New construction is the lifeblood of the housing market, ensuring our state’s growing demand for housing is continuously met.
But here in California, population growth has outweighed new construction for the past decade, causing the imbalance to tip further towards disaster.
Our state’s housing shortage continues to escalate, causing prices to rise well beyond the rate of incomes and contributing to lower homeownership rates, rising homelessness and a decreased quality of life. It’s estimated that California needs an additional 3.5 million housing units to address need and demand, according to the McKinsey Global Institute.
In this legislative proposal, firsttuesday suggests the creation of a new state agency with the sole function to lend to builders who will use the funds to construct more housing to be set aside for renters or owner-occupants. Preference will be given to smaller builders without great access to capital, or those who complete 250 units or fewer a year.
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Where will the money come from?
The initial funds will come straight from the state’s $38 billion budget surplus available to allocate in 2021-2022. Notably, this does not include the $25 billion in federal stimulus also reaching the state in 2021.
Further, as a loan program, builders will be required to repay the funds upon the completion and sale of the units. Thus, the majority of funds will continue to be renewed.
With, say, $10 billion set aside for the initial program, an additional 25,000 low- to mid-tier housing units will be started in the first year. However, fewer units will be completed when more of these new developments are concentrated in desirable (read: expensive) coastal cities, like the Bay Area. After five years, the housing inventory will have grown by 125,000 units.
While this does not come close to addressing the estimated 3.5 million gap in housing units, it makes a dent while laying the foundation for future state-sponsored construction investment. It will also help the industry by growing and investing in smaller builders who lack the capital of larger builders. With today’s focus on improving infrastructure, this program will ensure the budget surplus will go toward making lasting change by creating more homeowners and easing the burden of high housing costs on residents.
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