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How to NOT Solve California’s Housing Crisis

There are obvious reasons the median home price in California is $544,900, whereas in the United States it is only $220,100. In California, demand exceeds supply. And supply is constrained because of unwarranted environmental laws such as SB 375 that have made it nearly impossible to build housing outside the “urban service boundary.” These laws have made the value of land inside existing urban areas artificially expensive. Very expensive. Other overreaching environmentalist laws such as CEQA have made it nearly impossible to build housing anywhere.

Then there are the government fees attendant to construction, along with the ubiquitous and lengthy permitting delays caused by myriad, indifferent bureaucracies with overlapping and often conflicting requirements. There is a separate fee and a separate permit seemingly for everything: planning, building, impact, schools, parks, transportation, capital improvement, housing, etc. Government fees per home in California often are well over $100,000; in the City of Fremont in 2017, they totaled nearly $160,000 on the $850,000 median value of a single family home.

This is a shakedown. It has caused a politically engineered housing shortage in California that enriches billionaire property developers that have the financial strength to withstand decades of delays and millions in fees, because they reap the extreme profits when they sell these homes at inflated prices. Also enriched are the public servants whose pay and pensions depend on all taxes – definitely including property taxes – and all fees being as stratospheric as humanly possible. Public employee pension funds also benefit from housing scarcity, as their real estate investment valuations soar into bubbleland.

When litigious environmentalists, insatiable public sector unions, and an elitist handful of left-wing oligarchs control a state, artificial scarcity is the consequence. Welcome to California.

REJECTED POLICY – REAL SOLUTIONS TO THE HOUSING CRISIS

To decisively solve California’s housing shortage, some of California’s more than 25,000 square miles of rangeland, currently occupied by cattle, would have to be approved for suburban development. California is only 5 percent urbanized, although if you listen to environmentalists, you might get the impression it only had 5 percent remaining open space. You could fit ten million people onto half acre lots in four person households and you would only use up 2,000 square miles – that’s only 1.1 percent of California’s land area. Why aren’t massive new housing developments spreading out along California’s 101, I-5 and 99 corridors?

Real solutions to California’s housing crisis would also require increasing the capacity of California’s water infrastructure and transportation infrastructure. In both cases, investment would be cheaper if this expansion was done on raw land. Real solutions to California’s housing crisis would mean rescinding the mandatory rooftop solar requirement on new home construction, and instead recommissioning and expanding the nuclear power complexes at Diablo Canyon and San Onofre, and embracing development of additional nuclear power and natural gas power plants. In a less confiscatory regulatory environment, the private sector could fund all of this while lowering costs to consumers.

Reforming environmental restrictions and unleashing private sector development of homes and infrastructure is the fastest, easiest way for home prices in California to return to near the national average. In turn, that would solve nearly every problem associated with a shortage of housing. California’s families would be able to afford to buy homes, or pay affordable rent. California’s employers, most definitely including government agencies, would be able to attract workers at prices that would not break their profits or their budgets, which would benefit the economy. And far fewer people would be rendered homeless.

APPROVED POLICY – COMPLETELY USELESS “SOLUTIONS” TO THE HOUSING CRISIS

As long as environmentalist litigators, public sector unions, and left-wing oligarchs run California, none of these real solutions will ever happen. What are they proposing instead?

To summarize, all politically viable housing solutions in California involve densification, i.e., cramming ten million more people into existing urban areas, and, predictably, more taxes, bonds, fees, subsidies and government programs.

Rent Control, Government Subsidized “Affordable Housing” and Government Funded Homeless Shelters

California is the epicenter of America’s “progressive” power structure. In California, in addition to controlling the public bureaucracy through their unions, progressive ideologues control the press, social media, search media, K-12 public education, academia, most corporations, the entertainment industry, and virtually all serious political campaign spending. As a result, California’s progressives can use ballot initiatives to con a brainwashed populace into approving their latest housing policy agenda. The common thread? Government control; government funding. For example, on the ballot this November are propositions to permit cities and counties to enact rent control, issue state bonds totaling $4 billion to build “affordable housing,” and use state tax revenues to build more government-run homeless shelters. It is possible all three of these measures will pass.

Already in progress is the implementation of California state laws that took effect Jan. 1 – AB 2299 and SB 1069 – which amend existing state laws governing “accessory dwelling units.” These new laws force California’s counties to streamline the process whereby homeowners can construct additional homes in their backyards. Does that sound good? Not so fast.

