In 2017, gubernatorial candidate Gavin Newsom made housing his major campaign priority, stating, “As governor, I will lead the effort to develop the 3.5 million new housing units we need by 2025, because our solutions must be as bold as the problem is big.”
His 2019 inaugural address promised housing policy that would be equivalent to the “Marshall Plan”—referencing the United States’ large investments that helped rebuild Europe quickly after World War II—to expand California’s housing supply, reduce homelessness, and increase housing affordability.
But four years into his governorship, new home construction is 87% below Newsom’s goal of 3.5 million new homes. When asked about this shortfall, Newsom vacillates. On some occasions, he has walked back his 3.5 million campaign vision, calling it a “stretch goal,” and going so far as to invoke Michelangelo’s famous dictum about taking risks, paraphrasing, “The biggest risk in life, however one defines risk, is not that we aim too high and miss it. It’s that we aim too low and reach it.”
At other times, he reaffirms his vision of 3.5 million new housing units, stating, “I don’t know how many times I have to say it. You’ve heard me say it a hundred times. I’ll say it 101—3.5 million is the number,” as he claims that his housing policies are successful.
Putting Michelangelo aside, just how has California residential construction fared under Newsom’s governorship? Since Newsom took office, California residential construction remains at levels similar to those of the 1981–82 recession, one of the most severe recessions since World War II, which featured fixed-rate mortgages with interest rates exceeding 18%—and when the state had 15 million fewer people.
Look at this historical graph that shows construction back to 1980, and you will see that the residential construction needle hasn’t moved in California. With so little construction, home prices have continued to rise, despite higher mortgage interest rates. California’s median home price is now $735,000, an increase of about 38% over the $534,120 median home price that prevailed when Newsom took office in January 2019.
California is among the worst states in the country for home affordability. Only 17% of California households can afford the monthly payments that would finance the state’s median-priced home, compared to 38% median-home affordability in the rest of the country.
California’s affordability statistic is even grimmer when one recognizes that it presumes the buyer has the 20% down payment plus other closing costs needed to purchase such a home. For the state’s median-priced home, this would total around $160,000 in cash due at closing.
Just how many households who currently rent have this level of funding available? Hardly any. The Census Bureau reports that the median net worth of households who rent their home is only around $6,000.
So just where is Newsom’s “Marshall Plan” for housing? To understand what has happened, you need to separate accomplishments from spending. The state has spent billions of dollars on housing and homelessness during Newsom’s governorship. The unfortunate reality is that spending doesn’t equate to productive outcomes within state government.
California’s fiscal year 2019–20 and 2020–21 budgets dedicated $2.4 billion and slightly over $2.0 billion, respectively, to housing and homelessness. The housing budget rose to $10.7 billion in the 2021–22 budget, providing funding that was allocated to 50 different programs. An additional $7.2 billion, allocated to 20 different programs, is being spent in the 2022–23 budget.
This totals over $22 billion in spending over the last four years, yet the state’s housing shortage and homelessness problems have become more severe than ever. Spending doesn’t go far when construction costs for “affordable” housing are ridiculously high. How high? Los Angeles was spending $837,000 to build a one-bedroom apartment unit within a $1.2 billion project last year. One year later, costs probably have risen 10% or more, and by the time the project is completed, it is very possible that the cost of housing one person in LA will have risen to $1 million.
There was a project in Solana Beach, just north of San Diego, whose costs rose to $1.1 million per unit, and which was subsequently shelved by the developer. There is a project in Milpitas for which local government is spending about $1,500 per square foot to buy and convert a motel into one-bedroom apartments. To benchmark this cost, note that Prince Harry and Meghan Markle’s Montecito estate, including five acres of land, cost about $785 per square foot. Then there is Santa Clara County and the city of Palo Alto, who are spending over $70 million on a mobile-home park with 270 residents.
These insane examples might end up being comparative bargains next to the cost of renovating—not building—apartments in San Francisco, where the per-apartment renovation cost exceeds $1 million. This is not a typo, in case you think that there is no way one can spend $1 million renovating an apartment. It turns out you can if you are spending other people’s money.
Newsom created a Housing Accountability Unit in 2021 to increase oversight of housing projects. On the first anniversary of the unit’s existence, Newsom stated in a press release that the unit has “moved with a fierce intensity to break the status quo and remove bureaucratic roadblocks.” Unfortunately, there is no intensity, much less fierce intensity, within the unit when it comes to overseeing budgets such as those cited above. It appears that the unit pays no attention to costs. So much for accountability, at least as far as it concerns taxpayer funds.
Newsom has now set his sights on a much more modest housing goal—figuratively and literally—by planning to spend $30 million to purchase 1,200 “tiny homes.” These are 120-square-foot structures that are equivalent to tool sheds. At 120 square feet, this works out to about $208 per square foot, which is not quite the bargain you might think when you consider that there is no plumbing, and when quality housing—with plumbing—in much of the rest of the country can be purchased for less per square foot.
In his first year as governor, in an interview about the housing problem with the Los Angeles Times, Newsom stated, “I own it. I’m not walking away from it. I’m not abdicating responsibility and accountability.” Now in his fifth year as governor, I wonder what he would say now?