By Timothy L. Coyle.
Recently, pundits have suggested – even here on these pages – that but for the absence state involvement, California wouldn’t be suffering its worst housing crisis ever. One pro-industry advocacy group in particular has been touting its “solutions”, joining with the same crowd that’s advocated for tougher rent control, affordable housing mandates on new construction and restrictions on property owners who want to quit the rental housing business.
In truth, the state is potentially a harmful influence on new and existing housing, for some of the reasons alluded to above. Indeed, the pro-environmental, tenant-tilting group of legislators that make up the power curve in Sacramento have all kinds of tricks up their sleeves, none of which will return normalcy to the state’s housing markets. From suggested rules on land use to landlord-tenant restrictions, the list at the Capitol of housing “solutions” is long and unhelpful.
Housing, for the most part, is a function of local government. Planning, siting, environmental-protection laws all emanate from the state but they’re established to give land-use power to localities. There are also the constitutionally provided “police powers” of locals, which more than anything else define the notion of local-control in California and, correspondingly, reserve the rights of local governments to decide virtually all new housing.
So, in reality, all the many new-fangled, smart-growth, tenant-protection concepts imagined and enacted by the state aren’t going to lead to a hill of beans without the say-so of the locals. In fact, the state recently signaled it was getting out of the housing business by gutting then eliminating redevelopment.
If you don’t know that story, redevelopment – financed by turning non-performing real estate into productive assets, throwing off all sorts of fresh property taxes – was repealed a few years back and, thereby, killed a reliable source of hundreds of millions of dollars annually for new housing.) With redevelopment gone so too were the hopes of so many for a systematic means of producing affordable housing as well as a vital economic development tool. Meanwhile, California hasn’t passed a statewide housing bond in over 12 years.
Despite its awful track record on housing, the state has done some good things. In 1969, it passed a housing element law, setting local planning standards. In 1995, it curtailed the scourge of rent control. In 1998, it relieved builders of having to shoulder 100% of the cost of new schools. And, not long thereafter, it authorized the BEGIN housing program.
BEGIN started as a pilot in 1993 and it wasn’t your run-of-the-mill state housing program. It essentially said to local governments “you can’t have access to the state’s millions until you demonstrate that you’re easing land-use and zoning to lower the cost of a new development” and help it pencil out. In other words, it promoted regulatory reform as a way to make new housing more affordable.
BEGIN wasn’t intended to be anything other than a way to illustrate the often-excessive costs of local government. After all, the state was aware that development fees in California alone were exceeding the cost of an entire finished home in most other states. BEGIN, authorized in state law by AB 1170 (Firebaugh) in 2002, simply asked whether 10% or 20% of those fees couldn’t be reduced? For urban, affordable homes?
Turns out, the answer in many communities was yes. One memorable BEGIN project – Los Sueños in downtown San Jose – shaved off 17% of its total land-use costs and filled a substantial homeownership hole in that community. In fact, it was so successful, it encouraged another private developer a year later to build a brand new subdivision – over 10 times the size of the Los Sueños project – right next door. The consequent return-on-investment in BEGIN for the sponsoring City of San Jose included a dramatic property-tax windfall as well as a revitalized, barrio neighborhood.
BEGIN succeeded in several California communities and served to demonstrate how the state can do the right thing once in awhile.
Timothy L. Coyle is a consultant specializing in housing issues.