California’s Housing is Bleeding Out and We Apply Band-Aids

Insider view on how to deal with the Housing Crisis in California.

By John E. McNellis, Principal at McNellis Partners, for The Registry:

Governor Jerry Brown just signed fifteen affordable-housing bills into law. A few might do a little good. Two senate bills will raise a bit of money. Senate Bill 2 will charge you a recording fee of up to $225 on any transaction not already subject to a transfer tax (e.g. a mortgage refinance). Senate Bill 3 is a $4 billion housing bond. Most of the money raised from these two efforts will go toward funding low-income housing.

Assembly Bill 1505 will allow cities to once again require an affordable housing component in new residential projects, a requirement that had been ruled unlawful by the Court of Appeal in 2009. Jerry’s other new laws are, in a word, fluffy, well-intentioned but toothless efforts to spur cities on to do the right thing.

About the money. According to the Los Angeles Times, San Francisco’s 700 unit Hunters View low-income housing project cost $450 million or $643,000 a unit. While appallingly high, that number sounds about right. Thus, if SB2 actually raises $250 million a year, California could add another 388 low-income units annually. And the whole $4 billion from SB 3 would be gone after 6220 new units. In a state which needs to add 100,000 new dwellings a year just to keep up with its population growth — and not allow the housing crisis to worsen — this is truly spitting in the ocean.

But as paltry as it may be compared with the enormity of the crisis, the money is not the real problem. The problem is you can’t spend affordable-housing money. Last year, the citizens of Los Angeles generously voted to increase their property taxes by $1.2 billion to build housing for the homeless. This year, the somewhat less compassionate Angelenos in Boyle Heights blocked a proposed 49 unit homeless shelter in their neighborhood, a political scenario that has been played out countless times in nearly every city in the state. Tie-dyed progressives, kindhearted liberals, even Orange County conservatives are all in favor of low-income housing — in someone else’s neighborhood.

You can be squarely against capital punishment, but still suggest a better alternative than a circular firing squad. You can know that the housing crisis is not the fault of real estate, that blaming the housing industry for failing to build low-income is nonsensical, that it is a societal issue which must be resolved — and paid for — by society as a whole, yet still wish to encourage an approach that would at least help solve the problem.

For the record, that 2009 appellate court threw out low-income requirements on market-rate housing projects because it found no nexus between building new housing and a lack of affordable housing. Tipping its gavel to rationality and the law of supply and demand, the court found to the contrary: Any new housing, at whatever price point, helps the overall housing situation. If you build enough million dollar condos, sooner or later your market will crash, prices will plummet, and availability will rise all the way down the line.

One partial solution to the housing crisis that is unlikely to be adopted anytime this century by California is simply this: Remove the spurious, project-killing California Environmental Quality Act (CEQA) lawsuit from the arsenals of the unions and the NIMBYs. How? Easy. Require would-be CEQA plaintiffs to post a meaningful bond in order to file suit and then be liable for the losses incurred by the project as a result of the delays should they lose. Or eliminate the attorney’s fees recovery provision in the law; if the NIMBYs — and, more importantly their lawyers — know they have to pay the fees themselves, unfounded lawsuits will plummet.

Another suggestion unlikely to be a crowd-pleaser would be to pass a version of Massachusetts 40B. Adopted in 1969, this still controversial law allows local zoning boards to overrule the rejection of proposed housing projects by cities if the city in question has less than 10% affordable-housing in its community and the project has a 25% affordable-housing component. While not a panacea, about 80% of Massachusetts’s affordable housing built over the past decade is a direct result of this bill.

Thus far, my developer readers are nodding in approval, but here’s where I lose them: If you truly wish to add low-income housing, ban the practice of allowing builders to pay in-lieu fees instead of incorporating the low-income housing into their projects.

Why? First, as outrageous as they appear at first blush, the in-lieu fees are never enough. No city is charging the real cost of a unit, that $643,000 Hunters View cost. Second to none in spanking developers, San Francisco’s in-lieu fee for a two-bedroom unit is still only $366,369.

And, again, it’s not the money, it’s the dirt. Back to Boyle Heights, off-site units seldom get built. Say San Jose enacts a 15% low-income requirement — it has — and then entitles ten 100-unit apartment projects throughout the city. If an on-site requirement, the low-income folks are spread throughout the city — a good thing for many reasons; their children can attend better schools and so on — and the inevitable NIMBY protests are, while not exactly muted, of insufficient volume to terrify the city council.

If, on the other hand, the 10 developers pay the insufficient in-lieu fee and then the city picks a spot on which to subsidize and build a 150 unit low-income project, its immediate neighbors will tie themselves to the railroad tracks to prevent it.

Kill the in-lieu fee. In its place, grant developers the bonus density they need on their market-rate projects to incorporate the low-income units and still achieve a reasonable return on investment.

To solve the housing crisis, the state needs to encourage market-rate housing through streamlining the zoning process, pay for low-income housing through general taxation and stand up to all of those who would either prevent new housing or render its cost prohibitive. California’s housing is bleeding out and we’re applying Band-Aids. By John E. McNellis, McNellis Partners, author of Making It in Real Estate: Starting Out as a Developer. The article was first published on The Registry.

“We are faced with weekly tenant bankruptcies, defaults, and requests for rent or space reductions.” Read… Landlord’s View of the Brick and Mortar Meltdown

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  89 comments for “California’s Housing is Bleeding Out and We Apply Band-Aids

  1. HBGuy says:

    This reads exactly as if it were written by a developer, and it was. Here are a few alternative suggestions instead of ramrodding development in communities where the vast majority of residents have said NO!

    1. Illegals – California has more than 2.5 million illegal residents. At the proverbial 2.x residents per household, removing even a fraction of them would free up tens of thousands of housing units for legal residents to occupy.
    2. Property tax – one of the unfortunate side effects of the otherwise excellent Prop. 13 has been to incentivize cities and counties to encourage commercial property development over residential because the latter yield less property tax revenue. Cities should be able to keep more residential property tax revenues rather than having them siphoned off to pay for schools, frequently outside their boundaries. Doing so will encourage more residential, and less commercial, development.
    3. Expanded mixed use development – drive through almost any coastal community and one will see a huge number of strip malls that could easily accommodate one or two floors of rental apartments. There is generally enough parking already onsite to accommodate the additional traffic. Why not re-develop these instead of hulking new apartment blocks that many cities, such as my community of Huntington Beach, have rejected?
    4. Continue to discourage Section 8 housing – who needs this blight? There’s plenty of it in the High Desert, and we don’t want or need it in the coastal areas.

