California voters made a strange choice about housing on Election Day. They voted to give buyers more money to chase scarce homes — and against making it easier to build more of them. That is a textbook case of how not to make housing more affordable.
Proposition 37, approved with more than 60 percent of the vote, authorizes the California Housing Finance Agency to issue as much as $25 billion in revenue bonds for a new down-payment assistance program. The state can provide buyers with second mortgages covering as much as 17 percent of the price of a newly built home. Buyers will need to put down only 3 percent.
The measure isn’t narrowly targeted for the poor. Households earning as much as twice the median income in their area can qualify, and eligible homes can cost roughly $1 million to $1.5 million, depending on the county.
Giving buyers more money to bid on a limited number of homes simply pushes prices higher. Britain experienced this with its Help to Buy program. The government offered loans worth as much as 20 percent of a new home’s price, and later the assistance rose to 40 percent in London. One academic study estimated that the larger London subsidy pushed new-home prices about 8 percent higher. A government evaluation found a smaller effect but also concluded that subsidies increased prices, particularly in already expensive markets.
What California really needs is to let builders build more. Yet voters went the other way on Proposition 45. The measure would have streamlined environmental reviews and lawsuits under the California Environmental Quality Act for certain projects, including housing. Environmental reviews generally would have faced a 365-business-day deadline, while courts would have had 270 days to resolve CEQA challenges.
Frivolous CEQA lawsuits routinely delay projects for years, raising financing and construction costs. Unions use the threat of CEQA litigation as leverage in negotiations with developers. The California Building Industry Association estimated that Prop. 45 could have reduced the cost of building a home by an average of $75,000. But voters rejected it, 56 percent to 44 percent.
Housing data released Thursday underscore why that matters. Existing-home sales nationally fell 5.5 percent in October to their slowest pace since 2010. In the West, sales plunged 9.7 percent in a single month, yet the region’s median home still cost $624,300. Fewer sales over the course of this year haven’t made homes affordable.
California says it needs roughly 312,500 new homes each year. Only about a third that many were built in the state last year. High prices attract developers eager to earn a profit, but permitting delays, regulatory costs, union headaches and litigation threats make investing in the Golden State less enticing. Other states, such as Idaho, have shown that removing barriers to construction can allow the market to quickly respond.
The largesse of Prop. 37 could help some recipients buy sooner and, because the assistance applies to new construction, might encourage some building. But California cannot spend its way out of scarcity.
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