The valuable lessons of California's affordable-housing crisis

A few weeks ago, the Herald-Tribune printed an article from The New York Times about California’s affordable housing crisis. Titled, “Housing costs cause California crisis,” the story sounded familiar — economic prosperity in the state combined with too-slow residential construction that is not keeping up with demand has led to “explosive” housing costs.

A deeper dive into this problem reveals nationwide coverage of California’s problem, including a big feature story in the Los Angeles Times.

Florida and Sarasota could learn a lot from California. We are quickly following in its footsteps.

California has slowly realized that government is the problem and not the solution. The anger and resentment about the issue has grown so strong that the state Legislature is contemplating many bills to address it, including legislation that would stopping NIMBYism (not in my backyard), not just for affordable housing but for all housing. California also is considering limiting the use of zoning and environmental and procedural laws that have been used to stop housing developments.

According to an article on the Strong Towns website that was republished from the think tank City Observatory, California Gov. Jerry Brown is refusing to allocate any more state resources until the local and state governments act to lower the high housing costs caused by their regulations and procedues. City Observatory reports that Brown's budget speech was clear on the issue: “We’ve got to bring down the cost structure of housing and not just find ways to subsidize it.”

I know it is hard to believe a left-leaning state like California is contemplating eliminating disruptions to market forces or, in short, deregulating to solve this problem.

But California is actually on the right track.

The McKinsey Global Institute is a think tank ranked by The Lauder Institute at the University of Pennsylvania as No. 1 in the world in the private sector. MGI published a toolkit called Closing California’s Housing Gap. The authors were clear about their intent: “Our objective is to provide rigorous, fact-based analysis on a charged issue and to present a practical blueprint for how cities, state authorities, the private sector and citizens can work together to unlock housing supply and ensure housing access.”

MGI analyzed numbers, they built a quantitative model and learned from the data. A breathtaking, staggering fact emerged.

“In total, California’s housing shortage costs the state more than $140 billion per year in lost economic output, including lost construction investment as well as foregone consumption of goods and services because Californians spend so much of their income on housing.”

Let me repeat that, California has a $140 billion economic problem caused by its affordable housing crisis.

MGI analyzed the obstructions to affordable housing and what was likely to increase the supply. What emerged was a five-step process. The first and primary tool was a path for government to get out of the way and encourage development.

“Shortening the land-use approval process in California could reduce the cost of housing by more than $12 billion through 2025 and accelerate project approval times by four months on average,” the think tank concluded.

MGI recommends that cities be transparent and advertise the vacant sites in a way that makes them easy to find. It also recommends providing incentives to owners to bring vacant sites to the market. Beyond incentives, it also recommended that permits be approved faster and that infill be encouraged.

MGI predicts that housing costs in California could be reduced by $1.6 billion and construction productivity increased by reducing construction permitting times.

Using modular construction techniques could save as much as $100 billion, MGI said. And, finally, it recognized developer impact fees as a $10 billion-per-year impediment to affordable housing.

MGI quantified the costs of California government regulation in actual dollars, all of which are passed down to residents in terms of price and rent. This astonishing impact needs to be recognized by all states and we need to recognize it here in Florida and Sarasota.

We are creating our own problem here. We will find out state Legislature intervening as we approach the epic levels of California’s crisis in the near future if we don’t learn from that state's lessons.

We need to work with the market instead of against it.

Christine Robinson is executive director of the Argus Foundation.