The High Cost of California Housing

The Legislative Analyst’s Office (LAO) of the CA Legislature has released a recent report on the High Cost of California Housing. The lack of construction in the coastal areas is identified as one of the main causes of the housing shortage that has driven prices up.

The LAO identified four main causes of the lack of construction as:

• Community Resistance to New Housing – NIMBY attitude of many communities. Many people are all for affordable housing. However, most people also don’t want affordable housing or development near them. From the report:

Residents also may feel that new housing reduces their nonfinancial wellbeing. Many people, as they become accustomed to their lifestyle and the character of their neighborhood, naturally are hesitant about change and future unknowns. It is unsurprising then that they would be concerned about adding new housing to their community because it presents uncertainty and possibilities of change. Expanded development can strain existing infrastructure—such as streets and roads, schools, and parks—requiring residents to change the way they use these public goods.

• Environmental Reviews Can Be Used to Stop or Limit Housing Development – California’s Environmental Quality Act (CEQA) requires local governments to study the environmental effects of new development. Often times the process can be held up by opponents through this process.
• Cities Prefer Commercial Development – Commercial development provides greater tax revenues to local municipalities. Consequently, they are incentivized to prefer commercial development over residential development.
• Limited Vacant Developable Land – In most areas of the California coastal metros there is limited land available for residential development.

The LAO’s report also details the major consequences of the higher housing costs.

1. Californians spend a larger share of  their income on housing.
2. Many Californians are forced into postponing or foregoing homeownership.
3. It may mean living in more crowded housing.
4. Many Californians end up commuting further to work each day.
5. Some people even choose to work and live elsewhere.

All of these factors seriously impact the economy and the viability of businesses to hire, recruit, and maintain high-caliber employees and workforce. It will be interesting to see how the California legislature responds to the challenges laid out in the report.

You can find the report website here. You can also download a PDF of the report via this link.