California’s Rental Cost – A Crisis of Epic Proportions

While California faces an affordable housing gap at nearly all but the highest income levels, the low-income housing shortage is most severe. Even though there are many reason why people become homeless, there’s little question rising rents are linked to more Californians living in cars, shelters, and on the streets—especially in the greater Los Angeles area. Just in Los Angeles homelessness grew 30% between 2015 and 2017.

By age, the two groups that take the blunt of the increasing cost of rents are young adults and seniors.

When it comes to young people, one in ten California State University students say they have been homeless at some point in the past year, according to campus surveys. Among community college students in Los Angeles, the figure is one in five.
About half of the State’s public universities population is low-income students, who must compete for housing in some of the most expensive neighborhoods in the nation. At a hearing in Fresno with lawmakers the tone turned somber when student after student step into the microphone sharing stories that they had to commute more than 50 miles to school, or work three jobs to afford rent.
The average low-income student gets back $4,000 to $6,000 in financial aid per semester ($800-$1,000 per month) after paying tuition. If they spent 30-50 percent on housing, that would amount to $300 to $500 per month. But it’s close to impossible to find housing for that amount near a school campus.
The second group most impacted by increasing rents is senior citizens. Population increases at all levels, but in California, the elderly population is expected to grow more than twice as fast as the total population and this growth will vary by region. In San Francisco, where the Public Health Department keeps an extensive database of services rendered to homeless clients, the number of those age 60 or older jumped 30 percent from 2007 to 2015.
Brian Greenberg of LifeMoves, which runs 17 shelters serving 750 people each night in Silicon Valley, said their five non-family shelters have seen a pronounced rise in average age of clients over the past three years. “Many of them have never been homeless before and never imagined they would experience homelessness,” Greenberg said. “It’s people who were in service sector jobs, whose spouse passed away and rent tripled over the past decade, and they can no longer afford to rent given their fixed income.”
The law compels cities and counties to zone enough land in their communities to accommodate projected population increases, so theoretically developers have enough places to build, but it doesn’t work. “The law requires cities and counties to produce prodigious reports to plan for housing — but it doesn’t hold them accountable for any resulting home building,” reported Irvin Dillon from the New York Times.
The median California home is now priced 2.5 times higher than the median national home (only Hawaii has more expensive houses). And, rental costs across the state are some of the highest in the country. Across the state, the median rental price for a two-bedroom apartment is about $2,400, the third highest in the country. Furthermore, income over the past two decades has not kept pace with escalating rents.
The worst extremes of the state’s housing crisis are concentrated in the Bay Area and the greater Los Angeles area, but the challenge is truly statewide; in every metropolitan area in the state from Fresno to Palmdale at least 30 percent of residents could not afford local rents.

A Housing Shortage that Affects the Entire Economy:

The housing shortage not only affects the most vulnerable groups of the population, it affects the entire economy of the state. The McKinsey Global Institute found that housing shortages cost the California economy between $143 billion and $233 billion annually. Much of that is due to households spending too much of their incomes on housing and not enough on consumer goods. 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. The main reason cited by Toyota in 2017 to move its Headquarters out of the greater Los Angeles area was the lack of affordable housing for its workforce.
The state estimates that it needs to build 180,000 homes annually just to keep up with projected population growth and keep prices from escalating further out of control. Unfortunately, for the past 10 years, the state has averaged less than half of what it needs to build.
The Legislative Analyst’s Office (LAO) examining California’s housing affordability crisis, new jobs and census data put even greater urgency on the need for removing barriers to meeting growing housing demand in California. That’s not surprising given that recent state jobs reports show that California added a large number of jobs.
Most cities in the state have not issued enough housing permits to keep up with new jobs. The median number of building permits was one for every 5.3 new jobs. In some cities that ratio was as bad as one permit for every 29 new jobs. Just two of 539 California cities and counties met housing production goals at all four income levels during the eight year period that ended in 2014, according to a Times review of Housing Department data.
Additionally, between 2008 and 2014, state and federal funding for affordable housing development in California dropped by more than $1.7 billion, or 66 percent, further contributing to reduce the construction of affordable housing.
The LAO report put the blame for California’s housing woes squarely on the California Environmental Quality Act (CEQA), anti-development groups (NIMBYs) and onerous state and local fees and regulation. The report also attributed California’s nation-leading poverty rate to the housing problem. Many groups in California have long advocated for updating CEQA and are exploring new ways in which to reform this important environmental law.
The LAO has estimated that it would cost an additional $15 to $30 billion each year for the state to provide subsidized housing to those who are most in need; a very big number for California’s budget.

But what is being done to solve the problem?

In 2018 three Bills emerged as the central elements to solve the problem and Brown signed them:

• SB 2, by Sen. Toni Atkins, of San Diego, imposed a $75 fee on real estate transactions and directed that revenue toward state-sponsored affordable housing. The fee, which would not apply to home sales, could raise upwards of $200 million annually.
• SB 35,by San Francisco’s Sen. Scott Wiener, eases regulatory hurdles for new housing developments in cities that are not meeting their state-mandated housing goals
• SB 3, by Sen. Jim Beall of San Jose, would put a $4 billion affordable-housing bond before voters in 2018. The borrowing would support construction and subsidize home loans for veterans.

Unfortunately, the new affordable housing dollars are estimated to produce at most 14,000 homes a year, well below the 100,000 home gap between what the state typically produces and what it needs to keep prices stable.
Some lawmakers are proposing more dramatic changes that would emulate what Tokyo did to solve its housing crisis back in the 80’s. Tokyo’s rent is now half the price per square foot of the average San Francisco’s rent and Tokyo’s population has not been shrinking.

Tokyo’s rent is cheaper because it builds lots of housing. Every year, the city adds about 100,000 new homes. Even though, most of Tokyo’s new housing has come in the form of buildings more than three stories high, the average floor-space per person in the city increased by about 28 percent in the last 25 years. In other words, Tokyo prevented a housing shortage by building more and building up. Of course a key part of the equation is an efficient mass transportation system with dense housing construction around transportation hubs. This is an inspiration that could be used by California’s State government provided that enough green areas are created and maintained.

California still needs to encourage city governments to build more and that can only be achieved with simplified zoning codes, curbs on repeated administrative challenges to housing projects, and less severe height restrictions. Government-subsidized housing is also an important part of the mix.