Gavin Newsom has not solved California’s housing crisis. Three lessons for Kamala Harris

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For California political observers, the housing plan that Kamala Harris recently unveiled may have caused a twinge of familiarity.

As a central plank of her agenda to “lower costs for American families,” the Democratic presidential nominee pledged in August to build 3 million additional affordable homes and rentals over the next four years to address “a serious housing shortage across America” — echoing Gov. Gavin Newsom’s platform during his first gubernatorial campaign in 2018, when he called for California to add 3.5 million housing units by 2025.

Housing policy experts are enthusiastic about many of the ideas that Harris floated to promote production, which include creating a new tax incentive for developers who build starter homes for first-time homebuyers, expanding a tax incentive for affordable rental housing projects and establishing a $40 billion “innovation fund” to finance construction, as well as repurposing some federal land for housing and streamlining the permitting processes for projects.

Michael Lens, a professor of urban planning and public policy at UCLA, called it a wonk’s wish list: “This is all of the stuff we talk about at dorky academic conferences.”

But transforming the housing market from the top is difficult, as Newsom’s experience has demonstrated. 

While California has increased production during his time in office — about 112,000 units were completed last year, according to the Department of Housing and Community Development, compared to about 70,000 in 2018 — it is still only building at a fifth of the rate necessary to meet his original target.

The governor has since acknowledged that 3.5 million units “was always a stretch goal” and scaled back. His office declined an interview request for this story.

Even with new policy priorities in place, high construction costs, onerous regulations, lack of public funding and community resistance remain major hurdles to supercharging homebuilding in California — offering lessons for a potential Harris administration.

“You’re going to be limited in your ability to change things on the ground,” said Ben Metcalf, a former state and federal housing official who is now managing director of the Terner Center for Housing Innovation at UC Berkeley. “Even when you are trying to move carrots and sticks, you find years later, what do you have to show?”

Set manageable goals

The high cost of housing has long been a top concern for Californians, but the problem is spreading across the nation. Industry data indicates that home prices exploded over the past five years, up more than 50% since 2019, while rent surged by about a third during that time, oustripping raises.

People moving from expensive cities to outlying areas for more affordable housing or moving into bigger homes during the coronavirus pandemic has driven up demand in new places, while even many recent pro-growth boom towns are becoming strained by the natural limits of expansion or a dimming taste for development.

“There is plenty of reason to think that it could get worse, in the sense that California is a bellwether,” Lens said.

Construction is constrained in California by pricey land, local zoning limits and fees, lengthy permitting processes and the threat of litigation, all of which drive up the cost of building and make it difficult for many projects to pencil out financially.

It’s unclear where the Harris campaign came up with its goal of 3 million housing units over the next four years — or how exactly it would measure success, given the emphasis on affordability. A campaign spokesperson did not respond to questions seeking a more detailed explanation, though he did clarify that this would be above current production.

That would require a President Harris to immediately boost construction nationwide by 50%, to levels not seen since before the housing market crashed during the 2008 financial crisis. The country built about 1.45 million new homes last year, according to the U.S. Census Bureau.

The strategy carries some political risk. Newsom set an ambitious housing goal as a candidate for governor, which would have required California to build 500,000 new homes per year, and then faced criticism for falling short.

Metcalf noted that Harris’ plan for 3 million homes is more aggressive than the 2 million figure that President Joe Biden was campaigning on before he dropped out of the race this summer, but far below the Housing and Urban Development Act of 1968, which targeted the construction or rehabilitation of 26 million units over the next decade, including six million for low- and moderate-income families.

“The last time we saw an incoming president really putting a big, bold number on the board was that,” Metcalf said. “She wants to be able to campaign for a second term saying, ‘Hey, we did it.’”

Clear regulatory hurdles

California officials are undertaking a serious push to make it easier to build housing. Over the past several years, they have passed major legislation that allows landowners to add additional units on single-family lots in residential neighborhoods, streamlines the process for turning empty commercial properties into housing, shields certain affordable projects from lengthy environmental reviews and legal challenges, opens up land owned by religious institutions and colleges for construction, and gives developers more tools to speed up permitting in uncooperative cities and counties.

