Why California isn't building enough housing

S1: Welcome in San Diego. I'm Andrew Bowen in for Jade Hindman. On today's show , what will it take for California to build enough housing? Data show cities are still falling short of their goals. This is KPBS Midday Edition. Connecting our communities through conversation. Across the state , few places are meeting their housing goals when it comes to permitting new housing. There's a certain target that cities and counties are supposed to meet. But even cities that are making progress toward growing their housing supply aren't always doing that for lower income households. Joining me to talk more about this story is Ben Christopher. He's housing reporter for Cal Matters. And Ben , welcome to Midday Edition.

S2: Hey , thanks for having me.

S1: So let's start by talking about what these goals actually are. So every eight years , cities and counties in California are required to make a plan for how to meet their housing needs. Tell us what those plans actually look like. Yeah.

S2: Yeah. That's right. These are plans that are required by the state law. Um , the state's housing department , HCD , uh , comes up with a sort of a formula for determining how many , uh , new homes broken down by affordability level are required of , of each region. And then the regions take these and sort of break them up for , for each city. And so at the end of the day , uh , each city is given eight years to , uh , given sort of an eight year window to plan for its designated number of homes. And this is supposed to represent basically the city or the state's best guess of what the state needs to both accommodate a growing population. Of course , California's population has been sluggish in the last few years , but it grows in different places. Um , uh , and also to make up for the fact that the state hasn't really been producing enough homes to keep homes affordable for the last 4 or 5 decades. And so this number is , I think , one way to think about it is the state government's best estimate of the state's housing shortage. And so cities are not required to necessarily produce the permit or build these numbers , because cities and counties and counties don't actually build , but they are required to plan. And so that requires making changes to zoning , making changes to the entitlement or permitting process , identifying sites that where you could feasibly build , and making sure that , um , the law , the local regulations in place would allow for that construction. And um , it seemed like a good time to sort of take a look at this , because basically all Southern California is hitting its halfway mark through that eight year window. And so that's why I decided to take a look at the numbers and see which jurisdictions are actually building enough to meet those targets.

S1: So your headline , the headline on this story is almost nowhere in California is building enough , according to the state. Let's talk about San Diego. How is San Diego doing in terms of meeting its housing goals? Yeah.

S2: Yeah. So again these numbers are broken down by affordability level. So at the very high end of the market it's called above moderate housing. San Diego is actually one of the few jurisdictions that is hitting that target is a little over. Um , uh , it's it's basically on track to being hitting it's above moderate , um , numbers , along with a number of other Southern California cities , uh , Bakersfield , Irvine , a couple of cities in Riverside. Um , and so that kind of that puts it still in a minority of cities across the state. If you look statewide , only less than a third of cities are actually hitting. its above moderate numbers. But if you look down the affordability ladder , looking at sort of low , moderate and very low , um , targets , it's it's not hitting its numbers at all. It's , you know , by one metric , it's , I think , permitted the equivalent of 15% of its very low , most affordable housing. And that is not unusual. Very few cities across and counties across California are hitting it's affordable numbers. And I think that reflects the fact that affordable housing typically requires not just changes to zoning and permitting and so forth , but also typically requires a subsidy from often from local , state and federal sources. And and that is in relatively short supply.

S1: And how would you compare San Diego to other cities in California , say , Los Angeles , for example , or other other cities that , you know , we could consider our peers?

S2: Uh , San Diego , Maybe not surprisingly , given that it's a somewhat more its reputation as as a more pro-development municipality than Los Angeles is. It's much better. It's it's en it's doing much better by these metrics than Los Angeles also doing significantly better than San Francisco. Um , San Jose might be another , uh , comparator. Uh , San Jose is actually quite far down on in terms of its market rate housing , but is actually doing a bit better on the affordability on the affordable side. Um , so I think generally speaking , San Diego , uh , compared to other large cities is , uh , doing well by this metric. But um , again , very few are actually hitting all all of these targets.

S1: And you said San Diego has a reputation for being more of a pro-development city than at least compared to LA or San Francisco. Can we draw a line from the pro-development policies of this city , the sort of aggressive rezoning to add more density to the urban core. Does that actually translate into the delivery of those homes?