    • Ppp says:

      No, the answer is to raise the Constitutional level of scrutiny for housing above Lindsey v. Normet minimum scrutiny. The case is unsound to begin with, as shown by the Statement of Interest in the Boise homelessness case, as well as in the AFFR rule.

      But it will require the collapse of our kleptocracy before we win the right to housing, which, like protected speech, is an unchanging fact of human experience and so, an individually enforceable right.

      • Lee says:


        Where are all these ‘rights’ coming from? Can’t seem to find them in the Constitution or Bill of Rights.

        No wonder the USA is in such trouble.

        • Ppp says:

          Just read West Virginia v. Barnett’s, in which the court set a factual test for when a fact is removed from the political system and placed in the court as a right. A fact is a right if

          1. it is a fact of human experience

          2. which history demonstrates

          3. is unaffected by assaults upon it.

          That is, if it is a robust, resilient and recurrent fact of human experience, then it is an individually enforceable right.

          By the way, it was the test used in Heller to establish the gun right . So it is not a liberal or conservative test. But it is the constitutional test.

          So now you where all these rights cone from. By the way, all WHAT rights?

          What you don’t know either is that the reason the political system wants facts to remain in the political system, and remain at minimum scrutiny, is so the system can retain control all the money related to the facts. So the system’s flunkeys blather on about the judiciary overstepping its bounds if facts are rights, or that the legislature is best suited to make social policy. It is all lies.. Don’t believe me? Then try this little experiment: write to your Congressperson, asking if your Congressperson agrees that medical care enjoys a level of Constitutional scrutiny higher than minimum scrutiny. The answer will be no, and for the reasons I indicate. I know where the kick backs come from, and you do not.

          That is why Pelosi does not support a right to medical care, although even Roberts in Sebelious said it is an unchanging fact of human experience.

          But then, I am sure you are a strong Pelosi supporter.

          Choose to educate yourself.

        • Raymond C Rogers says:

          Ppp, your entire post is filled with conjecture and arbitrary rules. If you want to know what rights you have, read the back-and-forth between the federalit’s and the anti-federalists.

          The Bill of Rights is quite clear. If there are to be more rights to be added, then it me done so through an Amendment process.

          As for this article, I couldnt find very useful or good advise. Since when does confiscating more private wealth and applying blatant redistribution through these bonds align with the Constitutional values of our Republic?

          And does it suprise anyone than an insider in an industry that has more lobbying power than Goldman Sachs (look up the National Realtors Association’s campaign donations) would advocate for a four billion dollar theft from taxpayers? And $643,000 low income housing per unit is outrageous.

    • alex in san jose AKA digital Detroit says:

      HBguy – You in Huntington Beach? Man that was a great place especially downtown before it got turned into a Disney theme park. Although it *is* funny seeing shocked tourists from the Midwest that the surfer statue isn’t wearing shorts or a burqa or something.

      I’m with you on expanding mixed-use. I believe many of the laws against living in your shop etc come from the fact that everyone used to smoke. And smokers love nothing more than going to sleep with a nice freshly-lit cig in their hand. It just goes with the territory. Drunk drivers live to go out and kill people, and smokers live for the day they die on their own self-created pyre, hopefully taking others with them. But now except for the idiotic fads of smoking weed and vaping, smoking is pretty rare now (at least in California, land of 3-digit IQs).

      I also like the idea of heavy taxes on 2nd, 3rd, etc homes. The home you live in, fine, we won’t tax you to hell on that, but once you’re a speculator, welp, we’re gonna tax your ass and heavily.

      Section 8 may not belong on the coast, I can agree with that, but for instance, I live in the so-called “Silicon Valley”, right in San Jose, and the amount of vacant buildings and unused land is amazing. I think a third of the store fronts downtown are empty. The number of what we call “see-through” buildings is amazing. We’re talking hundreds of acres, maybe thousands, just within San Jose proper. And I’m not talking about the boonies, about Alviso. I mean right downtown. Right on major roadways. Areas where low-income people could live without being social pariahs; where they could get to jobs or to job training.

      The same goes for, say, Santa Cruz. Tons of unused buildings, unused land, vacant blighted buildings because “someone” owns them and wants to keep them that way.

      Finally, I advocate deportation of people we have far too many of who come out here from the Midwest and then bitch endlessly about California, but don’t seem to mind that they can get a job out here, that the weather won’t kill them, and that peoples’ family trees out here aren’t straight lines. And they’ll do anything to stay out here, even be homeless while working at Safeway, but anything, anything at all, to stay in California while telling anyone who will listen how awful it is here. Deport ’em!

      You will find exactly zero illegals who will bitch about California and go on about how wonderful it was back home; and the ones who do think it’s better back home simply go back home. If only these flyover idiots would do the same.

    • Suzie Alcatrez says:

      Prop 13 has distorted the real estate market in California.

      Although tech companies often have large expensive headquarters, very little property taxes are generated.

      ‘While that portion of Google’s land is taxed at a rate of approximately 35 cents per square foot, the land under Intuit’s corporate campus, which is just around the corner, has an estimated property tax burden of 3 cents per square foot. Meantime, tax rates on land under recently purchased neighboring single-family homes ranged from $1 to $1.25 per square foot, according to a Bay Citizen examination of assessments on 2010 home sales in Mountain View.’

      • HBGuy says:

        Prop 13 values are acquisition-based, not market value. Although several attempts have been made to overturn it in Court, it has survived them all, including an 8-1 favorable SCOTUS decision.

        Speaking as a taxpayer who has been in my HB home for 17 years and benefitted from Prop 13, and has previously lived under rapacious market value assessment regimes in Toronto, I’ll gladly take Prop 13’s methodology any day over market value.

