Grand Bargains To Make California Affordable

new houseThe good life in California is out of reach to ordinary people. The reason for that is simple: homes cost too much, energy costs too much, water costs too much, and transportation infrastructure is inadequate. In each of these critical categories, however, grand bargains are possible that would bring California’s cost of living back down to earth.

Unaffordable housing is the most obvious, talked about problem. The solutions being considered in Sacramento are either inadequate or flawed. The most significant proposal currently being considered in the state legislature is SB 50, which would require cities and counties to allow apartment building redevelopment in any place that is either within a half-mile of a rail transit station, within a quarter-mile of a “high-frequency bus stop,” or within a “job-rich” neighborhood. SB 50 would also remove the requirement for developers to provide adequate parking.

It is possible that SB 50 will pass. When it does, developers will be able to purchase homes in qualifying residential neighborhoods, demolish them, and construct apartment buildings up to 55 feet in height.

There are a lot of things to criticize about SB 50, most notably the fact that it overrides local control of these zoning decisions. More to the point, there is the disruptive impact to residents who invested their lifetime earnings into paying off a mortgage to own a home in a spacious, quiet neighborhood, who will see that ambience destroyed. Not only should these residents be able to rely on the zoning laws that were in place when they purchased their homes, but it is likely they cannot afford to move. If they sell, they will have to pay taxes on any profit over $500K, and once they’ve moved, they will no longer have California’s property tax protections for long-time property owners. Fixed income retirees will be harmed the most by SB 50.

Not everything SB 50’s opponents bring up is necessarily valid, however. The accusation that SB 50 will just cause more gentrification is based on cases where new high rise developments were made in the heart of downtown areas, on some of the most expensive real estate on earth. Of course those developments will only attract wealthy buyers. But whenever new housing units are put on the market, basic laws of supply and demand still apply. The wealthy buyers who choose these ultra expensive new units will not be purchasing the alternatives. Whenever more homes are built, then up and down the value chain, from exclusive penthouses to trailer parks, buyers have more choices.

The key factor in reducing housing prices in California depends on increasing the supply of homes. SB 50 recognizes this, but only addresses half the problem. SB 50 increases the density of cities, but it doesn’t touch the other fundamental problem, which is the need to expand the footprint of cities. Because of this, it is unbalanced, and as such, it is going to cause far more havoc on existing neighborhoods than would otherwise be necessary. And it won’t fix the problem.

No realistic assessment of housing policies, or the history of urbanization, can fail to acknowledge that as populations increase, existing neighborhoods are disrupted. Increasing housing density in the urban core as more people arrive is inevitable. But at the same time, outlying suburbs must be allowed to expand.

There is Plenty of Land in California for New Homes

Here is where the fundamental assumptions of California’s political elites are at odds with history and at odds with the natural preferences of millions of ordinary Californians. By forcing development into urban service boundaries, not only does it become far more difficult to create an adequate supply of new homes, but millions of people who want to raise families in detached single family dwellings with yards are denied that opportunity.

The justifications for denying urban expansion are not beyond debate. First of all, there is no shortage of land in California, which is only five percent urbanized. Entire new cities can spring up along the I-5 and Highway 101 corridors, along vast stretches of mostly empty land stretching over 500 miles from north to south. Basic facts contradict the arguments for “smart growth.”

Encompassing 164,000 square miles, California is only 5 percent urbanized. According to the American Farmland Trust, California has 25,000 square miles of grazing land (15 percent), 28,000 square miles of non-irrigated cropland (17 percent), and 14,000 square miles of irrigated cropland (9 percent). The rest, 54 percent, is forest, oak woodland, desert, and other open space.The above chart depicts three urban growth scenarios, all of them assuming California experiences a net population increase of 10 million, and that all new residents on average live three people to a household (the current average in California is 2.96 occupants per household). For each scenario, the additional square miles of urban land are calculated.

As the chart shows, adding 10 million new residents under the “low” density scenario would only use up 3.2 percent of California’s land. There is no reason why any of this growth has to occur on irrigated cropland. For example, if all the growth were concentrated onto grazing land—much which is being taken out of production anyway, it would only consume 21 percent of it. If all the growth were to fall onto non-irrigated cropland, which is not prime agricultural land, it would only use up 19 percent of that. Much growth, of course, could be in the 58 percent of California not used either for farming or ranching.

The grand bargain? Streamline the process for reasonable urban densification but mitigate the impact (and enhance the benefit) by also streamlining the process for urban expansion onto open land.

Competitive Development of Enabling Infrastructure

Policymakers might also strike grand bargains in the areas of water, energy and transportation, all critical to making and keeping California affordable as the population grows. In all three areas, not only are policy solutions available, but the array of solutions increases every decade as new technologies become available.

Creating Abundant, Affordable Water

The following chart depicts several projects that could be funded through a combination of revenue bonds – to attract private financing, and general obligation bonds – to reduce costs to ratepayers. While these projects are expensive, they are well within the capacity of California’s economy to support, and if constructed, they would guarantee consumers affordable water abundance for several decades, possibly forever. And it is important to note, these are California cost estimates. With appropriate reforms to provide relief from litigation and overregulation, these costs could be dramatically reduced. The capital costs for desalination plants in Israel, for example, per unit of capacity, came in at one-sixth what the costs were for the Carlsbad plant in San Diego.

For water, as with everything else that matters, compromise on a grand scale is necessary to negotiate a grand bargain. Environmentalists would have to accept a few more reservoirs and desalination plants in exchange for plentiful water allocations to threatened ecosystems. Farmers would have to pay more for water in exchange for undiminished quantities. While private financing and revenue bonds could cover much of the expense, taxpayers would bear the burden of some new debt – but in exchange for permanent access to affordable, secure, and most abundant water.

