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California Study Cites Regulatory Toll on Housing Production

California’s regulatory climate, which “is the most costly, complex and uncertain in the nation,” has led to “chronic underinvestment in residential construction” in the state, with a shortfall of more than 500,000 housing units since 1995, according to a new study.

There is only a 6% probability in California of having a subdivision project approved with no modifications, according to the “California Competitiveness Project,” which was conducted by Bain & Company for the California Business Roundtable. By contrast, in Texas and Arizona, there is nearly a 75% chance of project approvals with no required modifications.

Furthermore, it takes an average of 33 weeks to get project approvals, compared to 16 in Arizona and eight in Texas, the study found.

Nearly 40% of the companies that were interviewed for the project said they were planning to move jobs out of the state, and 100% of the senior executives who were interviewed view the business climate in California unfavorably.

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Based on an earlier state report, Sherman D. Harmer, Jr., a San Diego home builder and president of the California Building Industry Association, said that the long-term cumulative housing deficit in the state is actually closer to one million units.

“That lack of supply, coupled with an ever-growing population, is why the median home price has jumped 92% since the early 1990s and why the median-priced home in California, which cost about the same as the national average in the mid-1970s, now costs nearly $200,000 more than the national median-priced home,” said Harmer.

“In addition, the lack of housing supply for our workforce is starting to severely undermine the stability of our economy and jobs,” he said.

Harmer said enacting the study’s recommendations for reform would go a long way toward easing the state’s growing housing affordability crisis. Among those recommendations are:

• Reforming the environmental regulation process to focus on outcomes as opposed to the process.
• Studying the feasibility of reengineering the California Environmental Quality Act (CEQA) process so that it serves its original purpose of ensuring that environmental impacts are considered in the planning process, and mitigated where feasible. “Late hits” — CEQA lawsuits after the exhaustive reporting and review process has been completed — should be discouraged, and redundant environmental reviews should be eliminated.
• A dedicated and consistent source of long-term funding should be developed to invest in building and maintaining the state’s infrastructure, such as transportation, water and power systems.
• Adequate housing production should be ensured to address the housing shortage.

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