    • Nick Kelly says:

      Re: number 3. The idea of converting single storey malls to apartments is everywhere in these comments. Generally it can’t be done economically. It would be cheaper to raze the mall and start from scratch. You can’t add floors to a structure not built for this possibility. The roofs of strip malls are not as strong as in a typical house.

      The main floor of a mall could CONCEIVABLY be re-purposed for housing
      but more for the homeless than lower middle- class. They aren’t plumbed for bathrooms or kitchens and you would be jack hammering a mile of concrete. But for the homeless, refugees etc. shared above could work.

  2. BradK says:

    [I hope the following rant passes muster with Wolf’s new commenting policies. I write this as someone who lives at ground zero of one of these battles in California.]

    Perhaps the author can tell us where he lives so that we can propose a high-density section 8 housing project outside of his front door? Oh, but that would be different he’ll say.

    Then when the addicts, mentally deranged, and homeless start congregating and loitering about at all hours of the day and night (who has a job?), defecating in his yard, stealing anything that is isn’t locked down, and, at least in sunny California, have nothing to fear from law enforcement due largely to Prop 47, then perhaps he can dispense with the sanctimonious condescension.

    The real issue that no one seems to address is WHY do these projects need to be built right smack dab in the middle of some of the most expensive areas of the most expensive cities? CA is a huge state with lots of lots of buildable land. Why are a select group entitled to subsidized living in gentrified areas? Not only have they done nothing to help the gentrification, they vocally opposed it. But now that it’s done they would mind living there. Yet homeowners and investors are the hypocrites?

    “But that’s where the services they so desperately need are located.” Because heaven forbid we move the services as well as the clients somewhere away from expensive city centers, where we could build truly affordable housing for, say, $60K/unit instead of $600K. There’s no fun in that for the virtue-signaling chattering classes, one supposes.

    • Fftg says:

      Why have unjust laws given you benefits by denying them to others? Because you earned them? Tell me, what is earned in a society which is 100% corrupt?

      • chip javert says:


        Hmmm…emotional statement with no evidence. You wanna see (close to) 100% corrupt? Visit India or China.

        Human beings have different standards for how they (and their families) wish to live. Generally speaking, I see nothing wrong with different people making different lifestyle choices. We even have a name for it – “freedom”.

        You sound like someone totally comfortable with telling others how to live their lives. Saturday I came back from a trip to Cuba, and it is stunning to see the effect of a few people making these decisions for everybody else. However, I will grant you that Cuba does have a lot of low income housing.

        • Rates says:

          And your comment is emotional too. US society is corrupt. Just take one example: oil. In order to secure that, a regular joe doesn’t care how many people in the Middle East have to suffer. And many products are produced in China. What does it say about the biggest consumer i.e. the USA?

          This “freedom” you talk about is paid for by other people around the world. But as long as you don’t see it, I am sure you are fine with it.

        • chip javert says:


          Interesting strawman arguments (oil, China), about which I didn’t comment. Do you have anything cojent and on-target about what I did say?

          If you want an argument (other than with your strawman) about China or oil, go find someone talking about China or oil…

        • Nick says:

          Have you been to India or China? Have you actually done business with people in either country?

          While their domestic society and form of government may leave a lot to be desired both of those countries are actually more free market and capitalistic in many ways than those in the US.

          And what a joke……the US .gov is constantly telling us how to live our lives. The only difference is the US government tries to act like they are protecting us from harm and all the things they should be protecting us from except corporate America and the oligarchy that runs both. In China they will execute CEOs and other corporate execs for fraud and criminal white collar crime. Here we idolize it. The DOW at 30K!!!!!!!!!!!

          Most Americans like you are living off the fumes of freedom and a free market our grandparents and great parents fought an died for. America has become a swamp of wolves and all the sheep dogs are dying off. Unwilling to fight. Unfortunately, most of the western civilized world has followed in America’s footsteps so no I can’t “if you don’t like it, get out!”

    • Thunderstruck says:

      “The real issue that no one seems to address is WHY do these projects need to be built right smack dab in the middle of some of the most expensive areas of the most expensive cities?”

      Reverse gentrification? One sure way to drive down home values in an area is to raise the number of Section 8 units in that development. So, in order to create more “affordable housing”, all you need to do is etsablish a toehold in the area.

      • J Dubyah says:

        Yup. If you are homeless in the middle of skyscrapers.. and have the option of not being homeless in a less populated area… then, that is on you.
        However, if housing is built, services are there, and free transportation to housing units are provided, eventually the population of skyscraper homeless gets lower?
        Whats not to love? Homeless get a home (on the cheap for the taxpayer) homeowners get less neighborhood drama risk.
        What say ye?

  3. Ron says:

    Developments in Calif for the past 50 years have focused on 3 bed 2 bath house that has spread for miles in all direction. The issue is building up like towards the sky in traditional neighborhoods protected by zoning laws. The miles on endless generic houses need to give way to high density development which in the long run will encourage mass transit and facilitate a higher rate of home ownership at affordable prices.

    • HBGuy says:

      People in my city have had recent first-hand experience with “high density” development and rejected it, after developers won approval for 6 story apartment blocks with no setbacks and poorly sited exits at a major intersection. HB Council subsequently required future buildings to not exceed 4 stories and imposed setbacks.

      The 3-bed/2-bath sprawl that you bemoan happens to be why many residents moved to their communities in the first place. They could have moved to downtown LA, SF or NY, but preferred to live in a low-rise, less dense environment. Who are you, or nannycrat politicians and their bureaucrat functionaries, to tell them they chose incorrectly?

      • Thunderstruck says:

        “Who are you, or nannycrat politicians and their bureaucrat functionaries, to tell them they chose incorrectly?”

        Aren’t hose the types that made such a smashing success out of high-rise developments such as Cabrini-Green?

  4. BVian says:

    Seems like the real problem is controlling the flow of people and money. People want to live near cities, jobs, resources. Land becomes expensive. We want people to make a livable wage. Labor becomes expensive. Hard to build large scale projects like the density you see in NYC, Paris, HK, etc with high land & labor costs. We probably need to rethink our solutions based on the current conditions we live in.
    For example, come up with a national welfare system so your benefits in California are not significantly better than Texas. Incentivize companies to spread out throughout the country instead of clustering in Northern California. Change to a skills based immigration system and limit the # of low skilled immigrants who don’t have a job to come to, put restrictions on foreign buyers of single family homes, etc.

