California is 75,000 units short each year on needed new homes and yet housing projects have been delayed for years because of time-consuming permitting, mitigation and local approval processes, or litigation abuse invoking environmental regulations. All that adds to costs. If policymakers don’t take a hard look at how to lower building costs, we will never build enough housing to alleviate this crisis.
By Dan Dunmoyer
Dan Dunmoyer is president and chief executive officer of the California Building Industry Association, email@example.com. He wrote this commentary for CALmatters.
Experts state that California’s housing crisis – the sheer unaffordability of homes – is caused by a severe housing shortage: high demand and low inventory are driving up prices.
We are 75,000 units short each year on needed new homes and yet housing projects have been delayed for years because of time-consuming permitting, mitigation and local approval processes, or litigation abuse invoking environmental regulations. All that adds to costs.
If policymakers don’t take a hard look at how to lower building costs, we will never build enough housing to alleviate this crisis.
How can projects be waiting to break ground when demand is so high? That was one of several topics addressed at the recent hearing of the Assembly Select Committee on Housing Affordability for Middle and Working Class Families.
Homebuilders outlined what is known in the industry as pro formas – the analysis of a project’s financial feasibility. The point was to show lawmakers fixed costs and variable costs that could either stop a project cold or push the price point out of reach for most middle-class home buyers.
Here’s where legislators can help:
- Address the misuse of the California Environmental Quality Act (CEQA) blocking housing projects. Unfortunately, the Legislature concluded another session without enacting any reforms that would significantly curb abuse of CEQA litigation, which causes lengthy delays, adding to building costs and sometimes killing projects altogether.
- Lawmakers can adopt sensible proposals by requiring the disclosure of plaintiffs who fund CEQA lawsuits and prevent duplicative lawsuits, treat housing projects at least as favorably as projects for the rich and politically powerful by allowing construction to continue while a lawsuit is pending or provide targeted CEQA exemptions for rebuilding projects after natural disasters like wildfires.
- Rein in costs involving impact and development fees. As it is, each local jurisdiction sets those fees.
Some money is used to pay for vital public services and to mitigate the impact of the new development by supporting new schools and transportation infrastructure.
But these fees also pay for such things as public art or “planning and building,” a term for paying whatever amount a city sets to process various local permit applications.
The lack of transparency and consistency makes it difficult for builders to ascertain how much development and impact fees might cost before obtaining the finances needed to move forward.
Imagine trying to build a backyard pool not knowing how much the rebar or concrete might cost. You would be unable to budget for the pool and could not get a loan to pay for it.
Even worse, if you are a builder with projects all over the state, you would lack the fiscal certainty to move projects forward.
The Terner Center for Housing Innovation at UC Berkeley found that development fees are all over the map across the state. Sacramento’s development fees are $21,000 per single family home. Fremont’s development fees are $157,000 per single family home.
Local and state government could help control such costs by temporarily reducing fees until a specific number of housing units get on the market. Alternatively, the Legislature could cap development and impact fees until the crisis eases.
The bottom line is that the next governor and new Legislature will have the opportunity to make positive changes. They can start by keeping it simple: embrace policies that speed building more homes at lower costs and reject those that will delay homebuilding and make housing more expensive.