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Housing shortage costs billions annually, expert tells chamber

Big metropolitan areas like New York City built up when they couldn’t grow out, while the Bay Area has steadfastly resisted doing so, a San Jose State University professor told a Los Altos Chamber of Commerce gathering last week. That stubbornness, he said, has contributed to a statewide housing shortage costing California billions in lost revenue.

Offering a differing perspective from local leaders who decried proposed state-mandated housing laws like the controversial State Senate bills 9 and 10, Matthew Record told the chamber’s Government Affairs Committee April 7 that the statewide aversion to higher-density housing has left a 2.5-million-unit shortfall in a state with the highest population in the country. Record, assistant professor in the university’s department of political science, was speaking on the topic “Housing Market Dynamics in the Bay Area: A Municipal View.”

Record said the fear of lost property values in transitioning from single-family to higher-density zoning is not rooted in reality. In fact, property values are shown to increase over time, he noted.

“This is a 60-, 70-, 80-year-old problem,” he said, caused not necessarily by immigration or companies like Google and Apple attracting a glut of high-tech workers, but by a mindset that homes are often the major financial asset for families. “I personally believe, and there’s evidence to back this up, that the kind of NIMBYism and hostility to new development, hostility to higher-density development, is the result of economic and financial anxiety. The fail-safes of a generation ago are no longer present.”

The need to hang onto the financial nest egg became more prevalent, according to Record, with the decline of pensions and a less financially solvent Social Security system. Proposition 13 allows property taxes to stay low, incentivizing retention of homes. When a property is put up for sale, intense demand drives prices up, and those buying homes are even more determined to hold on to them, Record said.

The housing shortage is costing the state money – lots of it. Record cited $140 billion in annual losses to the state’s gross domestic product, enough, he added, to fund every student who wants to attend a public university, house every homeless person and provide health insurance to anyone who needs it, “with money left over.”

“It is a preposterous amount of money we are leaving on the table every year by not taking care of these shortfalls in terms of housing,” Record told the Chamber of Commerce group. “The magnitude is enormous.”

‘Robust remedies’

Record, originally from Long Island, just outside New York City, noted how that city transitioned to high-rise, high-density development as its population grew, with limited land and nowhere to build but up. Although having far less land mass than the nine-county Bay Area, New York City has more available housing, and less expensive on the whole, than the Bay Area.

Small-scale examples of walkable, high-density areas in the Bay Area – places like San Jose’s posh Santana Row, with retail on bottom floors and housing above – are boosting demand for housing, even with exorbitant rents $2,000 above the area’s monthly average.

“There’s pent-up demand for this style of living in the Bay Area,” Record said. “Which begs the question: Why have we normalized car-centric, single-family homes with relatively large yards? Why have we made it the normal way of living? And why have we turned smaller, mixed-use, walkable communities into luxury items? Shouldn’t it be the other way around? ... We’ve actually created a weird situation in which the way most of the rest of the world lives is a luxury item here.”

“Low-touch” solutions – for example, building on vacant urban space, upzoning areas near transit and adding accessory dwelling units to single-family homes – have been rejected for the most part, Record said, and don’t go far enough in addressing the shortage, one that will rise to a need of 3.5 million units by 2025 with expected population growth.

“We have let this build up for so long, we need actually pretty robust, over-the-top policy remedies to do something about this,” he said.

One option, Record said, is taking zoning decisions out of local governments’ hands – as SB 9 and 10 propose to do. Currently being considered by the State Legislature, the measures would bypass local controls to allow higher densities in single-family-home neighborhoods. The Los Altos and Los Altos Hills city councils oppose SB 9, which would split single-family lots and allow four or more units per lot.

“We need lots of production happening simultaneously,” Record said. “There are scaling benefits that happen – things like modular construction with accelerated permitting. ... It’s more a mindset than anything else. It’s making it so creating new housing units is a priority, which it’s not right now.”

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