California’s SB 9 and SB 10 and the Future of American Housing Policy

by Noah Grenert

Image: Rethinking The Future


What You Can Do:

  1. Join the fight for renter protections in Ithaca by getting involved with the Ithaca Tenants Union https://www.ithacatu.org/news.
  2. Volunteer for the Solidarity Slate in the Ithaca Common Council Elections https://ithacasolidarityslate.org/issues.
  3. Learn about YIMBYism by going to https://newyorkyimby.com/ or your local YIMBY organization.

On September 16, shortly after surviving a recall attempt, California governor Gavin Newsom signed into law two bills designed to increase the state’s housing supply [1]. SB 9, also called the Housing Opportunity and More Efficiency (HOME) Act, effectively ends single-family zoning in most areas. It enables homeowners to split their lots into two separate lots and to make each lot a duplex instead of a single-family residence [1]. In essence, a lot which could previously situate only one unit can now situate four. The other bill, SB 10, lets localities zone any parcel for 10 units so long as it is located close to transit or in an urban infill area. It also exempts this rezoning from costly environmental requirements [1]. These bills follow in the footsteps of other states which have passed laws to increase low- and middle-income housing and demonstrate a shift in housing policy away from the preferences of upper-middle-class homeowners and towards one that emphasizes racial and economic justice.

America is currently facing a housing affordability crisis, and it is especially acute in California. As of August 2021, the median price of a home in California was more than $827,000 [2], twice the national average [3]. Home prices have doubled in the last decade [4]. The crisis is especially burdensome on low income communities. More than 79% of the state’s extremely low income households—which the Department of Housing and Urban Development defines as families whose income is below the federal poverty line or 30% of the median income in their area—spend over half their income on rent alone [5] [6]. The reason for the massive price increases is a skyrocketing demand for housing (as tech workers have migrated to the state) and a comparatively anemic rate of new supply. For every housing unit built in the state, there were 3.2 new jobs created [2]. Only about 100,000 units are being built each year, about half the rate in the early 2000s [7]. 

Many experts believe that the reason for this supply lag is the organized opposition of homeowners and local governments to the creation of new housing. Why would homeowners be opposed to new housing? Simply put, new construction drives down the prices of existing houses because buyers have other options. Many homeowners, who are wealthier and whiter than the average Californian , also oppose construction of multifamily housing on the grounds that it will ruin the “neighborhood character” [24] [25]. Historically, this justification has had racial undertones. Single-family zoning laws served as a useful tool for cities in both the North and South to skirt the Supreme Court’s 1917 ban on racial zoning in Buchanan vs. Warley because they priced out economically disadvantaged minorities (who may have been able to afford an apartment but not a house) from white neighborhoods [8]. Local governments are beholden to the desires of homeowners, who are wealthier, more politically connected and engaged. As a result, they have opposed state takeover of housing policy and changes to exclusionary zoning practices [9]. 

Wealthy homeowners and local governments have formed a strange alliance with progressive groups who argue that building new housing will increase gentrification [2]. This argument seems on the surface faulty: lack of housing supply should logically be a driver of gentrification itself. When high earners find that housing is too expensive in wealthier neighborhoods, they move into lower-income areas with cheaper housing and displace that area’s current residents. However, there is conflicting empirical evidence on the issue [13]. Progressive groups have worked with homeowners to lobby legislators against housing reforms in the state. In 2018, State Senator Scott Weiner introduced SB 827, which would have overruled local zoning to allow 8-story buildings near transit centers. The bill died in committee. He introduced a similar bill, SB 50, which was defeated in early 2020 [10]. 

What changed in the last year that allowed SB 9 and SB 10 to pass? First, the scope and design of the bills smoothed the process. Both bills are less ambitious, and thus less controversial, than SB 827. SB 9 theoretically could create 700,000 new housing units in existing neighborhoods, but the actual number built will likely be fewer [11]. SB 10 only allows zoning for up to 10 units, not an 8-story building like SB 827 [1]. The design of SB 9 may have divided the opposition. Homeowners who wanted to build an extra property to make a profit may have supported SB 9 despite past opposition to other housing reforms. Second, the pandemic slowed construction and exacerbated California’s housing shortage, giving further credence to reform advocates’ claims. Home prices increased a whopping 17% from 2020 to 2021 [2]. Lastly, the strength of interest groups supporting reform has grown along with national trends in thought towards prioritizing racial and economic justice. The White House has advanced the same arguments as supporters of SB 9 and SB 10 in its blog. In an article titled “Exclusionary Zoning: Its Effect on Racial Discrimination in the Housing Market,” the authors write that there is a “relationship between restrictive land use regulations and higher housing prices” and that “exclusionary zoning contributes to the racial wealth gap” [12]. 

California’s housing bills could have other positive impacts apart from increasing the housing supply. SB 10 in particular should benefit the environment. This may seem peculiar at first because the law allows localities to get by climate regulations in order to speed up rezoning. However, building denser housing near public transit should decrease emissions. CO2 emissions from cars account for over a third of California’s total, and car ownership and miles driven are actually increasing [14]. This trend has become the state’s major obstacle to meeting its climate objectives. Public transit emits less than half as much greenhouse gases per passenger mile than single-occupancy vehicles [15]. SB 10, by building new housing close to transit, should decrease car usage relative to public transit and thus lower emissions. Opponents of the bill argue that bypassing environmental regulations could have consequences for California’s native plants and animals. The California Environmental Quality Act (CEQA) enables citizens to sue to stop development based on environmental damages. While it has occasionally been used to good effect, it more often serves as a pretext for rich, white communities (who can afford expensive lawyers) to halt development in their area. One study found that 85% of CEQA lawsuits are filed by groups with no history of environmental advocacy, and that 80% target urban infill projects [16]. CEQA has been cited to block homeless shelters, bike lanes, and even a solar farm [17]! If a piece of environmental legislation is stopping clean energy projects, it has clearly outlived its usefulness.

