California needs between 1.8m and 3.5m new housing units by 2025. Major hurdles stand in the way

California’s housing crisis reached new heights in 2019. The state had 91 of the most expensive zip codes for home sales in the country, while more Californians were forced to live out of their vehicles and RVs than ever before. Homelessness surged, from Los Angeles to San Francisco, and hundreds of thousands found themselves commuting hours each way to work every day.

It’s gotten so bad that major tech firms – companies that contributed to an influx of wealth that has led to rapid gentrification and the displacement of longtime residents – are pledging money to help build homes. Facebook and Google each promised $1bn for housing. Apple announced a $2.5bn plan.

But it’s not that simple.

California needs anywhere between 1.8m and 3.5m new housing units by 2025 to accommodate projected population growth. Yet in the last 10 years, production averaged less than 80,000 new homes annually, far less than half the minimum new homes needed.

Catching up will take more than tech companies’ billion-dollar pledges. The cost of building housing in the state, particularly in coastal metroplexes like the Bay Area and Los Angeles, has skyrocketed as zoning of residential space has made land for multi-family homes hard to come by and construction costs have gone up.

“These challenges are not unique to California, but California is at the forefront of this crisis,” said Elizabeth Kneebone, the research director at the Terner Center for Housing Innovation at UC Berkeley. “We’ve under-built for so long. Building more housing supply is a critical piece of the solution, but it’s not a short-term fix.”

“There are a lot of pieces that need to fall into place to meet the scale of the need for new housing,” she added.

Here’s a look at some of the pieces driving California’s housing crisis.

Cost of construction

San Francisco beat out New York, London, Zurich and Hong Kong in 2019 as the most expensive place to build, according to the consulting firm Turner & Townsend. The high cost of construction is one of the driving forces behind the high cost of housing and in turn, the housing crisis.

While affordable housing is becoming a statewide crisis, high construction costs primarily plague California’s largest and most expensive urban centers, the Bay Area and Los Angeles.

“Ultimately, it’s the high cost of living that makes the cost of doing anything here very expensive,” said Mark Hogan, a principal architect at the San Francisco-based OpenScope Studio. And that high cost of living is compounded at every step of the supply chain.

It’s not that construction workers get paid more in these high-cost areas, Hogan said – it’s that the cost of doing business is higher. “The cost of running a business in the Bay Area is extremely high,” he said, noting that astronomical real estate prices make it expensive for building inspectors and engineers to live and for contractors to store tools and materials . All of this, Hogan said, gets reflected on individual projects.

Further adding to the cost is a shortage of workers. There simply aren’t enough workers to build all the developments that people want to build and housing projects compete for resources with commercial and office developments, said Sarah Karlinsky, a senior policy adviser at the San Francisco Bay Area Planning and Urban Research Association. “There’s just an enormous demand for scaled construction work and not enough bodies to do the job,” she said.

Facebook Twitter Pinterest The high cost of construction is one of the driving forces behind the high cost of housing. Photograph: Frederic J Brown/AFP via Getty Images

The construction industry also took a hit during the recession that it still has not recovered from, noted Hogan, the San Francisco architect, forcing contractors to hire less experienced workers.

It sets in motion a chain reaction. “It’s a lot more difficult to hire subcontractors, like electricians, or plumbers,” Hogan said. “Those bids are hard to get more than one or two of when the cost is higher than what seems reasonable for the general contractor.”

Impact fees

In 1978, California voters passed Proposition 13, a ballot initiative that capped property taxes to a 1% tax based on a property’s assessed value at the time of purchase and limited annual tax increases to no more than 2%. It reduced total property taxes by 57%, a boon to property owners, but it also reduced a significant source of necessary government funding.

“What that has done is really pushed local jurisdictions to find other ways to fund all the other things that they need to pay for, like parks and schools and community centers,” Karlinsky said. When they couldn’t get as much tax from buildings that were already built and owned, municipalities have sought to make up some of the difference through impact fees on new developments.

Impact fees are meant to cover the expansion of city infrastructure and services needed to accommodate the expected growth stemming from a specific project. Depending on the jurisdiction and the project, a developer may be on the hook for school fees, park fees, transportation fees, environmental fees, public safety fees, library fees, capital improvement fees, utility fees and affordable housing fees.

The fees vary from jurisdiction to jurisdiction. A Terner Center study found that in Los Angeles, a 100-unit, multifamily project could result in nearly $1.4m in fees while that same project could result in $2.4m in fees in Oakland.

“Other states are not as reliant on those kind of fees because they can raise revenues through other means, like through property taxes”, Kneebone said.

Zoning

Housing development advocates argue that it’s not just important that California builds more housing, what kind of housing and where should be reconsidered in order to bring down costs and drive up supply.

The housing crisis, said the state Senator Scott Wiener, is “a supply and demand issue induced by restrictive zoning”.

