California looks to ‘innovative solutions’ to address housing

from Grassroot Institute of Hawaii, October 4, 2023

California is similar to Hawaii in that it is a heavily regulated state with high taxes and strict zoning and land-use laws. But things seem to be changing in the Golden State, primarily because residents there might be tired of not having enough available and affordable housing.

So, what can Hawaii policymakers glean from California’s housing reforms to ease the Aloha State’s housing crisis? Keli‘i Akina, president of the Grassroot Institute, discussed that topic with Chris Calton of the Oakland-based Independent Institute on a recent episode of ThinkTech Hawaii’s “Hawaii Together” program.

Calton said that if Hawaii wants more housing built, it should first reduce — or even eliminate — zoning regulations, particularly single-family zoning. Then it should do away with discretionary permitting. 

The opposite of discretionary permitting, he said, is what’s called by-right permitting, “which means that if people apply for a permit and show that they are complying with existing regulations, then planning officials have no right to deny them that permit.”

Calton said California’s SB4, dubbed the “Yes in God’s backyard” law, puts both of those reforms to work by allowing about 170,000 acres of land owned by religious and higher educational institutions to be developed into housing. 

Hawaii representatives considered a similar bill earlier this year, but the measure stalled in the Senate.

Calton said California’s passage of the law “shows recognition from our Legislature in California that permit barriers and zoning regulations are … probably the two top contributors to the state’s housing crisis.” But “if we’re recognizing this,” he said, “why are we limiting it … when we could open it up to all property owners and have an even greater effect?”

California has also updated its laws governing accessory dwelling units, which Akina noted is of significant interest to Hawaii. According to Calton, permits for ADUs in Los Angeles jumped from 80 in one year to 6,000 the next after the passage of AB881, which authorized home additions via by-right permitting.

Calton noted that liberalized zoning reform in California has actually largely been driven by progressives, who tend to look to the state to do more, not less. This trend, he said, “speaks to the fact that when people are facing a severe crisis, they’re going to look for innovative solutions.” 

TRANSCRIPT

9-28-23 Chis Calton with Keli‘i Akina on “Hawaii Together”

Keli‘i Akina: Aloha. Welcome to “Hawaii Together” on ThinkTech Hawaii. I’m Keli‘i Akina, your host and president of the Grassroot Institute. 

Well, there’s a lot that could be done to fix Hawaii’s housing crisis, which is to say many small and incremental changes that could add up to a very big difference. Today, we’re going to discuss some of those changes that could be made and some surprising insights we could gain from — of all places — California.

In general, California is widely regarded as a high-tax and high-regulation state. But it also has a history of strictly regulating land use and homebuilding and coming up with solutions as well. 

The tide seems to be turning on that Golden State lately; primarily because I think people there are tired of not having enough available and affordable housing, and that inadequate supply may be something that they’re learning to solve.

Some of the changes in California that have been adopted recently could possibly be ones that Hawaii policymakers could adopt to ease our own housing crisis. So that’s why I’ve called upon Chris Calton today. 

Chris is a research fellow at the Independent Institute based in Oakland, California. He studies housing and homelessness and comes up with solutions. Calton has a Ph.D. in history from the University of Florida, and that’s where he focused on something very interesting: the history of corporations. 

But I’d like to welcome him today. Chris, thank you for joining us all the way here in Hawaii. Aloha to you. 

Chris Calton: Well, thank you. I wish I could join you in person. 

Akina: Oh, absolutely. Do a good job today, maybe we’ll bring you out. 

Well, you know, right at the start, tell me: What is it that attracted you to the line of work and expertise that you’re involved in today? What background do you come to it from?

Calton: Well, I think what attracted me to this organization is its liberal bent, which is a classical liberal in the sense. It’s one of the few organizations in California that actually recognizes the importance of markets. 

So, and that’s kind of what we’re trying to look at here with housing, is what can markets do to help solve this crisis.

I moved from Florida, where housing is much more left to the private markets. And we don’t have a housing shortage there, yet we have vastly more rapid construction, right? And so that’s, I think, what attracted me more broadly to this organization, and we can just apply that lens to housing. 

Akina: Well, California and Hawaii have a lot in common. We’ve often both been considered committed to very big government, high taxes and high regulations. 

