In 1998, I left a small city in Ohio for Southern California, trading one of the nation’s lowest-priced housing markets for one of its highest. The trade-off was worth it, but I recall my wife’s admonition. She would OK the move if we could buy a single-family house. It didn’t have to be fancy, but she wasn’t raising our kids without a yard.
The first place we saw was in the heart of a trash-strewn, gang-infested area. My wife cried. After difficult searching, we found a handyman’s special. We still laugh at the time she asked a neighbor where the “bad” areas were in our new city. “You’re in it, honey,” was the retort. It turned out to be a great place to live.
Our experience goes to the heart of the ongoing problems in the Southern California housing market. Young families want to own a home. They want to put down roots. But prices have been escalating. Much is made of the state’s difficult business climate. That’s clearly a problem, but surveys show people mainly flee because of home prices.
The situation has gotten far worse since my family arrived in California. I checked with Zillow, and the home we bought (we’ve long since moved away) is valued at nearly three and a half times what we paid for it, so someone in my position these days would probably just stay in Ohio. The primary reason for the hike is that building just hasn’t kept up with population growth.
We all know how supply and demand works. But Southern California governments have made it costly and cumbersome to build new homes, which should be obvious to the many people who remain perplexed as to why there’s an affordability crisis.
The Southern California Association of Governments, the planning agency for most of the Southland, just released a new report (and hosted a summit) addressing this “challenge.” SCAG does a fabulous job identifying the core issues, even though some of its policy prescriptions would make things worse.
“The SCAG region median home price is $507,886, an increase of over 58 percent over the past 20 years,” according to the executive summary. “The median rental price in the SCAG region is $1,321, an increase of over 20 percent over the past 20 years.” Over the same period, the report explains, “the median household income has actually decreased over 5 percent.”
“In comparison to the last few decades, housing building has significantly decreased,” the report added. “There are several factors contributing to the high cost of housing. The costs from the entitlement and permit approval process can represent up to 19 percent and government regulatory costs can add up to 7 percent.” The report calls on local officials to say “yes” to housing. That’s exactly right.
SCAG details the obvious results of insufficient building. High costs strain families. This leads to a “brain drain,” as highly skilled people flee to other states. It creates an enormous burden on working-class and poor people, who often must spend more than half their income on housing. And it means people in small towns that have been devastated by job loss can’t move to where the jobs actually are. According to the U.S. Census Bureau’s cost-of-living-adjusted poverty measure, California leads the country in poverty rates, largely because of high housing costs.
The report might even understate the role of government in driving up prices. The direct regulatory costs are astonishing, but all the NIMBYism (not in my back yard) and resulting growth controls drive up prices of developable, vacant land. Because the price of entry is so high, builders focus on high-priced mini-mansions and luxury condos. If government regulations add, say, $200,000 to the cost of a home, then a builder might as well build something fancy and profitable.
SCAG gets the main point right: “We need to increase housing supply and promote affordability in our own communities,” according to its president, Michele Martinez. But some “local strategies” detailed in the report are wrongheaded. For instance, SCAG describes rent control and rent stabilization — when government puts a cap on the prices landlords can charge — as policies “that are especially helpful for people with limited ability to adjust to sudden rent increases.”
Well, yes, such caps ostensibly help some people. But those cities that embrace them create a huge disincentive to housing construction. San Francisco, for instance, has the most pronounced housing crisis in California (and probably the country) in large part because of a draconian rent-control law. The report touts “inclusionary zoning,” which escalates costs by forcing builders to include a percentage of below-market units.
The report also points to a lack of public dollars for subsidized housing, but it’s impossible to spend our way out of this problem. Most people are like my wife and I were in 1998; they don’t want government-subsidized condos. They want a home with a yard. There’s one simple solution: Build more of them. Build them in the city, suburbs and rural areas. Build, build, build. Fortunately, SCAG is pushing local officials to embrace that obvious solution.