How can we solve California’s housing crisis? Obviously, we need to build more houses—roughly 100,000 more houses each year than we’ve been building over the last decade. Otherwise we will continue to endure out-of-control housing prices and ever-expanding homelessness.
So we need to move heaven and earth and, even more difficult, various elected officials at every level of state government to build more affordable housing.
The problems are complex: Lack of land, particularly in the coastal areas; strict environmental and zoning laws; a skilled-labor shortage; and a booming tech industry that constantly needs more workers. These are few of the problems.
But the biggest problem with housing is political. And as with any political problem, there are winners and losers.
I happen to be one of the winners in this current unfair system. My wife and I bought our 1,700-square-foot home in 1994 for $225,000. Without any major remodeling, we have seen our house triple in value over the last 23 years. Because of Proposition 13, we pay only $3,862 in annual property taxes. Prop. 13 bases taxes on what you paid when you bought your house and only allows a maximum 2 percent annual increase. My neighbors, who bought their home in 1950, pay even less: $1,048 in annual property taxes. But my neighbors on the other side, who bought their home recently, fork over $11,264 each year. This is crazy. We all receive the same services, but one neighbor pays one-third what I pay, and my other neighbor pays three times that.
This inequity is even worse with commercial property. Since commercial property is sold less frequently than residential, commercial property owners have been paying less and less of their fair share of property tax. Before Prop. 13, residential owners paid 55 percent of all state property taxes and commercial property owners paid 45 percent. Now residential owners pay 72 percent and commercial owners only 28 percent.
Prop. 13 has also significantly increased housing costs in California. Faced with lower property tax revenue, cities and counties have adopted policies to encourage retail development so they can get sales tax revenue to cover their revenue shortfall. If a city allows a mall on a piece of property, rather than a housing development, the city gets new sales-tax revenue without having to support residents with expensive services.
This is one reason we have an excess of auto malls and a shortage of housing.
Also, knowing that new housing will not generate enough property tax to pay for services, cities and counties impose developer fees to pay for new roads and schools, significantly raising the cost of new housing. And when new housing costs go up, the cost of all surrounding housing goes up as well.
It now costs more to build a house in California than people can afford to pay. So developers do not build enough houses, because not enough people will buy them. So we have a shortage of houses, which then drives up the price.
We can fix this problem. But it’s a political problem, and there will be a new set of winners and losers.