Development

After Decades of Red Tape, Some Developers Seeing Their Projects Through

July 10, 2019 By Kerry Jackson 1 Comment

Building homes in California requires a significant investment of time, money, and other resources, leading many developers to avoid construction projects. But in northwest Los Angeles County, one builder has stayed the course since 1994. On completion in 2021, the 15,000-acre Newhall Ranch — billed as one of the world’s first large-scale planned communities — will feature roughly 22,000 homes that follow the curves of the Santa Clara River in the Santa Clarita Valley. Owned by Orange County’s FivePoint Communities, Newhall Ranch is expected “to be ‘net-zero,’ meaning no greenhouse gas emissions, by implementing several mitigation efforts including solar panels and open space,” according to local radio reports. Some developers and environmentalists regard the development as a “new benchmark in the fight against climate change.” Homes will be outfitted with sun-driven power and charging stations for electric vehicles, and FivePoint plans to offer subsidies to “residents, schools, and bus services” to encourage them to buy zero-emission vehicles.

Though the developer tirelessly met environmentalist demands and generated “green” credibility, the project has endured more than a quarter-century of roadblocks and red tape, courtesy of California’s mammoth bureaucracy — including “lawsuit after lawsuit after lawsuit,” says Wendy Devine, who oversees a website focused on Newhall Ranch news. The litigation primarily addressed environmental issues, as is typical for California, where the California Environmental Quality Act (CEQA) has delayed housing development, reduced it in scope and size, and even shut it down. The developer produced more than109,000 pages of documents, navigated the review of 25 government agencies, appeared at 21 public hearings, and attended over 700 meetings. Finally, the project broke ground last year.

Newhall Ranch’s saga makes one wonder how anything gets built in California. In San Francisco, Bob Tillman waited six years and spent $1.2 million in legal fees to obtain approval for a 75-unit apartment complex on his own property. As early as 2013, “Tillman thought he was good to go,” writes Hoover Institution scholar Lee Ohanian. “His location was zoned for multifamily residential housing. He was not displacing any existing residents, because he was converting a commercial enterprise into a residential building. And because his proposed development was high-density housing, the project qualified for streamlined approval.” Yet everything went wrong anyway. The city planning agency’s powerful political appointees turned “what should have been a pro forma approval process” into a nightmare. Last fall, Tillman finally saw daylight, after deputy city attorneys met with the San Francisco Planning Commission to discuss the lawsuit that Tillman had brought against the city.

What happened to Newhall Ranch and Tillman is common across California. On occasion, entire projects get abandoned because the cost of delays and other government-imposed expenses leave little or no profit for developers. While several impediments bottle up home construction, none is enforced more severely than CEQA, signed into law by then-governor Ronald Reagan in 1970. Housing, notes the law firm Knight & Holland, is “the single-largest target of CEQA lawsuits.”

It’s not just hard-core environmentalists who use CEQA to block development. CEQA is also a favored tool of businesses that use it to try to handicap competition (the Parking Spot sued LAX a few years ago over plans to connect a rail line to the airport, for instance); developers who attempt to hinder rival projects; NIMBYs who don’t want anything new built near them; and unions that try to force developers to exclude nonunion workers from construction projects. Yet while CEQA deters housing construction, the policymakers manage to carve out exemptions or secure fast-track approvals for projects important to them, such as basketball arenas and football stadiums.

One would think that the Golden State would be an attractive market for homebuilders, due to its critical housing shortage of as many as 4 million units. California housing should be the next gold rush. Instead, today’s California rush is made up of residents fleeing the state because they can’t find affordable housing.

Kerry Jackson is a fellow with the Center for California Reform at the Pacific Research Institute.

Filed Under: Top Stories Tagged With: Development, Housing, Newhall Ranch

Bring Back Blight, Sprawl; evict CDBG to Fix Affordable Housing

October 18, 2018 By Wayne Lusvardi 1 Comment

When you were a child did you ever try walking down the upward side of an escalator at a mall? It can be dangerous and often results in bringing you back to where you started.

Howard Husock’s recent “How to build a Housing Ladder: Lessons From, and For, Silicon Valley” (Oct. 3, 2018) is an analogous backwards attempt to solve the Silicon Valley affordable housing crisis.

