Guest Editorial: Sorry, state isn’t ‘winning’ on housing

This editorial is from the San Diego Union-Tribune:

Every Jan. 1 for nearly a decade now, stories are published about new state laws intended to spur housing construction taking effect. Sponsors of the legislation claim that they’ve made substantial progress on the issue more likely. This Jan. 1 was no different, and a case can be made that some of the new laws are indeed promising.

Measures by Sen. Scott Wiener, D-San Francisco, would streamline approvals for apartment buildings with some affordable units and clear the way for construction of affordable housing on land owned by religious organizations and nonprofit colleges. Another by Sen. Nancy Skinner, D-Berkeley, will make it easier for judges to reject tactics used in some environmental lawsuits to block projects. Sen. Anna Caballero, D-Salinas, also got an intriguing bill passed that should make it much easier to green-light “infill” projects of 10 or fewer residential units on urban lots under 5 acres. These and other laws passed last year by the Legislature even led Politico to declare that “YIMBYs” — yes-in-my-backyard housing activists — “are winning.”

But this mistakes process victories for progress. Remember, seemingly far-reaching housing legislation has been enacted several years in a row. Yet while new housing construction in 2022 reached its highest level since 2008 — with California adding 123,000 units — that was still far below the levels of building economists and real estate gurus say are needed to start bringing down sky-high shelter costs. It’s also far below the goals set by Gavin Newsom during his successful 2018 run for governor.

Meanwhile, a new report by the Redfin real estate firm underscores how a factor that’s only emerged in recent years is making it even harder in California for people to buy homes: much higher interest rates. The company categorizes a home as affordable when the owner’s monthly mortgage payment would be no more than 30% of the metro area’s median household income. The model assumes buyer will make a 5% down payment and take out a 30-year mortgage. In the San Diego market, only about 1in 250 homes — 0.4% — was affordable under this metric. Only three of the 98 U.S. metro areas Redfin surveyed — Los Angeles, Oxnard and San Francisco — had a lower percentage. That California metros lead the way and are less affordable than ever is no surprise.

Higher interest rates make already-challenging home purchases close to impossible for many families. In March 2022, when the average interest rate for a 30-year, $600,000 loan was 3.9%, the monthly mortgage was $2,819. While interest rates have fallen from their October high of 8.03% as evidence builds that U.S. inflation is ebbing, the rate of 6.7% seen this week translates into a monthly mortgage of $3,835.

That rate is widely expected to drop somewhat in 2024. The Federal Reserve Board has an unofficial policy of keeping a low profile during presidential election years lest it be accused of political interference. But surveys show relatively few economists expect the old days of interest rates under 4% to return anytime soon. With U.S. national debt soaring past $34 trillion last week — and with interest payments on the debt alone now accounting for 16% of federal spending — uncertainty and anxiety are building steadily over perceived U.S. irresponsibility. This is backed up by evidence that some of the biggest customers for U.S. government securities — which fund U.S. borrowing — are looking elsewhere. In November, the Wall Street Journal reported that other nations’ central banks and private investors now hold some 30% of outstanding U.S. government debt — down sharply from 43% in 2013. This reflects a downbeat view of the health of the U.S. economic system.

If these skeptics are correct, more expensive borrowing is inevitable for governments and households alike. This will only make the already awful California housing crisis even worse. If Politico journalists or anyone in the Golden State can view this big picture and think housing advocates are “winning,” they need to get new dictionaries.

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