Tenants and landlords are hurting, homelessness is skyrocketing
and the housing market is out of control. The COVID-19 pandemic
isn’t the only reason for that, but it’s making California’s
longstanding housing crisis even worse. 

In 2021, nine out of ten Californians consider housing
affordability a problem, and nearly one in three Californians are
considering leaving the state because of it, according to
March
survey by the Public Policy Institute of California
.

So how did things get so bad? Here’s what you need to know about
California’s housing costs.

Just how hard is it to buy a home in California?

Hard. Really hard. Both compared to how difficult it is in other
states, and how challenging it was for previous generations of
Californians.

In the late 1960s, the average California home cost about three
times the average household’s income. Today, it costs more
than seven
times
 what the average household makes.

While it’s always been more expensive to be a homeowner in
California, the gap with the rest of the country has grown into a
chasm. The median California home is priced nearly 2.5 times
higher than the median national home, according
to 2019 Census data
.

The pandemic hasn’t cooled the housing market, either. Demand has
long exceeded supply of homes for sale in California, and that’s
especially true now. But while many families are suffering the
economic impacts of COVID-19, wealthier households with money to
spend and capitalizing on low interest rates have driven up
prices even more. In September 2020, California’s median
home price reached $712,430
 — a historic high.

Who owns their house?

Despite relatively low mortgage rates, however, exploding housing
prices have caused California’s overall homeownership rate to dip
significantly. Just more than half of the state’s households own
their homes — the third lowest rate in the country and the lowest
rate within the state since World War II. 

And those homeowners skew significantly white. White Californians
are twice as likely as Black Californians to own their
home, according to
2019 Census data
. The racial gap in homeownership has widened
over the years, which also means Black Californians are less
likely to build wealth over time, said Carolina Reid, associate
professor of city and regional planning at UC Berkeley.

But racial disparities are true in all dimensions of housing.

“Blacks and Hispanics are more likely to be cost burdened, more
likely to live in overcrowded conditions, more at risk of
eviction, and displacement,” she said.

Rents dipped with the pandemic, but are still soaring

Rents are among the highest in the country in California, home to
seven of the ten most expensive cities for tenants. The pandemic
has changed things up — driving down rents in some of the most
expensive cities and hiking rents in some more affordable ones.
But affordability overall has only worsened with COVID-19.

San Francisco remains the most expensive city to rent in the
United States, with the average rent for a two-bedroom apartment
at $3,500 a month, according to Zillow. That’s even after a 23%
drop from last year. Fresno, at one point considered on the more
affordable end of California housing, has seen a 39%
hike in average rent since 2017, including a 12% increase during
the pandemic
.

The drop in homeownership plays a role here. As it has become
more difficult to buy a home, wealthier people have remained
stuck in the rental market — and driven up rent prices.

Wages can’t keep up with rental costs

Median earnings for Californians are higher than the national
average, and are significantly higher in certain regions like the
Bay Area. But on average, income over the past two decades has
not kept pace with escalating rents.

Before the pandemic, about half of California renters were rent
burdened, which means that more than 30% of their income went
toward rent, according to the
Harvard Joint Center for Housing Studies
. Nearly a third of
Californians were severely rent-burdened, which means that more
than half of their income went toward rent. 

The numbers are worse for families of color. A California
Housing Partnership analysis
 found that in 2019, Black
renter households were about twice as likely as white renter
households to be severely cost burdened.

The pandemic only worsened these numbers. As unemployment
skyrocketed and families lost wages, roughly one of every six
tenants fell behind on rent payments, according
to a study by the Little Hoover Commission
.

It’s a statewide problem

The extremes of California’s housing crisis are concentrated in
the Bay Area and greater Los Angeles, but the challenge is
statewide. While San Diego, San Francisco and L.A. top the list
of toughest rental markets in the country, cities including
Sacramento and Fresno recently have experienced the largest
year-over-year rent increases.

In most Central Valley cities, the majority of very low-income
families are spending more than 30% of their paycheck on rent.

Homelessness is on the rise

The number of people experiencing homelessness is notoriously
hard to track, but estimates are getting more accurate — and show
that the problem is big, and worsening.

Newly released state numbers show that throughout 2020, nearly
a quarter of a million people accessed homeless
services
 through local agencies. About 160,000 were
single adults, and nearly 85,000 in families with kids. Los
Angeles County has the highest number of people experiencing
homelessness, with about 90,000 people who accessed services in
2020.

