What a difference a decade makes. Ten years ago, the regional homebuilding industry — like many other industries — faced an uncertain future. The Great Recession dealt a harsh financial blow to our industry that made the prospect of recovery feel like a far-off possibility. Fortunately, after several lean years our industry has started to climb out of the economic doldrums of a few years ago.
You would be hard-pressed to find a homebuilder utter the phrase “We’re back,” but we are certainly heading in the right direction. Already in 2017, our sales numbers are the highest they have been for the months of January and February since 2007. To put it simply, our industry is experiencing a period of sustained growth that is mirroring the growth taking place in many sectors throughout the greater Sacramento region.
This is encouraging news. However, we must not lose sight of the fact that California continues to struggle with a severe housing shortage that is driving home prices and rents out of reach for too many Californians. That is why it is critical we encourage policymakers to embrace solutions that reduce housing costs for families and help continue the housing sector’s recovery.
Multiple studies have shown that the housing shortage is a direct cause of high housing prices and rents and have recommended that California enact policies to help add an additional 100,000 units per year so that the supply demand imbalance can be corrected and relief provided to those working towards entering the housing market.
Some in the Legislature, however, are still pursuing policies that could completely derail the progress made by the homebuilding industry.
Such proposals include SB 418 to expand prevailing wage mandates on more private residential projects; SB 224 to further increase the complex regulatory environment by significantly expanding California Environmental Quality Act regulations; and AB 890 to expand CEQA to citizen-sponsored initiatives to leverage development projects to incorporate provisions that require the use of union labor. Should these pass, each of these proposals will result in higher housing costs. When costs increase, either a project becomes financially infeasible to complete, or becomes exorbitantly expensive for consumers.
For example, mandating prevailing wage on most private residential projects could increase the cost of new home construction by upwards of a staggering 46 percent. California already ranks 49th out of 50 states in terms of home ownership rates, and instead of pursuing policies that could increase costs, studies have called for policymakers to address the obstacles to adding more housing supply.
What is even more frustrating is that at the start of 2017, there was somewhat of a renewed sense of optimism within the homebuilding industry that our leaders in the State Capitol were finally starting to grasp the severity of the state’s housing crisis. Our state has already racked up a housing deficit of more than 2 million units and any policies that exacerbate that deficit will directly impact millions of Californians that are already spending a disproportionate amount of income on mortgages or rents.
This is the reality of the challenge that we face. Therefore, it is tremendously disappointing to see lawmakers continue to spend time on housing proposals that do nothing to actually lower housing costs for working Californians — especially since the bottom quartile of lower income earners already spend 67 percent of their income on housing costs.
Unfortunately, the negative effect of policies that exacerbate the housing shortage doesn’t stop with higher housing costs and that’s because jobs will also be significantly impacted. The Great Recession drove thousands of workers out of our industry, with some finding work in other sectors and others leaving the region entirely. Since then we have worked diligently to bring those workers back and new ones in to keep up with the current pace of Sacramento’s housing market.
Earlier this year, our association launched the 5Kin5 Initiative with the express goal of bringing 5,000 workers into the homebuilding industry over the next five years. Without increasing our workforce, we will not meet the generally accepted annual growth target of 10,000 to 11,000 new homes for the region, a development that would further drive up home prices on the local front.
However, boosting our workforce is wholly dependent on the continuation of the economic momentum we have accrued over the last few years; and policies that exacerbate the housing shortage will make this an impossibility. If it becomes even more expensive to build new homes, then our industry will not have the financial bandwidth to keep the workers it already employs, let alone hire new ones. Without those workers, the necessary units won’t get built and, in the end, residents will be forced to pay more for a new home or simply abandon the idea of buying one.
So, what happens next? The homebuilding industry remains closely engaged in the Capitol and will continue to oppose legislation that does not make it easier to add market rate housing and help create a more affordable and secure housing environment for all income levels.
Fortunately, there are large and diverse number of organizations that are also deeply concerned about alleviating the housing shortage and are ready to speak out against legislation that will make the housing crisis worse. This coalition recently launched an informational website that outlines the terrible consequences of high housing costs — including increased poverty, homelessness, and forcing millions to live well outside of the cities where they work.
Consider adding your name to the coalition and staying engaged on whether your state representative is working to help lower housing costs for your community.