dedicate these funds to increasing the state’s pool of low-income housing tax credit money.
AB 72 would appropriate funds for the attorney general to enforce the housing element law and other state housing laws.
AB 73 would provide local governments with breaks under the California Environmental Quality Act and cash incentives to do up-front pre-planning and zoning for transit-oriented development that has an affordable component, though the projects would have to be built using prevailing wage.
AB 74 would pay for housing chronically homeless individuals who are on Medicare and receive services through certain programs.
You can see how the first three bills in particular try to flesh out Brown’s ideas: more money for affordable housing without hitting the general fund, cash incentives to local governments, and more state enforcement of housing element law. You can also see the outlines of a political deal: Prevailing wage is required to buy labor in and money for affordable housing is required to buy in the affordable housing advocates. Providing CEQA breaks is always an iffy proposition, although buying labor in through prevailing wage may blunt some of the opposition.
So, a deal may actually be possible. But how much difference will it really make? As Brown noted in his budget message, the state projects that almost 200,000 housing units per year will be required over the next decade – and I think that may not include closing the past deficit of almost 2 million – but recent annual production has been less than 100,000. No matter how significant these changes are, can they really generate 100,000 units per year and make up the backlog?
Probably not. The housing deficit is the result of a wide variety of factors, including a lack of land in job-rich coastal areas, a wide range of state and local regulatory constraints, and a complicated interplay between the boom cycle of the ‘00s and the bust cycle of the ’10s.
Homebuilders often blame CEQA for a lack of housing supply, even if CEQA were repealed tomorrow developers would still face stiff regulations – and often ballot-box zoning—in coastal areas. And anyway, homebuilders are often looking to make it easier to build single-family homes in inland areas – where land is plentiful and cheap – even though the resulting neighborhoods are far, far away from job centers.
More affordable housing money is good, but it’s really just a drop in the bucket. Affordable housing developers are politically powerful and their support is necessary to get anything passed, but even operating at maximum capacity they can’t possibly close the gap themselves.
And the state’s own policy layers don’t always line up. The state has never effectively implemented the 15-year-old AB 857, which requires state agencies to align all their actions with what used to be called “smart growth” goals. The Strategic Growth Council’s work is commendable in providing capital for development projects near transit, but it’s mostly turned into another layer of affordable housing financing now that redevelopment has gone away. SB 375, which requires regional coordination of transportation investments and land-use policies, isn’t binding on local general plans. And so on.
Yet the lesson we have learned since terms limits were passed in California more than 20 years ago is that comprehensive policy change is impossible. As legislators rush through the Capitol on their way to their next job, incremental change is the most we can hope for. So maybe this year’s incremental change on housing will be a start.