Defining Appropriate Housing Development in California

By Edward Ring
February 19, 2019

One of the most frustrating contradictions inherent in the policies being enacted by California’s one-party state goes something like this: We are inviting the welfare cases of America and the expatriates of the world to move here, while simultaneously enacting environmental policies that make it extremely time consuming and expensive to build anything.

No wonder there’s a “housing crisis.” Until demand decreases, or supply increases, housing in California will remain unaffordable for most of its residents. But don’t expect demand to slacken any time soon. The political consensus in favor of increasing California’s population has a strong moral justification – why shouldn’t the wealthy, innovative, compassionate people of California be willing to share their wealth with millions more people who are less fortunate? But there are other less high-minded upsides to population growth and obstacles to new housing.

Currently, real estate prices and rents are on the rise, favoring investors and landlords. Banks enjoy higher lending volumes, while borrowers enjoy greater liquidity, however precarious, as the property bubble offers them more collateral as security. The government agencies profit from higher property tax assessments and higher capital gains collections on sales of real estate. Large land developers that have the political clout and financial heft to build housing despite the many obstacles, enjoy unusually high margins that they could never achieve in a normal competitive market. Finally, as an expanding population increases demand for housing, at the same time public school districts can increase attendance-based revenue – which will make it somewhat less urgent that they reform their union work rules and spending priorities.

Efforts by California’s policymakers to increase the supply of housing have to be viewed in this context. They want to increase the supply of housing. Yet they also want to keep happy the special interests that pay for their political campaigns. Therefore, strict – and very self-serving – parameters are likely to limit what new laws are enacted to stimulate new housing. For example:

Negative Consequences of Special Interest Defined Development in California

(1) Additional open land outside of urban boundaries will remain off limits to development, in order to ensure that existing municipal jurisdictions are able to retain access to the new property revenues that will accrue to new stocks of residential and commercial real estate. This will be justified as necessary to protect the environment.

(2) Most obstacles to housing construction will remain in place – in particular, excessive fees to government agencies and onerous CEQA requirements. This will ensure that only the most powerful corporate and financial entities will be able to take advantage of new opportunities to build housing, while cutting out the small landowners and developers.

(3) Major land developers will be given financial incentives by state and local government entities to build “affordable housing” and eliminate “blight,” but these incentives will be out of reach for smaller landowners and developers.

(4) In order to keep the real estate asset bubble fully inflated, housing prices will only fall marginally as development occurs, which pretty much helps nobody, but massive programs of taxpayer funded rent control and rent subsidies will be enacted to make up the difference for qualifying low income families.

(5) “Densification” will be imposed on residential neighborhoods, with the primary victims being any neighborhoods that are situated close to bus stops or light rail stations. Developers will be permitted to build multi-story, multi-unit buildings on small residential lots and will not be required to offer parking; all of this will greatly increase their profits.

(6) Building code requirements will relentlessly increase in the name of energy efficiency and safety, with the practical effect being to lock out small landowners and developers from being able to afford to upgrade their properties or develop new properties; these same more stringent regulations will not seriously impact large development corporations and financial investors.

It is wrong to be entirely cynical about the laws that are coming. Slamming the door completely shut on newcomers to California would be cold hearted, unpopular and probably cause more economic harm than good. Zealously enforcing residential zoning densities that were put in place several decades ago would be overly sentimental, ignoring the disruptive adaptations and radical transformations that have defined and enriched urban life since settlement began. Completely embracing a new wave of suburban sprawl would needlessly eat up more open land than a more balanced policy approach might cost. While the new building code mandates are now excessive (if not ridiculous), nobody wants to go back to toilets with seven gallon tanks, or insulation with an R value of 2.0.

Unfortunately, balance is not what we’re finding in the new laws. Last year, the State Senate considered a bill – SB 827 – that would have removed local zoning control and allowed multifamily housing to be built in well-established single family neighborhoods. This would have allowed those multifamily housing projects to be as tall as 55 feet. Against heavy opposition, SB 827 never made it out of committee, but this year it’s back. The new legislation, again sponsored by Democrat Scott Wiener, is SB 50.

Reading through the text of SB 50 grants insight into just how entrenched the collusion is between public officials and developers seeking subsidies and waivers. Consider this introductory language:

Existing law, known as the Density Bonus Law, requires, when an applicant proposes a housing development within the jurisdiction of a local government, that the city, county, or city and county provide the developer with a density bonus and other incentives or concessions for the production of lower income housing units or for the donation of land within the development if the developer, among other things, agrees to construct a specified percentage of units for very low, low-, or moderate-income households or qualifying residents.

In plain English, the “Density Bonus Law” forces taxpayers to subsidize not only developers who are already making more money by being allowed to pack more units on less land, but also low and “moderate” income households who will occupy a percentage of housing units. Bring ’em in! Paying artificially high prices for housing while also paying for someone else’s inflated rent will never wear thin with taxpayers.

The Coalition to Preserve LA, “a citywide movement of concerned residents who believe in open government, people-oriented planning, equitable housing and environmental stewardship of Los Angeles,” produced this summary of SB 50.

