Since about 1970, California has been experiencing an extended and increasing housing shortage, such that by 2018, California has the 49th lowest ratio of housing units per resident. As the New York Times explains, California's housing issues are exemplar of those faced in many other rapidly growing urban areas across America.
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 (150% greater than) 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.
The cause is the imbalance between supply and demand; a result of strong economic growth creating hundreds of thousands of new jobs (which increases demand for housing) and the greater regulatory, zoning, and permitting requirements on the creation of new housing units in California relative to other states, (which limits supply). For example, from 2012 to 2017, San Francisco metropolitan area cities added 400,000 new jobs, but only issued 60,000 permits for new housing units. (For California as a whole, from 2011 to 2016, the state added only 2 new housing units for every 10 new residents.)
This shortage is taking its toll on Californians in many ways: two-thirds can no longer afford a median priced home, more than 20% of residents are in poverty (6% more than would be with lower housing costs), homelessness per capita is now the third highest in the nation, and CA's economy is suppressed by $150 - $400 billion per year (5-14%) because money that residents must spend on housing cannot be spent elsewhere.
Video California housing shortage
Background & History
Issi Romem, an economist at the Terner Center for Housing Innovation at the University of California, Berkeley explains that:
"...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."
But starting in 1970, three major forces caused housing prices to increase dramatically: increased concern for the environment, (which led to environmental laws and disallowing development on many areas of land designated for preservation), land use restrictions limiting density of housing (limiting many places to single-family homes, or to at most two stories in height), and community involvement in the development process (which allowed current--but not future--residents a say in land use decisions.) The result of these policies were that:
"Whereas California's population growth had clocked in at 242 percent faster than the national pace from 1940 to 1970, from 1970 to 2016, it was just 68 percent faster than the national pace. In contrast, the median home value which had increased only 16 percent faster than the nation's in the previous 30 years now increased 78 percent faster than the nation's."
In 2015, at $440,000, the median price of a home in California was about 2.5 times (150% greater than) the median price of a home in the U.S. as a whole, and more expensive than any state except Hawaii.
By 2017, the median home price had risen 13% to $497,000, a price that only one out of three Californians could afford.
From 2011 to 2016, a study by San Francisco public policy group Next 10 found that California added only 2 new housing units for every 10 new residents.
In 2018, one study concluded that three counties, Sacramento County, Alameda, and Santa Clara, would need more than 50,000 new homes to meet the demand for affordable housing for lower-income residents.
Maps California housing shortage
Causes
The shortage has resulted from the fewer housing units built in the 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. Multiple sources list the following specific causes as the most significant:
Community resistance to new housing (NIMBY)
People who already live in an area often do not want the increased people and traffic that development brings, and they have the voting power to try to keep newcomers out.
Environmental laws
Environmental laws, especially the California Environmental Quality Act (CEQA), which requires local governments to conduct environmental impact assessments prior to allowing new development, as well as granting those opposed the ability to continue to challenge a development even after a local government has approved the project. As the Orange County Register notes:
CEQA requires all development projects to complete environmental impact reports (intended to explore the development's effect on local plants and animals) prior to final project approval by city hall. A clean report, however, can be challenged in a lawsuit by anyone concerned, which immediately halts development. Labor unions and other advocacy organizations discovered that they could use frivolous CEQA challenges to "greenmail" businesses and further their own policy agendas.
Tax structures
Cities are incentivized to build commercial properties from which they can collect sales and business tax revenue, and opt against residential building, because the costs associated with service delivery (public safety, roads, parks, etc.) to residents are greater than the revenue cities receive from residential housing. For example, the City of San Jose denied an affordable housing project for teachers, because it would have converted commercial land to residential use.
High land cost and low density development
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.
Higher cost of construction
Higher cost of construction due to government fees, labor, and materials:
- Greater government-imposed development fees for building a single-family home than in the rest of the country. (The CA LAO reported it to be 266% greater, $22k vs. $6k). For example, the developer planning to redevelop the site of a former Naval Hospital in Oakland with a residential community of 935 homes will be paying $20M (= $21k / home) in fees to the City of Oakland's affordable housing fund.
- Higher cost of labor, because of both prevailing wage laws and that often projects are only approved if union labor is used. (Estimated at 20% more by the CA LAO.)
- Higher material costs, due to building codes and standards requiring better quality materials and higher energy efficiency.
Effects
Affordability of homes
In 2017, only one out of three Californians could afford a median priced home, now costing about $500,000.
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, (and has since 2011, when the Census Bureau first started releasing poverty by this measure) 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 over-sized 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 15% increase from 2015).
A study by the California Housing Partnership found that from 2016-2017 homelessness increased by 47% in Sacramento County (home to the state's capital, Sacramento), 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.
Economic Impact
A 2017 study by Nobel Laureate in economics Edward Prescott, Lee Ohanian (senior fellow at the Hoover Institution), 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 (a 14% increase).
If every state rolled back land regulations to 1980 levels, [total US] GDP could rise by as much as $1.8 trillion. [ 9% ]
A McKinsey Global Institute report estimates that the housing shortage is costing the California economy between $143 - 233 billion per year, because money people spend on housing cannot be spent on other consumer goods, (more than 2/3 of the US economy is driven by consumer spending) and that, if allowed, more new construction activity would also increase economic output.
Quantifying the shortage
Estimated under-supply of housing units
The California Legislative Analyst's Office 2015 report "California's High Housing Costs - Causes and Consequences" 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 (the price differential which existed in 1980, as opposed to the >150% differential which exists today), California would have needed to add approximately 210,000 new housing units each year over the past three decades (1980-2010), 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 (20%) by 2010.
Since 2010, the state's construction of new housing units has averaged well below 90,000 units per year. It took a drastic drop after the 2008 Great Recession, but has increased to about 90,000 / year in 2016.
In September of 2017, a team of economists from UCLA forecast 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 April of 2018, state Senator Scott Wiener, author of several bills to reduce the housing shortage, estimated it at 4 million units.
Ratio of residents to housing units
In 2018, California has the 49th lowest ratio of housing units per resident.
Ratio of jobs to housing units
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
On the final day of the 2017 legislative session, the California legislature approved and Governor Brown signed fifteen separate bills aimed at starting to address some of the driving factors of the shortage, such as requiring cities to allow developments that meet their zoning and general plans, and allowing microapartments as small as 150 sq. ft.
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 ($3,000 - $5,000 for a permit) and restrictive zoning in many cities, has found it hard to find locations that will allow the homes.
Senate Bill 827, introduced in the 2018 legislative session by state Senator Scott Wiener, would require 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.
See also
- San Francisco housing shortage
References
Source of article : Wikipedia
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