Housing shortage will bite California’s economy

The most obvious and most important victims of California’s chronic and still-growing housing shortage are the countless thousands of families that struggle to put affordable roofs over their heads.

The shortage has driven prices skyward in a classic example of a supply-demand mismatch and housing costs are the largest single factor in California’s shameful status of having the nation’s highest level of poverty.

There is, however, another economic dimension to the housing crisis. It’s hurting the state’s overall economy as employers face increasing shortages of skilled workers, especially in coastal areas where the housing squeeze is the tightest and local resistance to housing construction is the most implacable.

Ventura County, outwardly a collection of prosperous suburbs surrounded by bucolic agricultural fields and orchards just north of Los Angeles, is a poster child for the syndrome.

This month, economists at California Lutheran University delivered some very negative news about Ventura County’s economy.

“The dominant economic story in Ventura County is a continued decline in total economic activity,” Matthew Fienup, who heads Cal Lutheran’s economic forecasting operation, told a gathering of local officials and business leaders. “We hesitate to the use the word recession, but we don’t know what else to call two consecutive years of economic contraction.”

“Average economic growth over the past four years rounds to 0.0 percent, the worst four-year period for which we have data. While job growth remains positive in Ventura County, sectoral data give little support for optimism. Whether you look to jobs or GDP, the state of the Ventura County economy is weak.”

Fienup attributed the malaise to “a growing housing affordability crisis and the inability of businesses to attract and retain talent” and declared that “Ventura County’s chronic lack of new construction is driven by a set of urban growth policies…which rank as the most stringent growth restrictions of any county in the United States.”

Ventura is one of several California counties and cities that have adopted Save Open Space and Agricultural Resources (SOAR) restrictions that make it virtually impossible to build housing on agricultural land.

SOAR is the most virulent form of local not-in-my-backyard (NIMBY) policies that are the major impediments to expanding housing construction needed to keep up with population growth, replace housing lost to fires and begin closing a shortage that now is several million units.

State officials say California needs to be building 180,000 new units of housing a year – a level it achieved prior to the Great Recession, which drove new construction down to as low as 30,000 units.

Housing has topped 100,000 in recent years, but that’s still short of the demand and the wildfires that devastated communities in Ventura County and other regions are adding to the squeeze.

As the new report on Ventura’s stagnant economy indicates, California will pay a steep economic price if it fails to resolve its housing crisis. Job-creating investment will decline and California will become even more economically polarized with a vanishing middle class.

Incoming Gov. Gavin Newsom talks of ramping up housing construction. But talk is cheap. The real question is whether he and the Legislature will confront NIMBYism by intervening in local land use policy and compelling Ventura and other localities that resist new construction to meet the state’s housing quotas.

It would require courage because NIMBYism is most evident in coastal communities that strongly support Newsom and other Democrats at the polls.