Creating Abundant, Affordable Energy

It is difficult to imagine how any state, or nation, could do worse than California’s done when it comes to providing electricity to its residents. With that ingratiating introduction to the topic, here’s why: Renewable energy has to be priced based on providing a 24 hour, 12 months per year, uninterrupted supply. As it is, renewable energy providers are permitted to sell their electrons based on their direct costs, and utilities are required to purchase it. Meanwhile, when the sun goes down or the wind dies down, utilities have to find power elsewhere. This is extremely expensive, because these backup plants cannot produce continuous power, meaning their construction costs and fixed overhead costs have to be priced into part-time operation.

Michael Shellenberger, an energy expert and advocate for nuclear power with impeccable environmentalist credentials, recently published a blistering takedown of renewable energy in Forbes. Entitled “Why Renewables Advocates Protect Fossil Fuel Interests, Not The Climate,” the article provides revealing details about how fossil fuel corporations are pouring money into environmentalist nonprofits that advocate renewables. And why not? By stigmatizing nuclear power into oblivion, the only reliable way to balance intermittent flows of renewable energy is to build more natural gas fueled power plants.

The solution to providing California with abundant energy is to retrofit, expand and recommission existing nuclear power complexes and build new ones, along with building more natural gas power plants. The grand bargain? Environmentalists get cleaner air, but have to accept nuclear power. Special interests that advocate renewables can still sell their products, but have to price in the costs for them to cover their nightly and seasonal production deficits. Fossil fuel interests can continue to operate, but have to compete with nuclear power. And California’s power consumers will see prices in a competitive market come back down to national standards.

Creating Effective Transportation for the 21st Century

California’s roads are poorly maintained and inadequate. Meanwhile, the most egregious waste of public funds perhaps in history, the “bullet train,” continues to hang on to life as a truncated boondoggle still planned to connect Merced to Bakersfield. Explaining the folly of high speed rail in California may also explain the benefits of alternative solutions.

Within a few decades, self-driving cars, some owned for personal use, others privately owned but serving the public, will zoom along smart hyperlanes at speeds well in excess of 100 miles per hour. They will convoy with each other, running close together, using linked navigation systems, to facilitate far more throughput per lane mile than today’s freeways. Overhead, within a few decades, electric drones will shuttle people to and from their chosen destinations at speeds well in excess of 200 miles per hour. And far overhead, at around 50,000 feet, supersonic planes , electric VTOL/turbojet hybrids, will fly at speeds well in excess of 1,000 miles per hour.

This is the future of transportation in California, a future that demands upgraded roads and new modes of FAA administered airspace. As for rail, upgrading existing rail might have tremendous practical value. But why take a bullet train, when within a decade or two you’ll be able to dial up an aerial Uber on your cell phone, and at speeds exceeding the most optimistic HSR projections, fly from any rooftop in San Francisco to any rooftop in Los Angeles?

A Completely New Mentality is Needed for 21st Century Development

The good life can be recaptured for all Californians. The weather’s still great. The land is still beautiful and bountiful. The economy remains diverse and resilient. But California’s current policies have stifled innovation and created artificial scarcity of literally every primary necessity – not just housing, but water, energy and transportation. Each year, to comply with legislative mandates, government agencies and private developers alike spend billions of dollars to pay attorneys, consultants and bureaucrats, instead of paying engineers and heavy equipment operators to actually build things. The innovation that persists despite California’s unwelcoming policy environment is inspiring.

California’s policymakers have adhered relentlessly to a philosophy of limits. Less water consumption. Less energy use. Urban containment. Densification. Fewer cars and more mass transit. But it isn’t working. It isn’t working because California has the highest cost of living in the nation. Using less water and energy never rewards consumers, because the water and energy never were the primary cost within their utility bills – the cost of the infrastructure and overhead is always the primary cost. And nearly all these policies – high speed rail is the perfect example – diminish if not ignore potential technology breakthroughs on the horizon.

Within the next few decades, there will be modular, plug-and-play desalination units that coastal municipalities can put offshore to supply abundant water to consumers. In turn, these desalination units can be powered by modular, safe, plug-and-play nuclear reactors, scaled to whatever size is required, and nearly maintenance free. It doesn’t end there. Within the next fifty years or so, energy will be beamed from orbiting solar power stations to earth-based receivers to deliver uninterrupted electricity. We’re also probably less than fifty years from having commercial, scalable fusion power.

A completely new mentality is required, incorporating a vision of abundance instead of scarcity that encompasses every vital area of resource consumption. A completely different approach that could cost less than what it might cost to fully implement scarcity mandates. An approach that would improve the quality of life for all Californians. Without abandoning but merely scaling back the ambition of new conservation and efficiency mandates, embrace supply oriented solutions as well.

These are the grand bargains that would make California affordable again.

This article originally appeared on the website California Globe.

A First Look at the Governor’s Housing Budget

house-constructionDuring his campaign for Chief Executive of California, then-candidate and now Governor Newsom promised three and a half million new housing units would be built in the state by 2025. He promised a majority of those units would be affordable to lower-income households, as well. He also promised he would make it profoundly easier to get those housing units approved for construction. Governor Newsom knows it’s now time to deliver on those promises.

With the release in January of his Fiscal Year 2019-2020 Budget, the Governor is signaling he’s going to at least try. He’s still sticking to the three-and-one-half- million-unit goal (though many are disputing that possibility), he still wants to help lower-income families, although he proposes increasing assistance to moderate-income households, as well. And, his budget appears to reflect interest in helping local governments approve housing faster.