Densification a la SB 50:

  • Forces cities to allow luxury towers in single-family areas.
  • Upzones thousands of beautiful streets to 6- and 8-story apartments if an area is “jobs-rich with good schools.”
  • Upzones thousands of single-family areas within a 1/4 mile of a frequent bus stop or 1/2 mile of a rail station.
  • Lets developers sue any city that tries to stop them.
  • Cuts parking to zero, claiming rich residents “use transit.”
  • Falsely claims to protect renters & sensitive communities.
  • Strips protections of many HPOZs and historic buildings.
  • Lets developers wipe out setbacks, backyards, green belts.

For millions of Californians who live in bucolic suburbs, with tree lined streets and spacious private yards, SB 50 unchecked is going to be a holocaust. It will utterly destroy their way of life. Many victims will not have the ability to move. The greatest insult of all: Their taxes will be paying for it. And as a “solution,” it is completely unnecessary. There are better ways, that leave established neighborhoods intact and cost taxpayers nothing.

Reforming the California Environmental Quality Act (CEQA)

There are two ways to mitigate the impact of CEQA, the law that requires “environmental impact reports” on any land development in California, including “climate change” impact along with a host of metastasizing additional requirements. The first, being practiced increasingly, is to grant CEQA waivers to politically connected developers that are proposing projects deemed politically correct. The second, far preferable solution, is to fundamentally rewrite CEQA.

An excellent summary of how to reform CEQA appeared in the Los Angeles Times in Sept. 2017, written by Byron De Arakal, vice chairman of the Costa Mesa Planning Commission. It mirrors other summaries offered by other informed advocates for reform and can be summarized as follows:

  • End duplicative lawsuits: Put an end to the interminable, costly legal process by disallowing serial, duplicative lawsuits challenging projects that have completed the CEQA process, have been previously litigated and have fulfilled any mitigation orders.
  • Full disclosure of identity of litigants: Require all entities that file CEQA lawsuits to fully disclose their identities and their environmental or, increasingly, non-environmental interest.
  • Outlaw legal delaying tactics: California law already sets goals of wrapping up CEQA lawsuits — including appeals — in nine months, but other court rules still leave room for procedural gamesmanship that push CEQA proceedings past a year and beyond. Without harming the ability of all sides to prepare their cases, those delaying tactics could be outlawed.
  • Prohibit rulings that stop entire project on single issue: Judges can currently toss out an entire project based on a few deficiencies in environmental impact report. Restraints can be added to the law to make “fix-it ticket” remedies the norm, not the exception.
  • Loser pays legal fees: Currently, the losing party in most California civil actions pays the tab for court costs and attorney’s fees, but that’s not always the case with CEQA lawsuits. Those who bring CEQA actions shouldn’t be allowed to skip out of court if they lose without having to pick up the tab of the prevailing party.

Unfortunately, California’s new governor, Gavin Newsom, while acknowledging problems with CEQA, has put responsibility for recommending changes to CEQA in the hands of a task force consisting of labor union officials and land developers. It will be a surprise if a group dominated by these two special interests will be capable of coming up with the solutions recommended by De Arakal and others.

Principles of Appropriate Development in California

There is a moral imperative to increase the supply of housing in California. As noted, California’s policymakers have awakened to the fact that construction of new housing is not nearly meeting demand for new housing. But the way they’re going about stimulating housing construction is flawed. It will not appreciably lower the cost of housing and it will needlessly enrich special interests. Here are some ways housing could be more appropriately developed in California:

(1) Eliminate all forms of government subsidies, incentives or waivers to any developers. All players in the housing industry should be unsubsidized, and playing by the same set of rules.

(2) Stop requiring diverse types of housing within the same development or neighborhood. Mixing high-density, subsidized housing into residential neighborhoods devalues the existing housing, and this social engineering is unfair to existing residents who have paid a high price to live there.

(3) Roll back the more extreme building codes. Requiring 100 percent of homes to be “energy neutral” or include rooftop photovoltaic arrays, for example, greatly increase the cost of homes.

(4) Lower the fees on building permits for new housing and housing remodels. Doing this might require pension reform, since that’s where all extra revenue goes, but until permitting costs are lowered, only billionaire developers can afford to build.

(5) Speed up the permitting process. It can take years to get permits approved in California. Again, the practical effect of this failure is that only major developers can afford to build.

(6) Reform the California Environmental Quality Act as noted. Better yet, scrap it altogether. Federal laws already provide adequate environmental safeguards.

(7) Make it easier to extract building materials in-state. California, spectacularly rich in natural resources, has to import lumber and aggregate from as far away as Canada. This not only greatly increases construction costs, it’s hypocritical.

(8) Increase the supply of land for private development of housing. Currently only five percent of California is urbanized. There are thousands of square miles of non-farm, non critical habitat that could be opened up for massive land development.

(9) Engage in practical, appropriate zoning for infill and densification in urban cores, but only after also increasing the supply of open land for housing, and only while continuing to respect the integrity of established residential neighborhoods.

California has unaffordable housing because extreme environmentalists have imposed an agenda onto state policymakers that, unfortunately, dovetails perfectly with the agenda of special interests – in particular, public sector unions and bureaucrats, and large corporate land developers and construction contractors. This coalition is also responsible for the related problem of neglected infrastructure in California. Until California’s voters wake up and break this immoral, self-serving coalition, there is little hope that housing prices in particular, or the cost-of-living in general, will come down in California.

*   *   *

Edward Ring is a co-founder of the California Policy Center and served as its first president.

MORE GREAT ARTICLES