California housing shortage


Since about 1970, California has been experiencing an extended and increasing housing shortage, such that by 2018, California ranked 49th among the United States in housing units per resident. This shortage has been estimated to be 3-4 million housing units. Experts say that California needs to double its current rate of housing production to keep up with expected population growth and prevent prices from further increasing, and needs to quadruple the current rate of housing production over the next 7 years in order for prices and rents to decline.
The cause is the imbalance between supply and demand; the result of strong economic growth creating hundreds of thousands of new jobs and the insufficient construction of new housing units to provide enough supply to meet the demand. The imbalance is such that in last half-decade, in the Bay Area, seven times as many jobs were created as housing units, while statewide, for every five new residents, one new housing unit was constructed. This has increased home prices and rents, such that by 2017, the median price of a Californian home was over 2.5 times the median in the U.S. as a whole, and in California's coastal urban areas,, the shortages are greater. Several factors have together caused constraints on the construction of new housing: community involvement in the permitting process allows current residents who oppose new construction to lobby their city council to deny new development; environmental laws are often abused by local residents and others to block or gain concessions from new development ; greater local tax revenues from hotels, commercial, and retail development vs. residential incentivize cities to permit less residential; density restrictions and high land cost conspire to keep land and housing prices high; and construction costs are greater because of high impact fees, and often developments are only approved if union labor is used.
The shortage is taking its toll on Californians in multiple ways: less than a third can afford a median priced home, more than 20% of residents are in poverty, homelessness per capita is now the third highest in the nation, California's economy is suppressed by $150 - $400 billion annually , and the displacement and suburban sprawl caused by high housing costs in the urban centers has resulted in several of California's cities being home to the largest share of super commuters in the nation, as well as hindering California's ability to meet its CO2 emissions goals.
In 2016, President Obama issued a report which recommended that cities across the nation with high housing costs follow California's lead on reforming land use regulations by adopting many of California's attempted solutions to its housing shortage, in order to enable the opportunity for people at all income levels to access the jobs being created in growing cities. Since then, the California legislature has passed several bills aimed at addressing the shortage: some reduced the fees and bureaucracy involved in creating ADUs, while others have added fees to real-estate document recording to be spent on low-income housing; yet even the highest projections suggest that relative to the scope of the problem, these changes will only have minimal effect. In addition, proposed bills that would have legalized higher density development close to public transit failed in the legislature. In September 2019, the Trump Administration's Council of Economic Advisers released a report which estimated that deregulating the housing market would lead to rents falling by 55% in San Francisco, 41% in Los Angeles, and 39% in San Diego.

Background

Issi Romem, an economist at the Terner Center for Housing Innovation at the University of California, Berkeley said:
"...as long as abundant new housing was built to accommodate those drawn to California, housing price growth was limited and the state’s allure was channeled into population growth: From 1940 to 1970 California’s population grew 242 percent faster than the national pace, while the growth of its median home value was only 16 percent faster than the nation’s."

Starting in 1970, three major forces caused housing prices to increase dramatically: increased concern for the environment,, land use restrictions limiting housing density, and community involvement in the development process
The result of these policies was that from 1970 to 2016, California's population growth slowed to a third of what it was during the previous three decades, while appreciation of median home prices more than quadrupled to 80 percent greater than the national rate.
By 2016, the median price of a home in California, at $409,300, was more than twice the median price of a home in the U.S. as a whole, more expensive than any state other than Hawaii. The shortage is statewide; from 2010 to 2017, the state added one new housing unit for every five new residents, and is pronounced in employment centers such as the Bay Area and Los Angeles.
The housing situation affects individuals differently, depending upon their circumstances. A person who has long since paid off a home mortgage has much lower costs than a renter or someone buying a first home. , about 20% of California homeowners owned their homes free and clear, and 80% were still paying a mortgage. As is typical, homeowners without a mortgage tend to have lower incomes than homeowners without a mortgage. California homeowners without a mortgage tend to spend almost 9% of their income on housing costs, including property taxes, which is slightly lower than the national average for homeowners without a mortgage.