    • alex in san jose AKA digital Detroit says:

      BVian – I’ve been on benefits in CA and in flyover country, and let me tell you, welfare as a way of life is easy as pie in flyover. The food stamp people take one look at where you live, make a joke about the EBT card being the “ID card” for that area, and you get a wink and and a nod and your benefits, and renewing them (as it’s assumed you’ll be doing for life) is easy-peasy.

      In California, wow, lots of paperwork, lots of meetings, hell it’s real work to get on benefits and stay on them. Plus job training is mandatory, or getting a job, any job. Because out here there are jobs, even if for the 90% of us they’re shitty jobs, there *are* jobs and they know it. In fact I gave up on benefits here because for the work, well, panhandling or hustling handcrafted items pays a lot better especially for the work.

      Flyover is where people are just warehoused; the prototype of universal basic income. In California, we believe in work. It might be selling temales illegally in a parking lot, but we work here.

      • Raymond C Rogers says:

        Ppp, your entire post is filled with conjecture and arbitrary rules. If you want to know what rights you have, read the back-and-forth between the federalit’s and the anti-federalists.

        The Bill of Rights is quite clear. If there are to be more rights to be added, then it me done so through an Amendment process.

        As for this article, I couldnt find very useful or good advise. Since when does confiscating more private wealth and applying blatant redistribution through these bonds align with the Constitutional values of our Republic?

        And does it suprise anyone than an insider in an industry that has more lobbying power than Goldman Sachs (look up the National Realtors Association’s campaign donations) would advocate for a four billion dollar theft from taxpayers? And $643,000 low income housing per unit is outrageous.

      • Nick says:

        What a crock! I’ve lived in CA for 8 years and I’ve lived in the midwest most of my life before and after that.

        CA spends more in illegals and welfare than many of the midwestern states combined.

  5. QQQBall says:

    Aren’t affordable housing projects required to use union labor and other cost increasing regs? I called on a deal in san diego years ago and a guy was acting as a developer for a fee. He said the costs per unit were like $230k (memory is not perfect), which was way more than $/unit values for existing units.

    I am familiar with a small deal that cost $1MM. This was back when units in SD county were $20k/ to $25k/door… When I dug further, the project was financed with foregiveable loans and grants. It NEVER made sense. When I asked the people behind the deal why they were building a paltry few units when they could buy a 30-unit apt building for cash in central SD – they told me they wanted a certain type of tenant in that neighborhood.

    • milking institute says:

      Having followed the “affordable housing” industry in San Diego over the years,it’s become obviously a giant scam involving developers,politicians and banks at the expense of tax payers and regular RE buyers. of course it fits right in with the rest of the economy: no market will be left untouched and manipulated by corrupt officials and their financiers. perhaps it was always like this,just never this institutionalized on a massive scale.

  6. Hal Hoeft says:

    I live in Santa Monica for the past three years.

    There are multiple causes which will require multiple solutions.

    That said any area with the climate of the socal coastal areas will never be affordable in any market based economy with global free flow of capital. There just are not that many parts of the world like it.

    Agravating issues:

    Immigration both illegal south of the boarder and legal from China and others.

    Prop 13

    Airbnb converting residential units to refactor hotel units

    I’m sure there are more that the more informed can share or perhaps refute.

  7. Petunia says:

    Having actually known people who lived on welfare, used section 8, or were just low income, the best way to help them is to just give them the money. Four billion given to people who need affordable housing will bring every developer in CA out of the woodwork. Give each family 25K for a down payment on an affordable, for them, unit and watch 160,000 affordable units magically appear. I’ll wager the author himself would build a few.

    • Felix_47 says:

      Good Point. I found it interesting that the people in Boyle Heights did not want subsidized housing. At the same time they have been agitating against gentrifying their neighborhood and a number of art galleries etc. moved out or were driven out as outlined in the LA Times. The people in Boyle Heights are mostly Hispanic. So it would be hard to call them racist. The real issue is the millions of illegals or partially illegal families with anchor babies. As long as the LA area offers jobs and a better life to anyone who can get there you can expect more people. In Pomona, a town I am familiar with, we find life in a garage apartment is better than life in a dirt poor village in Michoacan. And there are a lot more jobs gardening and doing general labor than in Michoacan since US citizens will not work for less than minimum wage but Mexican labor subcontractors get away with it. And if you can get yourself or get someone else pregnant you have it made. The housing shortage is a direct consequence of the failure of the US government to consider the costs of massive immigration from third world environments to the job market, the environment, housing etc. If we want open borders the citizens of the US should be taxed to provide housing and support for it. During the political campaigns it should not just be about wanting open borders but it should be just how much it costs the citizenry in supplementary support (health care, education for the children, maternity care unemployment for the displaced US worker etc.) to offer employers one laborer who will work for cash at less than the minimum wage. Subsidized housing will always be gamed by the consumers (I know plenty of reasonably well off people on section 8) , the cities, the builders everyone.

      • Dave says:

        repatriate the illegal aliens to their country of origin, instant housing availability.

    • david says:

      “Give each family 25K …,”

      Having known these people then you know what how long that money would last. There’s a reason they are on welfare, used section 8 or were just low income. They can’t manage themselves. They’re the 50% with less than 100 IQ. I’ve known these people, too. And the few exceptions in your experiment would more than prove the rule.

      • IdahoPotato says:

        “They can’t manage themselves. They’re the 50% with less than 100 IQ.”

        This belief that the poor cannot “manage themselves” has been overwhelmingly disproved in study after study.

      • Petunia says:

        Of course, I was expecting somebody to offer this response. The reality is that you should be upset at the state of CA for borrowing 4B in the first place. This money is a subsidy to big developers who then contribute to the politicians. It’s the political section 8 program, which you are totally ignoring, and which will benefit you not at all.

        The state doesn’t need to borrow to subsidize developers. It can give them free or reduced cost land, zone for low income, or give tax abatement. All relatively low cost options for the govt.

