Conference Presentation, Panel
Will Innovative Financing Solve California's Housing Shortage?
Milken InstituteDarrell Steinberg, Beth Ruyak, Carla Boragno, David Chiu, Laura Foote Clark, Steve Hansen, Bill Witte
- Major Structural Challenge: California's housing crisis stems from a fundamental misalignment between stated policy objectives (affordable, clean, dense housing) and existing regulatory frameworks (CEQA, local control) and financial mechanisms.
- Regulatory Inefficiency: The Environmental Quality Act (CEQA) creates approval processes for affordable infill housing that are functionally identical to those for industrial projects like oil refineries, allowing NIMBY litigation to delay high-profile projects by 5 to 10 years rather than 270 days.
- Financing Gap vs. Regulatory Hurdles: While capital exists ("plenty of capital out there"), it remains locked due to political and policy barriers; innovative financing is necessary but insufficient without concurrent regulatory streamlining and workforce wage alignment.
- Production Volume Requirement: To keep pace with population growth and correct the backlog, California must build 5 to 7 times the current volume of housing units, requiring a shift from incremental "down payments" on legislation to comprehensive, simultaneous implementation of multiple solutions.
- Local Fiscal Incentives (Prop 13): Proposition 13 creates a perverse fiscal incentive for local governments to prioritize high sales-tax-generating commercial development (hotels, retail) over residential housing, which yields significantly lower immediate revenue relative to the cost of providing municipal services to residents.
- Sacramento "Measure U" Proposal: The Mayor of Sacramento proposes a half-cent sales tax generating $50 million annually to seed a nearly $500 million capital equity trust fund, aiming to dedicate 20% of these funds to a housing trust and utilize securitization to accelerate production.
- Construction Cost Disparities: Construction costs in California are unsustainable, with San Francisco affordable projects exceeding $800,000 per unit and Sacramento infrastructure costs reaching $887,000 per unit, driven by high labor costs, permitting fees, and slow approval timelines.
- Business Sector Leverage: Major employers like Genentech argue that housing availability is a direct business imperative for attracting and retaining talent; they advocate for aligning local zoning with job centers (Transit-Oriented Development) and urging cities to "stop saying no" to workforce housing near employment hubs.
- Legislative Strategy: The panel emphasizes a shift from project-by-project advocacy to macro-level policy reform (e.g., SB 35, SB 827), with Assemblymember David Chu proposing "Affordable Housing Acts" similar to the Affordable Care Act to mandate state-level production goals and hold cities accountable.
- Political Alignment: There is growing consensus that solving the crisis requires a "all of the above" approach involving tax reform (expanding low-income housing tax credits, repealing mortgage interest deductions), bringing back redevelopment 2.0, and exempting property taxes for "missing middle" housing.
- Workforce and Demographics: The crisis is exacerbated by a job-to-housing imbalance where job creation outpaces housing supply 5-to-1 in the Bay Area; Millennials and older demographics are identified as critical activist forces due to their inability to purchase homes in the current market.
- State vs. Local Conflict: While some bold state-level proposals (like SB 827) faced backlash for being "too big, too fast," the failure of such measures is viewed by some as a catalyst that reshaped the conversation toward necessary entitlement reform, forcing local governments to acknowledge their role in redlining multifamily housing.
- Future Outlook: Assemblymember David Chu expresses optimism that a new administration (potentially Governor Gavin Newsom) could execute a commitment to building 3.5 million units over eight years, but success requires overcoming legacy racism in zoning, unifying stakeholders, and reducing reliance on sales tax over property tax.
- Panel Consensus on "Yes/No": The panel generally rejected the premise that financing alone can solve the shortage (answer: "No" or "Yes, but..."), agreeing that without removing regulatory barriers and changing local incentives, new capital will simply increase costs without increasing supply.