Less than a quarter of the developable land in much of the state is zoned for multifamily housing, while close to three-quarters of the land is zoned for single-family homes, according to a 2018 Terner Center study.

“Land is extraordinarily expensive, especially land that is zoned for multifamily housing,” Karlinsky said.

“In the 1960s, 70s, and 80s, Californian communities have systematically banned apartment buildings by zoning for only single-family homes,” Wiener said. “That creates a major math problem when you’re trying to create enough homes for everybody. Particularly in places like San Francisco and Silicon Valley and San Jose and Los Angeles, it made it impossible for us to build enough housing to meet demand and it also induced sprawl. You can’t build where the jobs are, so you build farther and farther out.”

Facebook Twitter Pinterest Housing advocates say public opposition to affordable projects has been used to delay projects. Photograph: Lawrence K. Ho/LA Times via Getty Images

This lack of affordable housing density and sprawl of single-family homes drives the growing number of super commuters – people who commute upwards of hundreds of miles to work a day because they’re forced to move farther and farther out from the job centers in order to afford housing. More than 200,000 people a day commute into the Bay Area and Silicon Valley, snarling up traffic and adding to greenhouse gas car emissions.

California is not the only state with a single-family home obsession. “It seems to be something baked into the American Dream ethos,” Kneebone said. “This is the way America has been producing housing for decades.”

Wiener introduced legislation that would eliminate zoning restrictions around transit-rich areas and job centers and “up-zone” land currently set aside for single-family homes. The legislation was postponed last year, but is up for debate again in the senate in January.

But currently local jurisdictions have the power to decide zoning. “It’s called home rule,” Karlinsky said. Many politicians feel pressure from constituents to not zone for housing, she notes, fearing more housing will have detrimental impacts like increased traffic.

Public opposition

Public opposition is another indirect cost of housing that may not be uniquely Californian, but plays a significant role in the state.

The California Environmental Quality Act (Ceqa) was signed into law in 1970, requiring state and local agencies to identify significant environmental impacts of any prospective development. According to housing advocates, the law opened the door to more public involvement in projects – and more delays because of public opposition.

“Because of the way the law is written in California, there is more public involvement in any project than there would be if you were in Texas,” Hogan said. Different cities have interpreted the act differently, he said. “San Francisco has a long process that any new project you have to do neighborhood notification, you can ask for discretionary review at the planning commission, most large projects have to go for approval at the planning commission, sometimes you have to go to more than one hearing and the decision will get postponed, sometimes you have to do more work with your architect,” he said.

“We even have had ballot measures to stop certain proposals,” Hogan added.

Housing advocates – in particular affordable housing advocates – say people opposed to new projects have often used these laws to fight or delay construction. “If you’re a more wealthy jurisdiction and you’re concerned about ‘those people’ coming to your town, you might show up to a hearing,” Karlinsky said. “You know it might not be seen kindly if you speak of it in those terms, so you pitch it as, ‘Oh we just want to make sure it looks appropriate.’ The project goes through several redesigns. It might go through several redesigns because people in that community might be using that process as a way to prevent affordable housing from getting developed.”

Facebook Twitter Pinterest A lack of affordable housing has caused people to move farther from job centers. Photograph: Jason Henry/The Guardian

In past years, invoking Ceqa became such a common tactic for the “not in my backyard” types that legislators had to find ways to either bypass the law or streamline the process. Legislation introduced by Wiener was signed into law in August regarding navigation centers that provide beds and direct homeless people to resources – legislation he introduced after wealthy San Francisco residents filed a Ceqa lawsuit to block the construction of such a center in their waterfront neighborhood. The governor also signed into law legislation that exempts emergency homeless shelters and supportive housing in Los Angeles from Ceqa until 2025.

“I believe in Ceqa and I believe it’s done for a very good purpose,” said state assemblymember Miguel Santiago, who authored the Los Angeles bill. “We live in communities that are heavily polluted that are not looking for deregulation, a wild wild west of environmental pollution. But at the same time, we need to have a conversation. Here’s its intent, here’s what we want it to do, and here are people who can’t afford to live anywhere.”

The costs of such delays and uncertainty are hard to measure.

“You’re not going to see that as a line item in a cost sheet, the delays that came because of public opposition or because of a Ceqa lawsuit that delayed a project x months or years because the cost of labor or material went up this much over that time,” Kneebone said.

Housing development advocates understand that with so many different factors contributing to the housing crisis, it will take more than one solution to solve it.

“There are so many pieces to the puzzle that it’s complicated,” Kneebone said. “But it is solvable. There are steps that local jurisdictions can take, there are roles for the state to play. We have seen progress in recent years. There have been steps taken to address the different pieces of the puzzle. It’s just getting to a place where we can really scale the solutions to the depth of the crisis.”