Governor Unveils Carrot-and-Stick Approach to Boost Housing Production

“The number one driver of cost of living is housing – housing is the issue. Unless we get serious about it, the state will continue to lose its middle class and the dream will be limited to fewer and fewer people.” – Governor Gavin Newsom

During his campaign, candidate Newsom laid out ambitious goals for housing production – 3.5 million new housing units by 2025, implying a production rate nearly four times faster than in recent years.

In his just-released budget, Governor Newsom made his first official housing policy statement and related substantive proposals. The goals are still ambitious, although the results will not be apparent for many years.

The Governor recognized that most new housing must be produced by the private marketplace, and that one of the key stumbling blocks is local government approval. His budget reminds us that “Local governments have a key role in ensuring the building of adequate numbers of housing units to meet local needs. They have primary control over land use and housing-related decisions and enact policies that either encourage or discourage housing construction.”

The centerpiece of the Governor’s housing policy is to revamp regional housing needs and to begin to enforce local governments’ obligations to meet those needs. The administration will no longer simply advise local agencies on how to meet those needs, but now will “oversee and enforce regional housing goals and production.”

The administration will provide incentives to accomplish these goals by allocating $250 million in short-term grants to help local agencies improve their planning and permitting systems. If cities and counties deliver on their commitments, the administration will make another $500 million available for general municipal purposes.

Along with these carrots, the Governor unveiled a stick: linking housing production to certain (not-yet-specified) transportation funds, and possibly other local economic development resources. This is potentially a serious attention getter and has already drawn opposition from local government and some legislators.

In addition to his ambition to directly influence local planning, zoning and permitting of market-rate development, the Governor proposes more tools to encourage subsidized and “affordable” housing:

  • $500 million for subsidized loans for mixed-income developments.
  • Expanding by five-fold the state low-income housing tax credit, a key lever to motivate investment in subsidized housing.
  • Providing access to state-owned property for private affordable housing projects.
  • Easing approvals for long-term debt for local financing districts that want to provide infrastructure for housing and other economic development projects.
  • Allowing local infrastructure districts to join with federally designated Opportunity Zones by providing similar capital gains tax benefits for investments in these zones in affordable housing and “green technology” projects.
Loren Kaye was appointed president of the California Foundation for Commerce and Education in January 2006. He has devoted his career to developing, analyzing and implementing public policy issues in California, with a special emphasis on improving the state's business and economic climate. He also was a gubernatorial appointee to the state's Little Hoover Commission, charged with evaluating the efficiency and effectiveness of state agencies and programs. Kaye served in senior policy positions for Governors Pete Wilson and George Deukmejian, including Cabinet Secretary to the Governor and Undersecretary of the California Trade and Commerce Agency. See full bio.