File photo by the Orange County Register/SCNG.
Californians could be spending at least $50 billion more than they do dining out, going to the movies or shopping. But high housing costs are “crowding out” personal consumption, with more cash going to landlords and lenders instead.
If their housing costs weren’t so high, Californians would have enough dollars to buy 15 billion more Happy Meals than it does. They would have enough cash to buy 1.5 billion more Angels tickets or 455 million tickets to Universal Studios Hollywood. And every man, woman and child in the state could buy tickets to see “Hamilton” — six times.
That’s just one finding presented at a conference at Chapman University in Orange on how to fix California’s housing crisis. More than a dozen speakers from state and local government, think tanks, academia and housing advocacy groups examined the cause of the crisis and possible solutions.
Homebuilding hasn’t been able to keep up with growth, and that’s costing us — big time.
“We have just been fundamentally under-producing housing in California,” said Mark Stivers, a state affordable housing official who served 16 years as a consultant to the California Senate Transportation and Housing Committee. “It’s gotten so bad that people making … (up to) $80,000 a year are having a hard time finding housing that they can afford.”
California ranks dead last in home construction on a per capita basis in recent years, said Jonathan Woezel, lead author of the much-cited McKinsey Global Institute report on the state’s housing crisis.
Is there a solution to this crisis?
Yes, the experts say.
Provided Californians are willing to ease local and state barriers to development, build more high-density and affordable housing and — at least one economist dared to say — scale back Prop. 13.
In short, the state must build 3.5 million more homes by 2025, the McKinsey report concluded. That’s roughly 350,000 units a year over the next seven years, versus an average of just 85,000 homes a year over the last seven years.
“This is a fixable problem,” Woezel said. “This is not impossible.”
Not impossible, but a bitter pill for those who say California already is too congested.
“Do we really want to cram people into these pockets to live like sardines?” asked Deborah Pauly, a former Villa Park councilwoman. “That’s not the Southern California lifestyle. Heck, that’s not even the American lifestyle.”
Chapman speakers acknowledged there’s resistance to change.
“The challenge is to overcome current barriers — whether regulatory, political, economic, or cultural — to unlock supply and actually build these much-needed homes,” Woezel said.
These ideas aren’t new. Studies have been piling up on the problem for at least three years. The state Legislature produced a 15-bill package last fall designed to speed up homebuilding and boost affordable housing spending. More legislation is in the works.
Still, the Chapman conference provided a distillation of what’s needed to address these issues. Five key solutions emerged.
1. Make it easier to build.
California currently has a shortfall of 2 million homes, the McKinsey report found. Population growth through 2025 will add 1.5 million homes to that shortfall.
To meet pent-up and future demand, speakers recommended:
Speeding up the permitting process: Some reforms adopted by the Legislature last year are geared to doing just that by streamlining development reviews. The McKinsey report maintains shortening the approval process by four months could cut housing costs by at least $12 billion.
Reducing developer or “impact fees” for new construction, among the highest in the nation. A UC Berkeley study released in March showed such fees ranged from $12,000 to $75,000 per unit for multifamily construction in six select cities and from $21,000 to $156,000 per unit for houses. Such fees represent 6 percent to 18 percent of the median home price.
While builders support fee cuts, city leaders said they need the cash for pensions, public safety and development’s impact on city services. “Impact fees are designed to mitigate the problems created by new developments and the stress it puts on local infrastructure,” said Lake Forest Mayor Jim Gardner said. “An outright reduction isn’t called for.”
Allow “by-right” development for certain projects, letting developers get “over the counter” approval without going before planning commissions, city councils and county supervisors. Several bills adopted last fall seeking to do that.
Build more granny flats: The McKinsey report estimated California could add up to 790,000 housing units by easing restrictions on adding garage apartments, basement apartments, or backyard cottages to houses. A new state law that took effect last year and pending legislation in Sacramento seek to do just that, resulting in a 63 percent spike in permits for granny flats, according to Attom Data Solutions.
2. Increase density.
The McKinsey report calculated California could add 3 million to 5 million new homes by building on vacant or under-used land already zoned for apartments; building mid-rise housing near public transit stations; and adding more granny flats to people’s backyards.
About 614,000 houses also can be built on open land near existing development, using small lots to keep the price down, the report found.
“This is about densifying suburbs,” Woezel said. “Think Paris. Think London. Don’t think Manhattan.”
Lake Forest Mayor Gardner agreed cities should increase density “in some areas.”
But, he added, “increased density often brings with it increased social problems. There is no free lunch.”
3. Increase spending on affordable housing
New homes for low- and moderate-income residents accounted for just 10 percent of all new development in 2016, a year in which affordable homebuilding peaked at 10,000 units, Stivers said.
“That need is growing by 60,000 (units) every year,” he said.
Hence, government needs to spend more to increase affordable homebuilding and find new ways to get private businesses to support such development, Chapman speakers said.
“The market will never be able to build housing for people earning $10,000, $20,000, $30,000 per year,” said Stivers. “The rent those folks can pay will never support the cost of new construction. And the only way to provide housing for those folks is to have some kind of government assistance.”
4. Cut construction costs.
Innovation could cut the cost and risk of building homes.
While other industries boosted productivity through innovations like robotics, construction productivity fell 7 percent in California from 2007 to 2012, the McKinsey report found. A 20 percent increase in construction productivity would save $11 billion a year in California.
Prefab and modular building — in which key components are built in a factory and shipped to the construction site for assembly — also could cut costs and delays.
“Construction hasn’t changed much in the last century,” Woezel said. “So that is clearly an opportunity. We think the technology is coming and we will be able to see a whole lot of progress in prefab and modular (construction).”
5. Reform Prop. 13.
Two Chapman speakers — Stivers and Joe Cortright, a Portland economist and building consultant — said California’s popular 1970’s tax-control measure reduces local governments’ incentive to approve new housing.
Property taxes used to pay for new infrastructure. Now, local governments are looking for new sources of revenue, like sales tax and impact fees, to offset reduced property taxes.
But, Stivers said, “I don’t know if we can unravel that.”
Cortright argued California should scale back Prop. 13, and even consider phasing out its 2 percent tax-hike cap.
Jon Coupal, president of the Howard Jarvis Taxpayers Association, which originally backed Prop. 13, disputed claims California is a low-property tax state. It ranks 17th in per capita property tax collections, he said.
As for Cortright’s suggestion Prop. 13 should be scaled back, Coupal said: “It’s absolutely foolish.”