Terner Center Blog: No Limits

California Needs to Build More Apartments

Posted on by Jenny Schuetz and Cecile Murray

This paper is part of a working paper series that utilizes the Terner Center California Residential Land Use Survey to assess the implications of California’s state and local policies for housing. Read the full paper here.

California needs to build more apartments.

By Jenny Schuetz, PhD, the Brookings Institution, Metropolitan Policy Program and Cecile Murray, MSCAPP, University of Chicago

So much ink has been spilled over California’s persistently high housing costs that it has become a cliché. Nearly everyone agrees that high costs are a substantial problem – not just for families struggling to pay rent, but also for companies trying to attract and retain workers, and for the state’s economic future. But not everyone agrees on how to solve the problem. Residents and activists are increasingly sorting into opposing camps around their preferred solutions: expand rent control, shed jobs, or build more housing.

Our new report—part of a working paper series from the Terner Center for Housing Innovation at the University of California at Berkeley—comes down firmly in the “build more housing” camp. Using new data from the Terner Center California Residential Land Use Survey on local land use regulations across California, we examine how cities use zoning to deter development of new multifamily buildings. Too many of California’s high-rent cities have built too few apartments, contributing to the current shortage.

California’s apartment market is upside down, economically speaking.

A fundamental precept of economics is that, when the price of one production component increases, firms will use less of the expensive input to produce their goods. For instance, when wages for cashiers increase, supermarkets will install more self-checkout machines and hire fewer cashiers. In housing markets, as the value of land increases, developers will use less land per new housing unit, building homes on smaller lots or stacking homes vertically in apartment buildings. If housing markets are functioning well, we would expect to see more new apartments constructed in communities with high initial rents. But because many affluent communities are hostile to apartments, they often adopt zoning and related policies intended to limit development of multifamily buildings.

Across much of California, apartment markets are working in the opposite way that economists expect: communities with high rents build fewer new apartments than lower-rent communities within the same metropolitan area (Figure 1). Of the six largest metropolitan areas, only Los Angeles and Riverside had a positive relationship between rents in 2010 and the number of new apartments built from 2013 to 2017. In the remaining four metros – including San Francisco and San Jose, the epicenters of exploding housing costs – high-rent communities built fewer new apartments than their cheaper neighbors. This pattern strongly suggests that zoning or other institutional factors are constraining development.

Figure 1: California’s expensive cities aren’t building their fair share of apartments

City-level new multifamily permits versus median rents, by metro area

Source: Each dot represents a city within the metropolitan area. Rent from 2008-2012 American Community Survey. Permits from Census Bureau’s new residential construction series.

Apartments, how do we loathe thee? Let us count the ways.

One difficulty of advocating for apartment-friendly zoning reforms is that local governments have many different tools to discourage unwanted development. Many communities simply ban multifamily buildings outright on most of their land. Whereas the median California city allows single-family homes on at least 50 percent of land, the typical city allows apartment buildings on less than 25 percent of land (Figure 2). Even where apartments are allowed, local governments often restrict building heights or apartment densities to a degree that makes development financially infeasible.

Figure 2: Municipalities prohibit apartments on most land

Share of land zoned for multifamily and single-family homes

Source: Authors’ calculations using Terner Center Residential Land Use Survey.

Besides regulating physical characteristics of apartment buildings, most California jurisdictions rely on ad hoc, discretionary processes to permit development. That is, developers seeking to build apartments must request approval on a case-by-case basis from the local city council and/or zoning board, while holding public meetings at which existing residents can raise objections. This ad hoc approval process makes building new housing longer, risker, and more expensive for the developer, which translates into higher costs for the finished housing.

Cities with restrictive zoning have succeeded in their goal.

Communities whose residents are hostile towards apartments adopt restrictive zoning laws for a reason: they want to discourage or block development. Turns out, anti-apartment zoning works: cities that set lower allowable densities and building heights built fewer apartments (Figure 3). We find statistically significant relationships between new multifamily permits and two components of zoning: the number of apartments that can be built per acre of land, and maximum building height. Even controlling for demographic and economic characteristics, places with more restrictive zoning built fewer apartments.

Figure 3: Cities with low density zoning built few apartments.

City-level new multifamily permits versus maximum allowed units per acre

Source: Each dot represents one city. Units per acre from Terner Center Residential Land Use Survey. Multifamily permits from Census Bureau’s new residential construction series.

Breaking the housing logjam will require radical policies – and political courage.

The unwillingness of so many California cities to allow enough new housing, and housing that is affordable to a range of incomes, has finally pushed state policymakers to take action. In 2019, state legislators introduced several ambitious bills that would override some elements of local zoning – an important step in the right direction. However, these bills face significant political opposition.

Hostility to new development runs deep, and affluent communities have become highly adept at wielding the discretionary approval process to their benefit. Even if courts or the state legislature mandated that all cities allowed taller buildings and more units per acre, unless they must also make the development process less discretionary, it is likely that anti-development cities would continue to block apartments on a project-by-project basis.

If California policymakers want more apartments to be built, they should attach financial incentives directly to housing production, not merely to zoning revisions on paper. The state has some legal and financial tools it could use more aggressively. For instance, statewide funds that are dispersed to localities for transportation projects and schools could be made contingent on increased housing production. Although local governments are currently required to submit a housing plan to the state Department of Housing and Community Development, there have been few consequences for localities that fail to meet their plans.