That data — submitted by 42 of the 44 local agencies that manage
homeless dollars and services across the state — was not
previously compiled or made public. That number is dynamic,
because someone may have been homeless at the start of the year,
but housed by the end — or vice versa. 

The data also fails to count some individuals who never
interacted with homeless providers and survivors of domestic
violence who are omitted for safety purposes, according to Ali
Sutton, the state deputy secretary for homelessness.

According to the state, nearly 40% of those people, or 91,626
individuals, moved into permanent housing last year — which could
mean anything from moving back in with a family member to getting
their own place. This overlaps with an unprecedented amount of
funding going to fix the issue — $13
billion over the last three years
.

Previous estimates of people experiencing homelessness were much
lower. Every two years, the federal government mandates a tally
of the number of people on the streets on a single night in
January. Advocates and experts have long clamored that the count
is not
accurate

The point-in-time count was last taken in January 2020 — before
COVID-19 ravaged the economy — and showed 161,548 people
experienced homelessness in California. The January 2021 count
was postponed due to COVID-19.

It’s really hard to pass legislation to build more housing in
California

Sen. Scott Wiener takes a photo of the vote tally as the eviction
bill passes in the senate. (Photo by Anne Wernikoff for
CalMatters)

But that doesn’t stop lawmakers from trying, and trying again.

2020 was supposed to be a big year for housing legislation.
Lawmakers proposed a slew of housing bills, including a measure
that would have forced cities to allow more mid-rise apartment
buildings, convert big-box retail property into housing, and
limit the restraints of environmental law on housing projects.

None of those bills passed. Democratic
squabbling and the global pandemic
, among other factors, were
to blame. 

Key legislators are back
at it this year
. The bills are mostly designed at easing
zoning and environmental restrictions to allow for more dense
housing, funneling more money into affordable housing production
and trying to force local governments to comply with state
goals. 

Here are a just a few of the bills we’re watching this year:


AB 215
, by Assemblymember David Chiu, would essentially give
teeth to the Regional Housing Needs Allocation, a law designed to
increase housing production but that has done little to mandate
it. Cities would need to check in with the state halfway through
their eight-year housing approval process. If they’re behind on
their goals, the state would force them to approve more
pro-housing policies.


SB 9
, by Senate leader Toni Atkins of San Diego, bears
some resemblance to last year’s SB 50. The bill would allow
homeowners to put a duplex on single-family lots or split them
without requiring a hearing or approval from the local
government. Affordable housing and rental properties would be
exempt from the changes.


SB 10
, by Sen. Scott Wiener, would allow cities to rezone
transit centers and job hubs to allow as many as 10 units per
parcel. Proximity to public transit would theoretically lead to
fewer cars on the road, bringing the state closer to its goals to
reduce climate change.


SB 478
, also by Wiener, takes aim at local ordinances that
limit the construction of housing based on lot size, which
effectively erases any chance of building small apartment
buildings on land that is already zoned for multi-family
housing. 

California’s most controversial homebuilding bill

Senate Bill 50, proposed last year by Sen. Scott Wiener, would
have forced cities to allow more mid-rise apartment buildings
around public transit and next to some single-family homes.
Proponents believe this is the best and quickest way to come
close to meeting the state’s housing needs.

A host of political interests supported the bill — developers,
landlords, environmental groups, big city mayors and even
Facebook wanted
to see it pass
. But the bill failed to get enough votes in
the Legislature to survive in
2020 before time ran out. Among the opponents were Los Angeles
Democrats, spurred by low-income tenant advocacy groups.

That wasn’t the first time the legislation failed.

Similar versions of the bill had been blocked twice before, with
strong opposition from suburban homeowners, local governments and
community groups who contended the proposal would destroy
neighborhood character and gentrify lower-income communities.

“As disappointing as it was not to pass (Senate
Bill 50
), it left me quite optimistic about what we will be
able to do in the future,” Wiener told
CalMatters
. “The fact that a bill four or five years before
(SB 50) would not have probably even gotten a hearing in a single
committee, but then we were able to get it through two committees
and almost off the Senate floor (means) there is actually very,
very broad and deep support for a pro-housing agenda.”

Many of the same ideas proposed in SB 50 will be up for debate
again this year.

The housing crisis has major repercussions for the economy

Big business is also feeling the pinch of California’s housing
crisis.

The McKinsey Global Institute found that housing shortages
cost the economy between $143 billion and $233 billion annually,
not taking into account second-order costs to health, education
and the environment. Much of that is due to households spending
too much of their incomes on the rent or mortgage and not enough
on consumer goods.

