California Housing Crisis: Part 3

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Editor’s Note: This is Part 3 of a three-part article. Part 1 and Part 2 appeared in the May and June issues of the Apartment Journal.

VI. Local Governments Are Unaccountable and Stifling Growth.

Two statewide housing laws, the Housing Element law and the Housing Accountability Act (HAA), establish local governments’ responsibility to plan, promote, and remove barriers for housing development. The Housing Element law requires cities and counties to develop comprehensive plans every eight years to build new homes in their communities. The HAA was enacted to ensure local governments work to remove barriers to housing development through speedy development approvals and rezoning. Neither of the laws are respected or honored by local governments.

“We’re kind of lying,” said a Foster City councilmember about his city’s 87-page housing plan, which proposed hundreds of new homes.41 “We have no intention of actually building the units.” The councilmember’s prediction came true according to a recent LA Times article. “Despite soaring demand for housing in the Bay Area, the city hasn’t approved any new development projects in more than five years.”42

Foster City’s decision to ignore the housing element is pervasive among cities and counties throughout California. That’s because the housing element law has no teeth—it does not hold local governments accountable for any home building.43

State lawmakers have known about the law’s weaknesses for decades but haven’t fixed them. They have added dozens of new planning require ments to the process but have not provided any incentive, such as a greater share of tax dollars, for local governments to meet their housing goals.44

In addition to ignoring the housing element, local government housing decisions have made it even more difficult to build new housing.45

More than two-thirds of California’s coastal communities have adopted measures - such as caps on population or housing growth, or building height limits—aimed at limiting residential develop ment, according to the Legislative Analyst’s Office. A UC Berkeley study of California’s local land-use regulations found that every growth-control policy a city puts in place raises housing costs by as much as five percent there.”46

Cities are also bypassing their responsibilities under HAA by rezoning areas for commercial development over housing, and by modifying their zoning plans in ways that make housing infeasible.47

City and county inaction has become such a big problem that several bills from the 2017 housing package were necessary to stifle the ability of local governments to use zoning, environmental and procedural laws to thwart projects they deem out of character with their neighborhood.48

All in all, local governments are not holding up their end of the bargain to accommodate housing needs. Instead of adopting policies that facilitate the development of more housing units, they often target the rental housing industry for regulation, which in turn produces fewer housing units, and forces rental housing owners to remove units from the market.

VII. The High Cost of Development.


Development costs, land values, and permitting fees are soaring, making it more difficult for develop ment of rental housing to pencil out. One architect in 2014 conducted a study on the real cost to build a housing unit in San Francisco. According Mark Hogan, the costs are staggering.49

The following is his breakdown of the costs to build a San Francisco unit.50 Calculations are based on a 100-unit building assuming 800 square feet per unit, which is approximately 640 square feet of usable space based on typical building efficiency:

  • Land cost per unit of housing: $120,000
  • Construction cost per unit: $240,000 ($300 per sq. ft.)
  • Subsidy to build affordable housing below market: $27,000 (based on $200k per unit subsidy times 12, divided by remaining 88 units)
  • Permits, city fees and professional services: $48,000 (20 percent of $240,000)
  • Selling expenses: $34,000 (marketing, legal fees and real estate commissions at eight percent)
  • Total: $469,800 (total cost of 800 sq. ft. per unit)


It is no wonder rents are so high and housing is unaffordable. It is expensive to build. Rental property owners must charge higher rents to keep up with the cost of development.

The government again plays a significant role in the high cost of development. For one, its permitting and impact fees continue to rise. But more importantly, instead of providing incentives to offset the costs of development, the government continues to focus on burdening the rental housing industry with costly regulations.

If the State and local governments want to begin addressing the out-of-control development costs, it must give serious consideration to incentivizing development of new and afford able housing, including density bonuses, fee and permitting waivers, and CEQA waivers. Several recent studies have found that for every 10 percent increase in density reduces a project cost by up to 5.7 percent on average, and that for every 20 percent increase, the likelihood a site will be developed increases by 25 percent.51

Moreover, parking requirements can increase the cost of a housing development by 25 to 40 percent. One study found that reducing parking requirement by 20 percent increased the likelihood of housing being built by 87 percent.

Finally, waiving or reducing development impact fees as an incentive to build can help spur growth. In the Bay Area, impact fees can range from $24,000 – $40,000 per unit. Even a small reduction in the impact fees, or complete waivers depending on the number of affordable units provided within a development could yield big return in terms of housing development.

Conclusion

Instead of blaming and regulating the housing industry for the housing crisis, it is time for government to take a good hard look in the mirror and assess how its own actions and inactions over the last 50 years have significantly contributed to the crisis. Until the government can acknowledge that it is part of the problem, the State will continue to make the same mistakes over and over. It will continue to offer up the same problematic legislative measures, like Costa Hawkins repeal, that exacerbate rather than solve the State’s housing problems.

As California’s population continues to rise, its housing problems will continue to get worse unless real reflection occurs and real solutions are offered. It is time for the government to take responsibility for its actions and begin regulating and reigning itself in.

Ron Kingston can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

No portion of this article may be reproduced or copied without the permission of the author (Copyright © 2018 CALPCG).

 



41 Supra note 18 (article dated June 17, 2017).
42 Id.
43 Id.
44 Id.
45 Id.
46 Id.
47 Kevin Burke. “How Cities Bypass State Law, Causing the Housing Crisis.” The Bay City Beacon. August 2, 2017. Web January 2018.
48 See Sen. Bill 35 (Cal. Stat. 2017), Sen. Bill 167 (Cal. Stat. 2017); Adam Nagourney and Conor Dougherty. “The Cost of a Hot Economy in California: A Severe Housing
Crisis.” The New York Times. July 27, 2017. Web January 2018.
49 Mark Hogan. “The Real Costs of Building Housing.” The Urbanist. February 11, 2014. Web January 2018.
50 It does not include construction financing expenses, contingencies or developer’s profit, among other things.
51 Matthew Palm. “Getting the Most Out of California’s New Affordable Housing Funds.” The Bay City Beacon. December 5, 2017. Web January 2018.

 

 

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