California’s legendary drought doesn’t just pertain to just our water supply. The inventory of homes available for sale has dwindled in 2016. As of April 2016, housing inventory is 4% below the same time a year earlier, according to Zillow.

Meanwhile, the population continues to grow. Putting further strain on our limited supply of housing, first-time homebuyers are becoming increasingly eager to enter the homebuying market now that the economy is in solid shape.

California’s rental inventory is even lower, with vacancy rates at just 4% in 2015, the lowest in decades.

Low inventory and heightened demand translates to the rapidly rising prices we’ve been experiencing. The number of additional housing units California needs to keep up with rising housing costs and the increasing population is rapidly adding up. According to the Los Angeles Times, the California Legislative Analyst’s Office estimates the number of additional units (on top of existing new construction) needed to have been built each year over the past 30 years are:

  • 35,200 new units each year in Los Angeles;
  • 16,700 new units each year in Santa Clara;
  • 13,500 new units each year in Alameda;
  • 13,300 new units each year in San Francisco;
  • 7,000 new units each year in San Mateo;
  • 6,100 new units each year in Orange County;
  • 2,400 new units each year in Ventura;
  • 1,100 new units each year in Contra Costa; and
  • 550 new units each year in San Diego.

In reality, much fewer units are actually started each year across California — hence the shortage we currently find ourselves in.

In Los Angeles County, which is currently experiencing a decades’ high in multi-family construction, just 23,500 new units were started in 2015. Added together, Los Angeles is over a million housing units short of meeting the demand of the population.

It’s the same story in other California counties, especially in San Francisco. Here, 3,200 new housing units were started in 2015, much less than what is needed to keep up with the population’s demand.

While still lagging behind, San Diego is the best off of California’s major counties. 9,300 new housing units were started in 2015, almost enough to keep up with demand for housing.

Zoning problems

How does our Golden State fix the housing shortage emergency?

It all comes back to creating zoning rules that meet demand, not ignore it.

Most zoning regulations are designed to suit the temporal tastes of current residents — not the legion of future residents who need a place to live. At face value, it makes sense for current homeowners to maintain exclusivity in their neighborhood by keeping density to a minimum, as it drives up property values in desirable neighborhoods.

But when supply becomes too tight, as in San Francisco and now most parts of Los Angeles, prices rise far beyond what is tenable for most, forcing a majority of residents to spend half of their income or more on housing (at the expense of saving for retirement, education or a future down payment). Long-time renters are forced out to the suburbs and first-time homebuyers evaporate from the market. Concurrently, real estate agents rely on dwindling, albeit larger, fees from the reduced number of sales, leaving them on shaky financial ground.

The good news is overly strict zoning is a well-publicized cause of California’s housing shortage and has become part of the modern real estate zeitgeist. Several bills have been introduced in California’s Assembly to mitigate detrimental zoning laws. For instance, Assembly Bill 2299 will make it easier for homeowners to add second units to their property by eliminating parking and passageway requirements. This will allow for more in-law units, casitas, granny flats and even extra living space above detached garages.

Other pending legislation will highly abridge the application and permitting process for builders of low-income housing, if enacted.

The state government of California is now taking a more proactive, hands-on approach to fix local zoning issues. This more aggressive, and very much needed, approach is similar to the tactics being adopted in the United Kingdom, which recently enacted new laws to loosen zoning restrictions across its localities. This puts power back into hands of the government — out of the hands of the few vocal not–in-my-backyard (NIMBY) advocates who seem to run local city council meetings.

One thing is for sure: unless more housing is built in California soon, the housing shortage crisis will grow just as dire as the water crisis.