And both of our states have some very strict zoning and land-use laws.

Calton: Oh yeah.

Akina: Some of the strictest in the entire nation. 

Calton: Absolutely. 

Akina: Can you speak a little bit to California’s regulatory environment, as it relates to housing?

Calton: Sure. So with land-use regulation, we always have to keep in mind that land-use policies, zoning policies are set by the local government. The state has a hand in it through enabling legislation, but it’s hard to generalize about zoning policies because it can vary from city to city. 

But what you find in California are just a pattern of some of the most onerous zoning policies. Whereas in other states, you might have a city — like Boston, for instance, is infamous for it. Boston has very strict zoning policies as well; and it’s a city here; it’s a city there. 

But California, it’s about a third of their cities [with] ridiculously onerous zoning policies, as well as policies that allow for some unique discretion on the part of city planners. Where with, when issuing building permits, not only — you usually have discretionary building permits when you have very stringent zoning policies that we have to make exceptions to. 

But in California, you also have a lot of POP [privately owned public space] provisions written into the zoning policies that allow planners to deny building permits for code-compliant projects that violate, say — subjectively speaking — the aesthetic or political preferences of the people in that community. 

And that’s about a third of California’s cities, so it’s a very significant problem as well. 

Akina: So how difficult is it to get a project off the ground and then complete it throughout California with the variety of jurisdictions that you have and the local control? 

Calton: Well, San Francisco is probably the worst in the state, and that’s where I primarily focus. We’re based out of Oakland, which is right across the bay; we have a strong San Francisco orientation. 

But there — just to give some perspective — to obtain a building permit for a single-family home takes upwards, just to complete the application, takes about two years on average. This can be upwards of four years for multifamily housing, which would be like an apartment complex, and that’s after a roughly year-long application process. 

And then on top of that, people can go and create more delays by challenging the permit post-entitlement, which is also pretty incredible and rather unique.

Akina: Here in Hawaii, we have multiple layers of government offices that have to be satisfied in order to complete a permit process. And in several of them, the public is invited to weigh in. 

Is that the way it is in California? And does that lead to derailing a good number of projects? 

Calton: Yes, this is something that actually started becoming a lot more common nationwide in the 1970s, through a movement that was really built around the idea of democratizing kind of the planning system by allowing neighborhood groups to kind of weigh in on projects and delay them.

And this is where a lot of what I was describing, in response to the previous question, absolutely comes from that. It can be a little bit more extreme in many California places. San Francisco is the only city in the country, for instance, that applies this to every single permit issued; there are no exceptions. Most places, it’s certain permits and not others. But this is a product of the 1970s. 

Also, in that environmental review, which is where a lot of this comes from — and that’s another thing that Hawaii and California both have before any construction project is an environmental review, which is a vehicle through which these groups can delay projects. And that also is a product of the 1970s. 

Akina: Well, presumably these regulations were put into place and this review process was established for the greater good — for environmental protection, for other values of the community, particularly those that are held by local communities. 

Where does the balance get tipped, however, in terms of actually serving the public? Because now you’re dealing with a crisis of availability of housing, cost of housing and ultimately, the very people whom we were trying to help with this process are the ones who get hurt. 

Calton: Sure. So one of the things that I think policymakers didn’t anticipate in the ’60s and ’70s when these reforms were taking place is that there was another reform taking place, largely at the national level, through federal housing policy and Federal Reserve policy.

We, you know, we went through this inflationary period in the ’60s and ’70s, leading to stagflation, this crisis in the ’70s that involved a housing crisis as well at that time. And this was about the time when housing changed from a consumption good to an investment. 

So this is the home voter hypothesis, by the way, for this explanation. It’s the idea that now because housing costs became so extreme and took up such a large portion of our income, most of our savings is built into the value of our house.

And so there’s — when we combine this with these kind of neighborhood groups that allow popular protest to new construction — there’s a built-in incentive to prevent new home construction among existing homeowners. Because our livelihoods, our savings, our retirement, whatever it may be — our equity — is so dependent on the value of our housing.

So that was an unintended consequence of two policies, really, that kind of coincided but weren’t designed as, you know, part of the same program. But they worked together in a way that we didn’t anticipate, and it led to a lot of neighborhood resistance to anything that might lower the value of the house.

