Over the past 6 years, I’ve read a number of news articles pointing to California legislation aimed at making it easier to build housing. But have these bills actually been effective?
California recently enacted two new housing bills, one of which makes it easier to build on church owned land and the other reduces barriers to construction in certain coastal areas. According to Reason magazine, the bill relating to church owned land comes with a number of restrictions:
Any new housing made legal by the bill would have to be offered at below-market rates to lower- and moderate-income residents. Developers would generally have to pay prevailing wages to construction workers. The new housing would also have to come with at least one parking space per unit unless other state or local laws dictated a lesser minimum standard. S.B. 4 projects also couldn’t be built in industrial zones or near active oil wells. (There are a lot of those in Los Angeles.) The list goes on.
Nonetheless, Reason suggests that these initiatives will have a big impact:
The state will build more housing with S.B. 4 and S.B. 423 in effect. At a minimum, they’ll provide evidence that removing regulatory barriers can unleash a lot of badly needed housing.
I hope they are correct, but I have my doubts. I worry that if you go from a situation why there are 12 reasons why it’s not feasible to build housing in California, to a situation where there are only 7 reasons why housing construction is not feasible, you still end up not building housing.
Did previous bills have an impact on housing construction in California? If so, it’s hard to see any impact in the data for housing starts:
At first glance, it seems as though the YIMBY forces are having a surprisingly easy time rolling over their opposition, as one reform after another is making it through the California legislature, beginning with SB 35 back in 2017. But I wonder if the surprisingly weak NIMBY opposition reflects the fact that they understand these reforms will have little effect—that there will continue to be enough regulatory barriers to prevent any meaningful surge in California homebuilding. I hope I’m wrong about this and certainly believe the reforms are better than nothing. But at the moment I don’t see much evidence that anything meaningful has changed in California. Home building here is currently so weak that even a 10% or 20% increase would not significantly move the needle—the state needs a dramatic rise in housing construction.
Meanwhile, in other areas the California legislature seems determined to ruin the business climate. (This and this both occurred in just the past week.)
PS. Chris Elmendorf has a good twitter thread discussing another California housing reform bill.
READER COMMENTS
Matthias
Sep 15 2023 at 1:17am
Great post!
What shape would the supply and demand curves have to have to make this statement meaningful? If eg demand is very inelastic, wouldn’t even a modest increase in supply have a big impact on price? (Or do you mean to say that demand is rather elastic?)
Or what does ‘move the needle’ mean here?
Scott Sumner
Sep 15 2023 at 1:30am
I mean that a modest increase in supply would require a massive increase in new construction.
David S
Sep 15 2023 at 3:11am
A rule I was taught about real estate is that you have to be willing to wait between 10 to 20 years to see a trend. A recent case in point is the research Emily Hamilton did on Tysons Corner in Virginia.
California is something of a test case for a grab bag of YIMBY wedge issues. If you want to feel better about some of these initiatives check out the permit rates for ADU’s. Also, when (or if) there’s a sustained increase in unit starts it’s probably going to be driven by big changes in a few urban locations that have been considered marginal for many decades. I don’t know enough about the specific landscape of the state to predict where, but I’m willing to bet that there plenty of areas of L.A. that could have density increased by a major factor.
Don’t look for an increase in housing starts in Irvine. The development of single family detached houses had its boom years in towns south of L.A. decades ago.
Scott Sumner
Sep 15 2023 at 1:50pm
Now that I live out here, I’ve discovered how vast this region is. Even in LA county, there is plenty of room to build housing.
Irvine is still building, but I agree that the rate of construction won’t change very much.