  8. Anonymous.1 says:

    All new low income housing for students, elderly, and homeless should include a sink in the bathroom as well as a sink for the kitchen area. They should also have a choice to cook and to have a refrigerator in their own housing space. I think it is bad enough that the individuals have to live in this type of environment, but to be exposed to more grossness in shared cooking spaces is ridiculousness.

    Note: Witness this type of housing in Fullerton, CA where so many students live near the universities.

  9. J.M. Keynes says:

    – One thing that would also would help is to get rid of 1) the (federal) tax deduction for mortgage interest payments and 2) the federal deduction for state/local taxes (e.g. property tax).\

    – Yes, this will make people in California (very) angry but it also will make housing much more affordable (in the long run). Because these deductions are a subsidy/beneficial for the banksters and detrimental for the average taxpayer.

  10. interesting says:

    My aunt bought in HB in 1969 for $19,000, 48 years ago, and if the trend of appreciation continues at the same rate that house will be ~$20,000,000 in 2065. assuming the “value” now at $700K. I use that number because a friend just bought a house near my office and that’s what he paid

    and the min wag will be ~$60

    realestate is so completely out of reach as to be laughable.

  11. raxadian says:

    Cement bubble houses cost way less than that but again, people are just too proud. In todays money it costs more or less 200.000$.

    Why doesn’t any affordable house plan ever builds cement domes?

  12. Rob says:

    This article is slanted because it fails to mention the obvious connection between investments in speculative real estate investments and the current tightening of the So Cal markets. These are facilitate by ultra low rates at the FED.

    You need to apply higher taxes to speculative investments as well as hit unoccupied units with an occupancy tax.

    Prices rise quckly because of frequent buying and selling,. No where is that more evident than in California.

    I don’t buy the article’s shallow analysis of the problem. Housing unaffordability is a problem of the last ten years, if you ignore that you’re living in la la land.

    • chip javert says:


      Well, count me as living in LA LA Land…

      CA housing unaffordability has been a reality at least since I first moved there in 1974 (4 years before Pop 13 and decades before the Fed went nuts).

      Blame the Fed and propose higher taxes (yea, that’s what CA needs) all you want, but there simply is not enough room to build single family detached housing around highly desirable areas like the San Francisco Bay and parts of LA.

      The SF Bay Area population was about 4,800,000 in 1974; it’s now about 7,500,000 – that’s a 60% increase in 40 years.

      Come to think of it, maybe I’m not the one living in LA LA Land…

  13. JB says:

    Caly , by increasing regulations, is thwarting its own objectives.

  14. Jest says:

    I live in Tucson, Az. I rent a guest house for $250/mt and it has no cooking appliances so i use a hot plate. the sink leaks and i empty a bucket every 5 hrs, or it overflows. There’s 3 guest houses in a row and 2 bigger units behind me ..about 10 feet from my place. A man moved in and he is the only one on the lease yet soon after he has 8 people living with him in a unit about 20 feet X 13 feet! I took pictures of kids doing drugs there, i took pictures of all the beer bottles, and the trash and dirty laundry that they leave outside there unit for me to smell! there friends and family loiter the property nearly every day 24-7. They put there trash can outside there door cause they don’t want to smell it, so i smell it.. cause now it is 1 foot from my only door. I went to the realtor and gave them the pictures and repeated this for months. They finally took action and gave them a 10 day breach of contract, and they scrammed ..some of them.. but now there back doing the same thing..people pull up in cars at 11pm- 12 am and drop people off and they come on the property with flash lights to the unit. I called the police and they said there’s nothing illegal with this! I said that there’s a van there on the street parked in front of a no parking without permit sign for 7 days straight which they live in and use the unit for shower and refugee..the police (2 of them) laughed and said yea i’ve gotten tickets here in this area…they did nothing but the one Policeman said u want me to talk to them? i said no. This is an estate that’s historic and worth over 2 million and is 2 blocks from the University of Arizona and it feels and looks like i am living in the ghetto of Brazil! i refuse to move because this is not right!! I want justice!! they laugh at me and they know i take pics of them, and since my car has received a scratch back and forth along the front and back door of my car from a knife or key and my car was broken into and my possessions stolen. I use to be all for the poor the down trodden and the homeless cause i can relate! but i change my mind now! I can’t see giving people free fare , free housing no way! let them earn it with dignity, truth, honesty and goodness…and if they don’t respect it then take it away..but the problem is everywhere that no one does anything about anything today! ..maybe a few.. and that’s me and i will pursue justice as long as i can take it!

    • Arizona Slim says:

      I am also in Tucson. Not as close to the university as you are, but I am in the area. Here’s my suggestion:

      Call your city council ward office and tell them what you just told us. My neighbors and I have done this for the problem rentals around here. After the ward office gets on the bus, things start charging in a hurry.

      Hope this helps!

    • Bellinghouse says:

      A $2,000,000 estate with lots of $250 a month guest houses on the property? Is this in the gentrified West University neighborhood? Something doesn’t make sense here. Your landlord needs a new property manager!

      • Arizona Slim says:

        Sounds like it could be the Dunbar Spring, Feldmans, Sam Hughes, or West University Neighborhood.

        That being said, I recommend that Jest call the Ward 3 City Council Office if he/she lives in Ward 3. Phone: 520-791-4711. If Jest is in Ward 6, the number to call is 520-791-4601.

        Every ward office has people who provide constituent service. I’ve called on the Ward 3 office many times, and they’ve always come through, regardless of who the council member is.

        Since today is Columbus Day, these offices may be closed. But they will be open tomorrow. So, Jest, pick up that phone. Make that call.

  15. Gershon says:

    I grew up in Southern California. My father, a tradesman, made a modest salary that was sufficient to buy a small but nice home with a good-sized yard in a nice, crime-free neighborhood. I was blessed to have a stay-at-home mom, as were most of my childhood friends. Helicopter Parents they were not, and despite none of us ever wearing helmets when we rode our bikes and having our share of misadventures, we all survived into adulthood, though trips to the emergency room were fairly routine. I never spent a single day in the kiddie kennels called Day Care. We rarely ate out or went to movies – money was tight – but my childhood was rich in every way that counts. Affordable housing and the modest cost of living made most of this possible.