Akina: One of the problems in being able to build housing that is affordable — I don’t want to just say affordable housing, but housing that is affordable —  has been an attitude called “not in my backyard.” 

But we’ve recently seen something quite remarkable in California, and that’s SB4. Gavin Newsom, your governor, has signed that into law.

And you recently wrote in The Orange County Register that it should be called the “Yes in God’s backyard” law. 

Calton: That’s not my term, but yeah. That’s not my term. 

Akina: Oh, but you hailed it, at least. 

Calton: Yes. Yes. Yeah.

Akina: Tell me about it. Explain SB4 and what you see in that, that gives it that moniker, “Yes in God’s Backyard.” 

Calton: So the “Yes in God’s Backyard” comes to the reforms [that] are targeting lands owned by religious and higher educational institutions. So what — there’s two major provisions of note in that. 

One would be a streamlined permitting process, and the other would be zoning reforms that would liberalize zoning policies; things like density restrictions that prevent the construction of, like, apartment complexes and things like this. So what it does is it frees up about 170,000 acres of land potentially to be developed into lower-cost housing for these institutions. 

Now, what I’ll add is: The point that I wanted to argue in my article is that, by the virtue of passing this law, shows recognition from our Legislature in California that permit barriers and zoning regulations are two of the chief — probably the two top contributors to the housing crisis in California.

And so if we’re recognizing this, what I was arguing is: Why are we limiting it just to this about 174,000 — I think — acres of land, when we could open it up to all property owners and have an even greater effect? 

Akina: In Hawaii, there was a very similar bill proposed last year that would have allowed religious nonprofits, healthcare facilities and schools to build housing on their property by right.

And it made it all the way through the House; but when it got to the Senate, it stalled. What kinds of objections were there in California before the passage of SB4? I’m wondering if they’re similar to what we faced in Hawaii. 

Calton: SB4 passed pretty handily. We’re actually seeing a YIMBY moment — a “yes in my backyard” moment — in California. So I don’t want to say that there weren’t any objections, but mostly I saw support. 

Even from outlets that normally would be much more pro-regulation, things like this, there’s a big movement against zoning policies right now that [are] even taking hold in California. 

Now, we are still seeing groups that are objecting to any kinds of reforms like this. I was reading about an article just recently about an environmental group that’s trying to block residential development because of light pollution that makes it where they can’t see the stars.

So there are still these special interests, these NIMBY groups, as they’re often pejoratively referred [to]. But these bills are actually passing with a surprising amount of support, historically speaking, in California, and I think they just kind of speak to the scale of the housing crisis to have this level of support.

Akina: Did SB4 get a lot of support from religious groups, given the fact that it’s called “Yes In God’s Backyard,” and were they the ones who were urging the passage of it? 

Calton: To be honest, I don’t know, to generalize on that. I know groups like the Salvation Army, for instance, are currently underway in developing, like, housing, as well as like rehabilitation centers.

So I’m sure there was absolutely some support among specific religious groups, but I’d be afraid to generalize on that. I can’t imagine there was widespread opposition to it because they probably would have been more successful in blocking it. 

Akina: Do you think with the passage of SB4 that there actually will be an increase in the stock of housing available in California?

Calton: Yeah. So my take on most of the YIMBY reforms that are passing in California is the majority of them will have a positive effect. They will effect some good, you know, taking the status quo and reforming it in a direction that will lead to more housing. 

I do kind of push back against some of the promises — and of course, politicians always have an incentive to say, “Oh yes, this bill that I’m sponsoring is going to have this wonderful effect.”

I think that most of these reforms are a little milquetoast; they’re going to lead to more modest effects. We’ve already seen that with some of them that have been passed in zoning liberalization. 

I’ll give you an example: SB9 abolished single-family zoning, which is something that is also becoming more common throughout the country.

But all SB9 did to abolish single-family zoning is say, “OK, where you could once build only one home, you can now build four.” This is a pretty modest approach to abolishing single-family zoning compared to, say, a state like Montana, that had an influx of population during the pandemic, abolished single-family zoning, and their supply was able to match demand, right?

So, my take on these is they are doing some good, but these are baby-step reforms that are not sufficient right now to match, to meet California’s housing crisis. But they are at least moving predominantly in the right direction. 