Doubling Suburban Population Densities ala Government Subsidized “Accessory Dwelling Units”

There’s a reason people work hard for decades to pay off their mortgages so they can own homes in spacious suburbs. It’s because they value the leafy, semi-rural atmosphere of an uncrowded suburban neighborhood. AB 2299 and SB 1069 will effectively double the housing density in these neighborhoods, violating the expectations of everyone living there who relied on the zoning rules that were in effect when they bought their homes.

If zoning laws in existing suburbs were relaxed at the same time as zoning restrictions were lifted on the urban periphery, the impact of these new rules might be mitigated. But every policy California’s elite and enlightened geniuses come up with is designed to maintain “urban containment.” And to add to the disruption these laws will inflict on quiet neighborhoods, California’s cities – starting with Los Angeles – are providing subsidies to homeowners to build these homes, then encouraging them to rent the properties to low income families wherein the government will pay the rent via Section 8 vouchers.

This is an expensive, utopian scheme that oozes with compassion but is fraught with problems. Doubling the density of suburbs is already problematic. But doubling the density of suburbs by subsidizing the settlement of people on government assistance into every backyard, invites social friction. It is forcible integration of people who, for whatever reason, require government assistance to support themselves, into communities of taxpayers, who, by and large, are working extra hard to pay the mortgages on overpriced homes in order to provide their children with safe neighborhoods.

As usual, when it comes to enlightening the public, neither the media, nor the urban planning experts in academia, ever offer much beyond pro-densification propaganda. A glowing New York Times article, entitled “A Novel Solution for the Homeless: House Them in Backyards,” raves about this entire scheme, already being tried in Los Angeles, Portland and Seattle. The article includes a quote from Vinit Mukhija, a professor of urban planning at UCLA, who says: “The value [of subsidized accessory dwelling units] goes beyond that, though, because it is finally somewhat of a departure of the purity of single-family housing in the region. It’s a good step to change what people here really consider a dogma of private housing.”

The “dogma of private housing.” That epitomizes California’s elitist hostility towards ordinary families owning detached homes with spacious yards.

The incentives created by such a project are perverse. California’s elite has made homes unaffordable. Then, to the people who sacrificed so much to buy these homes despite their punitively high prices, the government offers them subsidies and Section 8 payments, if they are willing subdivide their lots and turn over half their property to people supported by the government. Inevitably, many financially struggling homeowners will be forced to accept this cruel bargain if they want to keep their homes.

Finally, just like in 2008, there will eventually be another economic downturn, when many distressed homeowners will be forced to sell their properties. And when that happens, just like in 2008, investment banking speculators will move in and buy homes by the thousands. This next time, however, these institutional investors will be salivating at the prospect of collecting government subsidies so they can operate two rental units on a single piece of property.

Demolishing Homes to Build High Rises Near Transit Stations

Another way California’s elites – many of whom live in gated communities with homeowner covenants prohibiting nasty things like accessory dwelling units in backyards – propose to solve California’s housing crisis is to force demolition of single family dwellings in the vicinity of mass transit stations. They support this mass destruction of vintage neighborhoods in order to make room for high density apartments and condominiums up to five stories in height. While an attempt in 2018 to enact this draconian solution was beaten back, California’s coercive utopian lawmakers will bring it back in 2019. Some form of this law is likely to pass.

There’s nothing wrong with gradually increasing the population density in the core of large cities. That is a natural and organic process. But it is the job of legislators and local officials to moderate that process, protecting established neighborhoods. Instead, again, the policy consensus in California is to cram ten million new residents into existing urban areas.

Government Subsidized Homeless Shelters on some of the Most Expensive Real Estate on Earth

Perhaps the most misguided housing policies coming out of California concern the homeless. Despite years of bloviating by the compassionate elite, almost no good data is available on homeless populations, much less any good policies. Press coverage of the homeless centers on the family unit; small children, parents forced out of their home by high rents. These are gut wrenching stories. But accompanying the legitimate cases of families or individuals coping with undeserved hardship, there are the willfully indigent, along with criminals, drug dealers, sexual predators and perverts. Again, the City of Los Angeles offers a striking example of bad policy.

In Venice Beach, which is within Los Angeles city limits, along one of the most expensive, touristy stretches of coastline in the world, there are now permanent homeless encampments. To address the challenge, Los Angeles city officials are fast-tracking the permit process to build a homeless shelter on 3.2 acres of vacant city-owned property less than 500 feet from the beach. This property, nestled in the heart of Venice’s upscale residential and retail neighborhoods, if commercially developed, would be worth well over $200 million. Imagine what could be done with that much money if the goal was to truly help the homeless. And by the way, the proposed shelter will be a so-called “wet” shelter, meaning that drugs and alcohol will not be permitted inside the shelter, but intoxicated homeless individuals will be allowed inside. Go in, get a bed, go out, shoot up, come back in.

