Word has gotten its way to the nation’s capitol: the U.S. is entrenched in a housing crisis.
The way to dig ourselves out seems obvious — build more housing to correct the supply-and-demand imbalance.
But that ostensibly simple solution hides significant roadblocks. The federal government is readying an arsenal of approaches to smooth over the stubborn barriers limiting housing supply.
The Biden administration boldly plans to help close the nation’s housing supply gap within the next five years, according to a White House press release.
The Housing Supply Action Plan includes:
- increasing construction in 2022 to complete more home starts than in any other year since 2006 through increased resources and programs for builders;
- creating a score system rewarding jurisdictions which have reformed zoning and land use restrictions, so that high-scoring jurisdictions will be more likely to receive federal grants;
- introducing new financing arrangements to preserve vulnerable housing, such as manufactured housing, accessory dwelling units (ADUs), two-to-four unit properties and smaller multifamily buildings;
- expanding existing forms of federal financing, including construction to permanent mortgages issued through Fannie Mae, using state and local COVID-19 recovery funds for increasing low-income housing stock and reforming the low-income housing tax credit (LIHTC); and
- preventing institutional investors from purchasing real estate owned (REO) properties so that owner-occupiers may instead buy them.
The federal government has zeroed in on state and local zoning laws as a significant cause for the housing shortage and is now offering more incentives for local jurisdictions to relax them — and disincentives for maintaining them.
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California’s approach to affordable housing
The housing crisis has hit California harder than any other state in the union. When Washington introduces a new method to boost housing production, you can bet a similar approach is already in full swing here in California.
For example, California may enact strict penalties against local agencies who do not contribute a portion of their surplus land to low-income housing based on a 2019 legislative amendment to the Surplus Land Act.
In 2021, legislators passed Senate Bill (SB) 9 and SB 10 which seek to increase housing density through zoning reforms. To combat local jurisdictions’ resistance against these statewide policies, California’s Office of the Attorney General (OAG) established an anti-NIMBY Housing Strike Force, giving the state more leeway to enforce state housing and development laws. Together, SB 9, SB 10 and the Strike Force comprise a coordinated push to make affordable housing more accessible in California.
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California’s new housing strike force prepares for battle — with NIMBYs
Local agencies such as cities and counties and larger government entities like state and federal governments are battling it out over zoning and land use policies. As California’s housing crisis spills over into more states, larger government entities aren’t playing so nice anymore. Now, they are enforcing housing laws and enacting reward systems to see results at the local level.
At the same time, the federal government wants to amp up housing construction. They intend to partner with the private sector building industry to address supply and production issues, such as labor shortages, supply chain disruptions and rising building material costs so that more affordable housing units may be constructed over the next few years.
In California, an estimated 180,000 new housing units are needed annually to keep up with population growth. But new construction has not exceeded 80,000 housing units annually since 2008, and continues to fall short in 2022, according to the OAG.
To solve the housing crisis, California, as well as the wider U.S., needs to implement a multipronged approach. Diminished construction levels are not the only factor leading to today’s inventory shortfall — though patching up housing production barriers will streamline the process. Likewise, overly restrictive zoning regulations on the local level are not solely to blame, but easing some of them will enable more housing units to proliferate.
Until supply matches demand for housing, Californians should get comfortable with being cost burdened. In fact, roughly one-third of California renters commit over half of their monthly income to rent. As home prices and rents continue to outpace incomes, real estate professionals also suffer from lack of turnover among priced-out residents.
In 2027, a resurgence of new construction may take hold in California as the economy stabilizes. To get there, legislators will need to find the strength and sense to fight California’s NIMBY strongholds at the local level. Short of that, real estate professionals will need to get crafty and expand their practice to survive the next recession.
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Lured by rising prices, new agents swarm real estate — except in California
