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California Says No to the Future

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California Says No to the Future

The Golden State rejects a bill that would address its crippling housing crisis. January 31, 2020
California
Economy, finance, and budgets

This week, California’s Senate voted down SB50, a bill introduced by State Senator Scott Weiner to address the housing-affordability crisis. The bill would have removed local control over zoning for many areas of the state—including those near transit lines, ferries, and major bus routes, as well as high-income areas with lots of jobs, such as Silicon Valley—and required that midrise and medium-density apartment buildings be permitted there, regardless of what the local government wanted. It was Weiner’s third attempt at a major housing bill to permit more density near transit, and it was weeks away from dying in committee again before the Senate’s president pro tem bought it to a floor vote.

SB50 was extremely controversial, with many considering it an overreach of state power in seeking to preempt local control. It was also seen as imposing high-rise and high-density development on traditionally suburban communities. These criticisms were off the mark. It did seek to override local government, but those localities have gone too far in constraining the rights of individual landowners. When local government is overly restrictive of what people can build on their own property, it’s the local government that is overreaching. Though it allowed for taller and denser projects, SB50 didn’t prevent smaller buildings; nor did it create any mechanism for a public agency to build larger buildings if private groups didn’t build them. As for high density, SB50 was quite modest, allowing buildings 45-55 feet tall in some areas, or 15 feet taller than currently allowed in others. Manhattan skyscrapers need not apply.

The root of California’s housing problem has been a failure to build enough homes to meet demand. The problem began around 1990. In the thirty years prior, the state had built on average 9.4 new homes for every 1,000 people, every year. In the 30 years since, it has averaged only 3.3 new houses for every 1,000 Californians. California now has the fewest homes per person of any state except Utah, and the higher-than-average family size in Utah means that California is dead last in the U.S. for the ratio of homes to households.

The effect of this vast imbalance of supply to demand has been skyrocketing prices, an issue compounded by the wealth flowing into California, particularly the Bay Area, from the tech boom, creating a segment of society flush with cash and able to drive values ever higher. As real estate and rental prices rise, those who own property can cash in big, while those trying to buy or looking to rent see prices climb ever out of reach. It isn’t just the poor or working class feeling the pinch. With a median home price of $554,886—more than double the U.S. average and more expensive than anywhere except Hawaii—middle- and even upper-class families are struggling with housing costs, because median household income in California is nowhere near double the U.S. average. It isn’t even double that of the poorest state.

California needs to build more housing to solve this problem. Places that build enough housing to meet demand—from Tokyo to Montreal to Houston—don’t have housing-affordability issues. The case of Texas is particularly instructive, given its similarities to California in size, demographics, and economy. Dallas and Houston produced 124,000 new units in 2019, while the entire state of California produced only 97,000. Median home prices in Texas are lower than the national median—only $207,301—and the median one-bedroom rent is only $858, compared with $1,453 in California, the highest of any state.

To win over opponents, SB50 offered many exemptions and exceptions that could have diminished its impact. It did not apply to counties under 600,000 people—a move designed to gain the support of Mike McGuire, the senator from Marin County, which, despite its proximity to San Francisco, has resisted building more housing. Smaller counties near major metropolitan areas would have been motivated to build even less housing in order to contain population growth and remain exempt. To address concerns about displacement and gentrification, the bill did not apply to properties where tenants had been renting during the prior seven years, a provision that could have neutered the bill in areas like San Francisco that need housing but where most properties are already rented.

In the wake of SB50’s failure, the next steps for California are uncertain. Governor Gavin Newsom campaigned on a fanciful pledge of getting 3.5 million new homes built by 2025. The state has passed some housing bills, including a package of 15 in 2017, but these address only the margins of the problem and are unlikely to have any major effect. SB50 was broadly designed, with the big changes to zoning, but narrowly applied, with the many exemptions. A better approach would be narrowly designed but broadly applied, such as a series of bills, each changing one specific rule but applying it to the whole state.

One option is eliminating single-family zoning statewide, as Oregon recently did. Unlike towering apartment buildings, duplexes and triplexes don’t provoke much opposition, as numerous recent laws legalizing or liberalizing accessory units reflect. If other zoning requirements on height and setbacks are maintained, people may not even notice that a building that looks like a single-family home has two or three front doors. Another step could be making minimum lot size one-eighth or one-sixth of an acre. This will be more controversial, but smaller lot sizes are not unknown in the suburbs (the original Levittown was built on one-eighth-acre lots). Taken together, these two steps could see housing developments with 12-24 units per acre, which would be sufficient for the needs of many parts of the state.

Another reform would guarantee approval of any permit that meets code, without public hearing unless a variance was required. California has become a parody of due process, as projects get modified, held up, denied, or abandoned in endless rounds of hearings by planning commissions, historic commissions, design-review boards, and city councils. Project approvals have depended, in some cases, on specifying exterior paint colors that council members find acceptable. San Francisco is particularly egregious. Its “discretionary review” process lets Planning Commission members change zoning requirements for individual projects during hearings, based on neighbor complaints. City projects have taken from five to 40 years to gain approval.

Reforming permitting would make a big difference. With faster and more certain approvals, more projects will be started, which will mean more homes for people to live in. It would also marginally increase housing supply, as parcels zoned for 30 units actually get 30 units built, instead of 26 or 27 after setbacks and reductions. This measure would be more controversial, particularly among local politicians, community groups, and neighbors who would lose veto power. Again, however, it wouldn’t raise the specter of high-rise development in quiet neighborhoods. Though communities would have to permit what they zone, they wouldn’t be forced into accepting radical changes to their zoning laws.

At some point, California will have to build more housing, including the type of mid-rise buildings proposed by SB50. During the suburban-building boom years, from 1962 to 1973, more than 50 percent of the new housing units built in California were in multiunit structures. They represent a significant part of the state’s housing stock, from the postwar garden apartments of Los Angeles to the four- and five-story buildings sprinkled among San Francisco’s beloved Victorians.

Lack of housing is killing California. The state gained only 50,000 new residents in 2019, the slowest growth rate ever, as people flee housing costs or choose not to come here. Those that remain see their opportunities narrow as more and more of their money goes to mortgage or rent, while social strife from real or perceived problems—between communities over racial and ethnic makeup, between economic and social classes over wages and wealth, between generations over homeownership and opportunity—is catalyzed by the persistent concern of finding an affordable place to live. With the defeat of SB50, California has solved none of these problems.

Photo by Justin Sullivan/Getty Images

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