    What is the societal cost of the stress – financial, relational, and personal – of two parents having to work harder than ever to keep a roof over their family’s heads? What is the cost of our children being raised by mostly indifferent day care providers instead of their own mothers? What is the emotional cost on children and families when the primary wage earner cannot bring home enough to put a roof over their heads, or they are forced to live in a shabby house or apartment in a dangerous, marginal area? What is the cost on couples when both are too stressed and tired to even imagine starting a family?

    I cannot fathom why We the People ever let this happen, or refused to count the real cost of the speculative bubbles in housing.

    • Thunderstruck says:

      “What is the societal cost…. ”

      You raise excellent points. I would like to add to your line of thought in re your upbringing. Is it possible that the “consumeration” of our society may be partly to blame? In the halcyon days of your childhood, that average family had one car, not two or three. The average family was quite satisfied with a three bedroom single bath home of a modest 1100 to 1200 SF footprint. The desire for fashionable designer clothing hadn’t taken over, the cost of cable/satellite and cell phone service wasn’t looked at as a required expense as it is nowadays. With all of the recurring fees to keep up with technology and the desire for larger and more luxurious trophy homes, it’s no wonder the average couple feels compelled to be a dual income family.

    • chip javert says:


      You and I don’t see eye-to-eye on very many things, but we do on much of this this.

      The (partial) answer to your question: ‘…why [did] We the People ever let this happen, or refused to count the real cost of the speculative bubbles in housing” is the education most people receive barely lets them read a newspaper, let alone calculate social costs.

  16. Bin says:

    Human population keeps growing. We need to put Bob Barker on this problem

    • Cynic says:

      Mother Nature is on to the case: the solution will not be very pretty, but it will be just.

    • economicminor says:

      Exponential growth in a finite system will eventually collapse the system. Yet humans know that they have the right to do this even though this means eventual collapse.

      The housing problems seem to me to be attributable to this and the vast gap in inequity especially in places where nature created ports of entry or other special amenities that promoted human development.

      With the vast spread between the high income earners and the low income earners and the high income earners needing the low income earners to provide the services they believe they deserve. While the high income earners don’t want the sight of the low income earners and their extended families in their neighborhoods and around their kids yet they need them.. It is quite the dilemma.

      Cognitive dissonance is rampant.

  17. Uncle Charley says:

    I’ve lived in San Diego the better part of two decades. The issue is Californians are super liberal and vote for things that sound all warm and fuzzy but never think about the outcomes.
    The filthy rich in La Jolla,Del Mar, Fairbancks ranch etc. vote to make Ca. A sanctuary state but being hypocritics don’t want them where they live. So the Sec 8 housing gets dumped on middle/working class neighborhoods like normal heights, rancho Bernardo, etc. they can be the ones to put up with the drug gangs and Hepatitis A homeless. Meanwhile they can drive their Bentleys and Ferrari’s and sip their $20 cocktails and feel so good about how superior they are.

    • BVian says:

      Honestly, I think people just believe what the politicians tell them, that there isn’t anything that can be done and they don’t want to be viewed as racist. We overestimate how much thought anyone puts into anything. The entire system is built on that.

      • MC says:

        I once talked to a Chinese émigré who told me how “Westerners are so gullible” and will believe “anything the government tells them”. He laughed at the idea of people believing in politics so much as to quarrel over them.
        According to him Chinese governments have always been brutal and oppressive for the simple reason the locals have long stopped believing their lies and need to be physically beaten into compliance, whereas Westerners will jump to attention and obey any crook without much questioning.

        It may not be Confucius’ Analects, but it’s surely Far Eastern wisdom.

        • RangerOne says:

          Chinese and Russian views of the government are just an ugly reflection of the fact their governments are some of the most corrupt on the planet due to a completely corrupt legal system …

          However shady our politicians are at least in the US and most of Europe our court systems generally work. The game is still obviously lopsided in favor of the rich, but it is not a forgone conclusion that you will get fucked here. We generally protect lawful business even if we have a lot of flawed policy out there.

    • michael says:


      This is the typical mindset of the liberal including the ruling elite, they live behind their walls, send their kids to private schools. For the rest of the masses its failing public schools and high density housing.

  18. ft says:

    If Governor Brown just signed 15 affordable housing bills into law, each presumably written by individuals or groups in their own self-interest, then I have to conclude that the problem of finding affordable housing just got worse instead of better.

  19. Chris from Dallas says:

    Wow! So much emotion.

    This is a *NATIONAL* problem, affecting all cities and states to greater and lesser degrees. Including Texas, and especially Austin and Dallas for different reasons.

    What are WS’s readers thoughts on the following:

    The effects of outlawing of SRO residences (“Single Room Occupancy”), Group Homes, and Rooming/Boarding Houses

    Zoning regulations requiring minimum house sizes of 1800sf – 2200sf depending upon city

    Alarming rise in Hepatitis A in California due to restrictions on homeless people

    Zoning restrictions on Tiny Houses

    On a positive note, some desperate cities are now approving ADU “Accessory Dwelling Units” in residential areas. These are typically less than 400sf, and can have lofts, full bathrooms and kitchens.

  20. Happyfamily says:

    Great article. Agree completely. Its the supply stupid! ceqa is a horrible crony enabling law. The Nimbys are always unable to recognize their home was built by someone too! And before they lived there there was in fact less traffic. High density development will reduce regional traffic and home prices. THE MORE units near jobs e.g. san jose and west valley the less people commuting from gilroy and los banos where houses are currently built. So stupid. California put a bandaid on the problem meanwhile shafting young californians trying to find a place to live.

  21. Kraig says:

    Copy the Germans property tax (and tax on the difference in value between undeveloped unpermitted land and land that is permitted for development) is used solely to provide transit systems.the amount of value in the area would easily pay for a world class transit system (trains, trams, trolleybus etc) add in a special permit for mon-fri accommodation to subsidize night trains and you get the viability of.commute from Europe (by comparison the equivalent of coming from Vancouver to San Francisco twice a week but overnight in a rolling hotel. SV has tracks up to Vancouver via Portland and SF has the east west coast location. Not difficult just need money and political will.