But, the Governor’s housing proposals for the next fiscal year fall short of meeting the state’s needs. An analysis of the proposed budget – summarized here with a little help from the Legislative Analyst’s Office (LAO) – shows how despite aiming at the real problem with housing production in California it punts the ball and intentionally or not misleads with the data and definitions it presents.

For example, Governor Newsom during the campaign and afterward accurately pinpointed the main source of why California so woefully under-produces housing: he rightly concluded that all power to okay a housing development – vast and prodigious – rests with local government. Yet, in an apparent attempt to be persuasive, the Governor goes after localities with kid gloves – litigation and a modest funding award. He knows better. Lawsuits take precious time and cost a lot of money. And, they simply enrich lawyers. Moreover, $3 million in planning grants to the state’s major cities and $7 million more if they build new housing is both wasteful and mere pittance when it comes to rewarding them.

In addition to its timidity, the Governor’s budget is misleading in its portrayal of increasing state benefits to higher-income persons. Example #1 is the suggestion that a revised state low-income housing tax credit will now “target households with relatively higher incomes” – allowing beneficiary incomes to rise to laughably higher levels – to 80 percent of median – then pretends that a mere $200 million boost in the state program will lead to the ability to “target households with relatively higher incomes”. In truth, the state credit program rarely operates without the much richer federal credit which, for competitive reasons, rarely assists households with incomes above 60 percent of median.

Example #2 comes from the Governor’s proposal to add $500 million in authority to the existing CalHFA program which lends money to developers for building housing affordable to lower and moderate-income families (50 percent of area median to 120 percent) – a very good thing. But, the program will not assist middle-income families (up to 150 percent of median), as the Governor claims.

A bold budget, which reflects the high priority that the Governor has made housing – and which will give him a good head start in building those three and a half million units in six years – starts with rich, meaningful incentives to local governments. “Plan and zone for your housing need for the year and get a sizeable cash reward” should be the message from the state to local governments everywhere. Instead of the locals getting $10 million – much of which goes to re-inventing the wheel – a true housing budget would allocate ten times that amount or more to them for, say, a variety of infrastructure – not just road repair. Indeed, $100 million to $200 million apiece to fund their priorities ought to get the attention of most localities.

The Governor shouldn’t be shy about defending the limits of how far state funding should go, either. He doesn’t have to worry about the households earning more than the so-called moderate-income tranche (120 percent of median income). He just needs to uphold his pledge to truly streamline the local project-approval process. If the Governor sticks to his guns and does that, he can be assured that the market-rate developers will take care of the rest.

This first look at his budget for Fiscal Year 2019-2020 examines only what the Governor has proposed. Subsequent analyses will be made and published in this space before it is due in its final form, June 30, 2019. But, his current spending plan makes a genuine effort to treat California’s housing crisis after it appropriately highlights the substantial need – particularly among lower-income households and, to a lesser extent, the dislocation of a million or so middle-income families that pay more than 30 percent of their income for housing (the average is 26 percent).

In so many words, it’s clear the Governor genuinely wants more housing for California and he remains steadfast in maintaining getting it as a high public-policy priority. But, there are ample reasons to be doubtful. First, his budget could be a more dramatic set of proposals. That it’s not should signal his Department of Finance (DOF) won’t let him – DOF never liked housing much.

Second, at this point it looks like lawmakers don’t like the impact the proposals may have on local governments – they want him to back down somewhat. And, early indications are that it’s the Governor who will blink first.

onsultant specializing in housing issues.

This article was originally published by Fox and Hounds Daily

Green New Deal Will Have Destructive Effect on Housing Market

http://www.dreamstime.com/-image14115451“The world is going to end in 12 years if we don’t address climate change.”  That’s what congressional newcomer Alexandria Ocasio-Cortez (D-NY) is saying about the latest existential threat to the planet (and the well-being of its inhabitants) – best known as global warming.  To back up her claims she recently presented a “Green New Deal” – a modern-day, environmentally friendly proxy for FDR’s Depression-era war on unemployment and poverty.  Yet, it’s nothing less than a plan to transform the U.S. society and economy as we know them.

The Green New Deal (“the Plan”) has sparked a nationwide controversy.  Maybe it’s for the clever “green” tapestry Ocasio-Cortez has hung on this mix of high-school-like platitudes and warmed-over Marxist ideals.  Maybe it’s the outrages, contentious designs or silliness expressed in the Plan, including proposals for federal compensation for even persons “unwilling to work” or to ban jet travel and flatulent cows by the end of the next decade.  Maybe it’s controversial because of the resolute defense Ocasio-Cortez – a controversial person herself – and other self-styled socialist Democrats have given to the Plan of late.

The Plan is also controversial for the things it says.  Like:

We spend billions every year . . . turning our planet uninhabitable while imposing the greatest harm on communities of color and the poor.  The Green New Deal will instead redirect that money to the real job creators who make our communities more . . . sustainable and secure at the same time.

Who are these “real job creators”, we’d like to know, and how are they making “our communities more secure”?

These controversies notwithstanding, the following concentrates just on what the Green New Deal does for the nation’s housing crisis, both indirectly and directly:

First, the Plan’s call for the availability of only renewable energy by 2030 will have a sweeping impact on housing affordability, particularly the Plan’s express prohibition against nuclear power and clean coal.  What remains – solar, hydro, geothermal and wind – by most sober estimates doesn’t generate nearly enough energy to power the nation.  So, at a minimum, much of what’s on the drawing board for new housing today won’t be viable under the Plan tomorrow.