Even the attractive salaries and lavish perks of Silicon Valley
struggle to overcome the local housing market, as young tech
talent flees to
the relatively inexpensive climes of Austin or Portland. Nearly
60 percent of Los Angeles companies in a recent University of
Southern California survey said the region’s high cost of living
was affecting employee retention.

Bad news, California: People like to live in houses

California just doesn’t have enough housing to keep up with
demand. 

Over the past 10 years, California’s population grew by about
6.7%, while new housing grew by only 4.8%, according
to data
 from the California Department of Finance.

Population growth has slowed down significantly. In 2019, the
state for the first time added more housing units than people.
But the picture might be less rosy than the numbers suggest.

A lot of people are still coming to California, but many of those
leaving are likely being priced out, according to Department of
Finance research data specialist John Boyne.

“I’m sure housing is a pretty major factor,” he said.

Unlike at the start of the decade, when California was on a
single-family homebuilding binge, the recent increase in housing
production consists mainly of multi-family housing and accessory
dwelling units in the downtown areas of Los Angeles, San
Francisco and San Diego, Boyne said.

That doesn’t mean they’re more affordable: Only 7% to 10% of the
new units are designated as affordable, Boyne said.

Building new homes is an expensive business…especially in
California

Part of the problem boils down to the (literal) nuts and bolts of
housing development. Over the last decade, the cost of building
multifamily housing in California has spiked by about 25%,
according to a 2020
report by the Terner Center for Housing Innovation at UC
Berkeley
.

On average, each square foot cost $44 more to build in 2018 than
it did a decade ago across the state. In the Bay Area, however,
that cost jumped up by $81 a square foot, according to the Terner
Center. And affordable housing was more expensive to build than
market rate housing.

The reasons are many and complicated, but two big ones are more
expensive materials and a shortage of labor. While permitted
units spiked by 430% between 2009 and 2018, the number of workers
has grown by only 32%. Experts attribute the lack of construction
labor to anti-immigration rhetoric, a tighter overall labor
market and depressed wages.

The California land rush

But construction costs are only part of the problem. And
sometimes a relatively small part at that.

In most of the state’s major urban areas, the bulk of a
single-family house’s price is locked into the land it sits on.
That high price tag on the cost of actually buying a parcel and
prepping it for construction not only makes new housing more
expensive, it influences what kind of housing gets produced:
developers prioritize high-end projects, since even the
cheapest pre-fab unit will come stuck with a steep fixed cost.

What makes land expensive? When it’s in shortest supply. Take San
Francisco: Seven-by-seven miles of hillside penned in by water on
three sides. Of the top 15 most physically constrained metro
areas in the country, seven dot
California’s oh-so-desirable coast. But many of those same
coveted locales place additional limits on where—and when and how
and how much—construction can take place. That all makes it that
much harder for housing to keep up with population growth. And
over the last decade, it has not.

*An earlier version incorrectly referred to the structural
value of single-family homes as construction costs.

If not in your backyard, then whose?

Who has cause to celebrate when a new housing project goes up in
your neighborhood? Young homebuyers, nearby businesses, new
arrivals to the area, and, of course, developers. But people who
have been living in the neighborhood for years may worry that the
new development will depress the value of the homes they own, or
trigger increases in the rent they pay. Those who prefer not to
live next door to a construction site, or watch
their zucchini garden
wither in the shadow of a garish new condo building, have plenty
of reasons to object.

And object they do. With the exception of one irregularly
enforced state law,
land use planning in California is a local process—and one that
affords opponents of change ample opportunity to stall, stymie,
or scale down. The tool kit of local obstruction includes zoning
restrictions, lengthy project design reviews, the California
Environmental Quality Act, parking and other amenity
requirements, and multi-hurdled approval processes. In
California, you’re most likely to find these extra restrictions
where developable space is already scarcest —
in coastal urban enclaves.

Local pushback might be rooted in concerns about the environment,
about congestion, about the creep of gentrification, or in a
desire to preserve the “character” of the neighborhood (however
that might be defined). But whatever the flavor of NIMBYism and
whatever its ultimate goals, higher hurdles to development in the
state’s most desirable locations mean many cities have failed to
add new units fast enough to keep up with population or job
growth.

And that inevitably means higher prices.

A lack of public dollars

A little recent history: In 2012, California began unwinding its
redevelopment agencies, the local investment organizations tasked
with revitalizing “blighted” areas across the state. By law,
redevelopment agencies were supposed to provide a guaranteed
stream of cash to cities for subsidized housing — 20% of any
increase in property tax payments.