Akina: Talking about zoning changes, you’ve had quite a few zoning changes in terms of accessory dwelling units. 

Calton: Yes.

Akina: That’s of significant interest to us here in Hawaii. What kinds of changes have been made in California? 

Calton: Sure. So AB881, it was the bill that allowed people to build — through a by-right permitting process — to build additions on their homes that they could basically rent out a room, an accessory dwelling unit as it’s called, to a tenant.

And it’s, now there’s a bill that I think is just waiting on Newsom’s signature — AB976 — that would extend this reform. So, yeah, to give you an example of the change that this effected: In Los Angeles, I think after it was passed, the year before, they had like 80 permits for accessory dwelling units, and it went up to something like 6,000 the next year. So this was not an inconsequential reform. 

On the other hand, in some areas, you’re finding a, kind of a surprising lack of people adopting it. And this would be — take Oakland, for example. Right now, why would anybody want to adopt an accessory dwelling unit in a city that had an eviction moratorium that has it where landlords are now fighting to evict tenants that haven’t paid rent in three years? 

Why would anybody want to become a small, middle-class landlord in that environment? So, it’s being taken advantage of in some cities more than others because you do have these other counteracting policies, unfortunately. 

Akina: Well, that’s fascinating to see the interplay of public policy there. Now, do you think in the long run the liberalizing of ADU laws will actually help in the growth of housing construction?

Calton: Absolutely. I think it’s a good reform. In fact, in this case, I think most of the problems with it are not that it doesn’t go far enough, so much as when you have things like eviction moratoriums, rent regulations, things that protect the rights of the tenants — which you should have things to protect tenant rights — but kind of just step over the rights of landlords, who also have rights that need protecting. 

That’s where these policies are constrained in the good that they’re capable of doing. Because this is local, it’s just going to vary wildly from municipality to municipality. 

Akina: Are there any other changes that California has recently made that might actually be broadly applicable to a place like Hawaii? 

Calton: Well, there are two categories of changes that I think really need to be tackled anywhere where there’s a housing crisis.

You mentioned some of your bills allowed for by-right permitting, which means I can — I don’t know much about Hawaii — but just from that, I have to infer that there is some system of discretionary permitting in Hawaii as well. 

And so these are the two things to tackle. Tackle discretionary permitting, implement by-right permitting.

Discretionary permitting takes two forms. The most common form would be what I call permissive discretionary permits. These are ones that say, “Our zoning laws are so ridiculously stringent that we have to approve projects that make exceptions to the zoning regulations.” And so we’ll grant a discretionary permit to say, allow an apartment building in areas with high-density, or low-density limits.

And then you have in, at least in California — I don’t know how common this is outside of California — but you have what I call restrictive discretionary permitting, which are those cases I mentioned earlier, where planners can actually deny a permit for a code-compliant application that is based on, like, subjective, aesthetic or political assessment of the desirability of the project.

These are far more problematic where they exist, and these are usually built into zoning codes that permit planners to do this. Where they exist, that needs to be abolished first and foremost. That kind of discretionary permitting is exponentially more harmful, and San Francisco is the perfect living example of that, with our horrible housing crisis there. 

Then thing No. 2 — and it’s very related — is liberalized zoning policies. I’ll actually be a little radical and go farther and say we can abolish zoning. 

Houston has no zoning policies. It’s the only city in the country, as far as I know, that put zoning to a popular referendum — I think three different times — and voters rejected it.

Other cities that implemented zoning did not do it by popular referendum. I don’t know of any that did so. 

So Houston has no zoning policies. The outcome is the median cost of a house — in one of the most populous cities in the country — is about $300,000. Median rent is about $1,800 for a three-bedroom — much, much lower than these cities in California, than places in Hawaii, in Washington and Oregon. 

But if you’re not going to abolish zoning, there are four areas that you can tackle that would have the most good. One is abolish single-family zoning, so you allow apartment complexes, duplexes, townhouses — things like this, where they’re connected dwelling units.

You would abolish parking requirements. There’s a great book by Donald Shoup called “The High Cost of Free Parking” that talks about just some of the absurdities with parking requirements, which is also not great for the environment because we’re basically zoning for cars instead of houses, which makes absolutely no sense.

