Thread by @CSElmendorf

THREAD: My rebuttal of a junk report from The Embarcadero Institute (who are they?!?) about projections of housing need in California. 1/17

https://twitter.com/elpaavo/status/1308983915307294723

The EI posits that the “math is wrong” in California's new regional housing targets, owing to adjustments triggered by SB 828, a bill enacted in 2018. /2

EI contrasts “the SB 828 double count” with what it calls a “conventional economist approach,” under which housing need is equal to projected household growth plus a small vacancy adjustment. /3

This is nonsense. No “conventional economist” would equate California's housing need with projected household growth. That forecast *bakes in* the housing crisis: shortages -> high rents -> slow growth, as working-class families flee the state. /4

SB 828 attacked the mistaken equation of housing need with forecasted household growth. /5

The bill's core idea is pretty simple: California’s housing targets should be adjusted to mirror the conditions of “healthy housing markets” elsewhere in the country. Markets which produce housing that middle-income families can afford. /6

In healthy housing markets, new housing prices are just a little higher than the labor-and-materials cost of construction, older units are affordable to working-class families, and only the poorest households need subsidies. /7
aeaweb.org/articles?id=10…

Yet like most legislation, SB 828 is a bit of kludge. Rather than build from first principles, it empowered HCD to make ad-hoc adjustments to the traditional metric of need, using a big vacancy factor plus cost-burden and overcrowding rates in “healthy housing markets.” /8

An aggressive HCD might have set targets based on *rates of housing stock growth* in high-demand, low-crowding, generally affordable regions. The nation’s affordable metro areas have grown their housing stocks by 30%-50% in barely a decade. /9

Instead, HCD backed into a pale approximation of the healthy-housing market norm. HCD dutifully multiplied the baseline forecast of households by ad-hoc overcrowding and cost-burden factors, and added the 5% vacancy adjustment expressly authorized by statute. /10

The most ambitious of the resulting targets, for the Los Angeles region, is equivalent to 25% growth over a decade. /11

These not aggressive targets. HCD entirely ignored one statutory factor (jobs / housing imbalance), and allowed local councils to make dubious assumptions about other factors. The Bay Area’s target could easily have been 245,000 units higher. /12 lewis.ucla.edu/research/regio…

But the more fundamental point is this: Setting housing targets is not just math. It's politics. The legislature told HCD to set much bigger targets, and gave HCD new “factors” for this purpose. HCD did pretty much as it was asked (save for the jobs-housing factor). /13

What then of EI’s “double-counting” claim? It's premised on the notion that DOF already adjusted for overcrowding and cost burden through headship-rate assumptions. But DOF simply recognized that the most recent Census (2010) captured the extremely abnormal... /14

conditions of the Great Recession. DOF inferred a “normal” headship rate by averaging the 2000 and 2010 Census. It goes w/o saying that CA’s housing market was not healthy in those years. Thankfully, SB 828 required further adjustments. /15

Last point: if a city truly can't meet its housing targets, even after upzoning and constraint removal, the CA housing framework provides an out: the city may set "quantified objectives" below its housing target. /16

But to use this escape hatch, the city must show that market conditions or a lack of funding--as opposed to restrictive land-use policies--are truly to blame for the city's predicament. In California, that's not an easy case to make. /end