A Los Angeles County Superior Court judge recently struck down Senate Bill 9 (SB 9), a 2021 housing bill that aimed to lightly increase density in single-family detached zoned areas. SB 9, the court ruled, was motivated by the pursuit of affordable housing and indeed, SB 9 housing has the potential, over 10 years, to create hundreds of thousands of homes affordable to low- and middle-income families. The only problem: Superior Court Judge Curtis Kin ruled that, in California, “affordable housing” has nothing to do with actually building or making housing that is more affordable.
The plaintiffs argued, and the judge concurred, that affordable housing in state legislation denotes income-restricted housing. In other words, housing can only be affordable if it is price-controlled or subsidized by law. This is akin to saying that selling mid-priced Toyota Camrys does not help low- and middle-income car buyers since these buyers cannot be identified in advance. It further ignores that the Toyota buyers trade-in lower priced used cars that are also bought by unidentifiable low- and middle-income car buyers. This economically illiterate definition is the logical conclusion of decades of poor housing policy, and a disaster for Californians who desperately need housing they can afford.
The absurdity of defining affordability without including actual affordability runs deeper than it initially appears. The prosecution is correct in noting new market-rate homes are not guaranteed to meet any affordability criteria. However, the design of SB 9 is its own natural affordability mechanism. By allowing a parcel with an existing home to be replaced by two to four new homes, these development split the expensive cost of California’s land among multiple households instead of one.
This simple act of division helps lower the cost of the new homes, and research by the American Enterprise Institute indicates most of these homes would be sold within the price range currently purchased by low- and middle-income homebuyers. This combination of natural affordability and supply is the key for enabling California’s workers to live comfortably and build equity in their neighborhoods. For older homeowners, these light-touch increases in density have the potential to allow their children and grandchildren to continue to stay local without major changes to their neighborhoods.
More importantly, assessing affordable housing by the price of new housing is poor policy reflecting shallow economic reasoning. Housing, like the traded-in cars noted above, becomes affordable through a process called filtering: when new homes are built, more lower-priced homes are made available, and the price of current homes decreases, or at least rises less slowly. We’ve seen this process play out most recently in Austin, where, partially due to an influx of priced-out Californians, housing costs rose sharply in 2021. Unlike California, however, Austin allowed market-rate developments to flourish across the price spectrum.
The result? Rents have declined to their lowest point, relative to the national average, since 2015, according to Zillow.
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The irony is that California’s focus on income-restricted housing and its strangulation of market-rate housing is exactly what has led to its unaffordability. Subsidized housing has failed to meet its own targets and has been criticized for entrenching racial and economic segregation. Policies requiring price controls, often misrepresented as inclusionary, have constrained, not expanded, the supply of housing. California’s failure to simply add more homes also makes it more difficult and expensive to build subsidized housing, per the California Legislative Analyst’s Office.
Fortunately, the ruling only currently applies to five smaller cities in Southern California, but it makes further lawsuits more likely. To increase housing affordability, California must strengthen SB 9 and other supply-focused initiatives, particularly those that place the power of production in the hands of its entrepreneurs and smaller contractors and developers, rather than in the hands of a centralized and ineffective bureaucracy.
Edward J. Pinto is codirector of the American Enterprise Institute’s Housing Center, where Arthur Gailes serves as manager of Housing Supply Initiatives.