No. 3 is we abolish any kind of minimum lot sizes and floor area requirements — right? —  which again goes into, like, density and allowing apartment complexes, things like this. This is a big one in, like, Boston where they have minimum lots that go as high as an acre in some areas, I believe. I mean, ridiculously large lot sizes.

And then the last one would be to permit different housing typologies. So much zoning regulation is aimed at promoting the single-family home. This is the American dream, right? It’s what I live in. I’m glad to; I’m glad I don’t live in an apartment anymore. But you still need to permit those other types of housing.

So different housing typologies would be apartments; it would be duplexes; it would be condominiums; it would be mobile homes, which are outlawed in a lot of areas, right? And these are where we find, in many cases, the most affordable housing. 

And these are the stepping stones that people have to get into those single-family homes when they can afford them, so we need to permit those. We can’t just legislate for the upper middle class. 

Akina: Well, I think it’s pretty obvious that places like Houston are experiencing the kind of growth in the housing supply that meets the demand that is not happening elsewhere. 

But I’m glad you mentioned that it doesn’t have to be an all-or-nothing kind of thing. We don’t have to absolutely abolish all zoning. 

I mention that because as you list the different ways we could tackle this problem incrementally, you’re going to be able to deal with some of the objections. What are the most common objections to liberalizing zoning in California, and how would you respond to them?

Calton: Environmental. Environmental policy is probably the most common objection to residential construction. In general, residential and commercial and industrial — like just any category of construction — it’s always going to be environmental. This is one of the reasons why environmental review policies are some of the most abused.

There’s a study by a law firm in California that shows the majority of environmental review lawsuits have nothing to do with the environment — they’re mostly due to things like protecting the value of housing or protecting union interest, things like this. 

So just broadly speaking, I would say environmental policy, or environmental grounds, would be the most common objection. 

Other ones would be that — I mean the original idea with zoning is it was going to allow for rational planning, rational growth. This just hasn’t been the case against — Houston is the counterexample to these arguments, because they never had zoning. But nobody goes in there and goes, “This is a chaotic city; we have people’s houses right next to this very smoggy factory,” right? That’s not what we find in Houston. 

What we do find, though, is something that’s kind of died out in most areas of the country, like a small cafe in a neighborhood that we can walk to and get brunch, rather than having to drive in our cars to go and get brunch somewhere, right? And that’s something that was largely done away with due to zoning. 

So you’ll find all kinds of objections. Probably the most common to any kind of reform that would allow more construction are always going to be environmental, though. 

Akina: Well, that’s very interesting because you touch upon something that is also a philosophical point. There was at a certain time in our country a major trend toward planning and management at something done centrally, which would result presumably in more rationally planned cities. 

But that’s not really what has happened. And instead, we’ve seen this result in tremendous shortage of housing as well as high cost of housing.

But how do you account for the kind of anecdote you gave of towns without zoning avoiding the problem of a smokestack next to a small school or something like that? 

Calton: Well, I think, you know, F. A. Hayek — the great economist, Nobel laureate, F. A. Hayek — said, “It’s not that we want less planning, it’s that we want planning by more people,” right?

And so, when you allow planners to be the entrepreneurs, the individuals who undertake these projects, they’re responding to demand. Which is something that California and Hawaii both could really stand a little bit more of right now. There’s a lot of demand for housing that is being unmet. 

So in saying that there would be less planning may be the wrong way of looking at it. There’d be less centralized singular planning. There would be a lot more planning by individuals, by entrepreneurs on the ground who can recognize these local conditions. 

This was what von Hayek won his Nobel Prize for, is localized knowledge is something that central planners can’t account for, but these individual entrepreneurs can do that.

“Hey, there’s high, high cost of housing in San Francisco, maybe I should build more housing,” right? That’s what that localized knowledge is, but of course it can take a little bit more complex forms. So it’s not not less planning. In a way, it’s more planning by more people on an individual level.

Akina: Well, I like the way you put that, Chris. That’s exactly right. And we end up with a more rational output than we do when we sit down and try to do all the planning centrally.

Is there anything else that you might want to point out, before we close, that Hawaii could benefit from as it looks at California as a model?

Calton: I think I’ll just reiterate: The two things that I think need to be attacked most heavily to allow for more housing construction is zoning policies needs to be liberalized — I do go as far as saying they can and should be abolished, but at least liberalized, targeting single-family zoning in particular — and the other one is discretionary permitting.

