The Real Reasons Affordable Housing Isn't Being Built in California

The high cost of housing is one of the most challenging planning issues of our time. The meager supply of affordable housing is a major contributor to the problem, yet the policy tools to address the shortfall often seem to worsen the problem. But this is because they ignore the underlying infrastructure and financing to support growth.

Housing affordability is really about two things: income and cost. The building industry is doing very little about the former, oftentimes opposing prevailing wages for construction workers. On the latter, the key question (being debated in California now) is whether deregulation of market rate housing projects will somehow "trickle down" to households, enabling them to afford rising rents and mortgages.

The supply-side perspective, espoused by the state's Legislative Analyst Office (LAO) suggests that the solution to containing housing costs is building 100,000 additional units annually. Given the LAO's skepticism of affordability restrictions, the theory is that the housing bought by wealthier people will filter down to poorer people as the wealthy move up to more expensive housing.

This trickle-down theory is very leaky. It depends on upward mobility in the middle class, and assumes that there are no foreign investors swooping in with hard cash and clogging up the filtration system. And even if it did occur, research by the Urban Displacement Project shows that the filtering process can take generations, whilst the properties deteriorate. The steeper the price increases, the slower the rate of filtration. Also, if wealthy buyers are willing to pay exorbitant sums for an old house in order to give it a pricey makeover, the theory is turned downside up. I’d call it "trickle-up."