Second is the profound dislocation of workers currently employed by a company or industry that will soon be forced to shut down due to the Plan’s scarcity of fossil fuels.  (Maybe this is partly why the Plan’s cost is estimated to run as high as $93 trillion over the next ten years).  And for the U.S., now having achieved the status of net exporter of energy – an important national accomplishment for a lot of reasons – the Plan would make that all but disappear.  This one aspect of the Clean New Deal will have an incalculable impact on employment in the country which, in turn, will be extraordinarily damaging to housing affordability.

Third, is the Plan’s answer to this dramatic rise in unemployment:  How about 20 million new public sector jobs – all funded by you and me – to close the wound?  And, to these job beneficiaries would also go a “living wage”.  Not surprisingly, the Plan stays away from determining a “living wage” or what qualifies as a bona fide living expense.  Take housing, for example.  Does the “living wage” recipient rent or own a home?  Or, would a family earning a “living wage” be able to decide what type of housing they dwell in on their own?  It seems quite likely this economic uncertainty will have a telling impact on housing markets.

Fourth, requirements of the Plan having a more direct impact on housing affordability are the energy-saving apparatuses – fixed or otherwise – to individual homes of the future.  For example, under the Plan, all existing buildings – commercial and residential, both – are envisioned to be physically upgraded to meet new energy standards.  That means retrofitting tens of billions of square feet of developed real estate over the next 10 to 12 years.  Even if it were possible to acquire the labor and materials to accomplish the task during that period of time, what would be the cost?  And, would local governments in California allow those costs to be passed through – in the form of rents – in the five million or so rental properties in the state?  What about new housing?

Fifth, since the new energy standards will require rooftop solar systems – much like California’s impending mandate for all new homes – how are the middle-income families living from paycheck to paycheck, barely making their mortgage payments each month, going to afford a dramatic cash hit to the family pocketbook?  It’s likely they cannot.  Nor can they afford the tax hike that’s sure to come to cover their lower-income neighbor’s higher rent or retrofitting expense when that household can’t pay.  What happens to them?

Finally, it’s been speculated that the “social justice” advocates will get the Plan’s framers to include tenant-friendly eviction protections and new rent controls.  Who’s covering those costs?

In the end, the Green New Deal will be so disruptive to the nation’s economy – and housing markets – that the trauma will weaken the country and further divide it with hostility and fear.  We, the people, don’t need it now or ever.

onsultant specializing in housing issues.

This article was originally published by Fox and Hounds Daily

Newsom delays threat to block transportation funds to cities that flunk housing goals

LA-Freeway-Xchange-110-105In his first week in office, Gov. Gavin Newsom sent a strong warning to cities and counties: He was coming for their road repair dollars if they didn’t meet state goals for new housing.

“If you’re not hitting your goals, I don’t know why you get the money,” Newsom said when he announced his budget plans in January.

Two months later, Newsom is setting aside plans to withhold state transportation dollars from local governments for four years. The move, which comes after fellow Democrats pushed back on the idea, is part of a larger acknowledgment that revamping how California plans for growth will be more arduous than the governor implied on the campaign trail. …

Click here to read the full article from the San Diego Union-Tribune

Tax Free Policies to Increase California’s Housing Stock

affordable housingOne of the most frustrating contradictions inherent in the policies being enacted by California’s one-party state goes something like this: We are inviting the welfare cases of America and the expatriates of the world to move here, while simultaneously enacting environmental policies that make it extremely time consuming and expensive to build anything.

No wonder there’s a “housing crisis.” Until demand decreases, or supply increases, housing in California will remain unaffordable for most of its residents. But don’t expect demand to slacken any time soon. The political consensus in favor of increasing California’s population has a strong moral justification – why shouldn’t the wealthy, innovative, compassionate people of California be willing to share their wealth with millions more people who are less fortunate? But there are other less high-minded upsides to population growth and obstacles to new housing.

Currently, real estate prices and rents are on the rise, favoring investors and landlords. Banks enjoy higher lending volumes, while borrowers enjoy greater liquidity, however precarious, as the property bubble offers them more collateral as security. The government agencies profit from higher property tax assessments and higher capital gains collections on sales of real estate. Large land developers that have the political clout and financial heft to build housing despite the many obstacles, enjoy unusually high margins that they could never achieve in a normal competitive market. Finally, as an expanding population increases demand for housing, at the same time public school districts can increase attendance-based revenue – which will make it somewhat less urgent that they reform their union work rules and spending priorities.

Efforts by California’s policymakers to increase the supply of housing have to be viewed in this context. They want to increase the supply of housing. Yet they also want to keep happy the special interests that pay for their political campaigns. Therefore, strict – and very self-serving – parameters are likely to limit what new laws are enacted to stimulate new housing. For example:

Negative Consequences of Special Interest Defined Development in California

(1) Additional open land outside of urban boundaries will remain off limits to development, in order to ensure that existing municipal jurisdictions are able to retain access to the new property revenues that will accrue to new stocks of residential and commercial real estate. This will be justified as necessary to protect the environment.

(2) Most obstacles to housing construction will remain in place – in particular, excessive fees to government agencies and onerous CEQA requirements. This will ensure that only the most powerful corporate and financial entities will be able to take advantage of new opportunities to build housing, while cutting out the small landowners and developers.

(3) Major land developers will be given financial incentives by state and local government entities to build “affordable housing” and eliminate “blight,” but these incentives will be out of reach for smaller landowners and developers.

(4) In order to keep the real estate asset bubble fully inflated, housing prices will only fall marginally as development occurs, which pretty much helps nobody, but massive programs of taxpayer funded rent control and rent subsidies will be enacted to make up the difference for qualifying low income families.

(5) “Densification” will be imposed on residential neighborhoods, with the primary victims being any neighborhoods that are situated close to bus stops or light rail stations. Developers will be permitted to build multi-story, multi-unit buildings on small residential lots and will not be required to offer parking; all of this will greatly increase their profits.