S2: Yeah , it's a really good question , and probably one that would require a little bit more study and careful methodology than the one that I can offer , which is basically looking at this chart and kind of eyeballing it , but it sure , sure seems that way. If you look at the cities that are hitting their above moderate target numbers , basically hitting their numbers for market rate housing , it's either cities that have , um , that have taken pretty aggressive steps to allow for more housing development or those where it's always been fairly loose in terms of land use restrictions , uh , cities that like Bakersfield or um , or Fontana or Ontario , which is a little bit more sprawl oriented , and it's always been a little bit easier to build out there. And so I think there is a , a fairly close connection between land use policy and where you actually see the development happening. But it does get a little bit mixed. I mean , if you look at Sacramento , for example , that's the city that has , I think , um , done as much , if not more , uh , to promote housing development , um , than San Diego. And its numbers are not particularly inspiring. And so I think that suggests , if nothing else , that , um , you know , you can you can lead lead a developer to , to a plot of land , but it's not going to make him or her build necessarily. There are a lot of other market conditions that that make that determination.

S1: So cities often complain. I think that these housing goals assigned to them by the state are unrealistic. But tell me , Ben , are these goals meant to be realistic or achievable , or are these targets just supposed to be an honest assessment of the housing that we actually need?

S3: No , that's exactly right. You framed it exactly right.

S2: I mean , I think you do have I mean , for a decade now heard cities complain that these numbers are overly ambitious , that there's no way that they will be able to hit them , that if you look at the track record of California production over the last half century , you know , very few periods of our history have we built at the scale that would be required to hit these targets. Um , and so , you know , you shouldn't be blaming cities. You also have sort of more pro-development Nimby advocates argue that. Well , this just shows that cities aren't doing enough , and the state isn't putting enough pressure on cities to sort of change their policies. But if you put the question to HDD itself , the housing department , they will say , look , these targets again , are just supposed to be an honest reflection , as you said , of the state's housing shortage. And if we're not hitting those numbers as a state , that's not the fault of the numbers. That's just the honest reflection of of where we are and how deep a hole we are in.

S1: Can you talk about some of the reforms in state law that have been made to this process of allocating different numbers of how many housing units each region needs to plan for. And you know , what was the what was the problem with the process that was seen before , and how did those legislations. How did those laws change the process?

S2: Yeah , it's a good question. I think there's there was some really good reporting out of the L.A. Times by Liam Dillon in 2017 , 2018 , I think , on the changes to this process , because up until 2017 , this process of planning for the amount of housing that is needed by the state and allocating it across the state by jurisdiction , this has been going on since the 1960s , but I think it was broadly seen as kind of a paper tiger effort like it was. It was a it's a paper exercise. Um , cities would put together these plans as required by law. But , you know , when it came to actually identifying sites that could be developed , they would point to areas that there was no realistic possibility that they would actually be developed. There were no real strings attached or requirements that that these be realistic plans. And there were no , um , there were no consequences if the plans weren't didn't result in any kind of development in the last decade or so , really , beginning in 2018 , pretty significant changes to the process , some of which really expanded the numbers. And so you had cities that used to have , you know , zero or 2 or 10 units required of them , um , going up to the to three , four , even , you know , five digit numbers. Um , and so really , especially in Southern California , a real radical expansion of what , what , how large these targets were. And then they also started coming with some , um , triggers where if , uh , cities were not hitting their targets , um , certain laws , uh , streamlining laws would go into effect. In other words , if you weren't really permitting at a rate to meet your state , set goals , then developers would be allowed to bypass certain local regulations , making it easier , in theory to to build the housing that is actually needed.

S1: So we were talking about the income categories. We've got very low income , low income , moderate income above moderate income. I think for low and very low income. We understand these are generally regulated housing units. There's a limit on how much the the the landowner can charge for rent. It might be covered by a deed restriction for moderate income housing and above moderate income housing. How do cities actually figure out what type of home is in which of those categories?

S4: Yeah , it comes down to.