Causes

The cause is the imbalance between supply and demand; a result of strong economic growth creating hundreds of thousands of new jobs and the insufficient construction of new housing units to provide enough supply to meet the demand. For example, from 2012 to 2017, San Francisco Bay area cities added 400,000 new jobs, but only issued 60,000 permits for new housing units. This has driven home prices and rents to high levels, such that by 2017, the median price of a home across California was more than 2.5 times the median in the U.S. as a whole, and in California's coastal urban areas,, the shortages are greater.
The shortage has resulted from fewer housing units built in the urban and coastal areas relative to the demand created by economic growth in those areas, resulting in higher prices for housing and spillover to the inland areas.

Community resistance (NIMBYism)

resistance by existing residents to new development is a major contributor to the difficulty of developing new housing in the state.
People who already live in an area often perceive any new development or change as driving increased negative traffic and population impacts.
Using various means, NIMBYs try to keep newcomers out by defeating development projects in the local government permitting process, or slowing them down to the point that they become uneconomical for the builders.

Environmental laws

Environmental laws—primarily the California Environmental Quality Act —can be a hurdle to housing development.
CEQA requires the permitting agency, usually a local government, to review each new project in accordance with CEQA to provide a full disclosure of the project's impacts to the approval body and the public. Individual single-family homes are exempt, as well as some smaller multi-family projects, but most mid-size and larger projects must go through a Negative Declaration or EIR to provide the required level of disclosure of project impacts. The EIR process requires the developer to conduct studies and provide a report on a wide variety of impacts including traffic congestion, wildfire evacuation, fire safety, noise, air pollution, greenhouse gas emissions, water pollution, biological resources, cultural resources and infrastructure impacts and develop a plan to help mitigate any impacts if any exist. The CEQA process is intended to make the approval process transparent to the public and decision-makers and takes place prior to a local government acting to permit a new development. Additionally, CEQA allows for legal challenges against the CEQA review process itself which may result in lawsuits by those who oppose the project and find the developer did not properly study the impacts from a project prior to the local government approving the project. Litigation is the main enforcement mechanism by which CEQA violations are mitigated.
A report by the California Legislative Analyst's Office found that in the state's 10 largest cities, CEQA appeals delayed projects by an average of two and a half years.
A 2015 study by Jennifer Hernandez and others at the environmental and land-use law firm Holland & Knight,
looking at all CEQA lawsuits filed during the three-year period 2010-2012, found that less than 15% were filed by groups with prior records of environmental advocacy.
This study also found that 4 of 5 CEQA lawsuits targeted infill development projects; only 20% of CEQA lawsuits were targeted at "greenfield" projects that would develop open space.
Carol Galante, a professor of Affordable Housing and Urban Policy at the Terner Center for Housing Innovation at UC Berkeley, who served in the Obama Administration as the Assistant Secretary at the U.S. Department of Housing and Urban Development,
stated that “It has been abused in this state for 30 years by people who use it when it has nothing to do with an environmental reason,... NIMBY-ism is connected to the fact that for everyone who owns their little piece of the dream, there's no reason to want development next door to them, CEQA gives them a tool to effectuate their interest... We need to fundamentally rethink how the CEQA process works in this state."
In an interview with UCLA's Blueprint magazine, Governor Jerry Brown commented on the use of CEQA for other than environmental reasons: "But it’s easier to build in Texas. It is. And maybe we could change that. But you know what? The trouble is the political climate, that's just kind of where we are. Very hard to — you can’t change CEQA . BP: Why not? JB: The unions won’t let you because they use it as a hammer to get project labor agreements."
A CEQA study done by BAE Urban Economics, estimated that 0.7% of all CEQA projects with review documents had been subject to litigation, for the years 2013-2015.
In San Francisco, the attorney general's office, during an 18-month audit of CEQA in 2012, found that 0.3% of CEQA projects were subject to lawsuits.

