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RCA’s Costello: Post-Prop 10, California Still Needs to Address Housing Crisis
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Costello
One of the hot topics to be discussed is the recent rent control measure that was soundly defeated in California. Commercial real estate economist Jim Costello of Real Capital Analytics, and one of our panelists, shared a few thoughts about the housing crisis that proponents of Proposition 10 sought to alleviate, and the larger affordability issue still facing the state.
Costello writes, “Defeating this ballot initiative does not address the fundamental issues of affordability, however, and opponents of the free market may come back at this topic in the future.”
He points out the challenge facing the industry and market as a whole is figuring out the supply and demand balance. Property owners themselves are not driving up rents, they are simply reacting to what the market allows. Costello writes, “California is not building enough housing.”
He notes, from 1975 to 2016, the state of California added 18 million new residents. Over the same time frame, permits were issued for only six million new housing units. Rents are growing simply because of the laws of supply and demand.
In the current market, Costello points out developers will try to deliver units aimed at higher incomes. “If there is money to be made though, developers would build more affordable units,” he says. Part of the issue is regulatory barriers, which can account for 32% of the cost of building an apartment building in the U.S., according to a study by NAHB and the NMHC.
“Still, the notion that one can build more units to generate affordability falls on deaf ears for most proponents of rent control,” says Costello.
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