Husock’s solution is to build new “middle housing” (2-to-9-units), in areas where there is a lack of developable land:

As part of mixed commercial-residential developments
Elevated above parking lots in air rights projects
Converting open space in office parks
Small multifamily housing projects on “greenfield” (unzoned) land

From 1979 to 1985, I implemented every one of Husock’s above policy prescriptions with negligible results when I worked for the LA County Community Development Block Grant program:

A study for a 1,000-unit multi-family housing air rights project proposed to be built over a bus yard in West Hollywood (never built)
Funding a land-write down for a 100-unit Section 202 high-rise senior housing project on commercial zoned land adjacent to a shopping center in West L.A.
Soliciting a design-build contract for a 12-unit energy-efficient multi-family housing project on infill land in East Los Angeles
Relocating and rehabilitating new freeway construction removal houses to vacant sites for affordable housing,

* From 1985 to 2014, I played a role at a utility district in selling surplus land for housing development on “greenfield” (raw, unzoned land) sites.

Similarly, HUD CDBG policies have yielded insignificant results in the Palo Alto Peninsula as unaffordability and homelessness have only increased.

CDBG Housing Funding Drawdown Failure

CDBG is a federal HUD flexible revenue sharing program that can be used at the local level for housing and infrastructure improvements in lower-income target areas. The drawdown rate for CDBG funding for housing for California is the worst in the country at $4.83 unexpended for every $1 allocated (or 17% expended-see here, page 39).

In my experience, CDBG functions much as Steven Malanga of the Manhattan Institute states:

“Local officials quickly betrayed the CDBG’s ostensible antipoverty mission, using the grants to supply patronage jobs and set up nonprofits run by their allies….a Brookings Institution report noted that communities viewed the federal largesse as “free money.” One federal investigation found that nearly one-third of the operatives in Boston mayor Kevin White’s political machine worked for the city as CDBG coordinators” (“Let’s Kill the CDBG”, City-Journal, Autumn 2017).

Depreciation Creates Affordable Housing

The term “housing ladder” used by Husock is a misnomer.

The term refers to buying a cheap home in an older area and building up equity and then selling and moving up to a tier of higher priced housing as family income increases (e.g., moving up the ladder). Cheaper rental housing does not provide an upward ladder of social mobility from home equity loans, renovation or appreciation.

Moreover, the housing ladder concept should also not be confused with the term “neighborhood filtration.” Older housing “filters” down to first-time buyers.

In other words, all affordable housing by definition is older housing. Only in California is there a policy that lower income households are entitled to brand new, luxury housing by inclusionary housing policies and building new apartments with redevelopment funds.

Redevelopment as Demolisher of Affordable Housing

Further compounding this problem is the rampant redevelopment found in California where older housing districts are demolished for brand new, greater property-tax-generating commercial retail and hotel development. But affordable housing units don’t even nearly keep up with demolitions. Only 20% of the increased property taxes generated go toward low-income replacement housing.

In 2011, Gov. Brown abolished redevelopment agencies during the 2009-2012 budget crisis. In 2017, Assembly Bill 1568 restored redevelopment for affordable housing using sales and use taxes in addition to property taxes.

The political Right objected to redevelopment mainly because of the use of eminent domain for private purposes. The Left objected because it would end the purported supposedly reduce low-income housing, and along with it, political patronage jobs.

But neither objected to the goal of redevelopment in the first place: getting rid of “urban blight”; and along with it, market-produced housing affordability. And older homes that weren’t in a redevelopment district were eligible for CDBG low-interest rehabilitation loans and outright grants, again to reduce “blight”. “

Redevelopment and CDBG functions to build back up the property tax base lost from California Proposition 13 by effectively making older (affordable) housing stock unofficially a non-conforming use of property. Prop. 13 reduced the base property tax rate from 4% to 1%. Redevelopment is a sort of reverse Prop. 13.

A 1999 report, “Banking on Blight,” indicates a large proportion of the land area of cities in California are designated redevelopment project areas, notably the City of Long Beach with 54% or 26 square miles. A glance at a map of the redevelopment project areas in the Cities of San Jose in Silicon Valley and in working class Oakland shows a similar magnitude of the extent of redevelopment (see here and here).

Urban Sprawl Reduced to Crawl

With the demolition of thousands of blighted, older, but affordable, housing units in urban California by redevelopment, the only other housing option for first-time buyers is to find market affordable housing at the urban fringe, but California’s social engineers even deterred this.

