Since 1969, California has used Soviet Union–era central planning methods to try to increase its housing supply. And what California has shown in these 50-plus years is what we have always known about central planning: It always fails. And miserably so.
Top-down command-control programs fail because they violate the basic market forces of supply and demand and because they suppress individual freedoms. California started down the command-control rabbit hole regarding housing with a 1969 state law that created the Housing Element and Regional Housing Needs Allocation (RHNA) program. This program mandates that every California community must plan for its housing needs, regardless of income.
The five words “housing needs” and “regardless of income” tell you all you need to know to understand why this program has failed. What are “housing needs,” exactly? Millions would love to live in the areas overlooking the beaches of California, particularly if income weren’t a factor. Does this mean that millions of Californians have an unmet “need” to live in Malibu? Or San Diego? Or Santa Barbara? Or Laguna Beach? And what of the millions more who live outside of California but would flock to the state if they had opportunities to live in some of the most expensive communities in the world, regardless of their income?
California bureaucrats have tried to figure this out by giving every community a mandatory housing quota every eight years. California’s median state home price of nearly $775,000 demonstrates just how badly this program has worked.
Nowhere is the failure of the state’s top-down housing mandate better illustrated than what happened last week in Atherton, a small (five square miles) community of about 7,100 people in Silicon Valley. Atherton happens to be the home of San Francisco Warriors basketball star Steph Curry and his family, which is why the town was all over the news last week as it was rushing to come up with a plan to submit to the state for its mandated 348 homes to be built between now and 2031.
Where did the quota of 348 new homes come from? The Community Development Agency is supposed to base its quota on its prediction of the number of new jobs they expect in each new community. But there is one big problem with this approach when it comes to Atherton: the town has no businesses, per se. Most of the town doesn’t even have sidewalks. Besides its 2,200 or so homes, Atherton has eight public parcels of land, consisting of schools, a small college, a park, a town center that houses the library, the mayor’s office, the town council chambers, the police department, and a fire station.
So where does Steph Curry enter the story? Curry wrote a letter to the city expressing concerns about his family’s safety and privacy regarding the town’s consideration of allowing the development of 16 townhomes at a site near Curry’s single-family home as part of its plan to meet its quota of 348 new homes. But Curry’s letter became part of the town’s public record, hence putting the basketball star and Atherton under the media microscope last week.
Atherton has always been a community of single-family homes. But new California laws make it easier for developers to construct multifamily housing. The potential 16-unit development near Curry’s home would be the first of its kind in Atherton. And as the town scrambled to figure out just where 348 new homes would fit, it considered the approximately 1.5-acre property at 23 Oakwood Boulevard, whose current owners had expressed interest in developing as a 16-unit complex, as one that could help satisfy its mandate.
Atherton was struggling to figure out its mandate because there are few locations within Atherton left to develop. With a median home price of about $7.5 million, it is not as if there are dozens of vacant lots within the town just waiting for a new home. There is a beautiful 22-acre park that was willed to the city in the late 1950s, but those 22 acres would be gifted to Stanford University if Atherton did not continue to use the land exclusively as a park. And other than the owners of 23 Oakwood Boulevard, few homeowners have expressed any interest in building multifamily housing.
Curry was decried in some media articles as another member of the “Not in My Backyard” (NIMBY) crowd. But Curry and his family have legitimate safety and privacy concerns. A potential 16-unit multistory complex at 23 Oakwood Boulevard could create a paparazzi’s dream opportunity to take photos of Curry and his family. Celebrity photos now fetch as much as $85,000, and if those living at 23 Oakwood Boulevard didn’t have the photographic equipment or skills to take such photos, they could charge a hefty fee to professional photographers to use their homes for that purpose.
If Atherton doesn’t come up with a plan, it exposes itself to “the builders remedy,” which forces cities and counties that are out of compliance with their state planning mandate to approve any housing anywhere in the community provided that 20 percent of a project’s units are set aside for low-income renters and buyers.
So, just what does Atherton do? It is stuck between the proverbial rock and hard place. Nearly 90 percent of Atherton’s homes are occupied by their owners, and the town can’t force its residents to convert their single-family homes into duplexes or fourplexes or condominium complexes. They can’t tear down their schools. They can’t use their 22-acre park. They can’t tear down their fire station.
They could possibly tear down their town center to build a high rise tall enough to contain those 348 units, probably 25 stories, maybe more. But with an annual city budget of only $18 million, the town could never pull off such a project, which could cost north of $250 million given current costs of building “affordable” housing within the state. And building at this location would involve significant environmental complexities, particularly the relocation of major water pipes that lie beneath the town center. This would add years to the completion of such a project, one that would never be move-in ready within the eight-year state planning horizon.
To avoid the “builder’s remedy,” Atherton created a plan that it submitted to the state at the 11th hour last week. Most of the new housing (280 of the mandated 348 units) would be from new Accessory Dwelling Units (ADUs), which are small guest houses, at existing homes. Additionally, the Menlo School, a prep school located on 62 acres in Atherton, and Menlo College, located on 45 acres, agreed to build a total of 80 units on their campuses, presumably for faculty, administrators, and other staff. All told, Atherton’s plan would create 453 units, well over the 348 mandated units.
As far as the potential 16-unit project at 23 Oakwood Boulevard goes, the town slated four of those units to be set aside for “very low to low”–income households should it be built. For a very low–income family of three, the maximum rent would be $2,056 per month. This rent is probably 60 to 75 percent below the market rate rent of such a unit.
Ironically, this means that the 16-unit project may never be built, given that the other twelve units would need to be priced at a sufficiently high level to offset the large losses on the four subsidized units. For a project that will likely cost $40 million or more to build and that may take years to complete, this means that the 12 market-rate units would need to be priced in the $4 million range to make the project pencil out.
Perhaps there are willing buyers at that price point, but on the other hand, even in Silicon Valley there are beautiful homes that are larger, with much more privacy, and with large private yards, such as this 2,500-square-foot, $3.5 million single-family home in pricey Woodside, a very similar community to Atherton, located next to it.
Central planning always fails. It failed in the USSR. It failed in China. And it has failed for the last 53 years in California’s housing sphere. Imposing top down, one-size-fits-all housing quotas on every community in the state is inefficient and ineffective and violates individual and community rights. Much more housing within California would be built if legislators were to rewrite the state’s antiquated environmental laws; reduce regulatory burdens that drive constructions costs on affordable housing projects to levels that exceed those of luxury homes; and provide communities with financial support and incentives where more housing, particularly high-density housing, makes sense, with projects that achieve community buy-in.
The state is missing an enormous number of residential development opportunities. There are tens of thousands of vacant lots in Los Angeles alone, many of them vacant for over 50 years, that can be developed. There are retail, industrial, commercial, and agricultural locations throughout the state that have greater value today for residential use that could be developed.
Reasonably priced housing is ours for the taking, but only with regulatory reforms, a far greater reliance on the market process, and respect for individual and community freedoms. Since 1969, California’s housing politburo has chronically failed. Isn’t 53 years of failure enough?