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Tuesday, June 7, 2016

The Great Debate on Solving California's Housing Crisis

For the first time in recent memory, there is a broad consensus in California that we have a housing crisis. Numerous media and research reports show that we are not building anywhere near enough units to house the growing population, and that a significant portion of the population cannot afford to live in the state. There is general agreement that the housing crisis is a drag on the economy, deteriorates our quality of life, and is a problem that must be solved.

Now that the problem has been identified, a debate is underway about how to solve it. Is it a problem of inadequate housing supply overall, or should resources be targeted to those with the lowest incomes? Can the problem to solved with government resources, or should the private sector take on the responsibility? Is the problem overregulation, or inadequate funding? Should we be increasing the supply of housing, or addressing households' ability to afford it?

Jerry Brown initiated the debate in earnest when he presented his budget, which included a provocative proposal to deregulate the permitting process for affordable housing development. Developers that commit to make 10%-20% of a project's units affordable to low income households would be entitled to build by right on properties zoned for high density residential, without requiring a permit and associated discretionary local reviews.

Some have questioned the effectiveness of Governor Brown's proposal. The greatest concern is whether jurisdictions will cooperate. The Governor's proposal does not address the problem of cities that do not have adequate land zoned high density residential in the first place. Communities may also re-zone high density residential land to other uses. While State Housing Element law requires communities to zone adequate land for high density housing, there is no straightforward way to ensure compliance other than extended inter-jurisdictional wrangling and protracted lawsuits.

Meanwhile, the legislative branch wants to allocate funds to subsidize the development of affordable housing. The Senate passed a bill to put a $3 billion bond for housing on the November ballot. It still requires approval of two-thirds of Assembly members and the Governor. The Assembly is proposing an allocation of $650 million for a range of affordable housing programs. However, the Governor has stated that he does not believe that allocating funds to affordable housing will make an impact that is worth the expenditure. He has voiced support, however, for housing subsidies and services targeted to homeless individuals.

Yet another approach being debated is to not incentivize private sector development, but require the private sector to set aside affordable housing units through inclusionary zoning. San Jose's inclusionary ordinance was recently upheld by the courts after a long legal battle with home builders. The housing market in San Jose is so expensive that government subsidies are currently far inadequate to address it without assistance from for-profit developers.

San Francisco, another one of the most expensive housing markets in the country, has arguably the greatest challenge of any California city in addressing housing needs. Proposition C will give voters the opportunity to vote for a revision of the current inclusionary housing ordinance that would raise the required affordable housing unit set-aside for market rate developments from 12.5% to 25% of all units in a project. The big question is whether this will reduce overall production if it becomes more difficult for projects to pencil financially.

The positive in all of this is that solutions are being debated. For too many years there has not even been a consensus acknowledgement that housing affordability is a widespread problem. We won't ultimately know what strategies will be most effective in addressing the problem until they are implemented and assessed. The crisis has reached a stage where elected leaders are finally willing to propose creative and bold solutions. That is movement in the right direction. If some of these initiatives are implemented, we will know much more about how public policy can improve the housing situation in the coming years.

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