In 2008, Gov. Schwarzenegger signed Senate Bill 375 – “Redesigning Communities to Reduce Greenhouse Gases”, as an anti-urban sprawl policy. SB 375 would divert new development to cities as opposed to the urban fringe purportedly to reduce carbon footprints and promote “smart growth”.

Affordable Housing as a Social Problem

Tom Sowell has aptly stated “someone once defined a social problem as a situation in which the real world differs from the theories of intellectuals.” In the case of housing affordability, this would apply to both the Right and the Left’s solutions to the affordable housing crisis in California.

Ergo, if you want affordable housing, eliminate redevelopment and anti-urban sprawl transportation and housing policies; and zero-out the federal CDBG program, as Trump advocates.

Filed Under: Top Stories Tagged With: Development, Housing, Housing affordability, Palo Alto, Silicon Valley

Progressive Cities: Home of the Worst Housing Inequality

October 18, 2017 By Wendell Cox Leave a Comment

America’s most highly regulated housing markets are also reliably the most progressive in their political attitudes. Yet in terms of gaining an opportunity to own a house, the price impacts of the tough regulation mean profound inequality for the most disadvantaged large ethnicities, African-Americans and Hispanics.

Based on the housing affordability categories used in the Demographia International Housing Affordability Survey for 2016 (Table 1), housing inequality by ethnicity is the worst among the metropolitan areas rated “severely unaffordable.” In these 11 major metropolitan area markets, the most highly regulated, median multiples (median house price divided by median household income) exceed 5.0. For African-Americans, the median priced house is 10.2 times median incomes. This is 3.7 more years of additional income than the overall average in these severely unaffordable markets, where median house prices are 6.5 times median household incomes. It is only marginally better for Hispanics, with the median price house at 8.9 times median household incomes, 2.4 years more than the average in these markets (Figure 1).

The comparisons with the 13 affordable markets (median multiples of 3.0 and less) is even more stark. For African-American households things are much better than in the more progressive and most expensive metropolitan areas. The median house prices is equal to 4.6 years of median income, 5.5 years less than in the severely affordable markets. Moreover, for African-Americans, housing affordability is only marginally worse than the national average in the affordable market.

Things are even better for Hispanics, who would find the median house price 3.8 times median incomes, 5.1 years less than in the severely affordable markets. This is better than the national average housing affordability.

Among the four markets rated “seriously unaffordable,” (median multiple from 4.1 to 5.0) the inequality is slightly less, with African-Americans finding median house prices equal to 2.2 years of additional income compared to average. The disadvantage for Hispanics is 1.5 years.

In contrast, inequality is significantly reduced in the less costly “moderately unaffordable” markets (median multiple of 3.1 to 4.0) and the “affordable” markets (median multiple of 3.0 and less).

The discussion below describes the 10 largest and smallest housing affordability gaps for African-American and Hispanic households relative to the average household, within the particular metropolitan markets. The gaps within ethnicities compared to the affordable markets would be even more. The four charts all have the same scale (a top housing affordability gap of 10 years) for easy comparison.

Largest Housing Affordability Gaps: African American

African-Americans have the largest housing affordability inequality gap. And these gaps are most evident in some of the nation’s most progressive cities. The largest gap is in San Francisco, where the median income African-American household faces median house prices that are 9.3 years of income more than the average. In nearby San Jose ranks the second worst, where the gap is 6.2 years. Overall, the San Francisco Bay Area suffers by far the area of least housing affordability for African-Americans compared to the average household.

Portland, long the darling of the international urban planning community, ranks third worst, where the median income African-American household to purchase the median priced house. Milwaukee and Minneapolis – St. Paul ranked fourth and fifth worst followed by Boston, Seattle, Los Angeles, Sacramento and Chicago (Figure 2).

Largest Housing Affordability Gaps: Hispanics

Two of the three worst positions are occupied by the two metropolitan areas in the San Francisco Bay Area. The worst housing affordability gap for Hispanics is in San Jose, a more than one-quarter Hispanic metropolitan area where the median income Hispanic household would require 5.0 years of additional income to pay for the median priced house compared to the average. Boston ranks second worst at 3.9. San Francisco third worst at 3.3 years. Providence and New York rank fourth and fifth worst. The second five worst housing inequality for Hispanics is in San Diego, Hartford, Rochester, Philadelphia and Raleigh (Figure 3).