(6) Building code requirements will relentlessly increase in the name of energy efficiency and safety, with the practical effect being to lock out small landowners and developers from being able to afford to upgrade their properties or develop new properties; these same more stringent regulations will not seriously impact large development corporations and financial investors.

It is wrong to be entirely cynical about the laws that are coming. Slamming the door completely shut on newcomers to California would be cold hearted, unpopular and probably cause more economic harm than good. Zealously enforcing residential zoning densities that were put in place several decades ago would be overly sentimental, ignoring the disruptive adaptations and radical transformations that have defined and enriched urban life since settlement began. Completely embracing a new wave of suburban sprawl would needlessly eat up more open land than a more balanced policy approach might cost. While the new building code mandates are now excessive (if not ridiculous), nobody wants to go back to toilets with seven gallon tanks, or insulation with an R value of 2.0.

Unfortunately, balance is not what we’re finding in the new laws. Last year, the State Senate considered a bill – SB 827 – that would have removed local zoning control and allowed multifamily housing to be built in well-established single family neighborhoods. This would have allowed those multifamily housing projects to be as tall as 55 feet. Against heavy opposition, SB 827 never made it out of committee, but this year it’s back. The new legislation, again sponsored by Democrat Scott Wiener, is SB 50.

Reading through the text of SB 50 grants insight into just how entrenched the collusion is between public officials and developers seeking subsidies and waivers. Consider this introductory language:

Existing law, known as the Density Bonus Law, requires, when an applicant proposes a housing development within the jurisdiction of a local government, that the city, county, or city and county provide the developer with a density bonus and other incentives or concessions for the production of lower income housing units or for the donation of land within the development if the developer, among other things, agrees to construct a specified percentage of units for very low, low-, or moderate-income households or qualifying residents.

In plain English, the “Density Bonus Law” forces taxpayers to subsidize not only developers who are already making more money by being allowed to pack more units on less land, but also low and “moderate” income households who will occupy a percentage of housing units. Bring ’em in! Paying artificially high prices for housing while also paying for someone else’s inflated rent will never wear thin with taxpayers.

The Coalition to Preserve LA, “a citywide movement of concerned residents who believe in open government, people-oriented planning, equitable housing and environmental stewardship of Los Angeles,” produced this summary of SB 50.

Densification a la SB 50:

  • Forces cities to allow luxury towers in single-family areas.
  • Upzones thousands of beautiful streets to 6- and 8-story apartments if an area is “jobs-rich with good schools.”
  • Upzones thousands of single-family areas within a 1/4 mile of a frequent bus stop or 1/2 mile of a rail station.
  • Lets developers sue any city that tries to stop them.
  • Cuts parking to zero, claiming rich residents “use transit.”
  • Falsely claims to protect renters & sensitive communities.
  • Strips protections of many HPOZs and historic buildings.
  • Lets developers wipe out setbacks, backyards, green belts.

For millions of Californians who live in bucolic suburbs, with tree lined streets and spacious private yards, SB 50 unchecked is going to be a holocaust. It will utterly destroy their way of life. Many victims will not have the ability to move. The greatest insult of all: Their taxes will be paying for it. And as a “solution,” it is completely unnecessary. There are better ways, that leave established neighborhoods intact and cost taxpayers nothing.

Reforming the California Environmental Quality Act (CEQA)

There are two ways to mitigate the impact of CEQA, the law that requires “environmental impact reports” on any land development in California, including “climate change” impact along with a host of metastasizing additional requirements. The first, being practiced increasingly, is to grant CEQA waivers to politically connected developers that are proposing projects deemed politically correct. The second, far preferable solution, is to fundamentally rewrite CEQA.

An excellent summary of how to reform CEQA appeared in the Los Angeles Times in Sept. 2017, written by Byron De Arakal, vice chairman of the Costa Mesa Planning Commission. It mirrors other summaries offered by other informed advocates for reform and can be summarized as follows:

  • End duplicative lawsuits: Put an end to the interminable, costly legal process by disallowing serial, duplicative lawsuits challenging projects that have completed the CEQA process, have been previously litigated and have fulfilled any mitigation orders.
  • Full disclosure of identity of litigants: Require all entities that file CEQA lawsuits to fully disclose their identities and their environmental or, increasingly, non-environmental interest.
  • Outlaw legal delaying tactics: California law already sets goals of wrapping up CEQA lawsuits — including appeals — in nine months, but other court rules still leave room for procedural gamesmanship that push CEQA proceedings past a year and beyond. Without harming the ability of all sides to prepare their cases, those delaying tactics could be outlawed.
  • Prohibit rulings that stop entire project on single issue: Judges can currently toss out an entire project based on a few deficiencies in environmental impact report. Restraints can be added to the law to make “fix-it ticket” remedies the norm, not the exception.
  • Loser pays legal fees: Currently, the losing party in most California civil actions pays the tab for court costs and attorney’s fees, but that’s not always the case with CEQA lawsuits. Those who bring CEQA actions shouldn’t be allowed to skip out of court if they lose without having to pick up the tab of the prevailing party.

Unfortunately, California’s new governor, Gavin Newsom, while acknowledging problems with CEQA, has put responsibility for recommending changes to CEQA in the hands of a task force consisting of labor union officials and land developers. It will be a surprise if a group dominated by these two special interests will be capable of coming up with the solutions recommended by De Arakal and others.

Principles of Appropriate Development in California

There is a moral imperative to increase the supply of housing in California. As noted, California’s policymakers have awakened to the fact that construction of new housing is not nearly meeting demand for new housing. But the way they’re going about stimulating housing construction is flawed. It will not appreciably lower the cost of housing and it will needlessly enrich special interests. Here are some ways housing could be more appropriately developed in California:

(1) Eliminate all forms of government subsidies, incentives or waivers to any developers. All players in the housing industry should be unsubsidized, and playing by the same set of rules.

