Brian Hanlon is chief executive officer of California YIMBY.
Costco’s $1.50 hot dog and soda combo is famous for its unwavering affordability — unchanged since 1985. Costco subsidizes the combo to keep the price low but wins in the long run because customers who come for a cheap lunch end up leaving the store with full carts.
In an interesting twist, Costco’s lesson about subsidizing select inventory in exchange for greater overall profit is being utilized by a housing developer in south Los Angeles. A new housing development, being built by Thrive Living in Baldwin Village, will offer 800 apartments, including 184 low-income units, with a Costco store on the ground level. But instead of bringing in more customers, the affordable apartments allow the development to avoid the cost and regulatory burdens of discretionary hearings, pointless environmental studies and procedural sabotage.
The arrangement allows Thrive Living to take advantage of a 2022 state lawthat fast-tracks housing projects on commercially zoned land if the development includes a certain percentage of affordable units. If a project meets the objective standards in the law, it gets approved without having to jump through hoops of red tape. Since Thrive Living is leasing ground-floor space to Costco, the developer can afford including the low-income units without state funds. This makes the development financially viable without years of political delays or the administrative burden of relying on government housing subsidies.
It’s a clever hack, and has earned splashy headlines. But it is the exception that proves the rule about what’s broken in housing policy. There are only so many commercial properties where profitable, ground-floor businesses can feasibly subsidize affordable housing in exchange for regulatory relief. In other words, Thrive Living can support low-income units without leaning on government support because the Costco lease is sufficiently profitable to cover any losses. Downstairs: subsidized hot dogs. Upstairs: subsidized homes.
Most home builders are not so lucky, and anti-housing politicians know it. Regulatory mandates for private housing subsidies are often the primary tool that local jurisdictions use to kill new housing developments altogether. And while mixed-used commercial and residential projects are a good idea, most residential land isn’t zoned for this kind of project.
This matters because California’s housing problem is, first and foremost, a supply problem. The question isn’t how to engineer one-off deals that make a few hundred affordable homes possible. It’s how to accelerate the construction of hundreds of thousands of homes per year, on predictable timelines, at costs that middle-class Californians can afford without subsidies.
Policymakers can take three steps to increase home construction and build more affordable housing.
First, reform zoning laws to increase housing supply without imposing new costs. Requiring developers to set aside below-market rate homes with no public subsidy functions as a tax on new housing. When that tax is high enough, developments don’t get built, and prices stay high. Democratic state Sen. Scott Wiener’s S.B. 79, which makes it easier to build multistory housing near transit stations, points in the right direction.
Second, the core insight of the 2022 legislation, authored by state assembly member Buffy Wicks (D), is correct: When housing meets objective, preestablished rules, approval should be automatic and administered by professional staff, not subject to the political whims of local councils. California has continued to refine this model. New York policymakers are now looking to reform their environmental review laws and accelerate housing construction, illustrating the growing political appetite for these reforms.
Third, reduce fees that drive up construction costs. Research by California YIMBY, the organization I lead and a sponsor of the legislation discussed above, found that local jurisdictions in the state charge the highest development impact fees in the nation: $21,703 per multifamily home on average, compared with a national average of $8,034. These fees swing from under $3,000 to over $60,000 per home. Cities call them cost recovery, but our research shows there’s often little connection between the amount they charge for fees and the claimed expenditures. Instead, fees have become a politically expedient way to raise money by charging newcomers.
This is California’s civic religion: Demand robust public services while capping property taxes on existing residents — Proposition 13, adopted by California in 1978, remains the state’s original housing sin — and then make housing developers “pay” through a gantlet of per-unit charges and litigation risk.
If California wants parks, libraries, sewers — and, yes, subsidized affordable homes — it should fund them through broad-based, stable taxes, not by ransoming each marginal home with five- and even six-figure fees, and calling it urban planning.
The Golden State has learned hard housing lessons, but recent legislation reflects real progress. These bills are models that other housing-constrained states should study: Reform zoning laws to allow more types of affordable housing, streamline approvals through objective standards, and keep cost burdens low enough that housing actually gets built.
But the fee problem alone is enough to strangle the state’s pro-housing momentum. The Costco project in Baldwin Village is a billboard-sized lesson. When the rules are straightforward and the approval is by-right, Californians can get more homes, faster, with affordability provided by the market.
The challenge is making that the norm, not the novelty — and that means finishing the hard, boring work of bringing fees down to earth, and reforming zoning to increase density without new cost burdens.
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