The San Francisco Bay Area: “Inequality City”

Perhaps no part of the country is more renowned for its progressive politics and politicians than the San Francisco Bay Area. Yet, in housing equality, the Bay Area is anything but progressive. If the African-American and Hispanic housing inequality measures are averaged, disadvantaged minorities face house prices that average approximately 6.25 years more years of median income in San Francisco and 5.60 more years of median income in San Jose.

Moreover, no one should imagine that recent state law authorizing a $4 billion “affordable housing” bond election will have any significant impact. According to the Sacramento Bee, voter approval would lead to 70,000 new housing units annually, when the need for low and very low income households is 1.5 million. The bond issue would do virtually nothing for the many middle-income households who are struggling to pay the insanely high housing costs California’s regulatory nightmare has developed.

Smallest Housing Affordability Gaps: African-American

Tucson has the smallest housing affordability gap for African-Americans. In Tucson, the median income African-American household would pay approximately 0.4 years (four months) more in income for the median priced house than the average household. In San Antonio, Atlanta and Tampa – St. Petersburg, the housing affordability gaps are under 1.0. Houston, Riverside – San Bernardino, Virginia Beach – Norfolk, Memphis, Dallas – Fort Worth and Birmingham round out the second five. It may be surprising that eight of the metropolitan areas with the smallest housing affordability gaps for African-Americans are in the South and perhaps most surprisingly of all that one of the best, at number 10, is Birmingham. (Figure 4).

Smallest Housing Affordability Gaps: Hispanic

Among Hispanic households, the smallest housing affordability gap is in Pittsburgh, where the median priced house would require less than 10 days more in median income for a Hispanic household compared the overall average. In Jacksonville the housing affordability gap for Hispanics would be less than two months. In Baltimore, Birmingham, St. Louis and Cincinnati, the median house price is the equivalent of less than six months of median income for an Hispanic household. Detroit, Memphis, Virginia Beach – Norfolk and Cleveland round out the ten smallest housing affordability gaps for Hispanics (Figure 5).

Housing Affordability is the Best for Asians

Recent American Community Survey data indicated that Asians have median household incomes a quarter above those of White Non-– Hispanics. This advantage is also illustrated in the housing affordability data. Asians have better housing affordability than White Non-– Hispanics in 37 of the 53 major metropolitan areas (over 1 million population).

The Importance of Housing Opportunity

Housing opportunity is important. African-Americans and Hispanics already face challenges given their generally lower incomes. However, by no serious political philosophy, progressive or otherwise, should any ethnicity find themselves even further disadvantaged by political barriers, such as have been created by over-zealous land and housing regulators.

Cross-posted at New Geography.

Wendell Cox a is visiting professor, Conservatoire National des Arts et Metiers, Paris

Filed Under: Top Stories Tagged With: affordable housing, Bay Area, Development, Housing, Housing affordability, san francisco, Wendell Cox

Poll: Californians consider moving due to rising housing costs

October 1, 2017 By Drew Gregory Lynch 2 Comments

A majority of voters in California have considered moving due to rising housing costs, according to new findings from the Berkeley Institute of Governmental Studies, with 1 in 4 saying that if they moved it would be out of the state for good.

It’s just the latest piece of evidence on the state’s housing crisis, as residents confront a shrinking supply of homes and rising costs, leading many to wonder if they’d be better off elsewhere.

“When you then ask them where they would relocate, they’re often throwing up their hands,” poll director Mark DiCamillo said, according to the LA Weekly. “Millennials seem to be the most likely to say they’d consider leaving.”

The uneasiness about the market appears most dramatically in the Bay Area, where 65 percent of those polled said they’re facing an “extremely serious” housing affordability problem.

But even in Los Angeles and San Diego, 59 percent and 51 percent, respectively, have considered re-locating over housing affordability issues.

The IGS poll sampled 1,200 registered California voters from late August through early September.

In Los Angeles specifically, a recent analysis found that a person needs to earn over $109,000 per year to afford a two-bedroom apartment in the city, with the assumption that renters are spending 30 percent or less of their income on housing.

Across the entire state, the median rent for a one-bedroom apartment is $1,750 and a two-bedroom averages $2,110.

“These are very dramatic findings,” DiCamillo added, according to the Mercury News. “In every region of California, the rising cost of housing has crept into the consciousness of voters.”

The median price of a single-family home rose around 7 percent year-over-year to $565,330 in California this past August – and in Santa Clara County, the heart of Silicon Valley, the median price jumped a shocking 17.9 percent year-over-year to $1,150,000.