  22. Stevedcfc72 says:

    Fascinating reading the different comments from the USA, its exactly the same in the UK.

    There is the immigration effect population has gone up 5 million in the last ten years, we have a massive need for social housing, we have the nimby’s who don’t want to build near them, we have the arguments about land tax, homelessness in the last ten years has gone up massively, the building developers are sitting on massive land banks. The developers are only interested in building for ‘professional’ families and not the low income side of things.

    Due to the fact interest rates are so low, more people have invested into property for a way to make money and effectively have made prices even more unaffordable.

    It sound similar to the UK, the system currently just isn’t working.

    • MD says:

      That’s ‘cos the current system of economic policy is geared up for the benefit of financial speculators – which is the nub of neoliberalism.

      Once a country which is deep into its decadence phase – the USA and the UK most definitely are – one of the main characteristics is saturation in debt (rampant narcissism is another).

      Both countries have suffered from arrogance and hubris in believing that they no longer needed their innovators and industrialists to manufacture and build real wealth (silly geeks and nerds!). They have come to believe that ‘financial services’ and real estate speculation can produce instant, easy riches.

      Which they do. Until they don’t.

      Then you get Trump.

      Then you get chaos.

  23. matt says:

    As the saying goes, You get what you vote in people. ASW Wolf so very well put it in the article. Everyone wants to help but nobody wants them in the back yard of where they live. Homeless in most cases are victims of circumstances. The sad part is that the entire state in most cases has become un affordable to live in with the Politicians raising taxes to the point nobody can afford to live in it or let alone visit for vacation anymore. Someday people will wake up and realize they have voted in the destruction of one of the largest economies in the country as people are now fleeing in droves. Know when to say when. Does anyone in California know when to say enough tax increases anymore?

  24. Gershon says:

    Homeless in most cases are victims of circumstances.

    Gotta respectfully disagree, Matt. In my area, most are straight-up vagrants, bums, and substance abusers who ended up on the streets by virtue of their own poor choices. A growing percentage of them are former combat vets who were kicked out of the military for “failure to adapt” (usually alcohol-related misconduct) and blue collar white males who hit the bottle when they lost jobs, houses, and wives, not necessarily in that order. More and more single moms with young kids are falling through the social safety nets as the cost of a decent apartment in my area is upwards of $1500 a month, and day care costs are soaring, too.

    Someday people will wake up and realize they have voted in the destruction of one of the largest economies in the country as people are now fleeing in droves.

    You could expand that statement well beyond California. People get the government they vote for and deserve. The financialization of all economic activity – to facilitate more efficient looting and asset-stripping by Wall Street – has been facilitated at every step by “our” elected representatives working hand in glove with their oligarch donors. The Federal Reserve with its deranged money printing and Keynesian monetary madness has enriched a tiny favored minority beyond measure, while systematically debasing the currency and eroding the purchasing power and quality of life of everyone else. Yet most people continue to mindlessly vote for the Establishment status quo even as it robs them blind and destroys their children’s future.

    • Frederick says:

      Simple solution ” Leave your area” There are lots of great places to live in the world where 200 dollars a month will get you a great place I know that’s what Im paying for a new two bedroom 1200 sf apartment which includes free solar hot water and all the avocados and citrus you can pick There’s a great big world out there people
      By the way a lot of those drug and alcohol riddled homeless are victims of war PTSD is hell and a lot of them can’t help the condition they find themselves in thanks to constant war

      • alex in san jose AKA digital Detroit says:

        The problem with $200 a month places is, they’re always in places where you have to bust your ass to make $5 a day. Been there, done that.

        • Frederick says:

          Five dollars a day Not really People are on the average around a thousand dollars a month here I would say so 20 percent for brand new furnished apt ain’t bad Most people have gardens and chickens as well and are at least partially self sufficient in food

  25. Cynic says:

    I am a Nimby: I don’t give a fig for my property value (sincerely, as it is all paid up – and anyway full urban development here would probably drive values up, not down). I will kill myself when I reach the pathetic stage of ‘elder care’, so no need to worry about paying for that.

    But I am determined that if I have enjoyed some rural space, woods and fields, -still much as it was 200, and in some parts 800 years ago – that my successors should be able to do so,too, rather than living in the concrete cancer which our civilisation has become.

    And I do everything I can to increase the fertility and bio-diversity of my actual back-yard, which includes planting trees which can live for perhaps 1-2,000 years, and renewing a 200 year-old boundary hedge.

    The claims of Nature are now far greater and more imperative than those of human beings.

  26. Mark says:

    Earmarking special projects for low income or Section 8 housing just seems ridiculous. This is a problem that US society has made far more complicated than it actually needs to be.

    My view is the free market should be able to solve the issue of housing scarcity pretty easily if laws could be changed to allow for increased density in the areas where people need to live. People need to live in central areas in SF, San Jose, Seattle, DC, and so on because that’s where the jobs are! Replacing SFHs with condominiums in areas close to the city center ought to drive down the cost per dewelling in that area and eventually increase affordability.

    Here in Seattle, we have skyrocketing prices and very low inventory while less than a mile outside of the city center there are neighborhoods of ranch style homes from 50+ years ago. The city has grown tremendously since then and those neighborhood needs to be razed and turned into condos or higher density developments. I have zero empathy for some homeowner who wants to “preserve neighborhood character”. Affordable, centrally located housing would be a tremendous boon for our economy and my own personal sanity.

    I am not a developer, just someone who’s lived here for years now and thinks forcing 2+ hour daily commutes on large numbers of people simply because some lucky NIMBY homeowners want to keep the status quo going and prices rising ever higher is madness.

  27. Wilbur58 says:

    The entire article rests on the following foundation and I just don’t buy it:

    “In a state which needs to add 100,000 new dwellings a year just to keep up with its population growth”

    There is no shortage of places to live. There’s a shortage of affordable places to buy because speculators buy and bid everything up. REITs, foreigners, other investors, etc.

    If there was panic at the level of, 100,000!… omg!!!, we’d see way more homeless. It’s not the case. (Notice that there’s zero evidence or support given for this claim.)

    Implying that there’s a shortage of places to live is a builder’s dream. Hence, this article.

