Housing Crisis
Coastal California has a housing problem. A dingbat house in most of the country will cost you about $300,000. That house in San Francisco will cost you at least $1,200,000. The activists and government officials who have impeded the production of housing for decades ignored the Law of Supply & Demand. It continued to operate in spite of their wishes.
The California Legislature has passed some bills, and is considering many more, to address the situation — to force reluctant cities to allow housing production. To date, the efforts have failed. I think those efforts will continue to fail until there are real penalties for those who roadblock housing production. Here are some suggestions for more effective legislation.
CEQA (California Environmental Quality Act) was supposed to be a vehicle to allow legislators to make informed decisions about development. It mandated EIRs (Environmental Impact Reports) that bureaucrats and elected officials could review before moving a project forward. The actual impact was to provide a club to be used by opponents of a project and/or as an extortion lever. If a project is too small to be deemed EIR material, a CEQA lawsuit asserts that an EIR is necessary (paid for by the developer). If an EIR has been written and certified, the suit asserts that it failed to consider all relevant alternatives (the project could be built on the dark side of the moon). If a new EIR or rewrite of an old EIR is produced, the new suit asserts that it is inadequate. The objective can be to force alteration of the project that suits the plaintiff, or extraction of a contribution to an environmental organization allied with the plaintiff, or extraction of a project labor agreement from the developer, or the creation of a delay that eventually discourages/bankrupts the developer. A string of lawsuits can go on for years. Passing a law that allows the defendant in such suits to assert that delay and/or extortion are an entire or substantial underpinning of the suit would up the ante for plaintiffs. If the plaintiff was required to pay the defendant’s legal fees in the event of such a finding, there would be a lot fewer suits filed.
Most left leaning California cities require apartment and condo projects to include BMR (below market rate) units. The theory is that greedy developers must subsidize low income consumers in return for the privilege of getting a building permit. Of course, the cost is actually passed on to the market rate units. It’s a stealth tax on renters and buyers. The problem is that the BMR requirement has become a moving target and it kills the economic feasibility of projects. Legislation that permanently capped the BMR requirement at 10% of total units would reduce the risk of proposed deals. Reducing the risk reduces the risk premium built into any proforma, and means that units can be produced at a lower price.
In many cases, zoning laws and planning regulations are not operative in the real world; they are just the beginning of the negotiation. Concessions and “contributions” are on the table. That practice favors builders with long pockets and political connections. Increasing barriers to entry lessens competition and improves margins. The cost is passed to renters and condo buyers. If a proposed project complies with all the rules, it should get a permit “of right”. Any entity (activist, labor union, elected body) that attempts to shut down an “of right” project should be liable for damages.
Finally, there is the process of obtaining a permit. In San Francisco, plan check takes at least a year. A year during which a developer is paying interest or option payments, adding to the cost of the project. Anybody submitting plans should have the option to farm plan check out to any engineer licensed by the State. If the building departments stood to lose plan check fees, the process would go a lot faster.
In summary, no amount of well intentioned legislation will generate any housing until there is some pain in prospect for the NIMBY coalition.