Until residents of exclusionary communities face financial penalties for their resistance to development, they will not change their behavior. But increased state oversight of local land use will be politically unpopular, especially among affluent communities. California’s governor and states legislature will need strong spines to face down recalcitrant homeowners.


Comparing Perceptions and Practice: Why Better Land Use Data Is Critical to Ground Truth Legal Reform

Posted on by Moira O’Neill, Giulia Gualco-Nelson, and Eric Biber

This is the third installment in a working paper series that utilizes the Terner Center California Residential Land Use Survey to assess the implications of California’s state and local policy for housing. The working paper series is published jointly by the CALIFORNIA ASSOCIATION OF REALTORS®’s Center for California Real Estate and the Terner Center for Housing Innovation at UC Berkeley. This paper series will examine a number of topics related to land use regulation; from the feasibility of ADU production to trends in segregation. Read the full paper here. Comparing Perceptions and Practice: Why Better Land Use Data Is Critical…


No Place Like Zone: Two Ways California Policymakers Can Encourage Housing Affordability Through the Opportunity Zone Program

Posted on by Terner Center

Ever since the federal government launched the Opportunity Zone (OZ) program, many questions about the potential benefits and drawbacks have been raised. The program has been touted as a potential game changer for economic development in distressed communities, and has enjoyed bipartisan support. But at the same time, the relative ambiguity of the program’s requirements and its broad applicability have left many to wonder if Opportunity Zones will actually lift up the communities it was billed as serving, or mostly prove to be a windfall to investors. As some critiques of this new program have noted, without specific guidelines that push…


Regulating ADUs in California: Local Approaches & Outcomes

Posted on by Deirdre Pfeiffer

This is the second installment in a working paper series that utilizes the Terner Center California Residential Land Use Survey to assess the implications of California’s state and local policy for housing. The working paper series is published jointly by the CALIFORNIA ASSOCIATION OF REALTORS®’s Center for California Real Estate and the Terner Center for Housing Innovation at UC Berkeley. This paper series will examine a number of topics related to land use regulation; from the feasibility of ADU production to trends in segregation. Read the full paper here. Regulating ADUs in California: Local Approaches and Outcomes By Dr. Deirdre Pfeiffer, Associate…


New Amendments to SB 50 Change Approach to Identifying “Sensitive Communities”

On April 24, SB 50 went before the Senate Governance and Finance committee. While it passed the committee 6-1, the resulting amendments made significant changes to the bill. Some of the biggest changes include what is essentially a carve out for smaller counties like Marin and Santa Barbara as well as a reduction in the number of bus stops that would meet the “high quality” transit requirements.[1] In this blog, we focus on a third major change: the definition and implementation of the “sensitive communities” provision in the proposed law. The goal underlying the “sensitive communities” provision in the bill…


Calibrating Policy to Ensure Success—An Analysis of Assembly Bill 1485

Posted on by Terner Center

The 2019 California legislative session has been a busy one for housing thus far. Dozens of bills have been introduced that aim in some way to alleviate the ongoing housing challenges across the state. It seems likely that this year’s package of housing bills could rival the 2017 housing package, depending on how upcoming committee hearings and negotiations progress. Some of the bills proposed so far could have significant impacts on our ability to build new housing. To this point, it is critically important to understand how to ensure new policies can achieve their goal of facilitating more housing development…


Housing Policies in California Cities: Seeking Local Solutions to a Statewide Shortfall

Posted on by Sarah Mawhorter

This is the first installment in a working paper series that utilizes the Terner Center California Residential Land Use Survey to assess the implications of California’s state and local policy for housing. The working paper series is published jointly by the CALIFORNIA ASSOCIATION OF REALTORS®’s Center for California Real Estate and the Terner Center for Housing Innovation at UC Berkeley. This paper series will examine a number of topics related to land use regulation; from the feasibility of ADU production to trends in segregation. Read the full paper here. Housing Policies in California Cities: Seeking Local Solutions to a Statewide…


Unpacking the Growth in San Francisco’s Vacancies

Posted on by Paige Dow

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center. This piece is the fourth in a series by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. The full report is available here. High vacancy rates typically signal a weak housing market, where supply has outrun demand, and rents have stagnated. However,…


Estimating the Impact of an Anti-Gouging Rent Cap in California

Posted on by Terner Center

Last spring, the Terner Center published a brief on a handful of tenant protection ideas in California titled “Finding Common Ground on Rent Control.” The brief discussed policy ideas for consideration as an alternative to the prevailing “all or nothing” dialogue on the repeal of the Costa-Hawkins Rental Housing Act--a state law that places restrictions on local rent control ordinances. Proposition 10’s defeat at the ballot box has meant that the fight over repeal has passed for the time being. But the conversation around what to do in the face of resounding tenant pressures has not. In fact, the ongoing…


The End of the Mortgage “Dark Age”?

Posted on by Alison Mills

As part of our commitment to the education and professional development of UC Berkeley students, the Terner Center highlights exceptional student work that connects to our mission and research agenda. The analyses and policy proposals put forth in these projects may not be reflective of the official position of the Terner Center. This piece is the fourth in a series by recent graduates of the City and Regional Planning and Public Policy graduate programs at UC Berkeley. The full report is available here. The End of the Mortgage “Dark Age”? Fintech and the Equity Implications of Disruptive Technology in the U.S. Residential…