Bobster
Sep 17 2023 at 12:14pm
One can drive from LAX to near downtown without ever seeing an apartment
Thomas L Hutcheson
Sep 15 2023 at 8:31am
Part of the problem is that YIMBY’s focus to exclusively on more affordable housing and lower prices. The benefit of reducing restrictions to increase the value of the transactions. If the city lets a builder tear down a block of single family homes and replace it with a tower of luxury apartments, that’s a good thing. Yes somewhere in the world (not necessarily in the city) some residential space will be cheaper than it would have been with the city restriction, but there’s no guarantee anyone could ever find it against the background noise
Bobster
Sep 16 2023 at 9:07pm
This requirement kills a lot of housing.
Classical Liberal
Sep 15 2023 at 8:41am
OK but of the Nimby’s see there is no impact on housing starts from reducing restrictions from 12 to 7, perhaps it will become even easier to go from 7 to 4 and so on. If “reducing restrictions on homebuilding” becomes a popular platitude maybe opposition will continue to fade and it will continue to happen – until it finally works.
Scott Sumner
Sep 15 2023 at 1:51pm
I hope so!
vince
Sep 15 2023 at 1:55pm
Could the legislation be mere virtue signaling? Like the sanctuary cities who, after getting what they asked for, are now begging for federal assistance and telling immigrants they aren’t welcomed?
Thomas Hutcheson
Sep 15 2023 at 10:59pm
What’s inconsistent with asking for Federal assistance to provide a non-hostile place to live and work for someone who should not be deported?The real problem is not having enough agents at the border to quickly and fairly separate those with legitimate claims to asylum from people who would just like to come to work and returning the latter. [And this is not the same as trying to ferret out people who entered illegally years ago in order to deport them.]
Daws
Sep 17 2023 at 3:22pm
Can’t we just let in women? They don’t commit as much murder or suicide or get addicted to alcohol or illegal drugs as often and who work in chronically understaffed and socially important industries like childcare and elder care.
I admire the California YIMBYs. It seems their most important contribution so far might be spreading their pro-upzoning ideology to some other states where labor and environmental groups aren’t as strong. Florida passed a promising bill and TX nearly passed a bill preempting ADU bans and overregulation.
I thought the bills from last year that upzoned a lot of strip malls and preempted a lot of parking mandates were going to improve homebuilding a lot more.
I think capping subsidized housing inclusion mandates will be on the agenda next year.
Scott Sumner
Sep 15 2023 at 11:52pm
“Could the legislation be mere virtue signaling?”
Very unlikely. The legislation is fairly technical.
Gary
Sep 16 2023 at 4:36pm
Yeah but it lets legislators and the governor say “we did something about the housing crisis”, so in that sense I think it is virtue signalling.
Bobster
Sep 17 2023 at 12:16pm
It’s because their pro housing legislation always has to appease nonprofits, labor, and environmentalists that they are ineffective.
Nonprofits and labor are usually hostile to market rate housing, which is the only thing that can fix the crisis.
spencer
Sep 16 2023 at 1:18pm
Housing Constraints and Spatial Misallocation (aeaweb.org)
“In the past 25 years, construction has come to face enormous challenges from any local opposition. In some areas it feels as if every neighbor has veto rights over every project.”
Harun
Sep 16 2023 at 1:30pm
I follow some real estate people in California on twitter, and they seem excited by the Builder’s Remedy. But that may be offset now by high interest rates.
They use a phrase “pencils down” which means deals no longer pencil out and thus are not done.
I suspect Builder’s Remedy stuff will mainly be done in expensive areas that try to not have multi family, and may not be HUGE developments, but here and there.
Scott Sumner
Sep 16 2023 at 1:46pm
In a deregulated environment, California would see a massive construction boom, even with high interest rates. The prices here are insane. As long as construction remains low, it means there has not yet been sufficient deregulation.
“I suspect Builder’s Remedy stuff will mainly be done in expensive areas that try to not have multi family, and may not be HUGE developments, but here and there.”
I suspect you are right, which is why I’m so pessimistic.
Bobster
Sep 16 2023 at 9:06pm
Builders remedy stuff never gets built. The cities get the developer to agree to a watered down project.