It remains to be seen how SB 9 and SB 10 actually play out in practice. Already, issues are being raised by outside advocacy groups. The land use law firm Holland and Knight write that SB 10, while it exempts the rezoning from CEQA, does not exempt the actual projects being built [18]. That means new developments could get mired in legal battles, though the total process should still be faster under the new law. Regarding SB 9, they argue that its lot splitting provisions might conflict with existing laws protecting mortgage lenders , so the actual implementation of the law will be key in determining its practical effects [19].

Even if they are effectively implemented, the new housing laws will not solve California’s housing crisis. Experts say that the state needs 1.8-3.5 million more units, far greater than even the highest expectations for the bills [20]. The laws’ greatest impact, then, might be one of momentum: their passage provides energy and confidence to advocacy groups and signals to groups in other states that reform is possible with enough effort. California was a beneficiary of this effect. Minneapolis banned single-family zoning in 2018, and Seattle banned it in many neighborhoods in early 2019 [21]. Then, a few months later, Oregon issued a statewide ban [21]. These bans mobilized yes-in-my-backyard (YIMBY) groups in the state to lobby for the bill. SB 9 and 10’s passage in California, a state with powerful organized interests opposed to reform,  might similarly motivate other groups in Charlotte, Atlanta, and Connecticut, where upzoning legislation is currently being considered [22].

The momentum is on the side of the reformers, but there are deep divisions within the movement that will affect the future of housing policy nationwide. At issue is whether market-based solutions like upzoning are sufficient for increasing supply and affordability, or whether those measures need to be combined with affordability requirements, public housing, and/or rent control to ensure that low-income communities are accommodated and not displaced. During past housing shortages, such as in the years following WWII, the federal government stepped in because market actors were failing to adequately increase supply. The federal government built giant public housing developments and subsidized the creation of suburbs. This intervention successfully made homes more plentiful and affordable, with the gaping caveat that almost all of these developments were explicitly or implicitly segregated, causing white people to reap the lion’s share of the benefits [23]. It does provide evidence, though, that direct government involvement may be necessary to increase housing supply. The YIMBYs, in contrast to public-housing-in-my-backyard (PHIMBYs), counter that price control measures like affordability requirements and rent control decrease the incentive for developers to build and maintain properties, further constricting supply. Cutting-edge economic research is currently being done on the effects of upzoning and price controls that may eventually settle the debate, but for now, it rages on [13]. 


References

[1] https://www.gov.ca.gov/2021/09/16/governor-newsom-signs-historic-legislation-to-boost-californias-housing-supply-and-fight-the-housing-crisis/ 

[2] https://www.forbes.com/sites/richardmcgahey/2021/09/27/new-california-laws-attack-the-states-housing-crisis/?sh=25f7976e3166 

[3] https://www.nar.realtor/blogs/economists-outlook/august-2021-existing-home-sales-decline-and-home-price-appreciation-slows

[4] https://www.ppic.org/publication/californias-housing-market/

[5] https://www.housingonline.com/2014/07/09/hud-modifies-extremely-low-income-definition/ 

[6] https://chpc.net/demystifying-californias-affordable-homes-shortfall-2020/ 

[7] https://www.ppic.org/wp-content/uploads/r-118hjr.pdf 

[8] https://www.uwba.org/blog/stories/the-history-and-future-of-single-family-zoning 

[9] https://www.lajollalight.com/news/story/2021-09-17/governor-signs-disputed-sb-9-and-10-housing-bills-into-law 

[10] https://www.nytimes.com/2020/01/30/business/economy/sb50-california-housing.html 

[11] https://ternercenter.berkeley.edu/wp-content/uploads/2021/07/SB-9-Brief-July-2021-Final.pdf 

[12] https://www.whitehouse.gov/cea/blog/2021/06/17/exclusionary-zoning-its-effect-on-racial-discrimination-in-the-housing-market/ 

[13] https://www.brookings.edu/blog/how-we-rise/2021/07/15/the-double-edged-sword-of-upzoning/ 

[14] https://grist.org/article/whats-driving-californias-emissions-you-guessed-it-cars/ 

[15]https://www.transit.dot.gov/sites/fta.dot.gov/files/docs/PublicTransportationsRoleInRespondingToClimateChange2010.pdf 

[16] https://www.cerescourier.com/opinion/editorial/nimbys-create-perfect-wildfire-storm-using-ceqa-bludgeon-housing-projects/ 

[17] https://www.theatlantic.com/ideas/archive/2021/03/signature-environmental-law-hurts-housing/618264/ 

[18] https://www.hklaw.com/en/insights/publications/2021/09/sb-10-to-facilitate-upzonings 

[19] https://www.hklaw.com/en/insights/publications/2021/09/ca-gov-signs-landmark-duplex-and-lot-split-legislation-into-law 

[20] https://calmatters.org/housing/2021/09/california-housing-crisis-newsom-signs-bills/ 

[21] https://www.bloomberg.com/news/articles/2019-07-02/upzoning-rising-oregon-bans-single-family-zoning 

[22] https://www.limaohio.com/news/business/464921/residential-upzoning-what-it-means-for-housing-and-for-you 

[23] https://homesnow.org/short-history-of-public-housing-in-the-us-1930s-present/ 

[24] https://www.ncbi.nlm.nih.gov/pmc/articles/PMC3673264/ 

[25] https://www.lewis.ucla.edu/research/overcoming-opposition-to-new-housing/