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SM.a.r.t Column: Part II: The Affordability Crisis: Unmasking California’s RHNA Process and Its Role in Gentrification

Affordability: An Income and Available Asset Gap Issue, Not a Supply Issue

(Last week’s article revealed how state mandates became a tool for gentrification. Now, we will review the falsehood on the state’s housing supply mandate.)

In the ongoing saga of California’s housing crisis, we’re witnessing a classic case of good intentions paving the road to economic hell. The state’s approach to solving its affordability problem is a textbook example of how simplistic supply-side solutions can not only fail to address complex economic issues but potentially exacerbate them. 

Let’s start with some basic economics. The conventional wisdom – championed by state legislators and enshrined in policies like SB 35 (which streamlines approval for infill developments) and the potential SB 7 (aimed at reinforcing the Builder’s Remedy), is that California’s housing affordability crisis is primarily a supply problem. The logic seems straightforward: increase housing supply, and prices will fall. It’s Econ 101, right?

Wrong. This simplistic view ignores the complexities of real-world housing markets and the fundamental nature of California’s affordability crisis. What we’re dealing with here isn’t just a supply shortage; it’s a profound mismatch between housing costs and incomes, exacerbated by growing inequality. A University of Kansas analysis suggests, “We cannot build our way to housing affordability. We need to address price levels and income levels to help low-income households afford existing housing, rather than increasing supply in the hope that prices will subside.” 8

Consider the case of Saratoga, a small Silicon Valley town where house prices surged nearly 50% from 2019 to 2024. This wasn’t driven by a sudden population boom or a drastic reduction in housing supply. Instead, it was the result of increased purchasing power among tech workers, fueled by stock options that have widened the gap between the tech elite and everyone else.9

This phenomenon highlights that in many California housing markets, we’re not seeing more people competing for the same number of homes. Instead, we’re seeing the same number of people competing for homes but with vastly unequal resources. The majority of this runup is in single-family houses, which is not part of any RHNA building paradigm. In fact, RHNA seeks to reduce the supply of single-family housing by focusing on densification, typically known as “infill” development. This exemplifies why RHNA fails to address the root cause of the affordability crisis: growing income inequality. Therefore, in their misapplication of supply-side concepts, they are actually making the affordability problem worse.10

The Myth of Supply-Side Solutions:

The RHNA process focuses primarily on overall unit production rather than affordability and thereby inadvertently promotes gentrification. How? By incentivizing the construction of market-rate units that cater to higher-income residents while not addressing the needs of middle and lower-income households. Developers will build to meet investment-required price levels and stop when prices start declining from that point. They’re not in the business of flooding the market until prices drop; they’re in the business of maximizing returns. This means that simply increasing supply won’t necessarily lead to lower prices, especially if that new supply is primarily targeting higher-income demographics.11

Adding to this complex picture is the growing influence of algorithmic pricing in the rental market. This software trend towards data-driven, centralized price-setting undermines the very free-market principles that supply-side advocates claim to champion.12  In other words, the RHNA process depends on and takes advantage of the very gentrification that its “affordable housing” narrative purports to combat. If gentrification (i.e., rising prices) were to stop, construction under RHNA would effectively cease, revealing the inherent contradiction in the current approach.13

The Invisible Hand of Gentrification:

The gentrification driven by RHNA is largely obscured in official state and city reporting. While the state focuses on the number of affordable units produced, it overlooks the vast number of market-rate units that accompany them. These market-rate units, not formally mandated but a direct outcome of the RHNA construct, are the true engines of gentrification. They are largely absent from housing element analyses and related environmental impact reports (which are omitted by RHNA mandates). Furthermore, cities and counties do not assess gentrification as a housing issue for their residents, further obscuring its impact.

Rethinking Our Approach to Affordability:

On paper, the Regional Housing Needs Allocation (RHNA) process is a well-intentioned attempt to ensure adequate housing production across the state. In practice, however, it’s become a Rube Goldberg machine of unintended consequences. So, what’s the solution? 

First, we need to recognize that addressing income inequality is at least as important as increasing housing supply. This means focusing on policies that boost incomes at the lower end of the spectrum and create more middle-income jobs.

Second, we need a more nuanced approach to housing policy. Instead of blanket upzoning and streamlined approvals, we should be looking at targeted interventions that specifically address the needs of different income levels. This might include stronger protections for existing affordable housing, incentives for the construction of middle-income housing, and creative approaches to public housing.

Third, we need to rethink how we finance and incentivize affordable housing development. One intriguing idea is to redistribute the increased property tax proceeds from infill redevelopment projects, giving cities a greater share to fund infrastructure, services, and affordable housing. This could create a virtuous cycle where development actually helps to mitigate its own negative impacts.

Lastly, we need to be honest about the trade-offs involved in our housing policies. The current approach, which essentially uses market-rate development to cross-subsidize a small number of affordable units, may be doing more to drive gentrification than to solve the affordability crisis.

Conclusion:

California’s housing crisis is a complex problem that defies simple solutions. What’s needed is a comprehensive approach that addresses income inequality, targets housing production to specific needs, and isn’t afraid to challenge conventional economic wisdom when it fails to match reality. We need to embrace the complexities of community planning, household finances, and housing markets and prioritize the needs of those most affected by this crisis, each resident, and each household within our community.14,15  

The stakes are high. As Santa Monica residents brace for a wave of new high-rise developments, the question isn’t just about how the towers will change the city’s skyline but whether they’ll change the very nature of the community. Without a fundamental shift in our approach to housing policy, we may find that in our rush to build more, we’ve built a future that’s less affordable, less diverse, and less livable for all but the most affluent Californians.

It’s time for California citizens to require their legislators to take a hard look at whether its current housing policies are doing more harm than good.

FOOTNOTES:

8 – Department of Urban Planning, University of Kansas 01-14-2024 

https://phys.org/news/2024-06-housing-shortage.html

9 – The San Francisco Chronicle article, “What does Nvidia’s meteoric stock rise mean for Silicon Valley home

      prices?” (07/28/24),

10 – California Budget & Policy Center Report

           “California’s Housing Affordability Crisis: The Widening Gap Between Incomes and Housing 

            Costs”,  2021

11 – Urban Studies Journal Article: 

Title: “Supply Skepticism: Housing Supply and Affordability”

Authors: Rodda, A., Yip, C., & Himel, S., 2020

12 –  “We’re Entering an AI Price-Fixing Dystopia,” by Roge Karma, The Atlantic, August 10, 2024.

13 –  MIT Research: 

Title: “Filtering and Housing Affordability: Theory and Evidence”

Authors: Been, V., Ellen, I. G., & O’Regan, K.,  2019

14  –  The California Housing Partnership advocates a combination of increased affordable housing

      production, preservation of existing affordable units, and expanded rental assistance programs.

15 –  Research from the Urban Institute suggests preservation of existing affordable housing and 

 community stabilization efforts can be more effective in maintaining affordability than new 

 construction alone.

Jack Hillbrand AIA, Architect and Guest Writer for SMa.r.t.

Send comments to santamonicasmart@gmail.com

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

in Opinion
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