Tax structures

Partially because Proposition 13 limits the property tax that local and state governments can collect, cities are incentivized to permit commercial development rather than residential development. Commercial development can potentially yield both sales tax revenue, as well as business tax revenue.
Residential development is typically seen as a net loss to a city's budget due to costs associated with service delivery to residents exceeding the tax revenue received from those residents. For example, the city of Brisbane, when considering developing a greenfield, was told that a housing-heavy development would bring in $1 million annually in additional income for the town, but a commercial development with no housing and a larger hotel would bring in $9 million annually—and that without building hotels, the development would be a net loss to the city budget.

High land cost and low density

High land cost and low-density development with very small increases in housing density, which in turn keep land prices high. The Sacramento Bee notes that residential land prices are more than 600% greater in coastal California than the average of America's other large metropolitan areas.

Construction costs

The higher cost of construction due to government fees, labor, and materials:

Affordability

This shortage has driven home prices and rents to extremely high levels. In 2017, the median price of a home in California was more than 2.5 times the median in the U.S. as a whole, and in California's coastal urban areas, the shortage was greater than the inland areas, as demonstrated by the median prices of homes in those respective markets: $1.3M in San Francisco, $1M in San Jose, and $600k in Los Angeles, while only $250k in Fresno. In the rental market, California now has the lowest vacancy rate the state has ever seen, at 3.6%; and while the median rent throughout the state for a two-bedroom apartment is $2,400, the median rent in coastal urban areas is even higher, surpassing $4,000 per month in San Francisco.
Housing affordability has declined over the last three decades; as of 2018, less than a third of Californians could afford a median-priced home; in job centers such as the San Francisco Bay Area, that number is less than a quarter. Housing unaffordability also leads to crowding, defined as more than one adult per room of a dwelling. Californians are four times as likely to live in crowded housing as the average American, and this holds across every type of housing—renters, owners, those with and without children.
When comparing the rental rates of Los Angeles and the average rate across the United States one can see just how much higher the city is compared to the rest of the country.  While in 2017 the average rental rate in the United States was $1,357, in comparison the average rental rate in Los Angeles in 2017 was $2,284, almost a $1,000 average increase.

Displacement and environmental impact

As a result, workers have moved to more affordable inland locations which requires longer commutes., the three cities in the United States with the largest share of super commuters—workers spending an hour and a half or more each way to get to and from their jobs—are Stockton, Modesto and Riverside. Workers have been displaced outside of the state as well; from 2007 to 2016, California saw net out-migration among all groups making under $110,000 a year, largely to Sun Belt states like Arizona, Nevada and Texas.
Longer commutes and increased traffic caused by suburban sprawl due to housing shortages concentrated in job centers increase greenhouse gas emissions. Because of California's mild climate and heavily renewable energy mix, transportation is the largest category of emissions in the state. When Californians emigrate to states with higher per-capita greenhouse gas emissions, they drive more, consume more energy for air conditioning, and use more fossil fuel-dependent electricity generation. The New York Times notes how scarce, low-density housing is directly at odds with California's stated climate goals.

Poverty

When the cost of housing is factored into the poverty rate, as the Census Bureau now does in its releases of the "Supplemental Poverty Measure," California's poverty rate lists as the highest in the nation, currently at 20.4%, or just over 1 in 5 people. The Public Policy Institute of California estimates that if the housing costs in California matched those for the nation overall, California's poverty rate would instead be 14%.

Homelessness

California in 2017 is home to an oversized share of the nation's homeless: 22%, for a state whose residents only make up 12% of the country's total population. The Sacramento Bee notes that large cities like Los Angeles and San Francisco both attribute their increases in homeless to the housing shortage. Homeless persons in California now number 135,000.
A study by the California Housing Partnership found that from 2016-2017 homelessness increased by 47% in Sacramento County, 36% in Alameda County, and 13% in Santa Clara County.
Nationwide, California ranks third for the most homeless persons per capita, behind New York and Hawaii.
In September 2019, the Trump Administration's Council of Economic Advisers released a report in which they stated that deregulation of the housing markets would reduce homelessness in some of the most constrained markets by estimates of 54% in San Francisco, 40% in Los Angeles, and 38% in San Diego, because rents would fall by 55%, 41%, and 39% respectively.