(2) Stop requiring diverse types of housing within the same development or neighborhood. Mixing high-density, subsidized housing into residential neighborhoods devalues the existing housing, and this social engineering is unfair to existing residents who have paid a high price to live there.

(3) Roll back the more extreme building codes. Requiring 100 percent of homes to be “energy neutral” or include rooftop photovoltaic arrays, for example, greatly increase the cost of homes.

(4) Lower the fees on building permits for new housing and housing remodels. Doing this might require pension reform, since that’s where all extra revenue goes, but until permitting costs are lowered, only billionaire developers can afford to build.

(5) Speed up the permitting process. It can take years to get permits approved in California. Again, the practical effect of this failure is that only major developers can afford to build.

(6) Reform the California Environmental Quality Act as noted. Better yet, scrap it altogether. Federal laws already provide adequate environmental safeguards.

(7) Make it easier to extract building materials in-state. California, spectacularly rich in natural resources, has to import lumber and aggregate from as far away as Canada. This not only greatly increases construction costs, it’s hypocritical.

(8) Increase the supply of land for private development of housing. Currently only five percent of California is urbanized. There are thousands of square miles of non-farm, non critical habitat that could be opened up for massive land development.

(9) Engage in practical, appropriate zoning for infill and densification in urban cores, but only after also increasing the supply of open land for housing, and only while continuing to respect the integrity of established residential neighborhoods.

California has unaffordable housing because extreme environmentalists have imposed an agenda onto state policymakers that, unfortunately, dovetails perfectly with the agenda of special interests – in particular, public sector unions and bureaucrats, and large corporate land developers and construction contractors. This coalition is also responsible for the related problem of neglected infrastructure in California. Until California’s voters wake up and break this immoral, self-serving coalition, there is little hope that housing prices in particular, or the cost-of-living in general, will come down in California.

This article originally appeared on the website of the California Policy Center.

California Housing Crisis Prolonged By Policymakers

housingWith every idea offered as a serious “solution,” it becomes clearer why California has a housing crisis. The thinking is stuck on policies that aggravate rather than improve.

The latest ill-considered proposal picking up support would enact price-gouging laws to keep rental costs in check. Los Angeles Mayor Eric Garcetti, Oakland Mayor Libby Schaaf, and Sen. Scott Wiener, D-San Francisco, have publicly endorsed the idea. Gov. Gavin Newsom has carved out a similar position, railing in his State of the State address against “rent spikes,” and promising to sign “a good package on rent stability this year” if the Legislature sends him one.

Wiener sees price-gouging legislation as a temporary step, telling KPBS News “we need to take action to keep people stable in the housing that they have.” What it will do instead is ensure new units will never go up. If price-gouging laws bar owners from charging market rates, there’s little incentive to build.

Price-gouging laws would be especially damaging in California, which continues to suffer through a brutal housing shortage. The state needs about 100,000 housing units built each year in addition to the 100,000 to 140,000 units that are usually built, says the nonpartisan Legislative Analyst’s Office. Stealing the profit motive won’t get that done.

We’re dealing with an easily understandable law of economics. The record shows, says University of Michigan-Flint economist Mark J. Perry, that “the unintended and unseen adverse consequences of enforcing price-gouging laws are predictable, unfortunate, and avoidable.” Those consequences are artificial shortages.

When government halts the price increases that spontaneously occur due to shortages that follow natural disasters, it would on the surface appear to be a response no decent person could object to. But it’s those few who speak out against price-gouging laws who are the true humanitarians.

Here’s what happens when the law sets limits on the prices of high-demand items after natural disasters: Supplies are exhausted, leaving some emptyhanded. Both established businesses and entrepreneurs will rush goods to these consumers, often from long distances and at heavy costs, but only if they can make a profit. Price caps, however, prevent suppliers from earning profits, which means those who need lumber, generators, fuel, food, and other emergency goods will go without.

One story shows how poisonous price-gouging laws are. In 2005, a Kentucky man bought 19 generators, rented a truck, and drove to Mississippi where hurricane victims were in desperate need of power. He priced the generators at twice the cost he paid to cover his investment and earn a profit. Instead, he was arrested for price gouging, the generators were seized, and 19 Mississippi families who could have had power were forced to further endure 19th century conditions.

Placing rents under price-gouging laws would have the same effect as rent-control laws, as would Newsom’s “good package” of rent-stability legislation. All create a disincentive for developers to increase the housing stock. They won’t – in fact, cannot – build unless they are able to earn a profit.

Like the Carolinas in the aftermath of the hurricane, California’s housing market is also a disaster area – though not due to natural calamity. It’s been wrecked brick by brick through compounded human error. Lawmakers have for decades passed legislation, starting with the California Environmental Quality Act in 1970, and approved local ordinances that have consumed the profit motive needed to build. The tangle of policy, which includes affordable-housing mandates, building-permit snares, county and municipal regulations, and unchecked NIMBYism, is an effective barrier to new housing in California.

While Newsom, Garcetti, Schaaf, Wiener, and others in Sacramento think about strangling an already-wheezing market with price-gouging laws, a coalition of developers, politicians, tenant activists, business leaders, and union representatives has dreamed up something called the CASA Compact “to confront the housing crisis in the San Francisco Bay Area.”

The 10-point plan makes some good points, particularly regarding regulatory and zoning relief, expedited permit and approval processes, and better utilization of public lands. But it also proposes to “establish a Bay Area-wide rent cap that limits annual increases in rent to a reasonable amount.”