The state Legislature is taking notice, passing 15 bills this month relating to housing affordability, seeking to increase the pace at which housing construction takes place.

For example, Senate Bill 2 and Senate Bill 3 provide new funding for low-income housing, while SB35 attempts to streamline the approval process for construction in municipalities that fall behind Sacramento’s housing goals.

While California boasts some of the highest earners, it also has the nation’s highest poverty rate when housing costs are factored in, resulting in a heightened sense of urgency in a state that has some of the biggest regulatory hurdles for new home building.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: Development, Housing, Millennials

Poll finds Californians consider leaving state due to rising housing costs

September 22, 2017 By Drew Gregory Lynch 20 Comments

The uneasiness about the market appears most dramatically in the Bay Area, where 65 percent of those polled said they’re facing an “extremely serious” housing affordability problem.

But even in Los Angeles and San Diego, 59 percent and 51 percent, respectively, have considered re-locating over housing affordability issues.

The IGS poll sampled 1,200 registered California voters from late August through early September.

Across the entire state, the median rent for a one-bedroom apartment is $1,750 and a two-bedroom averages $2,110.

“These are very dramatic findings,” DiCamillo added, according to the Mercury News. “In every region of California, the rising cost of housing has crept into the consciousness of voters.”

The state Legislature is taking notice, passing 15 bills this month relating to housing affordability, seeking to increase the pace at which housing construction takes place.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: Development, Housing, regulations

Bill would bring California redevelopment agencies back to life

September 10, 2017 By Steven Greenhut 1 Comment

SACRAMENTO – California’s redevelopment agencies were a fixture on the local political landscape for six decades, as they guided development policies and grabbed “tax increment financing” that localities used to pay for infrastructure improvements, downtown renovations and affordable-housing projects. They had some notable successes but generated enormous controversy before Gov. Jerry Brown shuttered them in 2011.

They were designed in the 1940s to fight urban blight. But the agencies were criticized for their use of eminent domain on behalf of private companies; for running up debt without a vote; for the subsidies they ladled out to developers; and for financing big-box stores and auto malls rather than helping inner cities spruce up. The governor ultimately killed them because these agencies had become a drain on the state’s general-fund budget, consuming 12 percent of the budget.

It was a shock to see such a powerful sector dry up, as local agencies morphed into “successor agencies” that had nothing left to do other than pay off existing debt. But the redevelopment industry – the developers, lobbyists, city officials and low-income housing advocates – never really went away. Each year since 2011, lawmakers have proposed and sometimes passed measures that incrementally bring back the redevelopment process.

The way that complex process worked in the past involved city councils essentially creating agencies that target “project areas” for subsidy. The agencies would float debt to fund infrastructure and pay subsidies to developers who build things within those areas. Cities often would subsidize retail projects because of the sales taxes they provided. The gain in the property taxes from the new development was designed to pay off the debt.

But those taxes often come out of the hide of other public services, such as schools and public safety. The state budget had to backfill the losses and the result was the budgetary drain that the governor plugged. But with the state’s fiscal situation having improved markedly since 2011, legislators have been less concerned about any financial impact of revived agencies.

In 2015, the governor signed Assembly Bill 2, which created Enhanced Infrastructure Finance Districts (EIFD) that have many similarities to the old redevelopment project areas. Under the old law, redevelopment officials would simply declare an area blighted before gaining new powers of subsidy and debt funding within that area. Under what some called Redevelopment 2.0, those borrowing and spending powers were limited to infrastructure projects.

To prevent some of the old fiscal abuses, the new EIFD process bans the newly created agencies from unilaterally creating project areas that would steal tax revenue from counties, fire authorities or school districts. Instead, they would have to gain the approval of the other districts, thus providing incentive for a less controversial project. These projects also lacked the affordable-housing requirement that was found in the old redevelopment law.

This year, affordable housing is the Legislature’s pet issue in its final week of session. The governor and Democratic leaders have promised a legislative package to deal with the state’s housing crisis. Lawmakers also are considering Assembly Bill 1568 by Assemblyman Richard Bloom, D-Santa Monica, which would add a housing component to those infrastructure districts. Critics say it’s creeping redevelopment, combined with an expanded ability for local governments to raise taxes.

