It’s time to build housing in California, Part 1: How we got here

Exclusionary zoning distorted the housing market, and YIMBY is the backlash

California’s long experiment with car-centric, anti-growth policies is coming to an end. In our first series of posts, we will explore how we got here, what’s next, and how it affects real estate professionals and investors. This first post is about how we got here.

What we recognize as modern zoning started in Berkeley, CA in 1916. White and wealthy residents of growing communities did not want non-white, lower income neighbors. To prevent this, they created land-use requirements that enforced economic segregation. Only large lots with single family homes would be allowed in their “nice” parts of town. Recent books by Nolan Gray and Jenny Shuetz have all the sordid details.

The general pattern now holds in much of America, with notable exceptions like Houston. Grimes explains why.

California is an outlier due to its history of economic booms and unique topology. Sprawl is limited by physical barriers like the San Francisco Bay and commuting distance. High-pay tech and media created hundreds of thousands of jobs, attracting ambitious people from all over the world. The supply of new housing did not keep up with the growth of the economy. The newcomers bid up the price of existing units, displacing existing residents.

Two policy responses grew in the mid 2010’s, with opposing shapes.

The “left-NIMBY” group bet on tenant protections and blocking market-rate construction. They cast developers as the bad guys, since developers seek to maximize their profit and new units generally cost more than what they replace. Existing tenants benefit from this approach, as do local advocacy groups with political leverage over developers. The tradeoff is that housing costs increased for everyone else, as the competition for existing units increased. This movement appears to be losing steam as local and national left-wing leaders embrace the need for more housing, not less.

“Don’t Blame Developers For The Housing Crisis. “ - tenant advocate Randy Shaw, author of Generation Priced Out: Who gets to live in the new urban America

The YIMBY group bet on more supply. They support an “all of the above” solution, including new market rate housing, more affordable housing, and tenant protections. YIMBYs built momentum with legislative wins starting in 2016. Scott Wiener’s SB35 streamlined new supply in cities that don’t meet planning goals. Multiple laws unlocked ADUs in single family homes, effectively eliminating single family zoning. YIMBY as an advocacy group has its share of critics. Left-NIMBYs call them shills for developers, while some developers chide them for not building housing directly. YIMBY is growing.

Next up, part 2: It’s time to build housing in California: The impact of AB 2011 and AB 2097.