The economic consequences of California’s housing crisis (2024)

California’s housing crisis has received a heightened level of attention in 2019 and rightfully so.

A statewide survey conducted earlier this year by the Public Policy Institute of California made headlines regarding the overwhelmingly high level of public apprehension over skyrocketing housing costs. Not only dida record-high share of Californians say that the lack of affordable housing is a big problem in their region, but an eye-opening 35 percent said that high housing costs have them seriously considering leaving the state.

In Sacramento, the housing crisis has come to the forefront as well, witha myriad of housing bills introduced in the state legislature. The most notable of these bills, Senate Bill 50 by Sen. Scott Wiener, D-San Francisco, generated a vigorous discussion over the issue of local control, eventually failing to pass out of committee. Other issues such as environmental regulations and rent control have fanned the flames of debate among various stakeholders.

As part of this debate, it’s critical not to overlook the negative economic consequences that accompany such a massive scarcity of affordable housing.Not only has the lack of new home construction in California caused a substantial financial hardship on individuals renting or purchasing homes, but the state’s overall economy has suffered as well.

A study by the well-respected McKinsey Global Institute found that due to the state’s housing shortage,California’s economy loses over $140billion per year in economic output.

Included is an estimated loss of over $50billion per year in consumer consumption due to the state’s high cost of housing. When people are spending a substantial portion of their paychecks on rent or mortgage payments, they have less to spend elsewhere. For low-income residents, this often means that income that would ordinarily be spent on basic necessities like food and clothing is redirected towards housing costs.

The lack of housing construction also eliminates the economic ripple effect that accompanies new home production. Architects, plumbers, roofers, and realtors are a small sampling of the numerous professions which stand to benefit from new housing development. According to the report, lost construction activity in California costs the economy over $90 billion per year.

In contrast, when homes are being built at a robust pace, a thriving housing construction industry has shown to be a considerable economic driver. A study funded by the California Homebuilding Foundation found that the industry’s most recent peak came in 2005 with new home construction supporting over 486,000 jobs.

Ultimately, there is only one way out of California’s housing crisis, and that’s to ensure that home builders can do business in a legislative and regulatory environment where actual construction can take place. This must begin with an earnest effort by Governor Gavin Newsom and the state legislature to mend – not end – the California Environmental Quality Act (CEQA).

Signed into law almost fifty years ago, CEQA was created toensure that certain environmental protections were in place with new development projects, including housing. Despite its original intent, CEQA lawsuits have become the weapon of choice by parties intent on stopping the construction of new housing. A report by the law firm Holland & Knight found that between 2012 – 2015,close to 14,000 housing units in the Southern California region (minus San Diego) were targeted by CEQA lawsuits. Also a victim of dubious CEQA litigation was a desperately needed 200-bed homeless shelter in the city of Santa Ana, which today has the largest homeless population in all of Orange County.

Rampant CEQA lawsuit abuse is one of the primary reasons the Building Industry Association of Southern California formed the Building Industry Legal Defense Foundation, which actively works in the courts to protect home builders from frivolous, anti-housing litigation.

While the economic benefits of new housing are resounding,building new homes is far more than a business issue – it’s a quality of life imperative.

When it comes to solving the state’s housing crisis, our elected officials’ failure to seriously address CEQA reform has played a considerable role in creating the dilemma in which the state finds itself today.As stated ever so eloquently by Groucho Marx, “Politics is the art of looking for trouble, finding it everywhere, diagnosing it incorrectly, and applying the wrong remedies.”

Jeff Montejano serves as CEO of the Building Industry Association of Southern California. Headquartered in Irvine, the Building Industry Association of Southern California is a leading advocate for thousands of building industry leaders who are committed to a better future for California by building communities, creating jobs and ensuring housing opportunities for everyone.