California’s Affordable Housing Crisis: A Supply & State Efforts Update

Ann Sewill: Frame the parameters of the supply and demand crisis. 

Leslie Appleton-Young: The good news is that if you’re looking for a $3 million home, there’s a seven-month supply on the market. But if you’re looking for affordable housing—let’s say, under $500,000—there is a 2.2- month supply. There’s more room to play at the upper, luxury level; the strain is on the ability to get in at entry level.

About 28 percent of people in LA County can afford to buy a median-priced home. But I challenge anyone to find a median-priced home to buy. There’s an old joke: Drive until you qualify. We see this playing out in transportation infrastructure as well.

We’re losing working-class families and millennials to other parts of the country. At some point, a supply problem becomes a demand problem—and we are going to see our economic edge dulled by our inability to house workers.

There’s a myth that wealthy people are leaving because of the tax structure. But the reality is that wealthy people can afford to be here, and it’s the working class and younger people that aren’t able to make it.

Jonathan Lawless: We are not alone in California. At the end of the day, it boils down to an inventory challenge nationally. Housing starts in this country are not nearly enough to keep up with population growth or obsolescence rates. Everybody across the country is extremely inventory-constrained.

Some of the drivers of those constraints are common, like regulatory costs, minimum lot size, parking lot requirements, environmental requirements like CEQA. They lead to longer development times and higher costs.

Also common is labor shortages. Post-crisis, about half of workers in the construction industry left their jobs. Builders are now trying to bring back skilled workers—and they’re facing major headwinds. 

They’re facing the headwinds of vocational schooling becoming less popular. They’re facing the headwinds of immigration, which for the past decade has been trending in the wrong direction. And every construction company I’ve talked to has mentioned this: they’re having trouble finding people who can pass a drug test. Exacerbating the problem are natural disasters, which are taking a bunch of the workforce, and the remodeling industry, which was $360 billion last year. 

The No. 1 factor affecting smaller homes is single-family rentals. The shortage on the rental side has spilled over into homes that you could once own becoming rental homes. We estimate that about 10 years of construction was taken off the market after the crisis, as the percentage of single-family homes that are rentals went from 15 to 20 percent.

The second is the filtering effect: people staying in their first homes for longer. There are lots of common problems, and problems affecting cities differently, but all end up at the same issue: a massive shortage of inventory.

Ann Sewill: Let’s turn to solutions.

Ben Metcalf: The bottom line is that we need to put 180,000 new homes online every year. And state housing law asks every city in California to plan for their share of that housing.

Over the previous eight-year cycle, statewide, we have only been able to actually permit 46 percent of the need we had projected at minimum. This is supply and demand 101: we just haven’t been building.

First of all, we’re going to need ways to get housing built faster and more efficiently through our regulatory processes. We’re going to have to hold local bodies accountable to a significant body of state housing law that’s already on the books. We’re also going to need interventions that draw subsidy into the marketplace to serve vulnerable households and folks at that absolute lowest end of the income spectrum.

Coming out of the legislative session last year, we were able to secure the 15 bills that were blessed as the housing package. Now that we’re into 2018, we are beginning to see the fruits of that labor.

One is SB 35, which is the signature streamlining ordinance that says: If you, as a jurisdiction, have properly zoned for the housing you were asked to plan for, you cannot withhold approval from a conforming project—or use your discretion to lop off a top floor—if you’ve fallen significantly behind in terms of meeting your state housing goals.

This was a hugely controversial way of thinking about things. We haven’t historically had consequences, or teeth, for the failure to meet your housing needs goals. Now we’ve said, “You said you were going to plan for it, but you’re not meeting your goals, so we’re taking away your land-use authority.”

97 percent of California jurisdictions are not pacing their minimal RHNA targets. Of the 197 Southern California jurisdictions, only three are pacing their targets. 75 percent of jurisdictions in California are not making their lower-income goals, and about 25 percent of them are not making their above-moderate-income goals. Virtually every jurisdiction in Southern California is going to be subject to SB 35.

Ann Sewill: What is the relationship between housing supply and the homelessness crisis—and will any of these bills address that?

Ben Metcalf: There is a very strong relationship. HUD recently put out their comprehensive report on rates of homelessness in every jurisdiction in America. In much of the nation, we’re seeing progress on chronic homelessness and veteran homelessness. Policy interventions like permanent supportive housing and rapid rehousing are bearing fruits, and folks are staying stably housed once they are housed.

Those same interventions are being used here in California, but the data suggests that we are going upstream and against the tide because the net flow of new homeless coming into the system is so vastly greater than the outflow. LA County in particular is ground zero for that in California: 40 percent of the state’s homeless population calls LA home, and that number has gone dramatically up year over year.

What are we doing about this? Nothing commensurate with the scale of the problem, that’s for sure. But hats off to the voters of LA for passing significant bond measures that put massive amounts of new resources on the table. At the state, we put an additional $2 billion of bond funds out through the No Place Like Home bond two years ago.

Last fall, we kicked off our first ever statewide interagency Homeless Coordinating and Finance Council, bringing together senior leadership from all of our state agencies who touch homelessness issues—about a dozen of them—to force the tough conversations about lining up funding for mental health services, social services, healthcare, and housing. My basic theory is: No. 1, we need to solve the housing crisis; no. 2, we need to get smarter about deploying the interventions we have, and no. 3, we need more special purpose funding.

Ann Sewill: In addition to the homelessness measures, we saw two other important ballot measures last year. We defeated Measure S, which would have had a terrible impact on supply in the city of Los Angeles. And we passed Measure JJJ, which requires affordability and prevailing wages on projects that ask for density increases.

I wonder, how much did those ballot measures affect the behavior of the legislature a few months later? How much does voter fury about the housing problem drive behavior in Sacramento—and do we need more of it?

Ben Metcalf: As exciting as this 15-bill package was, it’s really just a bite at the problem. We didn’t do a good job at the state level of tackling underlying root cause issues around cost. There are a lot of good conversations around things like RHNA, transit-oriented development, and making our accessory dwelling unit state legislation more effective. I think there will continue to be incremental work on these fronts this year.

Leslie Appleton-Young: I think we need a lot more fury. Most development is subject to local control, and that’s where we get problems. People are happy to say, “Yes, let’s do something about this,” at the state level—but not when it comes to their community. There is not enough voter fury at the local level to get these things built.

When we talk about the housing market, we tend to focus on price and recovery from the financial crisis. But the actual number of transactions has been bouncing around a narrow band of 400,000 to 440,000 for the last six or seven years. We had more transactions when we had 10 million fewer people living in California. 

There is a mismatch between demographics and housing—and between jobs and housing. From 2010 to 2015, there were 381,000 new jobs in Los Angeles, and only 80,000 new housing units.

Ben Metcalf: Our report shows that this supply shortage has disproportionately impacted where homes are getting built. Houses, when we are building them, are in farther away locations. That’s doubly painful, because it means we are exacerbating traffic and commutes, going counter to our climate change goals—and fueling inequality. It’s not just that we need more supply; it’s that we need more supply in the right places.