You want a system of ministerial or by-right permitting, which means that what people do is they apply for a permit and show that they are complying with existing regulations, and planning officials have no right to deny them that permit. That’s what you want if you want more housing. So those two things: liberalized zoning, by-right permitting.

Akina: Well, I appreciate your insights. And those are things that we certainly need to look at here in Hawaii. 

Let me ask you a little bit about the role that your own organization plays in the community in California. 

Calton: Sure.

Akina: You’re part of the Independent Institute. Tell me a little bit about that and how it approaches the challenges that California is facing in terms of its growth and development.

Calton: Sure. So the Independent Institute is going to take a rather unique approach to most policy issues from California. 

Which is to say, maybe the solution isn’t tweaking a government policy. Maybe the solution is getting the government out of it and letting entrepreneurs have more freedom to, you know, meet demand. Not just in housing, but in everything. There’s more than just housing at play there. 

So it’s basically an emphasis on private-sector solutions rather than just constantly taxing taxpayers, I believe, like they do in California. And then pouring money into bad, failed programs that get sustained because they’re built into government policy, right?

When entrepreneurs send money into things that are failed, they take losses on their business, and it has kind of a built-in filtering mechanism. We don’t have that with government. 

So you don’t find a whole lot of voices like that in California that say, “Maybe the state isn’t going to solve the problem. Maybe we need to look beyond the state for solutions to the problem.”

And that’s really what’s going to set the Independent Institute apart more than anything else. To put this in perspective, I just wrote a recent blog on our website — which is The Beacon, is what it’s called, at indepedent.org — on the origins of the term NIMBY, “not in my backyard.”

And what I showed is the very first time it was ever used in this modern sense to refer to people blocking housing development was in response to a report by our founding research director, who was at another organization before Independent existed, but our founding president was the president of this organization.

And our founding research director authored this report, and they were just incredibly prescient. They were calling out the things that other people are just now coming out to realize, like zoning and permit requirements. 

They were saying in 1982, “These are going to lead to massive increases in housing costs, massive housing shortages.” They were so far ahead of the game on that. And four years after this report, they went and founded the Independent Institute.

Akina: Now, one of the things that the Independent Institute stresses is that it’s not partisan. It’s not Republican or Democrat. 

Calton: Yes. 

Akina: But how do you get the broad variety of politically oriented people in California, especially your policy makers, attracted to, interested in and supporting the views of the Independent Institute without politics?

Calton: I think, at least, I can only speak on my approach for this; I don’t want to speak for the whole organization. But my approach is always to just put good ideas out there. One of the reasons I stressed earlier when we were talking about zoning, is I think we should abolish zoning. 

It’s because I know that in politics, you kind of have to deal with realpolitik. Most people aren’t going to get on board on this. Most YIMBY groups — not all; there are some that agree with abolishing zoning — but most YIMBY groups are going to say “We don’t want to abolish zoning,” right? 

But I like being able to say, “Here’s what would really be the best solution.” And then we can work backwards there and compromise and say, “OK, OK. Well, some liberal reforms are going to at least move in the right direction.”

But that’s my approach, is I just put the good ideas out there and wait for a moment where people are receptive to them, and that’s what we’re seeing with housing right now. Liberalized zoning reform is coming from — is largely being driven by progressives, who usually typically are going to be characterized by looking to the state to do more, not less. 

And so that’s quite remarkable. And it speaks to the fact that when people are facing a severe crisis, they’re going to look for innovative solutions. 

And so I like to promote what I think is the best solution without worrying about political compromise, political pragmatism. Let other people worry about that, and that’s what some people are doing in California. But we like to just say, “Here’s, what’s going to work best.”

Akina: Well, and that’s the way the market works. So, so glad that you were able to join us today, Chris. 

Calton: Thank you for having me.

Akina: And I hope you’ll be able to join us in Hawaii sometime soon. 

Calton: I hope so. I’ve never been there; I need to visit the state.

Akina: Great. My guest today has been Chris Calton, a research fellow in housing and homelessness at the Independent Institute based in Oakland, California. I’m Keli‘i Akina. We’re on ThinkTech Hawaii’s “Hawaii Together.” Until next week, aloha.