Much — in many cities, most — of that money didn’t end up going
into the construction of new housing, but was instead siphoned
off to pay for broadly defined “administrative activities.”
Still, with the end of redevelopment came the end of the single
largest source of non-federal money for affordable housing in the
state. California lawmakers never plugged that hole.

Between 2013 and 2018, state investments in affordable housing
dropped from an annual average of $1.3 billion to less than $500
million, according
to the California Housing Partnership
.

The state began reversing that trend in 2019, thanks to funding
from SB 2, which dedicated about
$250 million
 in annual revenues for affordable housing;
about $5 billion worth of housing bonds from Proposition 1 and 2;
and $500 million in state low-income
housing tax credits

But the new dollars will dry up by 2022, leaving developers
without a stable funding source, said California Housing
Partnership CEO Matt Schwartz. 

“Politically you can understand the attraction,” Schwartz said.
“At a mechanical, functional level, it creates huge amounts of
extra work particularly for the nonprofit housers we assist.”

Getting around the NIMBYs

It’s hard to get people to agree on a solution when they don’t
even agree on the problem.

Ask some politicians and much of the blame for California’s
housing woes lies with local obstructionists. Take away the
NIMBYs’ favorite procedural tools and the housing market will
eventually build its way out of the shortage. President Biden, in
his $2 trillion infrastructure plan, says
that restrictions
on multi-family zoning “drive up the
cost of construction and keep families from moving to
neighborhoods with more opportunities.” 

But red tape has a powerful constituency. Its members include:

  • City governments, which generally like having a say in
    what does and doesn’t get built within their borders. The
    powerful League of California Cities has opposed several
    measures to streamline the local housing approval process. It
    has called such efforts counter to the “the principles of
    local democracy and public engagement.”
  • Environmentalists, who don’t want the Legislature
    tinkering with California Environmental Quality Act (CEQA).
    Pro-housing advocates argue that environmental concerns can be
    used as a pretext to hold up a project for any number of
    unrelated reasons. Cases in point: The law has been used in the
    past to block high-density housing and bike
    lanes. According to the Legislative Analyst’s Office, CEQA
    appeals delay a project by an average of two-and-a-half
    years.
  • Building trade groups also benefit from the
    status quo. Any developer that uses public funds (in other
    words, anyone building affordable housing) is required to pay
    workers the most common rate for that job across the region.
    That “prevailing wage” tends to be set by the union rate. Labor
    groups have lobbied lawmakers to make prevailing wage
    restrictions a part of any housing fix. How much more expensive
    do union-level wages make housing projects? Experts differ with
    estimated cost increases ranging from 0 to 46 percent.
  • Anti-gentrification activists, who often argue
    that developers should be saddled with more restrictions, not
    fewer. New houses may bring down prices over time,
    they argue, but for those who are facing eviction or
    displacement today, new, high-end development only makes a
    particular locale more attractive to outside investors and
    wealthy house hunters.
  • Good old fashioned NIMBYs. In 2017, Marin County got a
    special exemption from the state’s housing development
    quota. What was the justification? According to one
    county supervisor,
    ramping up affordable housing construction wasn’t consistent
    with Marin’s “suburban character.”

What about Prop. 13?

You’d be hard pressed to find a single aspect of California life
that isn’t affected by Proposition 13. Naturally, it gets blamed
for an awful lot of the state’s problems.

So what about the cost of housing? After all, Prop. 13,
California’s 1978 tax revolt initiative, capped property taxes at
1 percent of a home’s purchase price and limited the rate taxes
can tick up each year by 2 percent. From a city’s perspective,
giving your available land to new housing doesn’t make much sense
if a sales-tax-paying restaurant or clothing store is waiting in
the wings.

The Legislative Analyst’s Office looked into
the question of whether the state’s capped property taxes distort
local land use decisions. Their conclusion: a resounding
“probably not.” In short, a city’s dependence on property taxes
or sales taxes didn’t predict much about its land use decisions.

Even so, there are other ways in which Prop. 13 could be
contributing to our affordability crisis. Another consequence of
capped property taxes is that local governments have to scramble
for other sources of cash. One of those sources is housing
developers. On average, California levies the highest developer
fees in the country, making it that much more difficult to build
new housing.

CalMatters.org is a
nonprofit, nonpartisan media venture explaining California
policies and politics. ​​

Stay up to date on the effects of the coronavirus on
people and business in the Capital Region: Subscribe to the Comstock’s newsletter
today.