A Golden Moment in the Golden State?

A Golden Moment in the Golden State?

It has become common knowledge that the country is facing a massive housing crisis in our richest regions. Housing supply has not matched the huge demand to live in places like the Bay Area and New York City, leading to extremely high housing prices. Large numbers of workers are shut out of our strongest labor markets, which reduces their productivity and, as a result, the output of the entire economy (estimates vary on exactly how much, but it’s a lot — multiple percentage points of GDP). The lack of housing in these regions has also played a major role in generating economic inequality, increasing the fragility of the financial system, and interfering with the efficacy of monetary policy.

The epicenter of this problem is California. The metro areas of San Francisco, San Jose, Los Angeles, and San Diego have been restricting growth for longer and with as much or greater impact than anywhere else in the country.

But things may be turning around in the Golden State. Recent statements and proposals by leaders like new Gov. Gavin Newsom and state legislators David Chiu, Buffy Wicks, and Scott Wiener provide evidence that the structural politics of housing in California are changing. Whereas the previous governor, Jerry Brown, thought that housing reform faced impossible odds, in 2019 Sacramento is buzzing with ideas about how to change policy in order to increase housing production.

For this to be more than a flash in the pan, the disparate interests of groups that should support housing growth — employers, unions, “YIMBY”s, and others — will need to be built into a political coalition sturdy enough to push back against inevitable local-homeowner opposition and backsliding. Using this opportunity to change the process of land-use decision making can help. But the fact that careful politicians like Newsom are not only talking in generalities, but are suggesting extremely aggressive pro-housing policies, suggests that the hard work, difficult compromises, and clever strategizing put in by activists and politicians in forging such a sturdy coalition already may be working.

If it does, 2019 will go down as the year we began to address the housing crisis that is holding back our economy.

Problems as big as the housing crisis usually do not have easy solutions.  But in this case, the cause — or at least a very important cause1 — is well known. Local governments have substantially impeded housing growth through land-use controls — zoning regulations, subdivision requirements, and historic preservation, among other tools. In the 1970s, these regulations began driving up housing costs and limiting entry at the level of whole regions.

While we know how local governments have done this, we know less about why.  Political scientists in the 1970s imagined that, while rich suburbs would deploy land-use rules to exclude for purposes of keeping property taxes low and poor residents out, big cities and exurbs would behave differently. Big cities, according to these scholars, would be run by “growth machine” coalitions of big businesses, developers, and municipal unions. They would overrun any local opposition, allowing fast growth in cities. When this dynamic was combined with the potential for exurban sprawl, there wouldn’t be any limitation on housing at the regional level, even if there would be inequality among towns.

But it hasn’t worked out that way. Cities like San Francisco, Los Angeles, and New York don’t allow much housing construction at all. More and more suburbs stopped allowing growth, too. The result is what we see today — high prices and exclusion at the regional level.

Some of my scholarly work has focused on explaining why this is the case, showing that the way we make land-use decisions — particularly geographically specific zoning amendments and project-specific approval processes — leads to excessively restrictive policy. Homeowners eager to insure the value of their investments against competition and externalities care a great deal about individual amendments in their neighborhoods. But the “growth machine” doesn’t care about specific changes that each barely affect the total supply of housing.2 This problem is enhanced by city councils regularly engaging in the land-use equivalent of pork-barrel spending — “aldermanic privilege,” or giving deference to the opinions of the council member from the district in which a zoning change is proposed. No one neighborhood wants to accept housing growth if others don’t, and so each council member vetoes housing growth in her district.

As a result, even when prominent city-wide politicians support housing growth, they often can’t get many new units built because of opposition on the city council and the huge number of tools neighbors have to slow development down, from lawsuits to embedded forms of discretionary review. For the purposes of land-use regulation, Greenwich Village in New York City isn’t much different from the town of Greenwich, Connecticut. In both, rich homeowners protect the value of their houses by controlling land-use policy, and little gets built.

Faced with this type of opposition, a big question is why growth machines don’t attempt to move up a level, getting state governments involved. States can overrule local decisions, and one might think that state governments are less likely to be captured by NIMBY homeowners.

But traditionally, state involvement in land use has made things worse, creating another veto point for new projects, often because states have fallen prey to similar dynamics as cities, with individual officials stopping development in their districts.

