The Rent is Too Damn High: Unpacking California's Complicated Relationship with Housing
You may recognize James McMillan III, founder and perennial candidate for the Rent is Too Damn High Party, from the copious internet memes he spawned in the early 2010s. His platform, though concise, was unfortunately not enough to win him the 2012 Republican primary, nor any of the myriad of other offices he’s run for since 2005, yet we’d all do well to look past his Civil War-era facial hair to the message he’s been preaching for the last 15 years. The rent, especially in “superstar cities” like Los Angeles and San Francisco, really is too damn high for all but the wealthiest to afford.
An economy previously built on dispersed manufacturing has transitioned to white-collar jobs in urban areas like California’s Silicon Valley, and the supply of new housing hasn’t been remotely close to keeping pace with the increasing demand.[2] Yet, it hasn’t always been this way — and it doesn’t have to be now.
How did we get here?
The return of the 16 million Americans who fought in the Second World War and the biggest population boom in the history of the country could have easily been a disaster for the nation’s housing market. Already crippled by the Great Depression, the construction industry was formally banned from constructing non-essential housing from 1942 through the end of the war. Still, the years after the war brought an unprecedented boom in both housing construction and ownership, mostly fueled by two developments: the passage of the G.I. Bill, which gave veterans access to cheap credit, and the construction techniques pioneered in developments like Levittown. The developer Levitt & Sons revolutionized the construction industry by applying the principles of scientific management to home building, with the product staying stationary while workers move down the line instead of the traditional opposite. Levitt’s approach was the inspiration for the mass-production of suburbs in America (laying the foundation for white flight in the 70s), building near-identical, modern homes on cheap land. The affordable developments that ensued were quickly snatched up by returning G.I.’s, often for as little as $400 (~$8,000 in 2020) after G.I. benefits. As the land appreciated, housing, subsidized by the government, became the wealth base that middle class Americans would build their lives on during the postwar economic boom.
Redlining and the Racial History of Housing
To be clear, however, the prosperity of the 1950’s was not distributed evenly — Black Americans and other people of color were intentionally shut out of the housing market by the Federal Government, financial institutions, and realtors. Unfortunately, housing has never been a reliable way for Americans of color to build wealth. Since at least the 1800’s, local governments have passed exclusionary zoning regulations to keep neighborhoods segregated. One early example of this practice was San Francisco’s 1880 Laundry Ordinance, described by the city’s Planning Commission as “created by populist, nativist politicians who consistently scapegoated the City’s already disenfranchised Chinese laborers in the name of concerns for white working class laborers.”[3] In addition to the still extant legal hurdles put up by nativist local politicians, the legacy of redlining also haunts Black Americans looking to build wealth today. Redlining, the government-sanctioned (though now illegal) practice of systematically denying financial services to nonwhite patrons, involved the Federal Government literally drawing red lines on real estate maps, designating minority communities as “hazardous” and “undesirable”. The residents of these neighborhoods were denied loans and investment while those in “desirable” (read: White) neighborhoods were able to reap the benefits of subsidized homeownership. Redlining was banned at the federal level by the Fair Housing Act, but despite progressive urban America’s professed commitment to anti-racism, many of today’s zoning maps remain nearly identical to mid-century redlining.
Rent Seekers: Zoning and the Tax Revolt
For those who were lucky enough to get in early, or those who can afford it today, land is an excellent investment. Economist Henry George describes landowners as rent-seekers: land gains most of its value not from the improvements built upon it by its owners, but from its proximity to government infrastructure, services, and communities — rent, in this case, is not the money paid from tenants to landlords but the unearned appreciation of property values. As rent-seekers, landowners are strongly incentivized to maximize their profits not through productive economic activity, but through manipulation of markets and regulations. I would posit that nearly the entirety of California’s housing crisis is the result of extraordinarily successful rent seeking by its landed gentry (I say nearly, instead of completely, because technically there are physical caps to how high we could build—today, however, California is nowhere near built out).
There are two primary tactics that California homeowners have used to swell their land rents: exclusionary zoning and Proposition 13-style tax limits. Proposition 13 is the simpler of the two: a Reagan-era constitutional amendment that locks homeowners into minuscule property taxes if they bought their house early enough. Passed with the help of activist Howard Jarvis and his Taxpayer’s Association, the proposition has ensured that wealthy homeowners don’t pay their fair share, pushing taxes onto productive activities such as labor (California has the nation’s highest income tax rate) and suffocating the school system.[4] Other states took notice of the so-called “tax revolt”, leading to similar bills like Massachusetts’ Measure 2.5 and Oregon’s Prop 5 further limiting property taxes across the country. While Proposition 13 and its ilk are ostensibly opposed unanimously by the Democratic establishment, zoning is a bit more complicated. Zoning, a controversial issue even among progressives, is the regulation of the type and level of development allowed on certain plots of land. When used correctly, it can be beneficial to communities—it should be uncontroversial that chemical plants don’t belong in school zones — yet it is frequently weaponized by homeowners seeking to protect their investments from competition.[5] Wealthy suburbs, towns, and neighborhoods have zoned far below their Regional Housing Needs Allocation (the state’s housing production requirement) in order to block newcomers from interfering with their rent collection. Across California, as well as in the rest of the country, the restrictions placed on supply by harsh zoning laws have pushed out tenants and have ensured that young homebuyers and renters have been unable to pursue the same American Dream as their parents — although they can certainly inherit it.[6]
Where do we go from here?
As hopeless as the situation may seem, elected officials across the country are fighting hard to remove the racist and exclusionary barriers to housing. Portland and Minneapolis have both banned single-family zoning, even as exclusionary suburbs like Alameda fight desperately to keep it. In the next article, I’ll expand on some of the work that city councils, mayors, and state legislators have done to combat the housing crisis, the environmental necessity of urban density, and the nascent YIMBY (Yes In My Backyard) movement. Additionally, I’ll provide an update on the prospects for housing action at the federal level depending on the results of the election.
Sources
“Jimmy McMillan,” October 29, 2020. https://en.wikipedia.org/wiki/Jimmy_McMillan.
Collins, Jeff. “California needs more housing, but 97% of cities and counties are failing to issue enough RHNA permits.” The Orange County Register, 9 December 2019, https://www.ocregister.com/2019/12/09/losing-the-rhna-battle-97-of-cities-counties-fail-to-meet-state-housing-goals/.
Rahaim, John, editor. SF Planning Centennial Brochure. San Francisco Planning Comission, 2017, https://default.sfplanning.org/publications_reports/SF_Planning_Centennial_Brochure.pdf.
Rancaño, Vanessa. “How Proposition 13 Transformed Neighborhood Public Schools Throughout California.” KQED, 25 October 2018, https://www.kqed.org/news/11701044/how-proposition-13-transformed-neighborhood-public-schools-throughout-california.
Tom. “Rethinking Residential Zoning.” Livable City, 1 March 2018, https://www.livablecity.org/rethinking-rh/.
Pender, Kathleen. “California tax shelter saves children big bucks on inherited property.” The San Francisco Chronicle, 19 August 2018, https://www.sfchronicle.com/business/networth/article/California-tax-shelter-saves-children-big-bucks-13163822.php.
Glaeser, Edward. Triumph of the City: How Our Best Invention Makes Us Richer, Smarter, Greener, Healthier, and Happier. Penguin Press, 2011.