California’s housing policies hurt the working poor the most

Californians embraces housing policies that benefit high wage earners and homeowners over the working poor.

House prices in California surpass most of the rest of the United States both in real terms and relative to local income. Residents offer many bogus reasons for high house prices — everyone wants to live here, incomes are higher, the sunshine tax, foreign safe haven and so on — but none of these reasons accurately explain why house prices are so high. California housing costs rank among the highest in the nation because we don’t build enough housing units, resale or rental, to accommodate population growth and job creation.

To make matters worse, the solutions offered to remedy the situation fail to address the root cause and create problems of their own. The worst of these solutions, affordable housing mandates, is the one favored by the political left, the dominant force in California politics. Affordable housing mandates fail because while they may provide payment assistance for a lucky few, such programs provide insufficient housing to meet the overall demand.

Even the winners in the affordable housing lottery end up losing in the end. First, the application process turns them into beggars, an emotionally degrading experience. Who really wants to spend their lives dependent upon the State?

Second, even those obtain some form of affordable housing assistance later realize they are trapped by it. If they live in rent-controlled housing, they can’t leave and take the subsidy with them, so their mobility is curtailed. If they obtain some other kind of State or local assistance, they must remain in the jurisdiction to keep their benefits.

Third, these assistance programs stymie the economic growth potential for beneficiaries. Perhaps some of these workers lack the capacity to improve their financial condition, but for those that could get ahead, they discover that succeeding financially renders them ineligible for housing assistance. The State punishes success and rewards sloth.

Who is harmed the most?

Existing homeowners are the biggest beneficiaries of inflated home prices. Those who want to become homeowners endure the most damage from our exclusionary policies. High wage earners may not like paying so much for housing, but they can always substitute down in quality and price out someone further down the income ladder. Low wage earners can obtain housing assistance, though not all of them will be so fortunate.

The group hurt most by California’s terrible housing policies are the working poor. Higher wage earners substituting down in quality buy the homes meant for them, and they make too much money to qualify for government assistance. In short, the people working the hardest to provide goods and services to make California great end up bearing the brunt of our misguided housing policy.

It’s difficult to objectively examine the results and conclude this the kind of housing policy we want for California.

Housing Crunch Exacts a Heavy Price on Californians

By Vanessa Rancano, FEBRUARY 1, 2017

California is producing less than half the new homes it needs to meet demand in the Golden State.

In its first comprehensive analysis since the year 2000, California’s Department of Housing and Community Development … suggests lawmakers will need to consider serious policy changes if California is going to build the projected 1.8 million new homes needed by 2025.

The problems with chronic shortages, inflated house prices, and the substitution effect to lower quality housing is a direct result of the development approval process in California being 100% in the hands of local politicians. In California no State or regional entity has the power to mandate that any local political body must provide sufficient housing to meet local demand. Further, since local governments are highly dependent upon commercial and business tax revenue, they are always keen to zone for more commercial than residential land uses, which in turn creates imbalances between the number of jobs and the number of available housing units.

The only way California will ever have housing that’s affordable in a free-market, non-subsidized way is to shift some power away from local governing bodies — a course of action that will not be popular on the local level. This could take the form of direct approval override of local governments by a State or regional decision-making body, or it could take the form of mandates for development. In whatever form, some State or regional body must be given power to stop NIMBYs from lobbying local government officials to stop development that benefits everyone.

“About a third of all California renters today are paying more than 50 percent of their income in rent,” California Department of Housing and Community Development Director Ben Metcalf told the group.

This fact will suppress the home ownership rate for the foreseeable future because very few potential homebuyers save for the necessary down payment, even the paltry 3.5% required by the FHA. And since renters put a large percentage of their income toward rent, even if they wanted to endure 0.2% savings interest rates, they lack the disposable income necessary to save for a down payment. No magic bullet or simple solution to this problem exists.

Perhaps it’s “old school” and unfashionable in our modern era of unlimited entitlement, but the only way to save for a down payment is for potential homebuyers to sacrifice current consumption and adjust their finances to live within the constraints of their income. Unfortunately, sacrifice is no longer the American Way.

Those paying the largest share of their income for rent and transportation aren’t concentrated in expensive cities like San Francisco — they’re largely living in rural Northern California counties and in the Central Valley.

“We’re seeing home ownership rates at the lowest level they’ve been since World War II,” Metcalf said. And, he added, while just 12 percent of Americans live in California, 22 percent of America’s homeless live here, more than in any other state.

When we fail to provide enough housing for everyone, homelessness is inevitable.

Among the challenges driving the lack of affordable housing is unstable funding, the report finds. Federal allocations for affordable housing declined in California from 2003 to 2015. There just aren’t enough affordable rentals, and even for those who get assistance, Section 8 vouchers can’t keep pace with soaring rents.

One of the biggest obstacles to truly solving the problem is the unfortunate advocacy of affordable housing mandates by the political left. There will never be enough affordable rentals when there simply isn’t enough housing of any kind.

The authors also point to regulatory hurdles and land use policies that jack up development costs and delay building.

So the actual cause of the problem is relegated to dishonorable mention? If legislators fail to properly define the problem and adequately evaluation the potential solutions, we will get nowhere.

Still, the report suggests there are big consequences resulting from the failure to meet housing needs. When you factor housing in, California has the highest poverty rate in the country. Housing instability affects people’s health and kids’ academic performance. And as people move farther from jobs, long commutes increase pollution.

Overall, the report concludes the lack of housing costs the California economy almost $240 billion a year.

The pain of this problem will only get worse until we start building enough homes to accommodate the number of jobs created in California. Even if we only created enough jobs to accommodate our children, we do a disservice to them by failing to provide enough houses to allow them to remain in the state. But nimbys don’t care about that. After all, California nimbys don’t love their children.

Super Bowl

I turned off the game when the Falcons were up 28-3 in the third quarter to write this post. I thought the game was over. Fortunately, I recorded the game, and I was treated to one of the greatest performances in Super Bowl history. I gave the Patriots up for dead, and they mounted the most remarkable comeback in Super Bowl history.