Even when supporters of growth have won at the state level, local opposition and resistance have worn down their efforts. California provides two great examples.  In the mid-2000s, California attempted to force localities to allow homeowners to add accessory dwelling units (ADUs), or granny flats, to houses, passing a law preempting many local rules that barred them. But, as Margaret Brinig and Nicolle Stelle Garnett showed in a classic article, localities retained many other tools for limiting ADU construction, throwing up new barriers as soon as the state could preempt them. Very few ADUs were actually permitted.

Similarly, California has long had rules that require localities to allow for the construction of a certain state-targeted amount of housing. But the state was unable to actually force localities to allow much building when the rubber met the road (although, as Jessie Agatstein notes, the legal regime always did a bit more than the conventional wisdom suggests). Despite formally being more powerful, the state government (and the political coalition that achieved pro-housing legislation) did not have the resources, time, and persistence to overcome local opposition.

Over the past few years, though, these trends have started reversing themselves. In 2017, California passed new ADU legislation preempting even more local rules, leading to real growth in the actual number of ADUs that have been approved. In 2017 and again in 2018, the local Yes In My Backyard (YIMBY) movement and state legislators like Wiener, Chiu and Wicks pushed through bills that fast-track new housing in localities that do not meet their state housing targets and that changed the mechanism for establishing those targets, making them more ambitious.

This year, though, there is a chance for an even bigger breakthrough. Wiener has proposed new legislation, SB 50 — replacing a failed bill from last year — to preempt local zoning rules that limit heights and densities near transit stops. There’s new ADU reform legislation on the table. And Gov. Newsom has proposed a whole suite of housing reforms, including proposals for huge inflows of money for affordable housing, administrative changes to push housing targets out further (here’s Chris Elmendorf explaining why he can do this without new legislation), and rules to take transportation funding away from jurisdictions that don’t meet their housing targets.

The specifics of the proposals will be dissected over the next few months (Rick Hills and I have a short piece coming soon doing just this, and we are not going to be the only ones). And of course there will be a harrowing legislative process before any of these proposals become law.

But, stepping back from the specifics of the proposals, the fact that a careful politician like Newsom is proposing such aggressive actions suggests that something fundamental is shifting in the politics around housing. SB 50 has been much better received than its predecessor, getting strong endorsements from the construction trade unions and a tepid response from formerly bitter opponents in tenants’ rights groups. The state Senate put noted housing champion Wiener in charge of its housing committee. Local politicians are jumping on board too — the mayors of San Diego and San Francisco have openly allied themselves with YIMBY forces.

These moves by politicians suggest that there is a broad new political coalition forming to support housing growth. The key to making this movement durable will be getting key interest groups — employers, public employee unions, developers, tenants’ rights groups, construction workers — to work together to support new housing growth up and down the state. That is, Voltron-like, these politicians need to reassemble the growth machine.

Local activists and politicians will have to figure out which difficult compromises need to be made in order to build such a coalition, whether it is linking housing growth to displacement controls or protections for construction unions or whatever else. The differences among these groups, between Silicon Valley types and construction workers, between groups worried about pension costs and tenant activists, will be difficult to bridge. But, as the example of a recent compact among local governments in the Bay Area suggests, such deals are possible. Recent state legislative proposals, as Elmendorf notes, have been designed to encourage a sustainable pro-housing politics.

But the central question is whether these activists and politicians will be able to build a truly sturdy political coalition, one that stays together for more than a single fight over a bill or budget. After all, the housing crisis will not be solved in one year or legislative session. As the ADU story shows, even aggressive pro-housing state laws can crash on the shoals of creative local opposition and backsliding. NIMBY homeowners will use the weapon of extensive local land-use powers to fight development once it moves beyond the legislative agenda and instead needs approvals in towns up and down the state. No matter what laws the state passes this year, the state legislature is going to need to revisit them a number of times.

Building such a coalition is difficult work, but the fact that mainstream politicians are moving boldly is good evidence that the work is making real progress. We may be seeing a golden moment in the Golden State.

 

David Schleicher is a Professor of Law at Yale Law School and is an expert in election law, land use, local government law, state and local finance, municipal bankruptcy, urban development, transportation, and local regulation of the sharing economy. He is also a senior fellow with the Niskanen Center.

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1 There are other things going on, like too-high construction costs, both for housing and for public goods like new subways and roads. The causes of these high costs are less well understood but are also important.

2 After all, employers want more housing because it increases real wages without them having to spend more, but a single amendment in one town will only have a marginal effect.

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By |2019-01-31T12:19:09+00:00January 31st, 2019|Blog, Land Use Regulation|