“Local governments have been without a reliable financing mechanism to invest in economically depressed, transit-rich areas since the demise of redevelopment agencies in 2011,” Bloom said in a Senate Rules Committee analysis. This proposal “provides local jurisdictions with the authority to finance infrastructure and affordable housing using new sales and use taxes in addition to property tax increment within qualifying districts.”

Lawmakers are expected to make technical amendments Friday and then send it to the Senate floor for a vote Monday. The bill requires that the Enhanced Infrastructure Financing Districts use the new taxes to fund affordable housing on infill sites. The measure has passed its committees on a largely party-line vote, with most Democrats favoring it and most Republicans opposing. It’s backed by several planning and local-government organizations, and has a high likelihood of making it to the governor’s desk by the Sept. 15 deadline.

If that’s so, then it will be interesting to see whether Gov. Brown, who fought so hard to eliminate redevelopment agencies, is willing to let them return incrementally, albeit with a different name and somewhat different rules.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

This article was originally published by CalWatchdog.com

Filed Under: Top Stories Tagged With: Development, Housing, Jerry Brown, redevelopment agencies

Increase the homeowners exemption to improve housing affordability

August 15, 2017 By Jon Coupal and Phillip Chen 4 Comments

California is in a housing crisis. The cost of housing — both for purchase and rental housing — is too expensive. Ineffective public housing policies and anti-growth policies that impede even reasonable development projects have choked supply in a high-demand market. California needs to start building homes and apartments as soon as possible. Recent estimates show that California must build 180,000 units of housing a year over the next 10 years simply to keep pace with demand. Currently, only about half of that amount is being constructed.

But in the meantime, a quick and effective way to provide financial relief to everyone in California with a roof over their head is to increase the homeowners exemption which has been stuck at $7,000 since 1972. A lot has changed since then. Mark Spitz won a then-record seven gold medals in the 1972 Munich Olympics. Atari released the PONG computer game and a gallon of gas sold for 36 cents. California’s population has nearly doubled from 21 million residents to 39 million residents today. And according to the California Association of Realtors, the median price of homes in California is well over $500,000 compared to $28,000 in 1972.

Because the average Californian earns $61,000, according to the U.S. Census Bureau, most are knocked out of the market before they even start. Only one-third of California residents can afford a median priced home.

In February, Assembly members Phil Chen and Matthew Harper introduced Assembly Bill 1100, the “American Dream Act,” which would increase the existing homeowners’ exemption on their property tax from $7,000 to $25,000, as well as raising the renter’s credit by using the mandated California Franchise Tax Board inflation adjustment. This will not only help current homeowners but this will help those aspiring to own a home. One-third of renters in the state spend at least half their take-home pay in rent, a statistic driving California’s record high 20 percent poverty rate.

Californians are paying some of the highest taxes in the nation, exacerbating the ability of ordinary citizens to afford a home. Even with Proposition 13, which has proven effective in limiting the growth of homeowners’ property tax bills, California still ranks in the top third of all states in per capita property tax revenue.

Moreover, high taxes and unaffordable housing are taking their toll on the California economy. In the last decade, California has lost more than 1 million people in net domestic out migration to other states. We all know at least a few people who have moved to Nevada, Texas, Oregon, Florida or Arizona to find a less expensive place to live.

In some welcome good news, in May, AB1100 passed a major hurdle by passing the Assembly Revenue and Taxation Committee with notable bipartisan support. This was the first time legislation of this nature got out of a legislative policy committee. Many had been attempted in years past but had failed.

When the Legislature returns from its summer recess later this month, affordable housing will be the leading topic of discussion. While there are many ideas being considered, including more bonds and taxes, ideas that provide direct relief for middle-class property owners have yet to rise to the forefront. They need to. Beyond the homeowners exemption, liberalizing the rules about taking one’s Proposition 13 base-year value to a new residence, the so-called “portability” issue, should also be part of a legislative proposal.

Any reform package must articulate that government can’t tax and bond its way out of a problem where it costs over $300,000 to build one unit of affordable housing. Addressing these regulatory burdens as well as providing tax relief for homeowners and renters will not only lead to future economic prosperity for California. It is also the right thing to do.

Jon Coupal is the president of Howard Jarvis Taxpayers Association and Phillip Chen is a member of the California Assembly from the 55th Assembly District.

This article was originally published by the Orange County Register

Filed Under: Top Stories Tagged With: Development, HJTA, Housing, Jon Coupal, taxes

Two different solutions to California housing crisis – which will work?

