In the world of economic policy, good intentions often lead to unintended consequences. Nowhere is this more evident than in California’s approach to addressing the housing crisis through the Regional Housing Needs Allocation (RHNA) process. What began as a well-intentioned attempt to improve affordability has turned into a textbook example of misguided intervention, with potentially devastating consequences for the very people it is intended to help.
It’s well known that California’s housing crisis is real and urgent. The median home price in the state is more than double the national average, and in cities like San Francisco and Los Angeles the situation is even more extreme. It’s a crisis that requires action. But as economists have long known, not all actions are created equal.
In 1969, the state began using the RHNA as a regional advisory growth planning tool for cities and counties. In 2014, the developing affordability crisis prompted the state legislature to reorient the RHNA process from a housing growth tool to an urban redevelopment tool. Eliminating local control of urban land use was a central and necessary feature of this shift. At first glance, the idea seems simple: require cities to plan for more housing, especially affordable housing. But this is where things get out of hand.
In its new form, the RHNA sets targets for cities for housing production, but these targets are, to put it charitably, questionable. They lack any coherent economic basis for determining housing production rates.1 It’s as if politicians decided more housing was good, so let’s just take some big numbers and go with it. But the housing market is much more complex. Under its current policies, the state can’t even predict what would happen to affordability if the goals were met. It’s like trying to steer a ship with a compass that was intentionally set wrong. Despite the RHNA’s intent, the affordability crisis in every city continues to this day.2
Simply put, the RHNA process, as currently implemented, relies on the continuation of the affordability crisis to work. How ironic is that? The entire system is based on the assumption of ever-increasing property values. If property prices were to stabilize or decline, development would grind to a halt. It is a perfect example of a policy that is not only ineffective, but actively counterproductive. In fact, if property prices were to stagnate or decline, development would grind to a halt, undermining a key investment strategy for public pension funds and real estate funds.3 The government’s narrative thus serves as a PR campaign for investment firms seeking competitive returns, presenting misleading supply-side assumptions as well-intentioned policy. 4.5
RHNA: Driving gentrification under the guise of affordability
While RHNA is supposedly concerned with affordability, it is exacerbating the problem by promoting high-density luxury developments that are attractive to investors seeking long-term appreciation. This appreciation is driven by investors’ dependence on rising rents and purchase prices. There is no connection to meeting the true affordability needs of our most vulnerable citizens. This raises the question of how much more housing California really needs. The answer from a group of non-economic academic “experts” who advise the state was: “… much more housing – especially multifamily – but setting targets is based on vague assumptions.” 6 This is the ironic aspect of all the RHNA concepts: gentrification is necessary to create housing at all.7
There is a significant disconnect between RHNA’s stated goals and their implementation. In Santa Monica, RHNA allocations call for 69% affordable housing. This creates a “hidden multiplier effect” that results in far more luxury housing than the allocation suggests. RHNA allows developers to build with as little as 10% affordable housing. The result? A flood of luxury housing with a token dash of affordable housing. It’s gentrification disguised as progress.
Consider the Gelsons’ project on Lincoln Boulevard. Instead of the 359 affordable apartments that the RHNA allocation calls for, we only get 53, alongside 468 luxury apartments. This doesn’t solve the affordability crisis, it exacerbates it. The fundamental problem here is a misunderstanding of how housing markets work. Simply increasing supply does not automatically lead to affordability, especially when that supply is heavily skewed toward the luxury market. It’s a bit like trying to fight hunger by opening more five-star restaurants.
The gentrification paradox
We see the fundamental contradiction in the RHNA process, which is the paradox of gentrification. RHNA’s success in encouraging development actually undermines its goal of improving affordability. The new developments often target smaller, wealthier households and replace larger, lower-income families, which is one definition of gentrification. This is consistent with the types of housing units developers are allowed to build under current regulations.
In addition, the RHNA process ignores the role of demand in housing markets. California’s housing crisis is not just about supply; it is also about the concentration of high-paying jobs in certain areas, income inequality, and speculative investment in real estate. A policy that focuses solely on supply and ignores these demand-side factors is doomed to failure.
California’s housing crisis is a complex problem that requires sophisticated solutions. The current RHNA process, despite its good intentions, is a blunt instrument used in a delicate operation. Redesigning state policy would put economics, not politics, at the forefront. Ultimately, as Mark Twain might have said, it’s not just lies and damning lies we have to worry about, but misguided statistics embedded in bad policy. Californians deserve better. They deserve a housing policy that actually addresses affordability, not one that perpetuates the very crisis it’s supposed to solve.
The second part of next week’s article on this discussion, also with numerous footnotes, will focus on how affordable housing is not a supply problem.
FOOTNOTES:
1 – SB330 §3L Cide 65589.5(a)(2)(a)
2 – “Space to Build: The Question of Zone Capacity”, by Tim Helm and Cameron Murray,
August 11, 2024, New Economic Thinking
3 – “Pension systems drive rising rents,” by Andrew Khouri & Ben Poston, August 1, 2024, LA Times
4 – Stein, S. (2019). Capital: Gentrification and the Real Estate State (Jacobin). Verso Books.
5 – “California is suffering from a housing supply and affordability crisis of historic proportions.”
SB330 §3: Code 65589.5(a)(2)(a)
6 – Background paper for the California State Auditor regarding the audit ordered by the Legislature’s Joint Committee on Audit on October 11, 2021 (p. 12) – Chris Elmendorf, Professor of Law, UC Davis School of Law; Paavo Monkkonen, Associate Professor of Urban Planning and Public Policy, UCLA Luskin School of Public Affairs; Nicholas J. Marantz, Associate Professor of Urban Planning and Public Policy, UC Irvin School of Social Ecology.
7 – “Housing construction, filtering and displacement: unraveling the connections”
Authors: Miriam Zuk and Karen Chapple, 2016
“Upgrading New York City’s Zoning System: Analyzing the Impact of Zoning Changes on Displacement”
Authors: Zuk, M., & Chapple, K., 2019
Jack Hillbrand AIA, architect for SMa.rt
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Santa Monica Architects for a responsible future
Mario Fonda-Bonardi AIA; Robert H. Taylor AIA, architect; Dan Jansenson, architect & building and fire protection commission; Thane Roberts, architect; Samuel Tolkin, architect & planning
Commissioner; Michael Jolly, AIR-CRE; Marie Standing, resident; Jack Hillbrand AIA, architectPrevious articles can be found at www.santamonicaarch.wordpress.com/writing
