Solving the Housing Crisis

By: 
Al Jacobs

Not a day goes by I’m not reminded of California’s housing distress. Whether it’s a newspaper article, a radio or television announcement, an internet exposé, or a comment from one of my apartment managers, I’m kept apprised of the problems people are having in seeking a roof over their heads.

For both homeowner aspirants and prospective tenants, the challenge in finding suitable accommodations at an affordable price is getting more difficult with each passing day.

Exactly how we as a society became involved in this problem, is a tale years in the making. Laws enacted by the state legislature, coupled with housing policies enforced by local jurisdictions, and further compounded by an escalation in home prices, all failed to take into account a striking reality: The average citizen’s financial abilities remained stagnant.

As home prices soared, homeownership rates plummeted, and homeless encampments became ubiquitous, the governmental response merely provided more subsidies and enacted more programs. Ignored was the fact there’ll never be enough taxpayer money to subsidize living quarters for every Californian.

In searching for the specific people on which to place the blame, there seems to be no shortage. As one example, when in 2018 the legislature attempted to enact a measure to require localities to approve high-density apartment buildings and condos near transit lines, the bill met a rapid death. Suburbanites in elite areas of San Francisco and Los Angeles opposed the measure, fearing an inundation of their single-family neighborhoods by apartment dwellers. Simultaneously, urban activists objected to the possibility their areas would be further gentrified by replacing affordable rental units with upscale condos attracting wealthier residents.

Irrespective of the continuing animosity between rich and poor, urbanite and suburbanite and landlord and tenant, one fundamental cause of California’s continuing drift toward homelessness is built into the system. It involves a structure of incredibly complex zoning and building regulations, thereby discouraging low-cost housing.

And you can add to the inducements generous welfare benefits, minimal enforcement of vagrancy and public health laws, and perhaps most importantly a temperate climate which encourages those persons least self-reliant to flock here. You might note almost one-third of the nation’s welfare recipients are now residents of the state.

With the growing unaffordability crisis, which steadily enmeshed California’s housing market over the years, the question we must now ask is whether the circumstances we face are somehow correctable. More specifically, are our elected representatives performing in ways to remedy the situation?

There can be no doubt our leadership in climate change legislation, as exemplified by the California Environmental Quality Act (CEQA), proves to be a major hurdle to housing development. It requires the permitting agency, usually the local planning commission or city council, to review each new project and provide full disclosure of the project’s impacts. It invariably requires the developer to conduct studies and provide a report on such impacts as traffic congestion, fire safety, noise and air pollution, greenhouse gas emissions, water pollution, biological resources, cultural ramifications and infrastructure impacts.

Any revelation, however insignificant, can result in lawsuits by those who oppose a proposal for whatever reason. It’s not hard to understand how such requirements may doom an otherwise viable project before it’s even contemplated.

A second impediment relates to our rules concerning how land may be developed. A study conducted in 2017 by Nobel Laureate in economics Edward Prescott and his associates revealed if California rolled back the land use regulations it instituted over the past four decades, the state’s gross domestic product (GDP) would be permanently increased by nearly $400 billion.

In corroboration, a report by the prestigious McKinsey Global Institute estimates these factors are contributing to the housing shortage, now costing the economy at least $85 billion per year from lost construction activity. To date we’ve seen no efforts by our elected leaders to correct any of these issues.

If there’s one accomplishment where California ranks supreme among all others, it’s insuring unsurpassable construction costs. The higher cost of construction due to government fees, labor and materials are assured.

The California Legislative Analyst’s Office reports government-imposed development fees for building a single family home is 266 percent greater ($22,000 vs. $6,000) than the average throughout the rest of the country. These differences can be attributed, in large part, to the prevailing wage laws, plus the requirement that many projects will only be approved if union labor is used. These rules are still in force through much of the state; there appear to be no current efforts under way to modify these practices.

Having reviewed how our officials previously handled housing from a homeowner’s perspective, let’s take a closer look at what they’re currently doing to encourage landlords to make more rental housing available. You’ll be fascinated to learn of the legislation now under way. The Housing and Community Development Committee Assembly Bill 36 will allow local governments to enact rent control on buildings more than 10 years old. This is essentially what voters just turned down when they rejected Proposition 10 last November.

The committee is also considering AB1482, which will prohibit rent increases above a certain amount – though they’ve not yet decided how much – as well as AB53, making it illegal for a prospective landlord to inquire as to an applicant’s criminal record.

The Assembly Judiciary Committee is advocating passage of AB1188 to give all tenants the right to house “a person at risk of homelessness.”And the Senate Judiciary Committee isn’t loafing on the job. Their SB529 will allow tenant associations to withhold rent payment over “grievances” with a property owner, and require landlords to allow tenant associations to organize and hold meetings on the property while prohibiting the property owner from attending.

Let me say if these sorts of laws go into effect, there’ll be far fewer rental properties built and even fewer people who choose to be landlords. You might care to know I’ve acquired my last rental property here.

Enough of the preliminary skirmishing; let’s now get to bedrock. There’s nothing in the works which will fix our housing problem. The Legislative Analyst’s Office reports California is falling 100,000 units short each year to house its population, and a UCLA study finds zoning restrictions make it infeasible to meet the massive housing goal set by Governor Gavin Newsom. In short, the laws of supply and demand cannot be waived.

If the demand for housing grows ever stronger – as it does – and the authorities in charge continue to suppress both its supply and profitability – as they are – we’ll witness an exodus from our state of the very persons, and their assets, whose presence is required to stabilize it. The end result is predictable; we will, as an integral part of the United States, become a third world nation of sorts, with all the misery this entails.

One more factor to consider: Don’t expect our elected representatives, as they realize what‘s transpiring, to develop a conscience and modify the activities they’re engaged in. Collectively they’re immune to the repercussions. By the time the collapse occurs they’ll be safely out of office with full lifetime pension and health benefits. Most assuredly they’ll never answer for their indiscretions – to themselves or anyone else.

A final thought: California was once the crown jewel of this nation. Our state government represented its residents effectively, and its legislators and constitutional officers were routinely returned to office by a grateful electorate. It’s clear that term limits did not improve the quality of our elected officials. We’re now a political replica of the Solid South a full century ago; may providence have mercy on our souls.

Al Jacobs, a professional investor for nearly a half-century, issues weekly financial articles in which he shares his financial knowledge and experience. You may view them on http://www.roadwaytoprosperity.com

al@beachcomber.news

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