July 30, 2017 By Steven Greenhut 13 Comments

SACRAMENTO – Before the recent legislative recess, California Democratic leaders and Gov. Jerry Brown announced their intention to tackle one of the state’s biggest crises: housing affordability. It’s the rare instance where virtually everyone in the Capitol at least is in agreement about the scope of the problem, even though there’s far less agreement on solutions.

Real-estate prices have gotten so high that they stretch family budgets and are a root cause of California’s highest-in-the-nation poverty rates, based on the Census Bureau’s new cost-of-living-adjusted poverty measure.

The situation is so acute it’s drawn the attention of the national media. “A full-fledged housing crisis has gripped California, marked by a severe lack of affordable homes and apartments for middle-class families,” according to a recent New York Times article. Median home prices have hit a “staggering $500,000, twice the national cost.”

The problem is particularly bad in the state’s major metropolitan areas. The median single-family home price in the nine-county San Francisco Bay Area, for instance, has topped $750,000. Public-opinion surveys suggest soaring home prices – rather than job opportunities or the state’s business climate – are the key reason many people are moving to other states.

But while there’s broad agreement that housing affordability is in crisis, there are two schools of thought on how to address it. Democrats are primarily trying to raise taxes and fees to pay for more government-subsidized affordable housing, whereas Republicans want the state to chip away at local governmental barriers to home construction.

Legislators and the governor have made little progress in crafting a detailed housing plan for this legislative session. But there are a handful of bills moving their way through the Capitol that encapsulate their approach. Their high-priority measure, when legislators return to the Capitol late next month, is Senate Bill 2, which would impose fees of $75 to $225 on every real-estate transaction to provide $225 million in annual funding to subsidize developers of low-income housing.

“With a sustainable source of funding in place, more affordable housing developers will take on the risk that comes with development and, in the process, create a reliable pipeline of well-paying construction jobs,” according to the Senate bill analysis.

Senate Bill 3 also takes a similar approach toward building affordable housing. The measure authorizes $3 billion in general-obligation bonds to pay for low-income and transit-oriented housing. It would need to be approved by voters in the November 2018 election. There’s also talk about using proceeds from the cap-and-trade auctions to fund such programs.

One major bill embraces some of the concerns expressed by those who want to encourage market-oriented solutions to the problem. Senate Bill 35, by Sen. Scott Wiener, D-San Francisco, “creates a streamlined, ministerial approval process for development proponents of multi-family housing if the development meets specified requirements and the local government in which the development is located has not produced enough housing units to meet its regional housing needs assessment,” according to the bill summary. The streamlined process would apply where a project meets “objective zoning, affordability, and environmental criteria, and if the projects meet rigorous labor standards,” according to Wiener.

The bill circumvents local planning decisions, but New Urbanists and others say such pre-emption is needed because “not in my back yard” (NIMBY) sentiments among residents and city officials have impeded developers’ ability to add high-density housing in urban areas. The latter point – the requirement that workers receive union wage rates – has been a major sticking point for some conservatives, who believe the mandate could drive up the cost of home construction.

The building industry has neutralized another measure, Assembly Bill 199, which could have required such above-market wage rates for a wide range of privately funded housing projects. AB199 originally would have required “prevailing wage” for any project that involved an agreement with a “state or a political subdivision.”

The building industry argued that “the language was purposely ambiguous and could mean simple tasks, like a new porch, would require union labor,” according to a San Diego Union-Tribune report. The amended version removes that language and now applies only to projects that receive public subsidies.

There’s wide disagreement about whether additional mandates for affordable housing will substantially boost the supply of lower-priced homes. Even if the new subsidies pass, those dollars are a drop in the bucket, given the overall size of the state’s housing market, critics say. And government mandates that builders provide a set number of affordable units as part of their new subdivisions may ramp up the overall costs for market-based units.

The Union-Tribune’s Dan McSwain compared the process to something out of a Kafka novel: “Raise the overall price of market units, thus ensuring that fewer get built, in order to subsidize a handful of poor families … who win a lottery administered by local government agencies, with staffs funded by housing fees that inflate prices.” McSwain blamed high costs partially on city-imposed fees that inflate housing prices by 20 percent or more.

