In This Issue:
- On the 3.5 million housing shortage
- On California’s progress to increase housing supply
- On SB 330’s effort to speed up housing production
- On why Bay Area cities have no money for affordable housing
|
|
|
Dear <<First Name>>,
The Embarcadero Institute, a non-profit think tank, was formed in 2017 to provide policymakers and the public with superior data and analysis to understand the housing crisis, the effect of recent legislation and the potential effects of proposed bills.
This inaugural newsletter, sent to key Sacramento lawmakers and interested parties, introduces the unique work of the Embarcadero Institute. As further research is published at Embarcadero Institute, you will receive newsletter updates.
The Embarcadero Institute stands apart as a research resource and think tank, in that we use only verified, state-generated or federally-generated data. We are also solely focused on California. We have found that while government departments and agencies collect and publish valuable data, the information does not often find its way to the legislature or the public. These data, aggregated from multiple agencies and departments, can provide important high-level insights into the progress or lack of progress the state is making on important issues, including the current housing crisis. We feel the housing debate can greatly benefit from the analysis we provide.
Recently, the Embarcadero Institute was featured in the Orange County Register business section. The article highlighted our critique of the McKinsey analysis that produced the often cited 3.5 million additional housing need for California by 2025. We found the consulting firm’s work to be at odds with the state-mandated analysis conducted by the Department of Housing and Community Development which puts the additional housing needed by 2025 at 1.1 million — less than a third of the exaggerated 3.5 million number. We addressed this important discrepancy because we think it is critical that the legislature works with verified data to not only ensure they’re solving the right problem, but to also ensure progress is measured against the appropriate benchmark. The use of false data could lead to legislation that exacerbates the problem.
This is only one example of our findings. We have many that are surprising, and in some cases, provocative. They are also accurate, making them an important new tool for California policymakers. I am available to discuss all findings, data and visuals . Please feel free to email me at embarcadero.institute@gmail.com
Gab Layton
President, Embarcadero Institute
www.embarcaderoinstitute.com
|
|
|
OUR KEY FINDINGS THUS FAR IN 2019:
On the 3.5 million housing shortage
Finding: The 3.5 million was arrived at by McKinsey & Co. in 2016, arguing that New York State’s housing unit per capita should be California’s goal. If simple benchmarks were appropriate to determine housing need, New York State would be a flawed choice. The state is ranked 47th in affordability and has the dubious distinction of ranking #1 in socio-economic inequality. It is ranked 33rd in economic progress and it is one of only a handful of states with a declining population. There are other states that would be better benchmarks (as we show), but the real issue is that McKinsey’s approach is fundamentally flawed. Predicting housing need is a complex multivariate problem and the State of California, recognizing that, has appointed its own highly-trained demographers to tackle this problem. The Department of Housing and Community Development has staff working full-time to develop models for various regions in the state. They develop 5-year and 8-year forecasts by housing income level, solicit feedback from local agencies on their targets, and then monitor progress against those goals. Their work drives the RHNA allocations and those allocations suggests the additional housing needed by 2025 is 1.1 million.
The take-away: Simple linear models cannot be the basis for forecasting housing need. The 3.5 million number is particularly egregious in that it is based on a flawed assumption that California should use New York as a model. The state has its own sophisticated multivariate approach to predict the state’s housing needs and the legislature should look to that analysis to justify housing bills.
|
|
On California’s progress to increase housing supply
Finding: Contrary to popular thinking, that cities and counties refuse/fail to permit housing, the latest state numbers show that cities and counties are in fact keeping up. But they are far exceeding their market-rate housing targets, while falling short on their affordable housing targets. In California’s 5th housing cycle the 14 most affected counties have issued permits for nearly 300,000 new market-rate housing units, yet only about 140,000 were required by the state housing department.
The take-away: Housing legislation from recent years, including the state density bonus law, has sent cities soaring past their RHNA marks for luxury housing, while failing their affordable housing targets. Recent bills, far from incentivizing affordable housing (the reason they were proposed) have instead incentivized luxury housing, further exacerbating the affordable housing shortage.
|
|
On SB 330’s effort to speed up housing production
Finding: While Senate Bill 330 “The Housing Crisis Act of 2019” is intended to stimulate housing by cutting the time it takes to approve housing developments in California, several features of the bill could slow down housing production. The bill would take away significant authority from cities and counties, speeding up local deadlines and reducing the power of cities and counties to shape their communities. But key elements of this complex law could invite lawsuits from parties with no established property interest in the development, disrupt existing development agreements and expose cities to legal challenges over which standards to apply. Such legal pathways may not only inadvertently bog down the review process, thus achieving the opposite of the bill’s intent, but they might also redirect city funding, already limited, to legal defense. Moreover, the proposed reduction in public hearings to five could cause cities to reduce community-based hearings, potentially minimizing the most vulnerable voices as hearings meant to build consensus are disincentivized.
The take-away: While some cities may benefit from a streamlined process, the state could avoid unexpected consequences in other cities by implementing best practices rather than mandating new legal burdens. And since market rate housing is already ahead of its RHNA targets and needs no incentive, any process streamlining should be solely directed at affordable housing. Any legislation that imposes a state-mandated process that exposes cities to unanticipated legal challenges and expense should be cause for concern. It is unclear that the state is entitled to cause financial harm in this manner.
|
|
On why Bay Area cities have no money for affordable housing
Finding: For a few counties at the epicenter of the affordability crisis most of the pressure has come from an imbalance in jobs and housing. This is because housing production is a slow and steady phenomenon, while job cycles are made up of sharp ups and downs. This is not a new phenomenon as some media and policymakers like to believe. Things have actually been worse in the past than today — there has been greater job-housing imbalance and housing has been less affordable. However, the real issue at the heart of the crisis is that the burden of coping with the historic tension between long, steady housing growth and abrupt swings in job growth is left to local government – and yet the state has all the money. Only 6% of locally generated taxes come back to the 14 cities of Santa Clara County, for example, while Big Tech and state government benefit tremendously from the region’s growth. It is no surprise, then, that even as counties approve housing units that are consistent with stated goals, they fall short on low-income housing - the housing that requires subsidy. Local governments simply don’t have the funding to address lower income housing in numbers that would make a difference. So even while the numbers suggest housing is becoming more affordable, the underlying truth is that the socio-economic divide is increasing.
The take-away: The state must do more to provide housing subsidies, better predict job growth, help renters and pursue innovative ideas including disincentives against holding housing vacant. Cities, meanwhile, should be able to raise funds locally for affordable housing. They should also pursue appropriate taxation of companies with significant head counts as compensation for increased infrastructure costs and the increased need for housing, thus maximizing dollars available for affordable housing. The following bills may address some of these needs: SCA 1 (Allen, Wiener), SB 5 (Beall, McGuire, Portantino), SB 6 (Beall), SB 248 (Glazer), and SB 521 (Portantino).
|
|
In conclusion, I want to express my appreciation for taking the time to review the Embarcadero Institute’s inaugural newsletter. The Institute’s intention is to provide insights that may help lawmakers improve their bills and pursue new policy based on accurate data and accessible charts and comparative figures. We are grateful for any feedback that you might care to offer.
In the coming months, the Institute will provide you further newsletters on pressing housing issues facing lawmakers, including an in-depth look at Senate Bill 50 and its implications for California.
Sincerely,
Gabrielle Layton
|
|
|
|
|