Every member of the coalition should know better – and they probably do – than to support rent-control laws. It’s no secret that they discourage building. Even Paul Krugman, the political left’s go-to columnist who once played an economist, acknowledges that rent control’s negative effects are “among the best-understood issues in all of economics, and — among economists, anyway — one of the least controversial.”

That rent control is perpetually floated as an answer to California’s housing crunch helps explain why the crisis has become intractable.

Kerry Jackson is a senior fellow with the Center for California Reform at the Pacific Research Institute.

State Threatens Encinitas With Lawsuit Over Housing Policy

Encinitas housingGov. Gavin Newsom’s administration has put another coastal town on notice that it must meet state mandates to add a significant amount of units affordable by low-income families – reflecting the newly elected governor’s view that a lack of housing is one of California’s biggest problems.

In a Feb. 4 letter to the city of Encinitas, state housing official Zachary Olmstead said the city needed to ”amend or invalidate” a 2013 ordinance approved by voters that said developers had to get voters’ blessing if they wanted to increase the density of their projects or make zoning changes. The letter noted that this law and other city actions had the effect of blocking Encinitas from meeting state requirements that it add 1,141 affordable units. The city of 63,000 has few such units now.

While the Encinitas City Council once seemed as strongly anti-growth as the public, state threats under the Jerry Brown administration led the council in 2016 and 2018 to seek voters’ approval of what’s known as a Housing Element plan, failing both times. The plan is a formal document submitted to the state that outlines what projects will be built so that the city meets its commitment to “accommodate the housing needs of Californians of all economic levels.”

Like Huntington Beach, Encinitas could face lawsuit

Encinitas is the only city in San Diego County without a similar state-approved plan. It is among the richest cities in the country. As of the latest Zillow data, the median average home price is $1.05 million, and the latest RentCafe data puts the average monthly rent at $2,056.

While the 2013 city law targeted by the state has already been suspended until 2021 by a Superior Court judge as being pre-empted by state law, that wasn’t viewed as going far enough by state officials. Olmstead’s letter cited the cumulative effect of a “complex set of regulations” that make it impossible for new projects that would help the city comply with state requirements.

If Encinitas officials don’t change course, the letter warned that state grants might be withheld, including for transportation projects funded by the Legislature’s 2017 increase in state vehicle taxes – and that the Newsom administration would ask Attorney General Xavier Becerra to sue the city for defying state law.

In a case involving the same issues, the state and the city of Huntington Beach filed lawsuits against each other last month in Orange County over whether Huntington Beach is breaking state housing laws. Becerra says 2017 legislation passed in Sacramento clearly empowers his office to sue to enforce plainly written state mandates. Huntington Beach City Attorney Michael Gates, however, says as a charter city – one with its own voter-approved de facto constitution – Huntington Beach has the authority to reject some state edicts that infringe on the city’s right to self-govern its “municipal affairs.”

Can charter cities claim exemption from mandates?

A League of California Cities primer on the rights of charter cities offers ammunition for Huntington Beach’s claim. It notes that with “some exceptions,” charter cities control land-use and zoning decisions. But a 1975 Loyola University of Los Angeles Law Review analysis cited by the league said ambiguous language in state law left it unclear precisely when charter city ordinances took precedent on land-use issues.

Encinitas is a general law city not eligible for charter city protections from some types of state interference. But if Encinitas officials proposed and city voters approved a charter city amendment in a special election, Encinitas could become a charter city within months.

Last year, after disputes with the state, officials in Menlo Park in Silicon Valley considered a quick push for charter city status before putting the issue on hold for the time being.

This article was originally published by CalWatchdog.com

Does California Even Know How to Fix Its Housing Problem?

Housing apartmentNew Gov. Gavin Newsom’s budget asks for $500 million to boost construction of housing for “moderate income” Californians. Housing, he said while introducing his first budget, “is the issue.”

He is correct. Everyone is aware of the grim state of housing in California. But no one, at least those with enough political influence to shift policy, seems capable of putting forth changes that will make a bit of difference.

It would help if policymakers stopped targeting segments of the housing market for special attention, as Newsom did with his $1.75 billion request for housing initiatives that includes $500 million for middle-income housing and $300 million for a low-income home-building program.

Though a focus on “affordable housing” might seem a good starting place, it’s a distraction.

Yes, those at the lowest income wealth levels are hurt the most in an environment in which even the middle class is increasingly priced out of the market. But a preoccupation on expanding “affordable housing,” defined by the federal government as housing costing less than 24 percent of an area’s median income, will not end the suffering.

What California needs are homes of all types: large, single-family houses on big lots, medium-sized houses on modest lots, small homes on small lots, McMansions, suburban tract homes, high-rise apartments, townhomes, condominiums, duplexes, triplexes, quadplexes and granny flats.

The fixation on “affordable housing” misses an important trickle-down effect. Though it’s typically assumed building new homes for higher-income households does nothing to increase the supply of lower–end housing, documented evidence refutes that claim. According to the non-partisan Legislative Analyst’s Office, “facilitating more private housing development in the state’s coastal urban communities” — where the practice of NIMBYism is a most vicious art — “would help make housing more affordable for low–income Californians.”

“Building new market-rate housing,” the LAO continues, “indirectly increases the supply of housing available to low–income households in multiple ways.”

New housing causes existing housing to become less desirable, and therefore drives down prices. It also “eases competition between middle- and low-income households.” As more affluent households that had decided to stay in low-income neighborhoods due to limited housing choices are able to move up, their homes become available for lower-income households.