That a solution so scandalously inefficient could even be considered by the do-gooders running City Hall in Los Angeles offers additional insights into the minds of California’s progressive elite. Solving the homeless crisis isn’t their goal here. Rather the intent is to create additional government-owned properties, hire additional government bureaucrats, while preening in front of television cameras and pretending to solve a problem. Should the Venice Beach property be developed as currently proposed, well connected construction contractors will rake in government funds, so eventually “up to 100” homeless people will find shelter. Meanwhile, thousands will remain outdoors.

California’s housing is unaffordable because of restrictive laws such as CEQAAB 32SB 375, and countless others at both the state and local level. At the same time, California’s political elites are are inviting in the world’s poor en masse to come and live here. An estimated 2.6 million illegal aliens currently live in California. But the rhetorically unassailable compassion expressed by these sanctuary policies does nothing to alleviate hardship in the nations where these refugees originate, because for every thousand who arrive, millions are left behind.

The result? While California’s visionary rulers engineer a shortage of housing supplies, their welcoming sanctuary policies engineer a burgeoning housing demand. This is the deeply flawed agenda they have implemented in California and are actively exporting to the rest of America.

The biggest lie of all is the compassionate facade that overlays every housing solution California’s elite promote. Because their solutions, however viable they may be politically, will not work. They defy basic economic sense. They create additional drain on public funds while doing nothing to alleviate the high prices that are caused by scarcity. They are sustained by an impossible assumption, that urban densification, and all the destruction that densification will bring, will in itself be sufficient to restore a supply and demand equilibrium for housing. And they reject the obvious solution, suburban expansion to complement higher densities in the urban cores, based on environmentalist objections that are overwrought. In practice, the solutions being implemented to resolve California’s housing crisis are not compassionate. They are cruel.

Eventually, enough Californians are going to realize they’ve been conned. They will recognize that government subsidized densification is financially unsustainable and ruinous to their way of life. They will support politicians who are willing to stand up to environmentalist litigators, government unions, and the left-wing oligarchy that profits from scarcity. Hopefully that will happen before it’s too late.

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California's Green Bantustans

One of the core barriers to economic prosperity in California is the price of housing. But it doesn’t have to be this way. Policies designed to stifle the ability to develop land are based on flawed premises. These policies prevail because they are backed by environmentalists, and, most importantly, because they have played into the agenda of crony capitalists, Wall Street financiers, and public sector unions. But while the elites have benefit, ordinary working families have been condemned to pay extreme prices in mortgages, property taxes, or rents, to live in confined, unhealthy, ultra high-density neighborhoods. It is reminiscent of apartheid South Africa, but instead of racial superiority as the supposed moral justification, environmentalism is the religion of the day. The result is identical.

Earlier this month an economist writing for the American Enterprise Institute, Mark J. Perry, published a chart proving that over the past four years, more new homes were built in one city, Houston Texas, than in the entire state of California. We republished Perry’s article earlier this week, “California vs. Texas in one chart.” The population of greater Houston is 6.3 million people. The population of California is 38.4 million people. California, with six times as many people as Houston, built fewer homes.

And when there’s a shortage, prices rise. The median home price in Houston is $184,000. The median price of a home in Los Angeles is $530,000, nearly three times as much as a home in Houston. The median price of a home in San Francisco is $843,000, nearly five times as much as home in Houston. What is the reason for this? There may be a shortage of homes, but there is no shortage of land in California, a state of 163,000 square miles containing vast expanses of open space. What happened?

You can argue that San Francisco and Los Angeles are hemmed in by ocean and mountains, respectively, but that really doesn’t answer the question. In most cases, these cities can expand along endless freeway corridors to the north, south, and east, if not west, and new urban centers can arise along these corridors to attract jobs. But they don’t, and the reason for this are the so-called “smart growth” policies. In an interesting report entitled “America’s Emerging Housing Crisis,” Joel Kotkin calls this policy “urban containment.” And along with urban containment, comes downsizing. From another critic of smart growth/urban containment, economist Thomas Sowell, here’s a description of what downsizing means in the San Francisco Bay Area suburb Palo Alto:

“The house is for sale at $1,498,000. It is a 1,010 square foot bungalow with two bedrooms, one bath and a garage. Although the announcement does not mention it, this bungalow is located near a commuter railroad line, with trains passing regularly throughout the day. The second house has 1,200 square feet and was listed for $1.3 million. Intense competition for the house drove the sale price to $1.7 million. The third, with 1,292 square feet (120 square meters) and built in 1895 is on the market for $2.3 million.”

