Solving California's Housing Crisis

Al Jacobs

The title of this article is not meant to be prophetic. Rather, it’s one more repetition of the mantra expressed over and over by every Golden State official during the past decade. And now, the California legislature is debating the merits of Senate Bill 3, containing, among other things, a $9 billion bond measure designed to provide shelter for low-income families.

How severe are California’s housing problems? The statistics are startling. One-third of renters in the state spend more than half of their monthly wages on housing. And a recent survey reveals 51 percent of residents surveyed say, at today’s prices, they cannot afford an average-priced home in their neighborhood.

According to John Chiang, the California State Treasurer, “This is the human face of a crisis we can no longer ignore. California’s housing shortage is so catastrophic in scale that it not only threatens our economic vitality, but also fuels inequality, poverty and domestic violence.”

In light of what’s reputed to be a profound absence of “affordable housing,” we must ask: What’s a reasonable approach to making more housing available to persons with few if any assets and in desperate need of shelter?

First, let’s take a look at the numbers to get a feel for the scope of the problem. According to a report by the California Legislative Analyst’s Office (LAO), the County of Los Angeles needs “an additional 551,807 more affordable units to meet the needs of the lowest-income renters.” Their evaluation of Orange County reveals between “50,000 to 62,000 housing units are needed to meet the demand of the people living here now.”

The report goes on with similar requirements elsewhere, such as the Inland Empire (Riverside and San Bernardino Counties), where housing supply has lagged, and “fewer than half of Inland Empire households can afford a median-priced house in their area.” As is clear, to satisfy the statewide demand, many hundreds of thousands of additional units must somehow be created.

We’ll now go back a bit to see if this housing crisis is a recent phenomenon, or whether it’s merely a continuation of a problem not earlier addressed. Apparently there’s nothing new under the sun. In 2006, Proposition 1C, titled “Housing and Emergency Shelter Trust Fund Act of 2006, Legislative Bond Act,” appeared on the ballot. The question asked: “Should the state sell $2.9 billion in general obligation bonds to fund housing for lower-income residents and to assist development in urban areas near public transportation?”

The final vote: 57.8 percent in favor, 42.2 percent opposed. Obviously this reflected an earnest intent by the voters to address the problem of homelessness. Unfortunately the proceeds from the bond issuance dried up long ago. What was to produce a continuous cash flow for use exclusively for low- and moderate-income housing, died with the dissolution of the state’s redevelopment agencies. So, while the demand continued going upward, the resources from the state continued going downward. The shortage metastasized from problem to crisis to full-blown catastrophe.

We must now ask the question: What sort of action is California’s political hierarchy taking to ameliorate the problems of our less prosperous citizens? Almost by coincidence, a report on this very subject just appeared from State Senator Jeff Stone, representing the 28th Senate District, encompassing parts of Riverside County. He notes a recently enacted gas and car tax, which will harm the poor and working families, goes into effect in November, where the price at the pump will increase by 19 cents per gallon.

Another measure, Assembly Bill 398, extends the California Global Warming Solutions Act of 2006, authorizing the state board to adopt regulations establishing a system of market-based emissions limits on greenhouse gases. This will, of course, result in a substantial tax increase on working families. The Senate even approved a single-payer health care system with an annual estimated price tag of $400 billion. If such a bill became enacted into law and funded, it would quickly bankrupt the state and decimate the working class.

Let’s now presume Senate Bill 3 will be enacted and a $9 billion bond fund created. Will it resolve our housing crisis? Only by crunching the numbers can we see how effective it will prove to be in constructing the many structures needed to house those in need.

We’ll look first at the probable number of units required. Per the LAO report, just two of California’s counties, Los Angeles and Orange, must develop more than 600,000 units. How many this will translate to in all 58 counties is uncertain, but it’s likely the total number in this state of nearly 40 million inhabitants will reach to two million or more. With that as our target figure, how close to covering this will our $9 billion reach?

A few assumptions must be made. What type and size of units will be appropriate to meet the need? It’s obvious the structures must be habitable. If then, they’ll be at least suitable for a family of four, we’ll not get away with anything less pretentious than a small two-bedroom, single bath apartment of about 800 square feet.

So the question becomes: What will such a unit cost? As there’s no way such a project will go forward without the blessing of the construction unions, we may expect nothing built at a price less than $150 per square foot. Another interest group to satisfy will be the many governmental tax and regulatory officials who set the rules and fees for any development. Senator Stone’s report indicate the soft costs – taxes, fees and the like – exceeds $100,000 for the most modest new home in Riverside County. Don’t expect the tax collectors to waive any of these charges.

It’s clear, each affordable housing unit produced will cost not less than $220,000 – and this presumes the land it sits upon is acquired at no cost.

We’ll now take a closer look to see how far the proceeds of our $9 billion bond issue will take us in meeting the demand. At $220,000 per unit, we can afford to construct 40,900 structures; afterward, all the money is gone. It’s painfully obvious the amount allocated to provide housing for the millions of persons in need will never even scratch the surface.

I’ll conclude with a few observations. If we truly intended, as a society, to make some meaningful effort to house the homeless, we’d have done so when the problem first arose. It’s my belief there’s no real interest by anyone to do so. Those persons currently housed adequately are satisfied and resent being required to contribute to someone else’s problem. The political operatives must go through the motions of pretending to be concerned, but will not jeopardize their positions by actually attempting to extract sums from their constituencies.

Lastly, most persons and organizations vocally championing the cause of the “residentially deprived” simply found a way to make a profit from their advocacy. In the final analysis, the plight of the homeless will not be addressed in any meaningful way by anyone in a position to affect the outcome. This is how it is and will always be.

Al Jacobs, a professional investor for nearly a half-century, issues a monthly newsletter in which he shares his financial knowledge and experience. You may view it on


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