Advocates projected these policies could unlock millions of new homes across the state, but the impact so far has been significantly more modest.

“That’s a precursor to making a lot of these things work,” Lens said. “We have to make housing more allowable in more places.”

A series of laws to encourage more “accessory dwelling units” has been a promising exception, according to Chris Elmendorf, a UC Davis law professor with an expertise in land use and housing law. Since California forced local governments to waive fees and affordability requirements and grant faster approval for backyard cottages and other secondary units, the state has seen a boom of ADU construction.

Elmendorf said Harris’ proposed tax incentive for starter homes — which is not an official category, but generally refers to more modest housing that provides a cheaper entry point into the market — could similarly provide a quick jolt to the housing supply.

“If the goal is to promote small, inexpensive, market-rate homes, that’s really different than what California has been doing,” Elmendorf said. “California has been able to pass a lot of laws, but it hasn’t been able to pass many laws that make housing economically feasible.”

Experts argue that California has not been able to maximize the effectiveness of its new pro-housing laws because it is prioritizing so many other goals — demands to use union labor, requirements for more deed-restricted affordable units to reduce gentrification, environmental considerations to discourage sprawl and climate risks — that it’s still too expensive to build here.

“California has been able to pass a lot of laws, but it hasn’t been able to pass many laws that make housing economically feasible.”

Chris Elmendorf, law professor at UC Davis

The high costs for workers, materials and local regulations have been compounded lately by elevated interest rates, which drive up the price tag to finance projects and may actually be reversing California’s progress on construction. Metcalf compared it to a straw breaking the camel’s back for the building industry.

“That’s something that we’ve made almost no progress on as a state,” he said. “Once you have the table set, if the costs are too high, then nothing gets built.”

It’s of particular concern for affordable housing developers, who rely heavily on public funding. Chione Lucina Muñoz Flegal, executive director of the affordable housing advocacy group Housing California, said that despite state laws that have made it easier to plan projects, developers continue to struggle to pull together enough money to get them over the finish line.

She is hopeful about a surge in financial support — through the tax incentives and innovation fund in Harris’ plan — that has been unavailable from state or local governments, which she said have not generally prioritized money for affordable housing because constituents do not understand the benefits.

“There’s a narrative challenge that we’re grappling with that often translates into a political challenge,” Flegal said. “That’s a way the federal government could be impactful in a way the state could never be.”

Use sticks as well as carrots

Though Newsom made clear his desire to boost housing production in California, not everyone has been on board with his approach.

Some cities, particularly wealthy or coastal suburbs, have vigorously fought to restrict additional development in their own communities, resisting a state mandate to plan for far more housing and suing to exempt themselves or overturn new laws that make it easier to build more densely. They contend these policies would destroy the character of their communities.

Newsom, who argues that everyone must do their part to solve the crisis, has cracked down by creating a new enforcement unit within the state housing department and suing the most intransigent cities for failing to approve housing plans or even specific projects.

But the federal government does not have the same legal authority that California has given itself to demand local communities build more housing, and there’s no guarantee that Congress would be willing to step in to play more of a role in what has traditionally been a local matter in most states.

“Plans don’t translate into outcomes if people don’t want to build housing,” Elmendorf said.

So to reach her goal of 3 million new homes, Harris would have to rely more on the proposed incentives, such as the tax breaks for starter homes and affordable rentals and the innovation fund, for voluntary compliance.

Experts believe she has a good political opportunity to actually get her plan passed. Congress will be under pressure next year to extend a series of tax cuts made under former President Donald Trump that are set to expire at the end of 2025, which could be used as a bargaining chip for Harris’ housing proposals.

The federal government also has the power of the purse on a scale well beyond California, which it could amplify through regulations — such as tying transportation dollars to building more housing — that make supporting development the more desirable option.

California has tried this type of regulatory incentive, encouraging local governments to remove obstacles to construction with grant money and creating a “pro-housing designation” for cities that adopt streamlined development policies, which gives them privileged access to state funds.

“Unfortunately, that pro-housing designation is not based on outcomes. So that’s a fundamental problem,” Elmendorf said. “That’s something Harris will have to figure out.”