Why California is Failing on Affordable Housing

“It is an all-hands-on-deck time for this industry to get involved,” Robert Pinnegar, president and CEO of the National Apartment Association, said on the Affordability Dilemma: Increasing Demand; Increasing Challenges panel at GlobeSt Apartments this week. The discussion focused on the housing affordability crisis, and many speakers highlighted California as one of the most challenged markets. The panel included Kitty Wallace, EVP at Colliers International; James D’Argenio, senior principal of acquisitions at The Bascom Group; Christopher Finlay, chairman and CEO at Lloyd Jones; Michael Miller, chief marketing and production officer at 5 Arch; as well as Pinnegar.

“We have done research on development and barriers to development. California is at the bottom of both lists,” said Pinnegar. “Those create real challenges for society and for the industry. Everything from housing to affordability are an issue. There are issues everywhere. This industry needs to change its view toward being involved.” Pinnegar encouraged the industry to get more involved not only to fight rising regulations, like rent control, but also to suggest alternative strategies to aid in the affordability crisis.

D’Argenio also finds California to be the most challenged for affordability, sharing a comparison between Dallas and Los Angeles. In looking at data, D’Argenio found that workforce housing in California is 150% more expensive than workforce housing in Dallas; however, wages were only 12% higher. Both markets have also experienced similar rent appreciation. “I think that you have two inputs for housing affordability. For operators, we can only focus on one, which is to operate through the rent role,” he said. “It is an issue in major urban markets, so hopefully we can have some collaboration to solve it.”

The problem with California is sprawl, according to Miller, and even now, many markets are adverse to creating density. As a result, the state not only suffers from affordability issues, but it is also a leader in super commuters. California has the highest percentage of super commuters in the country. However, the sprawl is also creating some opportunity. He is seeing developers go into markets like Compton, where single-family houses are sitting on R4 or R5-zoned sites. While this might not be the scale of density that most investors want, it is a start to creating more units.

Pinnegar added that California needs to consider out-of-the-box solutions to solve the affordability problem without capping rents or implementing harsher rent control restrictions. Part of those solutions should be incorporating public transit. “It is going back to an entrepreneurial approach to do that,” he said. “We as an industry have gotten used to doing things in one way.”