Focusing on affordable-housing programs has only a limited effect, says the LAO, as it is “extremely challenging and prohibitively expensive.” The annual funding commitment would be “roughly the magnitude of the state’s largest General Fund expenditure outside of education (Medi-Cal),” which spends roughly $20 billion a year in General Fund dollars.

California policymakers truly have odd ideas about how to relieve the housing crunch. More than a dozen cities have rent-control laws, which make the problem worse by taking out the incentive to build.

A few politicians think that price-gouging laws applied to rental housing will be helpful, while others call for more public housing funds, convinced the state can spend its way out of the crisis.

Some lawmakers believe raising the cost of real-estate transactions is the answer. Yet, hiking residential and commercial property taxes, and forcing contractors to include below-market rate housing in their developments are two more ideas that are incorrectly considered to be correct pieces to the housing puzzle.

Meanwhile, Oakland’s city hall operates under the delusion that forcing landlords who want to move into their own home to pay their tenants as much as $9,875 for the privilege of doing so is a reasonable solution. The city’s Uniform Relocation Ordinance clearly an illegal seizure of private property by the government.

It’s no surprise that a few other cities have similar ordinances. The penalty in San Francisco can be as steep as $19,897.15 per unit, and it would have been much higher — $50,000 — had not the First District Court of Appeal ruled against the higher fee in 2017, rightly blaming the city’s rent-control laws, not homeowners, for the city’s housing shortage.

What’s particularly galling about California’s housing misery is that lawmakers in both parties know the only remedy is to remove government hurdles to building. Yet those holding the political power to make corrections move in the opposite direction. Until they sharply change course California will continue to be a hard place to live.

This article was originally published by the Pacific Research Institute

Nearly half of California voters say they can’t afford living in the state

leaving-californiaA new poll has found nearly half of California voters believe they can’t afford to live in the state.

The Quinnipiac University poll released Wednesday reports that 43 percent of California voters said they can’t afford to live there. That number was driven by younger voters: 61 percent of voters age 18 to 34 said they can’t afford to live in California.

“For many Californians, life is less than golden in the Golden State,” the release quotes Tim Malloy, assistant director of the poll.

Surging housing prices in California led CALmatters to report that the state was the poorest in the country in 2017. The organization reported then that 20 percent of the state’s population struggled to make ends meet. …

Click here to read the full article from USA Today

Changing Prop. 13 Could Worsen Housing Crisis

property taxFor four decades, Proposition 13, the property tax reform that passed in 1978, has been blamed for many of the ills that have befallen California.

Working with Howard Jarvis, a Proposition 13 co-author, and later running his taxpayers association, I have followed the multiple attacks on the measure, many silly and outrageous. Now the attacks are amped up along with a supposed, but flawed remedy.

In discussions of where new money would come from to solve the Los Angeles Unified School District labor dispute and teacher’s strike, a ballot measure designated for the 2020 statewide ballot to change to Proposition 13 often is mentioned.

The initiative promises to split the property tax roll between commercial and residential properties.

If approved, the split roll initiative would come with long-term problems and exacerbate issues that were raised during the teachers’ strike that would affect all of California.

Implementing a split roll would mean that commercial property would be taxed at market value. That would bring in more revenue to schools and local governments. But supporters of the split roll stop the discussion at that point, and fail to discuss the far-reaching consequences of undoing Proposition 13.

High housing costs were a constant refrain during the teachers strike. The lack of housing makes it more difficult for teachers to live near where they work, a curse for many middle class Californians.

Imagine what would happen if split roll were a reality. What do you think would happen when local governments would choose between green-lighting a commercial venture that would bring in gobs of new revenue for government as opposed to approving a housing project?

Just as taxpayers make adjustments to reduce their taxes, government officials embrace projects that will increase revenue. There are many examples of such behavior on both sides of the tax equation such as the infamous window tax of the 18th and 19th centuries in Europe.

In response, homeowners boarded up windows to avoid the tax. Tax collectors have similar reactions in the opposite direction. They will certainly okay revenue-producing developments ahead of housing projects.

Apparently there was no concession by the teachers’ union in the strike settlement to control pensions and health costs, two items that are driving the district toward insolvency, according to the Los Angeles County Board of Education and Los Angeles Unified School District Superintendent Austin Beutner.

Pension and heath costs are a big problem for local and state governments, just as they are for schools. The alternative is to turn to taxpayers to fund these generous benefits while taxpayers themselves struggle with their own retirement and health care situations.

But there is an element to the troubled pension situation that could be further damaged by a split roll. Many pensions rely on commercial properties to increase portfolios. With raised property taxes, commercial properties will be devalued and another debilitating weight would be added to government pensions holding business properties.

Under Proposition 13, property tax revenues have increased well beyond inflation and population growth. The property tax under Proposition 13 is the steadiest tax in the state because during economic downturns only recently purchased property is re-evaluated downward.

Under Proposition 13, most property taxpayers continue to pay the expected taxes due while both sales and income taxes reduce sharply in a recession.

If all commercial property tax rates are pegged at market value, and a recession hits, commercial property would be reassessed downward and local and school budgets will take a huge hit.

In addition to these problems, business owners forced to pay higher property taxes would pass those costs onto consumers, and that would diminish the state’s economy.

For residential property taxpayers there is another thing to keep an eye on. Is the move toward a split roll the first step to taking away Proposition 13 protections from homeowners?

At a recent speech to the Palos Verdes Chamber of Commerce, noted Los Angeles area economist Christopher Thornberg raised the issue saying he would flip the split roll, keeping Proposition 13 on commercial property and getting rid of it on residential property to help local governments fund services related to homes.

You can bet the idea of eliminating all of Proposition 13 is on the mind of those advocating more and more government spending and the split roll ballot fight will be the first test.

This article was originally published by Fox and Hounds Daily