RHNA vs. Reality - Craig Foster

RHNA vs.Reality

Can California Deliver 3.5 Million New Units?

Craig Foster

BIASC Chief Operating Officer

Gov. Gavin Newsom declared in 2019 that “we have to build housing for all,” and set a lofty goal of California adding 3.5 million new housing units by 2025. That’s more than 550,000 units a year. Of course, those of us in the homebuilding industry reacted very positively to having someone in the Governor’s office who appeared willing to support home construction in a big way, even if we were more than a little curious about how far he would be willing to go to reach that goal.

Then this March, the Southern California Association of Governments (SCAG) announced the final Regional Housing Needs Assessment (RHNA) for the new 6th Cycle. It called for 1,341,827 new units in its six counties by the end of 2029 – 1,335,060 in the BIASC area – or about 168,000 new units annually. SCAG got one thing very right in the new RHNA numbers: They emphasized the market segment that’s most in line with today’s California: the above moderate income homes, which about 45 percent of the total allocations in that segment.

But Sacramento, we have a problem. With half of the state’s population living south of Wilshire Blvd. in Los Angeles (Yes, that’s true!), it’s obvious that the SCAG counties will have to take on the lion’s share of new units. SCAG’s allocations fall well short of even half of Newsome’s 3.5 million-unit goal, let alone being the lion’s share – and they’re giving us four more years to do it than Newsom is. Before going any further, let’s put Newsom’s goal into perspective. His single-year production goal of 550,000 units is far greater than the 315,000 units California actually produced over the last six years. Or look at it this way: Newsome is asking us to produce nearly as many units in just six years as it took California over a century to produce. The state currently has about 4 million housing units, and he’s asking for 3.5 million more!

I feel like the dog that’s biting its owner’s hand. I want to be wagging my proverbial tail over all this sudden support from on high, but I can’t because these ambitious goals don’t align well with reality, starting with the problem that production has actually dropped since Newsom announced his housing initiative. In 2018, California built 115,000 single-family and multi-family units, but by 2020 this dropped to 86,400 units, according to First Tuesday Journal. (Yes, in 2020 we had to deal with Covid, but before the virus hit, projections for 2020’s housing starts were a mixed bag, with very few experts thinking it would be a blockbuster year.) For perspective, housing production in the best recent year, 2005, was a bit over 150,000 units, or was less than half of Newsome’s desired pace.

The RHNA mandates can help turn this around because at long last cities that don’t make a serious effort to achieve their RHNA mandates will face meaningful penalties. But CBIA predicts that without

a coordinated state-wide push to replace obstacles to new housing with incentives, cities like Irvine will take over 2,000 years to meet their low-income RHNA housing goals! That’s really not surprising, because local electeds need more cover than RHNA gives them to the NIMBYs that almost always outnumber project supporters. Still, the new numbers are a start and we can look forward to a lot more 3-2 votes for approval, with the two most politically exposed winking at the majority as they cast their opposing votes, knowing they’ll be returning the favor the next time around.

Still, RHNA will not get the job done if affordability isn’t addressed. It does no good to double or triple production if people can’t afford to buy or rent. Or, to put it in a manner more in line with economic reality, production will not double or triple until there are two or three times more people who can afford to buy or rent. Turning that corner will require much, including slowing California’s seemingly unending support for new regulations.

Over-regulation is the main reason why a tiny 27 percent of Californians today can afford to purchase a median-priced single-family home. That’s less than half of the 55 percent nationally who can buy that home, according to the California Association of Realtors’ Affordability Index. Regulatory burdens add 20 percent to the cost of a new home in the state, with the worst offending cities adding much more than that. In fact, in one study of the added cost of regulation to homes in over 200 markets across the country, the top 20 most burdensome cities were all in Californian.

Can California ever be just a regulator instead of an over-regulator? Can Title 24/CalGreen become just an average set of energy requirements instead of the best in the nation? Can Regional Water Quality Control Boards be allowed to roll back their standards instead of being required to ratchet them up with each rewrite? Can the Legislature ever turn their back on the trial lawyers’ lobby and pass meaningful CEQA litigation reform? And most importantly, when will the state admit that the current Vehicle Miles Traveled (VMT) requirements must be scrapped because they are misguided, too complex for implementation and already outdated due to the increase in at-home work brought on by the coronavirus? Who knew we would ever miss the LOS approach, but we’d love to have it return.

In closing, Gov. Newsom has called for a “Marshall Plan for Housing” in California, but we have seen nothing of the sort to date. There is no overarching policy, no detailed list of strategies to enact, and no housing czar to implement by California’s Gen. Marshall. Still, there is some hope, if for no other reason that the Legislature professes to really care about the state’s underserved minority communities. If indeed that’s true, one of the best things they could do is make homeownership an attainable dream for California’s poorer residents. History has shown again and again that people want to own a home, and if they believe they can achieve that goal, they will work very hard to attain it – and begin to reap all the financial and social benefits that come with homeownership.

All these calls for more homes and cries about the need to address our underserved communities … could it be that we’re heading into a perfect positive storm? Could these two forces converge, forcing California governments from Sacramento to Santa Monica to see over-regulation as the terrible dreamkiller that it truly is? If that were to happen, the governmental barriers to achieving some amazingly large housing starts could begin to fall.