S2: Whether they are affordable to someone earning a certain income level. So above moderate. I won't get into the numbers because I don't think that's good for radio. But essentially someone above moderate that's going to be market rate housing. Essentially it's housing set at at whatever the , uh , the , you know , uh , whatever people are , however much rent or the price they can charge moderate sort of right in the middle. It's around around affordable to someone making about average income in a county or in a region. Mhm. Um , and so it's based on these calculations , I will say , uh , one of the interesting , uh , results of this analysis is that , you see , you know , again , not very many jurisdictions are hitting their low , very low or moderate numbers at all. But they're actually most a lot of jurisdictions are actually doing better on the very low end than they are the moderate end. And I think that reflects the fact that so above market , um , you know , for the most part private developers are able to , to um , to produce that if local land use regulations allow it. The very low end there is , uh , you know , I think , fair to say , a shortage of state , federal and local subsidy to go around. But it does tend to prioritize the very lowest , most affordable housing. And then you have this moderate number where there really a significant underperformance across most cities. And that's because it's usually a little bit too high. You know , the rents are too high. Um , the income level is too high to , to be competitive for some of the state subsidies , but it's still the rents are too low to be profitable for private developers.

S1: So you touched on this already , but I want to dig into why a city might plan for X number of homes , but those homes don't actually get permitted. I think we can consider zoning , restrictive zoning or high fees , you know , a long approval process as one reason why a home might be planned but not built. What are some other reasons?

S2: Well , yes. I mean , some of them are within the control of locals. So you mentioned zoning and the building permit process itself , just how onerous it is. Um , fees you mentioned. And then some things are not really within the control of , of cities. That might be , um , interest rates , which are set by financial markets and the Federal Reserve , um , sort of the labor market , um , as sort of how the , the , the relevant , um , you know , the labor supply of construction workers , um , land costs , which is somewhat a product of zoning , but also a product of just how in demand an area is , uh , insurance. We've been hearing a lot about insurance and how that's a really a driving cost for a lot of folks. And then just market conditions. So you might have a place where , uh , not San Diego , but , you know , where rents are actually not going up. And so you don't have developers swooping in to build. Uh , and so all of this , um , you know , adds up to a calculation for a developer whether to , to actually break ground on a building or not. And again , some of this comes down to , you know , levers that cities or counties can can pull. And some are. Hmm.

S1: Hmm. We just. We have a couple minutes left. I want to ask you about some of the big housing laws that got passed last year. There was a big reform of the California Environmental Quality Act to allow more housing in urban infill areas. There was SB 79 , which allows denser housing near public transit. How long do you think it's going to take for us to see whether those laws of trying to build more housing are actually working?

S2: It's a really good question , and it's something that a spokesperson for the Housing Department pointed to is sort of a glimmer of optimism in terms of producing supply. Supposedly , we've already seen quite a number of permits exercising this , um , this exemption from environmental review that you mentioned. And , and when you look at the SB 79 , which got a ton of attention last year about allowing taller residences near major public transportation stops , you've already seen a number of proposals? Um , you know , there tends to be sort of a lag between when a project is proposed and when it actually breaks ground. And , and often a lot of projects will drop off in the meantime. So I think it's still too early to say whether and how and to what extent those laws are having an effect. Um , and it's also quite hard to say anyway , because the state law is constantly changing , as is local law. Um , but certainly , you know , if you if you ask the housing department , they're optimistic that at least within the next few years , we'll start to see those , those laws reflected in the numbers.

S1: And , you know , the headline here , being California is not building enough housing. What are the consequences of that reality? What does it mean for people's cost of living?

S2: Well nothing good. I mean , certainly , you see , on the very low end , this is affordable housing meant for folks who are earning the least in every , every region. And , um , if you take these target numbers as credible that this is actually what is needed. We're not building even close to enough. And then if you look at the above market rate housing , which is the bulk of the housing that gets produced anywhere in this country , including in California , um , you do have a little bit more development , but we're still significantly under where at least the state says we need to be. And so it suggests that , you know , for all the attention , all the policy change , all the political focus on affordability and specifically on housing affordability , um , at least statewide , uh , we're not making the changes needed to actually , um , make housing homeownership within grasp of , of of incoming homeowners and making the rent less too damn high. Hmm.

S1: Hmm. Well , I've been speaking with Ben Christopher. He covers housing for Cal matters. Ben , thanks for sharing your reporting on this.

S2: Thanks for having me.

S5: Appreciate it.