The housing shortage in California is legendary, but there isn’t one.
Yes, there are more than 180,000 homeless people in California. However, there are more than that number of empty units to house them — and many more. How could that be?
Simply, the homes that are available cost more than the people who need them can pay. So, if we wish to be accurate, there is a low-income shortage and a high-income surplus. Similar to the famous quote from the Samuel Taylor Coleridge poem The Rime of the Ancient Mariner, “water, water everywhere and not a drop to drink,” there are a multitude of empty apartments but none to house poor and working people.
Based on the idea of the alleged housing shortage in California, you may think that we have very low vacancy rates. Think again: The vacancy rates in San Francisco and Los Angeles are 5% and as high as 7% in Oakland. You logically might conclude that, if these apartments are empty, then the prices will fall substantially and everyone will benefit.
Unfortunately, that’s not how it works. Luxury corporate landlords would much rather keep a unit empty than drop the price. The amount of rent collected determines the value of the building on the open market. The calculation is that waiting a few years for the building to fill up is more lucrative than lowering the rent immediately, and any short-term loss is tax- deductible.
Nevertheless, policymakers still subscribe to the fantasy that building luxury housing will trickle down and magically solve the housing crisis. Well, how is that working for California?
We continue to build into a luxury housing glut. Meanwhile, hundreds of thousands of Californians are leaving the state for more affordable places to live, and the crisis could get even worse.
The housing market is not monolithic. Just like the car market, housing is composed of a variety of sub-markets that are not interchangeable. Ferraris represent a completely different market than Chevys. Whether we are looking at luxury automobiles or housing, the high end is only available to the wealthy. Five thousand dollars a month for rent can only be paid by people making multiples of that amount. In other words, that means $150,000 at a minimum, which is exponentially higher than the median income in a place like Los Angeles.
And so, you may be wondering why California keeps building what we don’t need and neglecting what is so desperately required. The answer is as simple as it is tragic: We are creating housing based simply on the profit motive.
All of the incentives are aligned to produce more luxury housing and neglect affordability. A 10% margin on a $500-per-month apartment is $50, and a 10% margin on $5,000 is $500.
The free market will always drive toward the widest margin possible. If you can’t afford a Ferrari, then you can buy a cheaper car, and it will still get you where you need to go. However, if there are no inexpensive apartments you could possibly afford, you will end up on someone’s couch, living with your parents indefinitely, or calling the sidewalk your home.
Housing is a necessity, and we must treat it as such. This means that we can’t rely on the for-profit market to provide all that is needed. It is up to the California government to realign incentives to produce housing for everyone, and the government has consistently failed on that front.
There are basic ways to accomplish the goal. Rent control is the most important because it protects existing tenants from being displaced. Next is requiring luxury developers to include at least 25 % of their units as low-income. Then, we need to increase housing subsidies, make it easier and cheaper to build new low-income housing, and stop the destruction of existing rent-controlled units.
Unfortunately, none of this is going to happen as long as the corporate landlords represented by the California Apartment Association rule the roost in Sacramento. They pour tens of millions of dollars into killing rent control proposals and other renter protections. Therefore, it is up to the voters of California to support the Justice for Renters initiative this November, expanding rent control and to hold accountable politicians who betray their interests.
In recent years, California has poured $24 billion into addressing housing affordability, to no avail. State officials can’t even account for where the money went.
Without addressing the root cause — high rents — the housing crisis will never get better, unless so many more people leave California that even the greediest corporate landlord will be forced to lower rents.