Housing is broken in California. You can see it everywhere you turn: in the high cost of housing in California, not only in the coastal markets, but also the more “affordable” communities like Sacramento; in the amount of monthly income being spent on rental housing and the consistent increase in rents that force people to live farther from work and often in inferior living conditions; and, in the ever increasing homeless population, a majority of which remains unsheltered.
California is on the verge of becoming a “have” and “have-not” state; those that “have” will remain and live in a style that takes advantage of the full California experience. Those that “have-not” will live in housing that is subpar, in environments that include multiple tenants and in areas less than ideal. Much of California’s middle class will consider leaving the state.
I believe that free markets work in a democratic society. I also believe that with the freedom to build housing without needless and often harmful constraints, there would not be a housing crisis in California.
What defines the housing crisis? On the one hand, there are simply not enough units to meet the growing demand for California — and Sacramento — residents, both in terms of for-sale and for-rent housing. An average of fewer than 80,000 homes per year have been built in the state during the past 10 years, according to a California Department of Housing and Community Development study published last year. That is far below the estimated demand of 180,000 new units annually from 2015 to 2025, based on projected household population growth — 1.8 million new housing units over the next 10 years!
On the other hand, we have a crisis of affordability. According to the California Association of Realtors, only 27 percent of California residents can afford to purchase a $588,530 median priced single-family home in the state as of the third quarter of 2018 — and only a slightly greater number at 35 percent can afford to purchase the $479,390 median priced condo/townhome.
It’s no easier on renters: One third of renters are spending half or more of their monthly income on rent, according to the Public Policy Institute of California. Federal data shows that California has 134,278 people experiencing homelessness (25 percent of the nation’s total) and 91,642 of the homeless population are unsheltered (49 percent of the nation’s total); and California only has 14 percent of the U.S. population.
One-third of California residents say high housing costs are forcing them to consider leaving the state, according to the PPIC. It’s already clear that more people are opting to migrate east. According to researchers who analyzed data since the economic recovery began in 2010, new domestic out-migration from California has increased significantly to 140,000 per year. The worst part is that 28 percent of the out-migration is people aged 35-44 — a prime career advancement and child-rearing stage.
Certainly, we’re better than this. A combination of over regulation, restrictive development parameters and excessive fees combined with local anti-growth movements has forced homebuilders to produce ever higher-priced housing, resulting in a housing market that is generally undersupplied and overpriced.
We at The Gregory Group work with land developers and homebuilders who lament the long approval process. It takes up to two times longer to get projects approved today than it did 20 or even 10 years ago. Add in the California Environmental Quality Act, environmental reviews and a new phenomenon since the last recession — a labor shortage — and you have a limited supply of housing available at any given time.
We’ve also noticed a growing and more vocal public sentiment against development, both in high-growth areas and already-grown areas, by residents commonly known as NIMBYs. But no growth where someone lives is short-sighted at best and damaging at worst. Current and future residents surely have the right to proper and effective growth — and there are plenty examples of unrestricted and improper growth — but limited or no growth is hardly the answer.
While the higher cost of land, labor and materials are contributing factors, development fees continue to exert a significant influence on where and what gets developed. It’s not unreasonable for new development to contribute to roads, parks, schools and open space, but perhaps it’s time for a dialogue about the extent of that contribution.
In a country split along cultural, political and philosophical lines, is there hope for a consensus on addressing the housing crisis? I believe there is. Clearly, overreaching government regulation that takes us farther from a free market is not the answer. There are many ideas out in the public domain, which include streamlined approval processes, lower development fees, legislation (such as the recently defeated SB 827, which would have allowed for higher density housing near mass transit) and rent control (also recently defeated). However, let’s consider the following:
- Better dialogue between elected officials, builders and government agencies: Perhaps there are some projects that should be approved at the regional level (rather than the local level), maybe high density at transit corridors is a good thing (even in suburban locations) and suburban development is not a bad thing (especially with appropriate land planning and community design). What about mixed-use development within existing retail and commercial centers? All of this should be hashed out with the goal to provide housing opportunities to all residents.
- Greater public outreach: We have found historically that projects that involve public outreach earlier in the process, even difficult development scenarios, have a greater rate of success and produce much better projects. McKinley Village in East Sacramento and The Cannery in Davis are good examples.
- Development incentives: Let’s provide incentives for builders to meet the needs of all residents, perhaps in the form of tax rebates, lower fees or a streamlined approval process. If Sacramento can offer Amazon massive incentives, why can’t the region offer builder incentives to provide attainable housing for more people to live within the region?
Finally, nothing gets done without a constructive conversation; let’s bring all sides to the table — government agencies, environmentalists, homebuilders and anti-growth groups. At the very least we can try to understand where the other side sits and maybe, just maybe, we can build some great communities together.