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California’s 7-year housing push has yet to boost building, experts say

January 12, 2024

Despite passage of at least 140 housing bills, California has made little progress in solving its 2.5-million-home shortfall, a panel of experts told Realtors last week.

California’s municipalities issue fewer than 120,000 new home permits each year, according to the Federal Reserve Bank of St. Louis. But economists estimate the state needs to build 180,000 to 300,000 homes a year.

“Even with all the legislation, we’re not really getting up to snuff,” said Robert Kleinhenz, director of the Office of Economic Research at California State University, Long Beach. “There’s a lot of room for improvement.”

Kleinhenz’ comment came during the Center for California Real Estate’s first event since the pandemic, held Wednesday, Jan. 10, in West Hollywood. The group serves as the California Association of Realtors’ think tank, tackling public policy issues affecting the real estate industry.

Frustrated by a lack of homes for sale and the lowest number of transactions in four decades, CAR members expressed concern about boosting the state’s housing supply.

Estimates for California’s housing shortfall range from nearly 1 million to 2.5 million units. Citing the state’s 2.5 million unit figure, CAR Chief Executive John Sebree asked, “How did we get there, first of all, and what are we doing about it? How we can increase supply?”

The panel of experts had few answers.

California “is still in a multi-decade period of woefully building fewer homes than we should,” said former state Housing and Community Development Director Ben Metcalf, now managing director of UC Berkeley’s Terner Center for Housing Innovation.

“The state of California has put out something like 140 distinct pieces of legislation (aimed at) doing something on housing affordability since about 2016 or 17,” he said. “(But) we haven’t seen much benefit from any of that yet, unfortunately, in the permitting numbers.

Metcalf said there are “a whole host of reasons” why it’s difficult to build new housing in California. Among them: environmental regulations, building codes, high builder “impact fees,” the cost of land, rising labor and construction costs and high interest rates for construction loans.

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In addition, there’s local resistance to new housing, in part because Proposition 13 limits property taxes that housing generates.

“It boils down to the cities that have to approve new housing. And many policies have been passed at the state level to try to get the cities off the mark,” said Kleinhenz, a former CAR economist.

But, he said, “cities don’t necessarily want to build more housing. From a city perspective, housing doesn’t pay because the cost of services isn’t covered by the amount of tax revenue generated from a new household. So, that’s one impediment. Then you’ve got the residents that the city council and planning commissioners and the mayor are representing. They don’t want to have their little corner of the world changed.”

The lack of housing has fueled bidding wars for listings for most of the past dozen years, causing the California house price to triple. At the same time, 2023 was tied for having the sixth-lowest for-sale inventory on record.

Home sales last year were more than a third below the statewide average.

“I just wonder where we’re going to get the 30% increase in inventory to get the 30% increase in sales? That’s my biggest concern,” said Selma Hepp, CoreLogic chief economist. “California has the most inventory-constrained market in years. People don’t want to move. We don’t have an increase in new construction. But on the flip side, we do have pent-up demand. If we had more inventory, we would have much more … sales.”

California’s homebuilding shortfall

A state housing plan determined in 2022 that California needs to build 180,000 new homes annually to close a shortfall of 2.5 million units by the end of the decade.

However, data from the Federal Reserve Bank of St. Louis show the state hasn’t built that many homes since 2005. The number of new home building permits has averaged just over 103,000 per year for the past decade.

California’s municipalities have issued just under 555,000 since Gov. Gavin Newsom took office in January 2019, up from 509,000 permits during the five years preceding Newsom’s tenure.

Here’s a breakdown of new home permits for the past decade:

2014: 82,603
2015: 97,611
2016: 100,629
2017: 111,788
2018: 116,411
2019: 109,904
2020: 104,554
2021: 119,558
2022: 113,094
Jan-Oct, 2023: 107,791

Orange County Register

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California’s 7-year housing push has yet to boost building, experts say

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California’s homebuilding shortfall

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