Gary
Sep 16 2023 at 4:47pm
I agree the recent legislation hasn’t been enough to make a big impact, but I expect to see some increase in supply. There are multi-year lags between something being legal and a building permit being issued. In response to a liberalization in ADU (accessory dwelling unit) standards in my city, I decided to build one, but that was over a year ago and we haven’t broken ground yet. It takes a very long time to design things (which in itself is part of the problem, much of the time is taken up because building codes are so complex and strict), and then another very long time to get plans approved (even for things that are supposedly by-right like ADUs).For ADU trends: https://www.cotta.ge/resources/california-adu-report
Bobster
Sep 17 2023 at 12:17pm
Cities are expanding their building codes to incorporate more environmental mandates.
They call them “REACH codes”.
Bobster
Sep 16 2023 at 9:04pm
These YIMBY bills are always watered down or contain poison pills that actually make the problem worse.
For example, SB8, ostensibly about streamlinng, required that any proposed housing development that demolished any rent controlled units must replace those units. They also must be replaced with rent controlled units if they had low income tenants (extremely hard to figure out) or if they were rent controlled at some point in the past decade.
Needless to say, this onerous requirement kills a lot of potential housing developments.
In addition, cities are passing extreme rent control and transfer taxes all over the state.
Bobster
Sep 16 2023 at 9:36pm
My comment got deleted.
But left YIMBY bills are watered down plus contain poison pills supported by NIMBYs.
In addition cities are passing much stronger anti housing laws.
Adam
Sep 17 2023 at 12:47am
I’m not sure how true this is. In San Jose mayoral election last year, Normie Dem Matt Mahan walloped Dev Davis, who campaigned on preserving all single family housing in the city. There are some bad apples, but they tend to fizzle pretty quickly.
Bobster
Sep 17 2023 at 12:06pm
Not sure how one moderate winning shows anything?
Is he overturning the 5% rent control cap or 15% inclusionary zoning requirement?
It’s housing plan failed state approval due to not enough housing
Bob
Sep 16 2023 at 11:54pm
Every YIMBY should just reject any message that talks at all about building Affordable Housing. There’s no such thing: There’s just housing. Whether there’s enough housing in an area that some units are affordable to some people should have nothing to do with the units that are built being ‘affordable’, because that’s just a subsidy to a lucky winner, typically paid by other people in the same project.
Today, we still have people that favor dense urbanism talking about the building of said mythical ‘affordable housing’. And all that gets us is legislation that causes less actual housing being built.
My favorite marginal change would be to change zoning codes to support small apartment buildings where most apartments only have access to a single stairwell. It’s perfectly normal in Europe: A lone stairwell feeds 4 apartments per floor, and a building might have two of said stairwells. But in many parts of America, that’s illegal, and both stairwells need to be connected, which leads to losing at least 2 apartments per floor. Minimal practical improvements of safety, given modern construction, yet fewer apartments, who are now more expensive.
Bobster
Sep 17 2023 at 12:10pm
100%.
Affordable housing is code for price controls. Price controls lead to shortages.
Moreover, the costs per unit of affordable housing in California are astronomical. An affordable studio can cost twice as much to just build as the *median market rate sale price* of a house in Houston.
The state simply doesn’t have the money to subsidize that many $600k “affordable” studio apartments.
And the single stair idea is a great one.
Adam
Sep 17 2023 at 12:49am
A drop in the bucket, but still a promising one:
https://www.sfgate.com/bayarea/article/mega-development-central-california-18347004.php
Sacramento also seems to be doing pretty well in this department. Unfortunately LA and the Bay area doing so miserable, it cancels out a lot of progress
Bobster
Sep 17 2023 at 12:13pm
Costa Mesa is also approving a 1,000 home development.
And there’s that new city by tech founders
Unfortunately these are the exception rather than the rule, and the environmentalists and progressives will try to block them every step of the way
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