California Gov. Gavin Newsom has been on a signing spree lately for new housing bills. To his supporters, the dozens of bills he signed represent a massive effort to overcome the decades-long housing shortage. Unfortunately, the new legislation reflects the same tired ideas that have consistently failed to resolve California’s housing crisis.
California legislators have long adhered to two basic assumptions regarding how to solve the state’s housing crisis. The first is the almost religious faith among policymakers that solutions to the housing shortage lie with state intervention and taxpayer subsidies, and they measure the success of these programs by dollars spent, rather than outcomes achieved.
This is evident in Newsom’s recently signed housing package that promises $2.2 billion in state funds for the Homekey+ initiative to fund permanent-supportive housing units for the homeless. According to the official statement, “Homekey+ will extend the successful Homekey model” of converting existing buildings into “permanent affordable housing” (i.e., permanently subsidized housing). Never mind that Project Homekey has been embroiled in financial scandal for awarding substantial grants for hotel-conversion projects that, according to the LA Times, largely “sit empty and unfinished” and are facing foreclosure.
The second assumption that has long guided California housing policy is the unwavering belief that housing remedies ought to be reserved for “affordable” housing, but not market-rate housing. The measure of success for these solutions is the quantity of legislation passed, which is apparent enough in the thirty-two housing bills Newsom signed recently.
These bills signal some positive reforms—e.g., CEQA exemptions, zoning liberalization, and ministerial permit approvals—which are enough to indicate that our legislators know what needs to be done to encourage new construction. Unfortunately, as always, the bills are hamstrung by affordable-housing requirements that undermine their promised benefits. AB 3093 even created two new categories—“acutely low income” and “extremely low income”—for housing policy going forward.
Affordability mandates—also known as “inclusionary zoning”—are perhaps the most common provisions attached to housing reforms. The problem is that the discouraging effect that affordability mandates have on new housing construction frequently outweighs the encouraging effects of deregulation. Two University of Pennsylvania researchers, studying Seattle’s Mandatory Housing Affordability (MHA) program found that areas of the city that were “upzoned” with an affordability requirement actually saw a decline in new housing construction.
Seattle’s results are consistent with other studies of affordability mandates. Economists Benjamin Powell and Edward Stringham examined 45 cities and found that, on average, “new construction decreases by 31 percent the year following the adoption of inclusionary zoning.” Yet Newsom and the California legislature insist on tacking this requirement onto nearly every otherwise positive housing reform they pass.
The well-documented reality that California’s policymakers are unable or unwilling to acknowledge is that when you make it easier to build housing for any income level, the cost of housing falls for every income level. One New York University researcher found that for every 10% increase in the supply of market-rate housing, rents declined by 1% across the board. The reason for this is not hard to grasp—new market-rate housing creates vacancies elsewhere.
Milquetoast reforms that feebly tweak existing policies, undercut necessary deregulation with affordability mandates, and waste billions of taxpayer dollars on ill-conceived housing projects might make for good politics, but they have produced decades of failed policy.
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If California’s politicians want to get serious about solving the housing crisis, they need to support the radical liberalization of the housing market at both the local and state levels to encourage more private development of market-rate housing, and these reforms must come without strings attached. California, in short, needs to make it easier to build.
But as long as the state keeps doubling down on the same old ideas, the only pathway to affordable housing that California can realistically expect to follow will be the Detroit model—massive population flight until the number of existing homes exceeds the rapidly dwindling body of residents.
Christopher Calton, Ph.D., is the research fellow in housing and homelessness with the Independent Institute in Oakland, Calif.