Key Policy Issues Affecting the California Housing Crisis

By Chad Lonski
May 29, 2019

Reluctance to Rezone Unused Retail Areas to Residential

Pension liabilities at the civic level have led to public officials refusing to rezone obsolete commercial properties for conversion to residential use. Demand for commercial real estate space has diminished since the rise of digital commerce and the convenience of home delivery. Unfortunately, cities are fervently holding tight to tax revenue-producing commercially zoned land in efforts to keep the city government ship afloat in the face of a hefty pension liability. The free market has long since deemed much of our retail space, and other commercial properties, to have a highest and best use in the realm of residential. The only element stopping the rezoning is a string of concerned city managers and “economic development” staff members.

The NIMBY Influence of Established Neighborhood Residents on Development

Well-established homeowners oppose the increased wave of new developments in their towns and communities. They voice concerns to city council about traffic, civic and neighborhood character, and many other urban development concerns, utilizing all in their influence to “save their neighborhood,” from the free-market process. Given their influence on the voting roll, it is council who is likely to take to heart their concerns over the concerns of future residents-to-be desperately in need of attainable housing supply.

California Environmental Quality Act 

The California Environmental Quality Act (CEQA) has been a star actor in reducing California’s economy ability to provide market-rate attainable housing. While initially passed by the state government to usher in a new era of environmental protection for our state’s natural resources, it has instead been abused by individuals and community groups up and down the state driven by special interests. At large unconcerned with CEQA’s initial intentions for environmental protection, such community groups and rogue attorneys turn to curbing vitally needed development projects on the virtually limitless legal risk that CEQA to which exposes developers. CEQA’s impact is especially effective on projects requiring zone changes or changes to city land use guidelines. Given the outdated nature of most civic land use guidelines, that would include most projects.

New “Carbon Neutral” Building Code Mandates

The California Building Code, from most reasonable perspectives, has played an important role in fulfilling vital elements in the creation of the built environment in California. In an earthquake prone state, it sets seismic standards for architects and structural engineers to abide. It also sets interior spatial requirements and other structural treatments to reduce the risk to human life in the occurrence of fires or other structural threats. It helps define construction standards and curb corner-cutting methods often overlooked by the natural market and consumer population given the under-the-hood nature of such processes. However recent developments to the building code’s role and regulatory influence go far beyond the reasonable into a realm of new green construction standards. The rise in imbedded green policy and “net-zero” carbon neutral legal development requirements have pushed the cost-benefit equilibrium far beyond what is attainable in the natural/unsubsidized marketplace at most product price segments. For every foot gained in carbon-neutral progress there is an argument to be made that we loose a mile in housing value and affordability.

Affordable Housing Mandates 

While the constraints on the housing production marketplace mentioned so far have reduced California’s ability to produce attainable housing, local affordable housing mandates has made the problem even worse. Feeling the pressures of rising homeless/transient populations and populist calls for government-centric solutions to the state’s housing crisis, it has become a recurring trend in key cities to require a percentage of low or middle income housing in new residential development projects, often at price points far below the market rate. Such price caps discourage development in said cities, and exasperate supply driven affordability issues.

As an alternative many cities and municipal governments allow developers the opportunity to pay an “in-lieu” fee to by-pass the requirement to set aside a certain percentage of a units for affordable housing. The said “in-lieu” fees however, much like the affordable housing allotment, discourage the development of new projects and can oftentimes be cost prohibitive to the already low revenues and high risk/slim profit margin nature of California development. The City of Santa Ana for example requires a $15.00 per square foot fee on entirely market-rate developments to be placed in a city managed “Inclusionary Housing Fund.” Such fees however are rarely utilized by the city in a timely or efficient manor to the actual creation of inclusionary/affordable housing.

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Chad Lonski is a recent graduate of the University of Southern California holding a B.S. in Real Estate Development and a minor in Architecture. He currently works for a residential developer based in Irvine, CA, assisting with financial underwriting and forward planning research.

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