Regulatory and Marketplace ‘Red Lights’ Block Governor’s Housing Goals

580 200 Diana Williams

(Photo: Frederick Dennstedt/Flickr)

A new report commissioned by California Forward concludes the state is not prepared to accommodate Gov. Newsom’s goal of 3.5 million new housing units by 2025 due to market and regulatory roadblocks that prevent development.

The report also finds that despite strong legislative focus on transit-oriented development, the busiest mass transit corridors cannot contain all the state’s growth and thus policy makers need to encourage housing development in other existing areas – such as “skipped over” vacant lots, abandoned malls and underutilized commercial and industrial land.

“We can’t accommodate all our growth in high-transit areas,” report author Walter Kieser, senior principal of Economic & Planning Systems (EPS), said at a recent California Forward convening of housing experts from the public, private and non-profit sectors. “To accommodate growth and produce housing, we have to expand the areas that are transit-served or figure out other kinds of transit service that will connect us to meet GHG targets.”

The report underscores the inherent tension between state goals for climate, which focus housing in urbanized, transit-rich communities, and state goals for production and affordability, which seek to boost home construction and bring down costs. Costs for land and infrastructure in communities close to high-frequency transit are often highest, meaning any housing – especially affordable housing – is extremely expensive to build.

“We need to widen the policy lens to develop a broader range of strategies for developing housing in existing areas – even if it’s not right next to transit,” said California Forward CEO Micah Weinberg.

The new California Forward report comes as home builders are pulling back from new construction when more, not fewer, homes, are needed to ease the state’s crisis. It also comes on the heels of a new study by UC Berkeley’s Terner Center for Housing and Innovation that highlights unintended consequences of policies such as Prop. 13 that restrict local taxes, leaving municipalities with limited means of raising revenue for infrastructure. As a result, California jurisdictions increasingly rely on development fees to pay for housing-related infrastructure, which, in turn, significantly drives up housing costs. The unsustainable nature of piggybacking infrastructure costs onto new home development is one of the key “red lights” highlighted in the new California Forward report.

In 2016, a seminal housing study by McKinsey Global Institute laid out the looming economic and social consequences of the state’s dire housing shortage. The McKinsey report, developed in association with California Forward’s Economic Summit, concluded the state needs to build 3.5 million new housing units by 2025 to account for the backlog in unbuilt homes (one million units) and to accommodate current population growth (2.5 million units). Governor Newsom subsequently embraced the target of 3.5 million new housing units as part of his campaign and has pledged to promote housing production to meet that goal.

California Forward’s new study finds the 3.5 million-unit-goal will likely not be met by 2025 and that a longer time frame is in order, perhaps as long as the year 2050.

Specifically, California Forward commissioned EPS to examine whether there is enough available, urban-served land in the most populous areas of the state to accommodate necessary housing. In undertaking its analysis, EPS defined “available” land as land that has the necessary zoning and other preconditions to be developed as housing; it defined “urban-served” as land within cities and unincorporated areas with backbone infrastructure in place such as roads, water and sewer. The report did not consider rural areas. The examination looked at Southern California, the San Francisco Bay Area, San Diego County, the Sacramento Metropolitan Area and Fresno County, which together account for 85 percent of the state’s population and are expected to absorb 81 percent of population growth over the next 30 years.

In short, the report concludes there is a shortage of land available for housing development in these regions, both in the short term and through the current regional planning horizon year of 2050, because of market and regulatory constraints that prevent housing from being built. These constraints include:

  • Lack of local approvals: The unwillingness of local governments to plan for and approve higher density housing and pursue strategic conversion of land zoned for other uses to housing development;
  • The high cost of clearing policy & regulatory hurdles: The costs and time-delays associated with obtaining development entitlements constrains the supply of available land for housing at any given time;
  • The high cost of building: Costs related to state and local building standards, regulations, impact fees, and high labor and materials costs are significant barriers, and
  • Housing-affordable land mismatch: In places where land is more affordable the market often will not support housing due to lack of economic development and job growth.

The report offers a framework with four central strategies for overcoming barriers and increasing land supply for housing:

  1. Broaden the types of land for housing: Converting “skipped over,” misallocated, and underutilized land within existing urban areas to housing;
  2. Upzoning and increasing housing densities in existing developed areas and on vacant and converted lands, along with reducing development costs;
  3. Improving the efficiency of delivering (i.e., planning and entitling) available housing supply land to the marketplace and,
  4. Pursuing economic development efforts that improve quality of life and attractiveness of portions of the metropolitan regions to employers and new residents.

California Forward will be continuing discussions on how to help deliver more affordable homes to the marketplace over the coming months and is incorporating feedback into the report, which will be the basis for policy discussions about housing at the 2019 California Economic Summit November 7 and 8 in Fresno.


Diana Williams

All stories by: Diana Williams