And as Sowell points out, there are vast rolling foothills immediately west of Palo Alto that are completely empty – the beneficiaries of urban containment.

The reason for all of this ostensibly is to preserve open space. This is a worthy goal when kept in perspective. But in California, NO open space is considered immediately acceptable for development. There are hundreds of square miles of rolling foothills on the east slopes of the Mt. Hamilton range that are virtually empty. With reasonable freeway improvements, residents there could commute to points throughout the Silicon Valley in 30-60 minutes. But entrepreneurs have spent millions of dollars and decades of efforts to develop this land, and there is always a reason their projects are held up.

The misanthropic cruelty of these polices can be illustrated by the following two photographs. The first one is from Soweto, a notorious shantytown that was once one of the most chilling warehouses for human beings in the world, during the era of apartheid in South Africa. The second one is from a suburb in North Sacramento. The scale is identical. Needless to say, the quality of the homes in Sacramento is better, but isn’t it telling that the environmentally enlightened planners in this California city didn’t think a homeowner needed any more dirt to call their own than the Afrikaners deigned to allocate to the oppressed blacks of South Africa?

The Racist Bantustan

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Soweto, South Africa  –  40′ x 80′ lots, single family dwellings

When you view these two studies in urban containment, consider what a person who wants to install a toilet, or add a window, or remodel their kitchen may have to go through, today in South Africa, vs. today in Sacramento. Rest assured the ability to improve one’s circumstances in Soweto would be a lot easier than in Sacramento. In Sacramento, just acquiring the permits would probably cost more time and money than doing the entire job in Soweto. And the price of these lovely, environmentally correct, smart-growth havens in Sacramento? According to Zillow, they are currently selling for right around $250,000, more than five times the median household income in that city.

The Environmentalist Bantustan

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Sacramento, California  –  40′ x 80′ lots, single family dwellings

When you increase supply you lower prices, and homes are no exception. The idea that there isn’t enough land in California to develop abundant and competitively priced housing is preposterous. According to the American Farmland Trust, of California’s 163,000 square miles, there are 25,000 square miles of grazing land and 42,000 square miles of agricultural land; of that, 14,000 square miles are prime agricultural land. Think about this. You could put 10 million new residents into homes, four per household, on half-acre lots, and you would only consume 1,953 square miles. If you built those homes on the best prime agricultural land California’s got, you would only use up 14% of it. If you scattered those homes among all of California’s farmland and grazing land – which is far more likely – you would only use up 3% of it. Three percent loss of agricultural land, to allow ten million people to live on half-acre lots!

And what of these lots in North Sacramento? What of these homes that cost a quarter-million each, five times the median household income? They sit thirteen per acre. Not even enough room in the yard for a trampoline.

There is a reason to belabor these points, this simple algebra. Because the notion that we have to engage in urban containment is a cruel, entirely unfounded, self-serving lie. You may examine this question of development in any context you wish, and the lie remains intact. If there is an energy shortage, then develop California’s shale reserves. If fracking shale is unacceptable, then drill for natural gas in the Santa Barbara channel. If all fossil fuel is unacceptable, then build nuclear power stations in the geologically stable areas in California’s interior. If there is a water shortage, than build high dams. If high dams are forbidden, then develop aquifer storage to collect runoff. Or desalinate seawater off the Southern California coast. Or recycle sewage. Or let rice farmers sell their allotments. There are answers to every question.

Environmentalists generate an avalanche of studies, however, that in effect demonize all development, everywhere. The values of environmentalism are important, but if it weren’t for the trillions to be made by trial lawyers, academic careerists, government bureaucrats and their union patrons, crony green capitalist oligarchs, and government pension fund managers and their partners in the hedge funds whose portfolio asset appreciation depends on artificially elevated prices, environmentalism would be reined in. If it weren’t for opportunists following this trillion dollar opportunity, environmentalist values would be kept in their proper perspective.

The Californians who are hurt by urban containment are not the wealthy elites who find it comforting to believe and lucrative to propagate the enabling big lie. The victims are the underprivileged, the immigrants, the minority communities, retirees who collect Social Security, low wage earners and the disappearing middle class. Anyone who aspires to improve their circumstances can move to Houston and buy a home with relative ease, but in California, they have to struggle for shelter, endlessly, needlessly – contained and allegedly environmentally correct.

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Ed Ring is the executive director of the California Policy Center