Economy

A 2017 study by Nobel Laureate in economics Edward Prescott, Lee Ohanian, and Kyle Herkenhoff, estimates that if California were to roll back its land use regulations to where they stood in 1980, the state's GDP could permanently increase by almost $400 billion. "If every state rolled back land regulations to 1980 levels, GDP could rise by as much as $1.8 trillion ."
A McKinsey Global Institute report estimates that the housing shortage is costing the California economy between 143 and 233 billion dollars per year, from lost construction activity, lower consumption of consumer goods because of high housing costs and the costs of providing services to the increased number of homeless persons.

Quantifying the shortage

Estimated under-supply of housing units

The California Legislative Analyst's Office 2015 report "" estimates that for the state to have kept housing prices no more than 80% higher than the median for the U.S. as a whole, California would have needed to add approximately 210,000 new housing units each year over the past three decades, rather than the 120,000 / year which were built. Their midpoint estimate of the underbuilding for the last three decades is 90,000 units per year, an estimated shortage of 2.7 million housing units by 2010.
Since 2010, the state's construction of new housing units has averaged well below 90,000 units per year. It took a drop after the 2008 Great Recession, but has increased to about 90,000 / year in 2016.
In September 2017, a team of economists from UCLA Anderson Forecast, lead by Jerry Nickelsburg, predicted that "it would take 20 percent more housing to achieve a 10 percent reduction in prices. Such a reduction throughout California would bring costs down roughly to 2014 levels..." In a 2018 UCLA Anderson Forecast report, economist Nickelsburg estimated the shortage at 3 million units.
In October 2017, lieutenant governor and gubernatorial candidate Gavin Newsom said that California should set a goal to produce 3.5 million new homes by 2025. This would require a quadrupling of the current rate of building to almost 400,000 units per year, a rate the state has not experienced since 1954.
In April 2018, state Senator Scott Wiener, author of several bills to reduce the housing shortage, estimated it at 4 million units.

Increase in housing production needed

Experts say that California needs to double its current rate of housing production just to keep up with expected population growth and prevent prices from further increasing, and needs to quadruple the current rate of housing production over the next 7 years in order to for prices and rents to decline.

Ratio of residents and jobs to housing units

In 2018, California ranked 49th among the United States in housing units per resident.
While some people claim that a "healthy" ratio of jobs to housing units is around 2, many California metros are far from that, with San Diego at 3.9, Los Angeles at 4.7, and San Francisco at 6.8.

Responses

Federal

In a September 2016 report from the Executive Office of the President of the United States titled "Housing Development Toolkit", the authors cited several of California state and localities' attempted legislative fixes for the housing shortage as models that it recommends other states and localities also follow to abate their housing shortages, including:
The report also highlighted one of President Obama's remarks to the U.S. Conference of Mayors on January 21, 2016:

State

2016 Legislative session

In September 2016, Governor Jerry Brown signed AB 2406, AB 2299, and SB 1069, all of which reduce the cost and bureaucracy needed to construct an ADU, also known as a "granny flat" or "in-law unit". The Bay Area Council notes that if only 10 percent of the Bay Area's 1.5 million single family homeowners build ADU's, that would create 150,000 units of new housing.
This change resulted in dramatic increases in applications for ADU building permits; Los Angeles saw 25 times as many applications in the 2017 calendar year than it did in the previous two years combined.

