Common sense tells us if you raise the cost of making something, you’ll get less of it.
The Santa Ana City Council’s progressive majority recently voted common sense out the window and voted to raise the cost of home construction – while claiming it would actually spur developers to build more housing.
California has a housing affordability crisis. There’s a lot of demand, and not enough supply. As is the case with in-demand products and services, the prices of those goods and services will increase until their is a counter-balancing increase in supply.
California’s housing supply isn’t keeping pace with demand in large part because is because it is very difficult and expensive to build here – largely due to government overregulation.
In the fall of 2020, in a fit of sanity, the Santa Ana City Council took a step in the right direction: lowering the cost of building housing by cutting the in-lieu fee to $5 from $15 per square foot – where it had been since October 2015.
Revenue from the in-lieu fee goes into the city’s inclusionary housing fund.
But as Councilman Phil Bacerra, the sponsor of the reduction pointed out last month, “No developers pulled building permits from October 2015 [until] September 2020, when we reduced the fees to $5 per square foot, along with other items.”
“That was zero dollars going towards down payment assistance for first-time homebuyers. That’s zero dollars going towards rehabbing existing affordable units here in Santa Ana,” said Bacerra.
So from October 2015 to September 2020, when the fee stood at $15 a square foot, the inclusionary housing fund received no fee revenue.
Since the fee was reduced to $5 a square foot, the city has collected more than $9 million in fee revenue for its housing fund.
The moment of policy clarity proved fleeting. The November 2020 election brought to power a progressive majority: Mayor Vince Sarmiento and Councilmembers Jessie Lopez, Thai Phan and Johnathan Hernandez. They not only resurrected that failed policy, but found a way to make it worse.
First, it ratcheted the in-lieu back up to $15 a square foot – unless developers agree to only use expensive union labor on their project, in which case they can pay the $5 per square foot fee.
In other words, the city is telling housing providers to pick their poison: higher in-lieu fees or higher labor costs. Either way, it translates into making it more expensive to build housing in Santa Ana – therefore leading to less new housing and exacerbating the affordability crisis.
It takes a special sort of ideological hubris to disregard proven success in order to double down on failure.
The state has told Santa Ana it needs to build 3,137 housing units before the end of the decade.
Good luck with that.
It’s a pretty safe bet this new policy will stifle housing construction in Santa Ana. The real question is whether the progressive council majority will shackle itself to failure or be open to embracing policies that work.