California politicians have been passing laws that make housing less affordable for more than 40 years. Even so-called affordable-housing laws usually do little to promote affordability and often undermine the housing supply. Thanks to a new bill proposed in the state senate, there is a small ray of hope that politicians might finally do something to promote affordable housing.
State Senators Scott Wiener and Nancy Skinner have introduced SB827 to allow state law to override some local zoning restrictions on building. It would allow mid-sized, multi-story, multi-unit buildings to be built near public-transit stops even when local zoning allows for only single-family residences.
I began studying housing markets after moving to California in 2003 to take a job as an assistant professor of economics at San Jose State. California already had a severe affordability problem back then. Today it is worse. I was able to buy a starter home within walking distance of the university for the then-exorbitant sum of about $500,000. A nearly identical home on the same block recently sold for $900,000. No wonder that department’s newest assistant professor lives 55 miles away in Tracy.
It’s not rocket science to figure out why home prices are so high in California. It’s basic economic science: supply and demand. On the demand side, California has many great features that attract residents. Its population has increased by about 6 million since 2000. The problem is that the housing supply hasn’t increased proportionately. Cities have issued only about 2 million new building permits in that same period.
Permits are not scarce because of the unavailability of land. In a classic study, economists Edward Glaser of Harvard and Joseph Gyourko of the University of Pennsylvania found that 90 percent of the difference between physical-construction cost and the price of new homes could be attributed to government restrictions on building. Only 10 percent of the difference was due to intrinsically scarce land.
California’s scarce resource is local government permission to build. The primary factors driving local governments’ desire to restrict building are NIBYism and the environmental lobby. While prior attempts at local reform have failed, this latest Senate bill may be able to defeat these special-interest groups and become law.Not-in-my-back-yard (NIMBY) advocates are hard to defeat politically. Local homeowners are voters who benefit from their real-estate appreciation, while the main beneficiaries of an expanded housing supply are often people who don’t yet live in the city and can’t vote. Moving this reform effort from the local to the state level could help include more potential beneficiaries in the policymaking decision.
Environmental groups often oppose construction because they want to maintain open spaces and are worried about sprawl and pollution caused by long commutes. Since SB827 trumps zoning restrictions in areas near transit that already have housing, undeveloped land would be largely unaffected. Similarly, since the areas are near transit, concerns about pollution are minimized. These factors might mitigate opposition from the environmental groups.
This latest Senate proposal is no panacea. It won’t bring California housing prices down to anywhere near the national average. The cities’ exclusionary zoning laws, urban-growth boundaries, impact fees, and permit limitations, among other policies, all restrict the supply of housing, causing prices to soar. Repealing these policies would make California affordable, but that’s not going to happen anytime soon.
SB827 is like using a garden hose to fight a forest fire. While there is little hope of putting out the fire in today’s political climate, this bill might become law and at least allow the garden hose to start squirting some water on California’s raging affordability fire.