150,000 homeless. 7 million living in poverty. And if you're younger than 35, the average home costs more than 7 times the median income. Welcome to the state of housing in California.
So, California is trying something different: Allowing multi-family units on land zoned for single-family housing.
The move could add 700,000 new homes in California, according to the Terner Center's Ben Metcalf.
But will the new bills really move the needle on affordable housing?
"Probably not," Adam Fowler, director of research at Beacon Economics, says. "Though they are valuable in that they’re turning the mindset a little bit on policymakers.”
Today, On Point: California's new housing plan. Will it work?
Alex Schieferdecker, Philadelphia-based urban planner. (@alexschief)
What is SB 9 and SB 10?
Ben Metcalf: "They're actually the combination of what we've seen over just the last couple of years, of a real relook at our single-family zoned neighborhoods in California. Single-family zoned neighborhoods are a big chunk of the residential land. It's about two thirds of all residential land, has that single-family zoning restriction on it. And historically, it's been the one part of our residential lands that really hasn't seen new construction. We've seen big subdivisions going up on greenfields, we've seen denser apartment buildings and housing going up on our inner core. But the single-family neighborhoods have remained relatively static.
"Starting a couple of years ago that began to change with accessory dwelling unit laws that passed in California that allowed homeowners to attach rental units to their homes. And then over the last couple of years, we started to see cities in California, Sacramento, San Jose, San Diego beginning to push farther to sort of say, Well, if a single rental unit makes sense, maybe really allowing for a full subdivision of that single-family parcel makes even more sense.
"And that culminated with SB 9, which allows really any homeowner in California to be able to effectuate a subdivision of his or her parcel, or split his or her home to create up to four units. SB 10 is a parallel bill to that, which allows local governments to much more easily create new zoning designations that allow for up to 10 units. It bypasses a lot of the bureaucratic rules and restrictions that have got in the way of local governments who wanted to move in this direction.”
How much do those bills actually make a difference in terms of the housing crisis in California?
Ben Metcalf: “There are about 7.5 million single-family parcels in the state of California. Our estimate was that about 6 million of them, so again, the large majority, would be eligible. The question then becomes, Where do the economics make sense? You know, where would it really be a decent return for a homeowner to actually add this? Where would the rent that you would get, or the sales price that you would get, actually offset the cost of construction? And that calculation drops down quite a bit, there are many places that just won't make economic sense to proceed forward.
"But when we paired this SB 9 with the states preexisting accessory dwelling unit laws, we found that approximately 2.5 million new units would be both possible to build in terms of the space, and economically feasible to build. SB 9 is a portion of that. So our estimate is about 700,000 of that, 2.5 million new units.
"So how do you put that into scale, what does that mean? Well, one way to think about that is the state of California as a whole is only building about 100,000 new homes every year. So the passage of SB 9, paired with what we've put in place with these ADU laws, opens up about 25 years worth of new inventory.
"I think the huge question is uptake, and how many homeowners actually want to build. ... And how long will it take given the kind of capacity we have in the state? It's a finite number of builders. There's a finite number of folks at any point in time that want to do these changes. So I think there's a huge potential here. For me, it's really more of a how long is this going to actually take to be able to tip the scale.”
How can we guarantee that the housing that is created is affordable?
Ben Metcalf: “This is the crux of the challenge we face, is that we have spent a lot of time in states like California — Massachusetts, too — really making it hard to build new homes. I mean, this goes back decades. And it's not just a zoning issue. The zoning is a big part of it. It's also just the discretion that comes in approving projects. It's a layering complexity in the building code.
"And so the consequence of all this is it just has made it very hard for private sector actors to add adequate housing to keep up with sort of the natural growth that happens in communities like Massachusetts and California, to facilitate migration of people who want to access jobs that offer upward mobility.
"We've been in a multi-decade long sort of building slump. And I think one solution could be to sort of say, Well, we need to bring in government subsidy to directly address this. The problem is, is that you end up chasing your tail a little bit. There's a finite number of homes, and you're trying to subsidize certain people to access those homes. The increased demand over time will just make those prices and rents continue to go up.
"The root cause solution really is to try and figure out how we can get more housing getting built in the communities where we want them to get built. And that is a place where I do think there is a logic in having professionalized builders and developers helping to do that work. As a homeowner trying to add units can be very, very time consuming, exhausting, complicating and confusing.
"And so having folks who can come in and help take underutilized land, underutilized homes, add units, facilitate the conversion of them to multi-unit structures, is actually really fundamentally needed. And helpful as we try and just get more housing out there, so people have more housing options.
"If you have multi-unit structures in quantity, house prices will stabilize. If you have smaller units that often come with multi-unit structures, you also have naturally more affordable housing. I mean, just think about an 800 square foot apartment side-by-side with a 3,000 square foot home, one is going to cost much less than the other. It will offer less space, but it will still be naturally more affordable.”
On other solutions needed to solve California's housing crisis
Adam J. Fowler: "As long as there's economic opportunity and growth in California, this is going to be an ongoing challenge. When we tout our job numbers, when we tout our industries that are leading the globe, those jobs need beds at the end of the day. And so the status quo doesn't allow a lot of flexibility, right? So as market conditions change, as preferences, desires, the nature of what a family looks like changes, we need to allow some flexibility for homeowners to make decisions on what they can do with their land.
"... We see changes in household formation, birth rates, folks need some opportunities. Right now, we have in our rigid single-family housing, we've historically just had a one size fits all solution. You had to pay for a parking spot. You had to have a yard, you had to have these things. Like in other parts of our market system, we like to give people choices. Maybe you want to live in a micro unit, maybe you don't need a yard. And so I think that is one of the big opportunities that's presented."
Will these new bills shrink the housing gap?
Adam J. Fowler: "Over the longer time horizon, it's going to be very important. We didn't ring our hands quite as much around the ADU bill a while back, and that's doing a lot of work as well. I mean, the headlines weren't quite as hysterical in terms of the end of something we hold dear. But as Ben was mentioning in his analysis, those ADUS are doing a lot of the work as well. I think a couple of things come to mind. We muddled this conversation a little bit when we talk about things like workforce housing or ... affordable housing, or we try to dance around some of these questions by labeling things in such a way where we can get everybody to kind of agree that, yes, on its face, that's something we value.
"I think what concerns us from an economic point of view is the kind of lost opportunity for growth. Estimates ranged from 2% upwards to 9% of GDP that's kind of artificially constrained by our somewhat dysfunctional housing regulatory infrastructure. And you think about all of the investments, the world class investments California has made over the years. And housing's role in limiting access.
"So when we invest in multibillion dollar metro, train, rail, et cetera, in Los Angeles, when we invest in arts and culture, when we invest in our universities, our schools ... we are artificially limiting those opportunities when people can't find housing, when it's so tough to be able to access those. And so I think we've got to really think about the things we pride ourselves in, those investments that do make differences in people's lives over the long term. We're closing off the opportunity artificially, and that just constrains kind of productivity, innovation and economic growth over the long run."
From The Reading List: A study by The Terner Center for Housing Innovation
This report assesses how California's SB 9 bill will impact housing in the state. Click the link below to read more.
This program aired on October 21, 2021.