2017 Legislative session

In the 2017 legislative session, a package of 15 housing bills was passed. One bill legalizes microapartments as small as 150 sq. ft. and prohibits cities from limiting their numbers near universities or public transit; another adds a $75 real-estate document recording fee, which is projected to generate $250 million per year for affordable housing construction. The total 2017 housing package is expected to have only a minimal impact on the shortage, because even the most optimistic predictions suggest that the measures will increase yearly housing production by about 14,000 units per year, still well short of the additional 100,000 new units needed yearly just to keep pace with population growth and prevent prices from rising.
Senate Bill 35
Another bill was Senate Bill 35, authored by state Senator Scott Wiener which shortens the approval process by eliminating environmental and planning reviews for new infill housing in cities which have failed to meet their state housing production goals. The state sets goals for production of different types of housing: market-rate, low-income, etc., and this law applies only to development types for which the city is not meeting its production goal. To make use of the streamlined approval process, the developer must pay prevailing wage and abide by union-standard hiring rules. Wiener said, "Local control is about how a community achieves its housing goals, not whether it achieves those goals... SB 35 sets clear and reasonable standards to ensure that all communities are part of the solution by creating housing for our growing population." SB 35 has been used, for example, to redevelop the derelict Vallco Shopping Mall in Cupertino into a mixed-use development containing 2,402 apartments, half of them affordable, with no government subsidies, which will quintuple Cupertino's affordable housing stock.

2018 Legislative session

Senate Bills 827 and 50
In 2018, Senator Wiener introduced SB 827, which would have required localities to allow buildings of at least 4 or 8 stories within a half-mile of a high-frequency transit stop, or within a quarter-mile of a bus or transit corridor, as well as waiving minimum parking requirements in those areas. The bill was controversial, being opposed both by local governments concerned about the loss of local control of zoning, and by anti-gentrification activists concerned about displacement. The bill was supported by a group of scholars who stated that it would help reduce decades of racial and economic residential segregation, as well as pro-housing groups nationally, and by over 100 San Francisco Bay area technology industry executives who voiced their support of the bill in a joint letter.
Regarding the issue of local control, Wiener said: "In education and healthcare, the state sets basic standards, and local control exists within those standards. Only in housing has the state abdicated its role. But housing is a statewide issue, and the approach of pure local control has driven us into the ditch." Anti-displacement provisions were inserted in response to gentrification concerns. It was subsequently defeated in its first committee hearing.
In December 2018, Senator Wiener introduced a similar bill for the following legislative session, SB 50, which was defeated in a senate floor vote in 2020.

Other efforts

Since 2014, several YIMBY groups have been created in the San Francisco Bay Area. These groups lobby both locally and in Sacramento for increased housing production at all price levels, as well as using California's Housing Accountability Act to sue cities when they attempt to block or down-size housing development. One activist, in a comment to the San Francisco Planning Commission supporting the construction of a new 75-unit mostly market rate housing development stated that: "The 100 or so higher income people, who are not going to live in this project if it isn’t built, are going to live somewhere...They will just displace someone somewhere else, because demand doesn’t disappear.”
As a way to rapidly create inexpensive housing, a Bay-Area startup company converts 8' x 20' shipping containers into homes for as little as $8,000, though due to expensive and restrictive zoning in many cities, has found it hard to find locations that will allow the homes.
There are over 400,000 deed or use-restricted affordable housing units in California which were built with the provision that they remain affordable for the following decades in exchange for subsidies. The state's Department of Housing and Community Development estimates that there are more than 35,000 units whose affordability requirement will expire by 2021 and that many of these will likely be converted to market rent units. HCD has made the preservation of these units as affordable housing a priority.
Under the federal government's Section 8 voucher system, residents pay 30% of their salary and the Housing Authority pays the difference of the rental cost. As indicated by Metcalf, "In 2015, 2.2 million households, comprising 5 million people, used rental vouchers to secure housing in the private market" though these figures are for the entire United States. Unlike other public assistance programs there are only a limited number of Section 8 vouchers, meaning that most people who apply and qualify for the program are not able to participate in the program, and instead are placed on a wait lists for years. The Housing Authority of the City of Los Angeles closed its Section 8 wait list for over a decade due to high demand, and only reopened in 2017.