New California Laws Attack The State’s Housing Crisis

After California Governor Gavin Newsom triumphed in the recall election, he signed three controversial bills meant to increase house building and supply.  The bills limit local zoning control and override some local powers that are used to block affordable housing projects.  Will these provisions help solve California’s deep housing affordability crisis?

There’s no question about California’s crisis.  In August, the median price of a single-family home set a new state record of $827,940, 17.1% higher than one year ago.  The median home price in Santa Clara county, home of Silicon Valley, hit $1,655,000,  while median prices in San Francisco County reached an eye-popping $1,850,000.

Such staggering prices make housing hard to afford for virtually everyone, but especially for low-income families.  The National Low Income Housing Coalition (NLIHC) estimates that close to 90% of California households with extremely low incomes spend over 30% of their income on housing and 76% must spend over half of their income.  This results in a gap of over 960,000 rental homes for these poor families.

Why these high prices and gaps in housing supply?  Economists point to a lack of new construction as the main culprit.  As supply has lagged, prices have risen.

Data show California has simply failed to build enough housing for at least the past decade.  Jobs in the Metropolitan Statistical Area (MSA) making up most of Silicon Valley increased by 23 percent after 2008’s Great Recession, but housing lagged behind—there were 3.2 new jobs for each new housing unit permit.  In San Francisco and San Mateo counties, it was even worse—“the ratio of new jobs to new housing permits over the decade was over 6 to 1.”

Many economists and housing analysts attribute the lack of new construction to resistance from local governments.  Through a combination of exclusionary zoning and land use controls, a refusal to allow multifamily housing construction, and ceding decisions on housing project approvals to homeowner associations, construction could not keep pace.

Faced with a repeated lack of action by many local governments, the state legislature finally acted.  They passed, and Governor Newsom signed, three bills.  SB8 extends 2019’s Housing Crisis Act to 2030 (instead of expiring in 2025), limiting localities’ ability to turn down affordable housing projects that meet objective criteria and restricting their ability to “downzone”—that is, change zoning laws and regulations to further limit density.

SB9, the California Housing and More Opportunity Efficiency (HOME) law, allows property owners of single-family zoned lots to construct up to four units there.  Cities also must create “objective” standards for projects, and if those are met in a proposal, the project is supposed to be approved.

SB10, the third bill passed and signed, makes it easier to “upzone” areas near transit hubs, allowing more dense projects to be built.  This is voluntary for cities, but it limits the ability of opponents to block such projects using the California Environmental Quality Act (CEQA).  Some housing experts believe the CEQA, enacted when Ronald Reagan was governor, has been weaponized to block development.

Housing advocates and observers cheered Newsom’s signing of the three bills.  San Francisco Chronicle columnist Heather Knight tweeted “Bye single family zoning” in response to Newsom’s approval of SB9. 

But while welcoming the Governor’s actions, other observers were less confident the three bills would make much difference in California’s housing crisis.  Local opponents of housing development still have many weapons at their disposal and could well deploy them in order to blunt the new legislation’s intentions.

This opposition could be strengthened by the strange anti-development alliance between wealthy homeowners and some progressive and leftist housing advocates.   These objections aren’t limited to California, and my next blog will explore this opposition and its possible impact on the housing crisis in more detail.