California leads the world in technology, agriculture and entertainment. But we lack the political will to build the housing we need.
A recent McKinsey report showed that from 2009 to 2014, California added 308 housing units for every 1,000 new residents – half the rate of New York. As a result, housing costs have increased at nearly 2.5 times the national average, and almost half of renters – including the poor and young Californians starting families – spend more than 35 percent of their incomes on housing.
Average rents of $2,936 in San Jose and $3,809 in San Francisco are driving away the young workers and new families businesses need to thrive and cities need to stay vibrant. Though California is in desperate need of housing, more than two-thirds of coastal communities have adopted growth-limiting measures. This needs to change.
There are three concrete steps we can take to provide the housing California needs.
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First, local governments should zone scarce land for housing rather than commercial developments. When Prop. 13 passed in 1978 it limited the amount of money cities can collect in property taxes. Since 90 percent of revenues had come from property taxes, mayors and city managers had to scramble to find new revenues sources. Most cities have become dependent on a 1 percent sales tax from retail businesses, hotel taxes and utility taxes.
So every city in the state has an incentive to zone for Walmarts and new car dealerships rather than new houses.
The impulse is understandable, but short-sighted. What look like good revenue sources today, can look like boondoggles tomorrow. Given that Prop 13 is unlikely to be amended, cities themselves should make zoning decisions with their enlightened self-interest in mind – remembering that retail businesses might be weak revenue sources in coming years.
Next, reduce regulatory barriers to housing construction. It is harder to build housing in California than in virtually any state in the country.
The California Environmental Quality Act was created for good reason, and it helped prevent sprawl. But it’s now being used to prevent new developments for reasons unrelated to the environment. A recent study found that nearly 80 percent of CEQA lawsuits targeted urban infill projects, including dense, transit-oriented units that would have lowered housing costs while helping the environment.
We need CEQA reform to streamline approval for transit-friendly, multifamily housing with specific numbers of affordable units.
Similarly, many municipalities have ordinances making it harder to build new housing. Often well-intentioned, these measures contribute to the housing shortage and make homes more expensive. Pushing back on these ordinances will make housing more abundant and affordable.
It’s not enough to just build. We also need to make sure housing is affordable. Carefully conceived “inclusionary zoning” rules would require developers to build a specific number of affordable units in addition to market-rate units.
Creative approaches to the state’s tax code could create more affordable housing. Assemblyman David Chiu (D-San Francisco) has proposed a bill to eliminate the mortgage interest deduction for second homes, using the increase in revenues to fund a Low-Income Housing Tax Credit program. People rarely want affordable housing in their backyard, but we need to get beyond this NIMBY thinking. Smart leaders like Assemblyman Chiu are showing the way.
California has always been America’s future. we take a hard look at whether we are making California a land of opportunity for the young, poor, and new arrivals. State and local housing policies are making it difficult for Californians to put roofs over their heads, save money and start families. We know what we need to do to build more housing – we just need the political will to make it happen.
Steve Westly is founder of The Westly Group, a venture capital firm, and served as California Controller from 2003 to 2007.