California state officials continue to pass new measures that make it easier for builders to create new housing by exempting projects from various regulations, as the state faces a persistent affordability crisis. We applaud lawmakers for doing so, but recent studies suggest the laws haven’t sparked much new construction. If state officials are looking for reasons for that head-scratcher, they should focus on a recent federal lawsuit targeting Palo Alto’s “inclusionary zoning” laws.
These are local rules that require builders to set aside a portion of their new units at below-market prices for buyers who qualify as low income. Progressive policy makers see them as a means to provide more affordable units. Aside from being “takings,” whereby the government devalues an owner’s property, inclusionary zoning provides myriad practical problems. It raises prices for the remaining units and creates a lottery for people trying to grab one of the under-market units.
The most significant takeaway, in the context of California’s failing efforts to jump-start housing construction: Local governments continue to impose enormous construction barriers that undermine state efforts to streamline construction approvals. A great example is taking place in East Palo Alto. That’s the “lower” income Bay Area city by Palo Alto, the home of Stanford University—where median home prices are $3.5 million. By contrast, East Palo Alto’s median price is a mere $1.2 million.
A homeowner there, Wesley Yu, proposed building a home and guest cottage on a parcel. The state’s streamlining laws provide California Environmental Quality Act (CEQA) exemptions, but “the city’s inclusionary zoning rules kicked in, requiring him to either sell or rent out one of the units at ‘affordable’ rates or to pay a one-time fee of $54,891 to be deposited in the city’s affordable housing subsidy fund,” reportedCalMatters. Yu calls this “extortion.”
So the state reduces regulations with its right hand, but cities then take them away with their left one. The property-rights-promoting Pacific Legal Foundation has filed a lawsuit on Yu’s behalf. “The Supreme Court has repeatedly made it clear that the government can’t force people to give up their property rights in exchange for a permit,” PLF explained.
That’s a great “rights” argument. The city’s efforts have deleterious practical effects, too. As PLF added, “The Yus’ modest home project doesn’t reduce affordable housing—it increases overall housing supply. Yet the city is holding their permit hostage unless they give up a portion of either their property or their savings.” No wonder laws such as Senate Bill 9, providing “by right” approvals for duplexes, have had lackluster results.
As CalMatters added, the case relies on a U.S. Supreme Court decision last year that requires such local extractions to be directly tied to the impact any new project imposes on local infrastructure, such as requiring a builder to pay for the cost of road construction related to the new traffic. But California has allowed local governments to shake down developers for unrelated fees in exchange for a permit.
Local governments routinely trot out the “local control” argument when state officials try to reduce local housing rules. But the locals can be just as oppressive as state and federal officials. If legislators are looking for their next target, they should look at these types of restrictive local rules.
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