    • Wolf Richter says:

      The article said, as you pointed agreed, that there was shortage of affordable homes. It also said that a building boom, if it were allowed to happen, would create oversupply which would “crash” prices all the way down the scale. It said specifically:

      “If you build enough million dollar condos, sooner or later your market will crash, prices will plummet, and availability will rise all the way down the line.”

      So that would be the preferred market solution. But most communities in California prevent this building boom from happening or make it too costly. So now there is a struggle to build “affordable housing” instead. And that’s what the article was about.

      The article only mentions the “homeless” in relationship to projects to house them in LA where the NIMBY principle kicked in to prevent it.

      • Wilbur58 says:

        Hi Wolf,

        I still disagree, respectfully.

        Any discussion of this that leaves out the effect of the reits, foreigners,and flippers I find to be incomplete. (And that’s without even getting into the banks.)

        Although Mr. McNellis mentions over supply as you alluded to, I find that the article still doesn’t distinguish precisely the sort of ‘shortage’ that exists at the present time. Furthermore, the focus seems to be on what builders should or shouldn’t pay whereas I’m arguing that we don’t need any building. Rather, we need a pin for the asset bubble.

        • Wolf Richter says:

          Ha… “Any discussion of this that leaves out the effect of the reits, foreigners,and flippers I find to be incomplete”… My whole website is full of these types of discussions…. the financialization of housing. But each article has its own focus. This article had its own focus – “affordable housing” policies in CA, which I never touched upon before.

      • HBGuy says:

        Sorry, Wolf, I disagree, too. Deport many or all of the illegals resident in California and you’ll free up thousands of low-rent dwellings. Not to mention the savings to taxpayers in terms of education, health, policing and other costs, as well as freeway congestion.

        Some may find the solution distasteful, but I find the neglect of our borders and protection of American citizens even more so.

  28. RangerOne says:

    It seems in general it is often difficult to create necessary change because too many people are benefiting from the status quo. Existing home owners are too invested in property and thus against changing almost any of the rules.

    Even when there are good ideas, any policy has to be able to survive a partisan mine field and be properly lobbied for. Basically a person or group with significant assets has to see the value of the change so they can push back against those who will pay to keep things as they are.

  29. michael Engel says:

    Deporting the illegal immigrants is not practical and inhumane.
    Put them in a cruise ship, circling around the island of Elba.

  30. Gershon says:

    One in 25 public school students in San Francisco is homeless. The Guardian newspaper has taken a look at the subculture of street kids and youthful transients – a growing phenomenon and indicator of societal decay – and how sky-high housing costs are contributing to this malaise.

  31. A dense subject. No one mentioned Eminent Domain? No one mentioned the State Redevelopment Agency program, which Gov. Brown repealed. Everyone seems concerned about demand, while the demographic bulge of boomers will all die off in a few decades, in the meantime they move into assisted living, and outcome is to build a lot of housing which will sit empty. While there are many hispanics by second generation they have smaller families. And finally no one seems to care that housing technology is stuck in the fifties, very labor intensive, and dependent on non-renewable resources, and that includes lumber, or that offgrid solutions make usable land ubiquitous. Look at the history of dense low income housing. And Hunters View? That’s Hunters Point? A maze of shipyards, because of the less than desirable geography. I’d rather be in Oakland.

  32. Northeaster says:

    “While not a panacea, about 80% of Massachusetts’s affordable housing built over the past decade is a direct result of this bill.” –

    As an FYI, the bulk of this has been built by one family: Fish.

    They are the epitome of crony capitalism in this state, and have profiteered of the backs of the poor and taxpayers alike. Not only do they get the no-bid contracts to build, but after construction, the siblings Peabody Properties) also get to manage the buildings.

  33. Kent says:

    Housing isn’t affordable only because banks are encouraged to lend too much for the underlying land. But no one wants to discuss that fundamental because in the end, we are all slaves to the bankers.

    • Wilbur58 says:

      Amen, Kent. Preach.

      People think that lower property taxes is a good thing. But all it leads to is more money for the banks in interest and less for infrastructure and schools.

      In a healthy society, most taxation should be on land, natural resources, and monopolies.

  34. mean chicken says:

    I’m pretty sure the root problem is there aren’t enough H1B visas.

  35. Gershon says:

    The average Joe needs to work more than 100 hours a week to own a home in a growing number of American cities. The old rule of thumb was that the median home price should never exceed 3X the median income, but with the massive distortions unleashed by Fed “stimulus” and ultra-cheap credit, unaffordable housing is the new normal.

  36. Gordon Gekko says:

    Notice the article doesn’t mention the word “shortage”? Because there is no shortage. Not in CA, Manhattan, Tokyo or anywhere else.

    It’s the price stoopid.

  37. Gershon says:

    In Australia, one in three “homeowners” – who don’t actually own anything until the final mortgage payment clears – are in mortgage stress, as the cost of living outstrips and rising taxes outstrip wage growth. An interest rate rise of .5% – puny by historic standards – would push tens of thousands of these homeowners into default. I imagine the situation isn’t that much different in bubble markets like San Francisco and Los Angeles.

  38. The whole article is built on a false premise, “In a state which needs to add 100,000 new dwellings a year just to keep up with its population growth”

    1) California doesn’t “need” to have population growth, or new dwellings. Between the air pollution and water shortage issues, one can argue that California is about maxed out. Trying to cram more people into the state by spreading the available resources more thinly is just crapification, reducing everyone’s quality of life.

    2) Desirable places to live always have high housing prices. That’s the demand part of “supply and demand”. But one reason why those places are desirable is precisely because they haven’t been overbuilt. That’s the “supply” part. Create too much supply and you get more crapification.

    3) As pointed out by several commenters above, California would feel a lot less crowded if workplaces were built where the housing was, and vice versa. Commutes are ridiculous because the incentives favor commercial over residential development, instead of balance. Cities with more jobs than housing become wealthier, at the expense of those with excess housing. This is the wrong incentive structure. The imbalance forces workers to commute long distances from outlying areas. This creates pollution and strains resources even more.

    4) Until the limits to growth are recognized, and the tax incentives rebalanced, nothing done by the government will fix the problem in any meaningful, sustainable way.

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