The Legislature isn’t about to tackle that broader problem. Legislators have yet to reform the California Environmental Quality Act and other environmental rules that drag out the approval process for major new developments. For instance, Southern California Public Radio recently reported that the Newhall Ranch development in Los Angeles County finally “is moving forward after recently winning key approvals.”

That Santa Clarita Valley project, which will house 60,000 people, has been in the works since the 1980s and still is a long way from a ground-breaking. It’s been delayed by environmental lawsuits and legal challenges related to its possible impact on climate change.

Southern California Public Radio quoted real-estate experts who say the project will only make a small dent in the region’s housing shortage. But is that the fault of the developer or of policymakers who have ignored the problem so long that adding tens of thousands of new housing units only amounts to adding a few drops in the housing bucket?

The good news is the Legislature and governor are paying attention to a serious problem that has been percolating for years. The question, as always, is whether state officials can craft legislation that will make a real dent in the problem.

Steven Greenhut is Western region director for the R Street Institute. Write to him at sgreenhut@rstreet.org.

Filed Under: Top Stories Tagged With: Development, Housing, Scott Weiner, Steven Greenhut

The right fix for California’s housing problems

July 24, 2017 By Timothy L. Coyle 2 Comments

Christopher Thornberg’s “Stop Dissin’ the Housing Market — Set it Free!” is just what California’s housing markets need. Hail to this Beacon Economics PhD! Want more housing? as Thronberg asks: Stop messing with markets!

Thornberg’s piece, which can be found by clicking on the following link, should be required reading for all 120 legislators at the state Capitol who have the power to make housing laws. Lawmakers – particularly those on the left – are inclined to prescribe more government involvement to compensate for the lack of housing production for low-income people. What they don’t realize – or refuse to – is how disruptive that is to California markets.

Here’s Thornberg’s assessment:

It is true that what does get built in this [state] tends to be for higher income households. But this is a natural outcome of the barriers to entry that afflict the system. When supply is artificially limited, what does get produced is going to be concentrated in the highest margin portions of the market. If supply were less restricted and fixed costs reduced, there would be a natural movement towards lower income families. [And], in Los Angeles the overall lack of supply keeps middle income families in housing that would otherwise be available for lower income families.

Indeed, not only do government rules and regulations affect the production of housing, they profoundly upset the natural cycles that are present in existing housing markets. The losers are the tens of thousands of under-housed middle-income California families – not poor enough to qualify for scant government subsidies and too wealthy to make the cut.

Even more losers are created by the popular program, inclusionary zoning. Right now the program is locally administered but tenant advocates want legislation – AB 1505 (Bloom) and SB 277 (Bradford) – to make it a state mandate. Inclusionary zoning is a classic case of creating a limited pool of winners and a much larger population of losers. The program requires builders who want to produce new housing to set aside a certain number of homes and units and sell or rent them at below-market prices.

Of course, such a program does at least two things: 1) prohibits a builder from recouping the costs to produce the discounted units; and 2) forces up prices of the market-rate homes (to compensate for setting the lower-income units at below-market prices or rents). Inclusionary zoning is still just more of the same: a costly demand made upon the builder as a condition of getting his or her housing proposal approve. Add in inclusionary zoning to the other demands – notorious CEQA approvals, sky-high fees, myriad design requirements, etc. – and one questions why anyone would attempt to build at all.

Moreover, inclusionary zoning does next to nothing to resolve the problem of inaccessible housing. A study done a few years ago – heralded by the advocates of inclusionary zoning – showed the politically popular program, adopted in more than 150 California communities, was responsible for the production of a mere 1,100 units of affordable housing over a 35-year period. That’s the equivalent of approximately just over 1% of the annual low-income housing need.

On the basis of that production record it would take over 100 years, another study said, to meet the state’s affordable housing demands. Thornberg comments on the content of inclusionary zoning, saying “such efforts are tiny compared to the scale of the problem.”

Inclusionary zoning is not the answer. It’s political window-dressing, at best. And, lawmakers who vote to make it state law are doing nothing more than grandstanding on the backs of low-income families.

Thornberg wisely says the Legislature should tinker less with California’s housing markets. And, he also says that until “development-unfriendly places roll back current market restrictions . . . the housing crisis will only get worse.” Amen. Cheers, Christopher Thornberg!

Timothy L. Coyle consultant specializing in housing issues.

This article was originally published by Fox and Hounds Daily

Filed Under: Top Stories Tagged With: Chris Thornberg, Development, Housing

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