LAO Follow-Up Report: More Supply--Not Regulatory Requirements Like Inclusionary Zoning--Is Key to Addressing Affordable Housing and Displacement

The Office of the California Legislative Analyst (LAO) released new research Perspectives on Helping Low-Income Californians Afford Housing [click here] confirming what Economics 101 and decades of empirical evidence have long shown: the principal cause of the Bay Area's housing affordability and displacement problems is a significant long-term shortfall in new housing construction, and the only effective solution is for state and local governmental agencies to undertake widespread structural reform to allow the building industry to meet market demand. Importantly, the report also examines the policies pushed by many Bay Area voices as the preferred (often only) alternatives (such as inclusionary zoning and rent control) and finds that, again as economic theory and abundant historical evidence suggests, these policies not only fail to improve conditions, they worsen them by discouraging new supply region-wide.

As previously reported [http://www.biabayarea.org/governmental-affairs/weekly-governmental-affairs-update/2015-weekly-reports/lao-to-california-build-more-housing/], in March 2015 LAO released California's High Housing Costs: Causes and Consequences which found that the key remedy to California's housing challenges is a substantial increase in private home building in regions like the Bay Area. LAO's follow-up research was prompted by objections raised to its report such as: increasing market rate supply benefits "only" higher-income households; it does not increase the supply of lower-end housing; and it leads to displacement. In short, the familiar refrains advanced in the Bay Area.

Point-by-point, the LAO report demolishes the fact-free rhetoric of the supply-denier movement:
• “Between 2000 and 2013, low income census tracts in the Bay Area that built the most market rate housing experienced considerably less displacement…displacement was more than twice as likely in low-income census tracts with little market rate housing construction…”
• “Our analysis finds that market-rate housing construction appears to be associated with less displacement regardless of a community’s inclusionary housing policies”
• [I]n communities without inclusionary housing policies, displacement was more than twice as likely in low-income census tracts with limited market-rate housing construction than in low-income census tracts with high construction levels.”
• “Neither of these changes [inclusionary zoning nor rent control] would increase the supply of housing and, in fact, likely would discourage new construction.”
• “Encouraging additional private housing construction can help the many low-income Californians who do not receive assistance. Considerable evidence suggests that construction of market-rate housing reduces housing costs for low-income households and, consequently, helps to mitigate displacement in many cases.”
• "Bringing about more private home building, however, would be no easy task, requiring state and local policy makers to confront the very challenging issues and taking many years to come to fruition. Despite these difficulties, these efforts could provide significant widespread benefits: lower housing costs for millions of Californians."