Expert Opines on the Fiscal Disincentives Undermining Local Approval of Housing Development
Larry Kosmont, a real estate financing expert and the CEO of Kosmont Companies, identifies the fiscal dysfunction driving municipal resistance to state-mandated density and offers institutional explanations for California’s current housing crisis. Kosmont points to the fiscally constraining effects of Prop 13, ballot-box budgeting, and skyrocketing pension obligations to explain the rock and hard place cities find themselves in today. He points out:
Each city’s annual budget cycle is laden with tough choices and increasing unfunded pension obligations. Collaterally they are being asked, pressured or even told to induce more housing; it’s just a tough choice for them.
Based on the models we used to evaluate the economics of a project, housing doesn’t carry its weight in terms of revenues versus expenditures for the services that it requires, which inevitably drives a solution to build anything but housing. So, housing flunks the fiscal benefits test, and collectively, California flunks its housing delivery needs. Everyone loses out."
Further exacerbated by the dissolution of redevelopment agencies, cities lack the dedicated infrastructure funding and middle-class jobs necessary to realize the benefits of increasing housing supply. Kosmont warns that without strategic solutions targeting middle-class economic development, California housing will remain unaffordable to most.