Solving Affordable Housing Crisis Should be Driven by Economics not Politics

California is in a housing crisis. And it is no accident. This crisis is the logical conclusion of bad policy and failed leadership. Elected officials and government agencies have neglected their duty to act as custodians of the public interest. And their proposals for solutions to the crisis they have created will only make it worse.

For years, I’ve watched as elected officials have continually acquiesced to both the self-interest of homeowners and the sentiments of so-called Not In My BackYard (NIMBY) anti-growth groups, stifling the kind of development that Californians need to offset record demand and skyrocketing prices. As anyone who has even a basic understanding of economics knows, the only way to respond to increasing demand and associated higher prices is to increase supply. But by reducing supply in the face of record demand, prices will go up. To make matters worse, when this artificially restricted supply is combined with a ridiculously lengthy and expensive permitting process, it leads to only higher housing costs, which are then passed on to renters and home buyers.

Proposition 10, which would expand rent control throughout California, would only make things worse. Instead of allowing politicians to blame “greedy landlords” for their failure to lead, we need to step back and attempt to understand what’s going on in the state of California, and look at the root causes for the crisis we are in today.

Across the country, 43.1 housing permits are filed for every 100 residents. But the state of California issues only 24.7 permits per 100 residents, second lowest only to Alaska. Overall, California issues just as many building permits as Florida, a state with 18 million fewer people. And California already has the second lowest homeownership rate in the country, and the highest home prices of any state, leading more people to seek rental housing. With this kind of rental demand, prices go up, as you might expect (again, Econ 101). But you might also expect that builders and developers, incentivized by this demand, would build more apartments to keep up. Why haven’t they?

To compound the problem, California has a notoriously onerous permitting process for new construction. In California it takes on average eight months for coastal metro areas to receive development permits to build new housing, nearly double the average for US metro areas. Making matters even worse, NIMBYs use existing environmental regulation to suit their interests and block construction. The California Environmental Quality Act (CEQA) allows individual citizens and NIMBYS to protest new construction with litigation — or just the threat of it — delaying the permitting process and further driving up the costs of development. And as Milken Institute’s Kevin Klowden explains, even rival developers can do the same.

“It’s just that it’s so easy for a competitor or for somebody with some sort of rival interest to file that lawsuit and create delays and try and discourage the development and get more favorable terms or get bought off,” Klowden said in an article published by KCET news.

NIMBYs often mobilize under the banner of waging war against gentrification and displacement, particularly taking aim at denser, multi-family housing projects (the very sort of projects that could provide more supply). But while concerns about increased density and displacement may have some merit, preventing new construction exacerbates the very same economic pressures these NIMBYs are protesting against. You would think it would be in the interest of those protesting against higher rent to advocate for more supply. In order to keep up with demand, California needs to build between 70,000 to 110,000 units of housing each year — while also building more densely.  But instead, NIMBYs organize to prevent more supply from being built, and rents just get higher and higher, making California less and less affordable for working and class middle families.

Expensive land plus an expensive development process equals expensive housing and higher rent. It’s simple math. In an effort to further ignore economics and avoid the evitable, NIMBYs and the politicians that abet them think they have the solution for the problem they’ve caused.

Proposition 10, on California’s November ballot, would overturn the Costa–Hawkins Rental Housing Act, allowing local governments to regulate the price of rental housing, including single family homes. Prop. 10 will raise rent costs further, and new renters will face increased rents, as rents are raised to compensate for losses in units with below market, rent-controlled units, according to Peter A. Tatian, a researcher at Urban Institute.

“On rent stabilization, the strongest finding … appears to be that tenants in noncontrolled units pay higher rents than they would without the presence of rent control; one reason being that landlords need to make up the difference for lower rents in controlled units,” Tatian wrote in a report published by Urban Wire. “Interestingly, one study found that New York City tenants in controlled units also had higher rents initially, because they were willing to pay more to get into a rent-controlled unit with the understanding that they would have smaller rent increases in the future. The net effect, however, is that tenants don’t save much in the long run—they simply trade higher rents now for lower rents later.”

Even worse, Prop 10 doesn’t have any means testing – wealthy individuals qualify for the exact same rent-control restrictions that low-income households might. That’s right – according to one expert, rents will skyrocket for new renters, students, young families, and immigrants, subsidizing the rents of many well-off Californians.

“Not one of these rent-control measures on the ballot have any means testing. You can be making $150,000 a year, and if you are in a rent-controlled unit, you are never going to leave. All of a sudden there is no trickle effect. No working-class family will ever get that unit,” said Thomas Bannon, CEO of the California Apartment Association.

Rent control is not going to bring long term rent relief: it’s going to make the problem worse because the root of the housing crisis is not being addressed. Rent control will further constrict development and raise prices even more over time. Again, it’s simple math. But Prop 10 supporters – notably, for some strange reason, the AIDS Healthcare Foundation and Michael Weinstein, – aren’t interested in the math or housing needs, they are interested in playing politics.

In NIMBYs’ minds, the California housing crisis isn’t about demand not keeping up with supply, or well-intentioned yet poorly conceived environmental regulation or wages that don’t up with inflation. Instead, they believe it is as simple as blaming landlords. It’s also quite convenient. In in another effort to avoid solving the problem, the politicians that pander to them, seeking their votes. It’s a vicious cycle.

But for anyone who has taken a survey course on economics, the affordability crisis is simple: it comes down to supply and demand.

Until the supply problem is addressed — as SB 827 would have done — California’s housing crisis isn’t going to get any better. It’s going to get worse.


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