“California does not have a housing supply shortage.” That’s the startling title of a new report prepared by Mill Valley resident Gaetan “Guy” Lion. He’s an independent researcher focusing on local, national and global issues in economics, demographics, the environment and politics. It’s published on Lion’s Medium.com page.
Lion says the term “California’s housing crisis” is easy to understand, seems to make sense, but it’s plain wrong. He makes his case by using data visualization to make complex topics easier to understand. Read his 27-page report at bit.ly/4lf4L5o.
There are two sides to this story. Lion’s data-driven logic is the opening salvo of the overdue debate to determine if the call to “build, baby, build” assists anyone other than developers and building trade unions.
The case made by housing advocates including state Sen. Scott “Mr. Housing” Wiener is that by building 2.5 million new homes in California by 2030, the price of housing in all categories will decrease to levels seen in less prosperous states.
The “seems to make sense” component makes an analogy to a basic lesson from Economics 101. The price of, say, refrigerators is determined by a supply-and-demand balance. If demand is high, but supply is kept low artificially, then the price is higher. If supply dramatically increases, the price of refrigerators will decrease.
That’s true for tangible goods but not for housing. It’s similar in most desirable, economically powerful cities including San Francisco, Hong Kong, Vancouver, London or Sydney. There, housing demand will always exceed supply.
Hong Kong is a spectacular city. It has a booming economy, but limited space to expand. It’s a forest of high-rise residences with constant new construction. Yet, Hong Kong has some of the most expensive housing on the globe.
According to Lion, “Compared to the other world-class cities, Bay Area property values aren’t out of line.”
Other sources agree. They include “Bringing the Housing Shortage into Sharper Focus,” an essay by Mark Zandi, chief economist at Moody’s Analytics. Zandi’s team assessment reports that the entire U.S. “has a housing shortage of only 80,000 based on vacancy trends.” Additionally, the U.S. has a “pent-up demand” for another 1.2 million units.
Pro-rating Zandi’s data (given that the Golden State accounts for 11.5% of the U.S. population), Lion concludes that, at most, “California’s housing shortage is between 92,000 and 230,000 units. Not the 2.5 million Gov. Gavin Newsom claims.
The Canadian city of Vancouver offers an example. Its breathtaking site is now filled with “vertical” apartments. The metropolis decided to increase housing density, build tall and modify zoning to encourage construction. That didn’t move the needle down on home prices. Like its Bay Area counterpart, housing remained expensive and out of the reach of many, especially its workforce.
Why? According to a University of British Columbia study, “The economic value created by vertical housing density contributed to a staggering increase in land value instead of a lower price per housing unit.”
Higher density did nothing for potential residents. It was a windfall for the owner of what was once zoned for a single-family home and then rezoned for more valuable multifamily housing.
Lion contends that while there’s no shortage of housing in general, there’s a real lack of units for our middle to lower-middle class workforce. Building more housing won’t alone remedy this deficiency. The government (funded by taxpayers) must subsidize this critical need. I’ll suggest one way to achieve this goal is to waive property taxes for those properties with rents or sale prices that are deed-restricted to be permanently affordable to our workforce.
Lastly, California isn’t growing. State population projections ignore that reality. Since 2018, we’ve had a stable population of 39 million with a 6.4% vacancy rate. Accurate growth numbers will diminish calls for millions of new units.
Columnist Dick Spotswood of Mill Valley writes on local issues Sundays and Wednesdays. Email him at spotswood@comcast.net.