top of page
RedWoodBar-web.jpg

Op-Ed: We Can Fix the California Housing Disaster

We can fix the California Housing Disaster

by Peter MacDonald, Executive Director, Center for Sensible Housing Policy

California is about to waste a 2nd 8-year Housing Element Cycle trying to increase housing affordability by means of rent controls on new housing production.​

CA vs US Median Home Price Chart

GOOD POLICIES

 

California’s housing disaster isn’t inevitable–it’s a policy choice. The ongoing housing efforts by the State Legislature are well intentioned, and are effectively addressing three key issues in making housing affordable by design:  

 

  1. Requiring a vast increase in lands zoned for housing.

  2. Requiring objective local design standards (with “as of right” approvals).

  3. Finally, just this year, eliminating environmental (CEQA) review for most in-fill projects.

​

But, the whole State effort is being torpedoed by rent and price controls on new construction, which is strangling housing supply.

CA Price as % of US Median in 20252025

HOW STATE FORCED RENT CONTROL

 

The State Department of Housing and Community Development (State HCD) emphasis on rent controls has backfired. For the 2014-2022 Housing Element Cycle, California single-family housing prices rose from 50% higher than US housing prices to 76.8% higher than US prices, a disastrous performance.

In 2014, the State of California finally got serious about forcing each local government to provide its fair share of its regional housing needs.  In the 2014-2022 Housing Element Cycle, State Housing and Community Development (“State HCD”) aggressively used its power to approve local Housing Elements by requiring local governments to rezone lands for housing, especially affordable housing.

A key piece of that State HCD scheme is to designate specific numbers of very low income, low income, and moderate income housing units for each city to zone for.

Unfortunately, State HCD focused on rent controls as the measure of each city’s compliance.  State HCD has adopted policies which effectively force most California cities into imposing inclusionary rent controls (mandatory rent controls enforced by deed restrictions) on a portion of new housing construction.

Nothing in the State Housing Statutes requires cities to adopt rent controls on new housing construction. But, the State HCD housing regulations only consider housing “affordable” if it is deed restricted to remain affordable (i.e. rent controlled), usually in perpetuity.

Affordable by design housing such as smaller units are not counted as “affordable” because new market rate units cannot be produced at rent levels which meet State HCD’s rent criteria.

So, cities are virtually forced to impose inclusionary rent controls in order to get their housing elements certified by State HCD. Sadly, this defective rent control policy continues unchanged for the 2023-2031 Housing Element cycle.

This rent control policy just keeps on not working. Three years into the 2023-2031 Housing Element Cycle, California median prices have jumped from 76.8% to 101.2% higher than the U.S. median housing prices.

WHY CITIES GO ALONG

 

For exclusionary cities, determined to suppress their housing supply, inclusionary rent controls are a triple winner:

 

  1. The serious cost burden of providing inclusionary rent controlled units seriously shrinks the supply of new market rate housing projects.  

  2. The resulting housing scarcity drives up the housing price level, increasing the home equity of every homeowner in town, dollar for dollar.

  3. “We adopted inclusionary zoning requirements” is the safe and acceptable answer to State HCD and the public to prove a city is “working” to provide affordable housing.​

CAUSES HOUSING PRICE SPIRAL

 

These inclusionary rent controls load the entire cost of providing affordable housing on to the consumers of new housing. In a 2021 case study, I found that the rent subsidies required by 15% inclusionary rent controls equate to a rent increase of $192 per month for each remaining market rate unit – a 7.15% rent increase. At the project level, the rent subsidies are paid by higher rents on the remaining (market rate) units.


That higher cost of producing units gradually embeds into the housing price level, including all existing housing, creating tremendous negative leverage: According to a study I did in the year 2000, for every $1 of rent subsidy created by the inclusionary rent controls, market rate consumers then pay $13 in higher housing costs.

​

The further insidious impact of inclusionary rent controls is that most new housing projects become infeasible, crippling housing supply, and causing housing prices to spiral upward by more than the cost of the rent subsidies.

​A SMARTER SOLUTION

 

This dreadful flaw in California regulatory policy could be corrected administratively by State HCD, or by any city genuinely interested in increasing affordability: Simply allow units to also be counted as “affordable” based on unit sizes, (rather than just by rent levels). An inclusionary mandate to make 25% of new apartments 650 s.f. or less would not cost the developer a single penny in lost rent. Without rent controls, the housing market could and would produce smaller “affordable by design” units in vastly increased quantities, which would drive down the price of market rate housing.

 

This one policy change can bring housing prices within reach for the millennial generation.

 

Source data can be found below, and is from the Book "The Case Against Inclusionary Rent Controls: Insights from the California Housing Disaster", which is also available on Amazon and Kindle.

ABOUT THE AUTHOR

 

Peter MacDonald is founder of the Center for Sensible Housing Policy and a retired land use attorney from Pleasanton, CA. He has a BA in Economics, an MS in Urban Planning, and JD in law. He was City Attorney of Pleasanton from 1982 through 1988 and is a past President of the Bay Area City Attorneys group.

​SOURCES

The data references are from the Book, “The Case Against Inclusionary Rent Controls, Insights from the California Housing Disaster”, with updates on this website.

​​

  1. Housing prices in 3rd paragraph. From Exhibit A, pg 29. Median single family house prices:
    2014: US. $275,200, CA $412,820.
    2022: US. $433,100, CA $765,580.
    2014: CA 50.0% higher than US.
    2022: CA 76.1% higher than US.

  2. State HCD required form for Annual Progress Reports by local governments. Note each unit has to be categorized as “deed restricted” or “not deed restricted”. Pleasanton Annual Progress Report at Exhibit F, pg 83 & 84.

  3. For 2022 calendar year. Median home prices:
    Jan 2022: U.S. $433,100, CA $765,580.
    Jan 2025: U.S. $416,900, CA $838,850.
    In the last 3 years, 2022-2025, California housing prices jumped from 76.8% to 101.2% higher than U.S. housing prices. More details can be found on the Home Price Charts page.

  4. Real cost of 15% inclusionary rent controls: At Exhibit B-4, Lines III-5 & III-7, pg 35.

  5. Calculation of $13 increased market rate housing cost per dollar of rent subsidy from inclusionary rent controls: At Exhibit D, table 6, pg 62, and on the Cost of Rent Subsidy page.

  6. Discussion of how to implement unit size zoning. At pg 21-25.   

bottom of page