In the world of economic policy, good intentions often pave the way to unintended consequences. Nowhere is this more evident than in California’s approach to its housing crisis through the Regional Housing Needs Allocation (RHNA) process. What began as a well-meaning attempt to address affordability has morphed into a textbook example of misguided intervention, with potentially dire consequences for the very people it aims to help.
It’s known California’s housing crisis is real and pressing. 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 demands action. But as economists have long understood, not all action is created equal.
In 1969 the state began RHNA as a regional advisory growth planning tool for cities and jurisdictions. By 2014 the developing affordability crisis triggered the state legislature to refocus of the RHNA process from a housing growth tool into a redevelopment tool for cities. Eliminating local city land use control was a central and required feature of this pivot. On its face, the idea seems simple: mandate that cities plan for more housing, particularly affordable housing. But here’s where things go off the rails.
In its new form, RHNA sets housing production targets for cities, 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 policymakers decided that more housing is good, so let’s just pick some big numbers and call it a day. But the housing market is far more complex than that. Under their present policy, the state cannot even predict what would happen to affordability if targets were met. It’s like trying to steer a ship with a compass that’s been deliberately miscalibrated. Despite RHNA’s intent, the affordability crisis continues within each city to this day.2
Simply said, the RHNA process, as it’s currently implemented, relies on the continuation of the affordability crisis to function. How’s that for irony? The entire scheme is predicated on the assumption of ever-increasing property values. If housing prices were to stabilize or decline, new development would grind to a halt. It’s a perfect example of a policy that’s not just ineffective but actively counterproductive. In fact, if housing costs were to flatline or decline, development would cease, undermining a key investment strategy for public pension funds and real estate investment funds.3 The state’s narrative thus serves as public relations for investment entities seeking competitive returns, framing misleading supply-side assumptions as well-intentioned policy. 4,5
RHNA: Fueling Gentrification Under the Guise of Affordability
While ostensibly addressing affordability, RHNA exacerbates the problem by encouraging high-density, luxury development attractive to investors seeking long-term value increases. That value increase is driven by investor dependence on increasing rents and purchase prices. There is no relationship to addressing the true affordability needs of our most vulnerable citizens. This begs the question, how much more housing supply does California really need? The answer from a group of non-economist academic “experts” that consult for the state was, “. . . a lot more housing – especially multifamily housing – but setting targets depends on messy guesswork.” 6 This is the ironic key to all iterations of the RHNA concept – it requires gentrification to deliver any housing.7
A significant discrepancy exists between RHNA’s stated goals and its implementation. In Santa Monica, RHNA allocations call for 69% affordable units. This creates a “hidden multiplier effect,” resulting in far more luxury units than the allocation suggests. RHNA will allow developers to build with as little as 10% affordable units. The result? A flood of luxury units with a token sprinkling of affordable housing. It’s gentrification masquerading as progress.
Consider the Gelson’s project on Lincoln Boulevard. Instead of the 359 affordable units, the RHNA allocation would suggest, we’re getting just 53, alongside 468 luxury units. This isn’t solving the affordability crisis; it’s exacerbating it. The fundamental problem here is a misunderstanding of how housing markets work. Simply increasing supply doesn’t automatically lead to affordability, especially when that supply is skewed heavily towards the luxury market. It’s a bit like trying to solve hunger by opening more five-star restaurants.
The Gentrification Paradox
We see the fundamental contradiction in the RHNA process, is the paradox of gentrification. RHNA’s success in spurring development actually undermines its goal of improving affordability. The new developments often cater to smaller, wealthier households, replacing larger, lower-income families, which is a definition of gentrification. This aligns with the types of units developers are incentivized to build under current mandates.
Moreover, the RHNA process ignores the role of demand in housing markets. California’s housing crisis isn’t just about supply; it’s 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 while ignoring these demand-side factors is doomed to fail.
The housing crisis in California is a complex problem that demands sophisticated solutions. The current RHNA process, despite its good intentions, is a blunt instrument being used for delicate surgery. Rethinking the state policy would put economics, not politics, at the forefront. In the end, as Mark Twain might have said, it’s not just lies and damned lies we need to worry about but misguided statistics enshrined in bad policy. California’s residents deserve better. They deserve housing policy that actually addresses affordability, not one that perpetuates the very crisis it claims to solve.
Next week’s Part II article of this discussion, also well-footnoted, will focus on how affordable housing is not a supply issue.
FOOTNOTES:
1 – SB330 §3L Cide 65589.5(a)(2)(a)
2 – “Room to build: The zoned capacity question”, by Tim Helm and Cameron Murray,
Aug 11, 2024, Fresh Economic Thinking
3 – “Pension systems stoke rising rents”, by Andrew Khouri & Ben Poston, Aug. 1, 2024, LA Times
4 – Stein, S. (2019). Capital City: Gentrification and the Real Estate State (Jacobin). Verso Books.
5 – “California has a housing supply and affordability crisis of historic proportions.”
SB330 §3: Code 65589.5(a)(2)(a)
6 – Background paper prepared for the California State Auditor in relation to the audit ordered by the Joint Legislative Audit Committee on Oct.11, 2021 (p12) – Chris Elmendorf, Professor of Law, UC Davis School of Law; Paavo Monkkonen, Associate Professor of Urban Planning & Public Policy, UCLA Luskin School of Public Affairs; Nicholas J. Marantz, Associate Professor Urban Planning & Public Policy, UC Irvin School of Social Ecology.
7 – “Housing Production, Filtering and Displacement: Untangling the Relationships”
Authors: Miriam Zuk and Karen Chapple, 2016
“Upzoning New York City: Analyzing the Impact of Zoning Changes on Displacement”
Authors: Zuk, M., & Chapple, K., 2019
Jack Hillbrand AIA, Architect for SMa.r.t.
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Santa Monica Architects for a Responsible Tomorrow
Mario Fonda-Bonardi AIA; Robert H. Taylor AIA, Architect; Dan Jansenson, Architect & Building and Fire-Life Safety Commission; Thane Roberts, Architect; Samuel Tolkin, Architect & Planning
Commissioner; Michael Jolly, AIR-CRE; Marie Standing, Resident; Jack Hillbrand AIA, ArchitectFor previous articles, see www.santamonicaarch.wordpress.com/writing
