Los Angeles Housing Affordability Issue is a Government, Supply and Demand Problem

There was a article written in the Los Angeles Times recently “Affordable Housing Problem Lies, in Part, with Government”, hits the nail on the head, and reiterates the same information I’ve been conveying for many years… The housing shortage, and accelerating cost is all about supply and demand, no matter how much the government wants to control it, politicize it, or throw money at it.

I’m going to copy the Times article below, for easy reference. You never know when these things are removed from the net.

A couple of my recent blogs California Housing Affordability and California Housing Construction covers some of the same observations. The quantity of housing units being developed is far below what is required to keep up with population growth, and the obsolescence of old structures.

I hear from many potential tenants that complain that the rental cost is too high, and landlords are being too picky with their acceptance criteria. Tenants in Los Angeles get into bidding wars for for good quality rental housing, priced right. Reality, if a investor of a rental property has one unit to rent and has 3 potential tenants of varying “quality” (credit, vocational stability, income, cash reserves, etc), they will almost 100% of the time take the highest quality tenant, over the others. Regardless, 2 out of 3 will still be in the market for a rental. Increase the quantity of available units, there would be less pressure on the market, pricing and tenant evaluation criteria will drop.

The only way out of the housing crisis is for adequate private development to build enough housing. The problem is the cost and red tape to develop, especially in the Los Angeles, San Francisco regions.

It was a depressingly familiar sight: Rattled government officials — enlightened progressives all — in a desirable coastal city declaring an emergency over runaway homelessness and chronically expensive housing.

Yes, that city was Los Angeles, where last week Mayor Eric Garcetti pledged to spend at least $100 million over the next year on housing and related services. But it was also Portland, Ore., where an exasperated Mayor Charlie Hales said, “We’ve tried slow-and-steady. We’ve tried by-the-book. It’s time to add the tools we currently lack.”

In New York, those tools include a rent freeze on qualifying leases and a near-doubling of the legal aid available for tenants trying to stave off eviction. In L.A., whatever plan emerges for spending that $100 million will surely emphasize city construction of affordable units and homeless shelters.

The preferred two-pronged housing approach in progressive America is government-owned real estate plus restrictions on private-sector developers. This strategy will probably make a bad problem worse, from San Francisco and Seattle to Washington and Boston.

But let’s just focus on California. Government exertions — and there have been plenty — have barely amounted to a rounding error in the total supply of housing stock. Since the mid-1980s, California’s various programs to subsidize, incentivize and mandate affordable housing have produced all of 7,000 units a year, “or about 5 percent of total public and private housing construction,” according to a May 2015 report by the California Legislative Analyst’s Office.

The LAO study, which should be required reading for anyone who seeks to make or influence housing policy in the Golden State, includes a recommendation that government recognize its own limitations when intervening in the lower-end residential real
estate market.

“The scale of these programs — even if greatly increased — could not meet the magnitude of new housing required,” it states. What’s needed are “broader changes that facilitate more private housing construction,” it says.

This latter bit is where progressives start whistling loudly and changing the subject to greedy developers and the dastardly 1%. After all, demonizing Donald Sterling and Geoffrey Palmer makes for punchier news conferences than easing up on zoning restrictions and speeding up approval processes.

But if policymakers and activists are serious about getting housing prices down, they need to acknowledge their own role in bidding the market up. Prices — even in housing — are a function of supply and demand, and politicians along California’s coast have been systematically pinching supply for decades.

For example: “Development fees — charges levied on builders as a condition of development — are higher in California than the rest of the country,” the LAO report notes (and the difference is substantial: $22,000 versus $6,000, on average). It takes seven months to get a building permit in coastal areas (compared with 4 1/2 months nationally), 12 months to get a rezoning variance (compared with 9 months), and projects subject to the state’s intensive Environmental Impact Review process take an average of 21/2 years to approve.

When you make a good more expensive to produce, you’re going to get less of it. Housing stock in the L.A. metro area grew by just 20% between 1980 and 2010, according to the LAO report, compared with 54% on average in other American metropolitan areas. When you add statutory limits to housing growth, a California coastal favorite, the fog behind the state’s persistently high housing prices lifts still further.

This government squeeze is not limited to the creation of housing in the first place, but also to what owners can do with their property. The L.A. City Council has in recent years placed restrictions on landlords wishing to change their rental units into condominiums, homeowners wanting to tear down their own houses and replace them with mansions, and renovators whose add-on plans create an
extra-large footprint.

When you make a good more expensive to produce, you’re going to get less of it. Housing stock in the L.A. metro area grew by just 20% between 1980 and 2010, according to the LAO report, compared with 54% on average in other American metropolitan areas. When you add statutory limits to housing growth, a California coastal favorite, the fog behind the state’s persistently high housing prices lifts still further.

This government squeeze is not limited to the creation of housing in the first place, but also to what owners can do with their property. The L.A. City Council has in recent years placed restrictions on landlords wishing to change their rental units into condominiums, homeowners wanting to tear down their own houses and replace them with mansions, and renovators whose add-on plans create an
extra-large footprint.

Ref. Matt Welch Los Angeles Times Oct 8, 2015