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The Naive Economics of SB 50: Part I – Understanding Supply and Demand

January 27, 2020

By Michael Barnes :marinpost – excerpt

San Francisco State Senator Scott Wiener, along with our own State Senator Nancy Skinner (in the news recently), have resubmitted their zoning bill SB 50, which was converted to a two-year bill at end of the last legislative session. The final version of the bill is not yet available, but the flaws in previous incarnations of this bill no doubt will remain.

The rhetoric from the bill’s supporters has been sloppy enough that I think it’s time to frame the issues the bill raises in the rigorous analytic framework of neoclassical economics. SB 50’s emphasis on housing supply recalls the supply-side economics of the Reagan administration. But neither supply-side economics nor SB 50 are based on mainstream economics.

In what follows, I’ll lay out the groundwork my analysis, which will be familiar to any undergraduate economics major. I know this because in the early 1990s, I taught economics at UC Berkeley as a graduate student instructor and as an acting instructor…(more)

RELATED:

The Naive Economics of SB 50: Part II – The Limits of Upzoning

By Michael Barnes :marinpost – excerpt

In the real world, building housing is subject to many constraints. In the current Bay Area context, zoning rules are typically not the binding constraints for two reasons. First, there are many other constraints that are binding. Second, zoning rules don’t work quite in way that many SB 50 supporters seem think they do.

In an excellent letter date June 14, 2019 (here), the City Council of Rohnert Park sent to various legislators a list of the many constraints on building new housing. Excerpts from the letter appear in italics below:

There is a flood of proposed legislation in California intended to address housing that are a result of a misdiagnosis of the root causes of the housing shortage. The bills seem to assume that a lack of approvals is unduly constraining housing construction. In reality, it is a complex problem with many contributing factors to the housing shortage including:

An economic expansion including significant regional construction demand in Silicon Valley and San Francisco for office buildings and campuses A lack of specialty trade construction subcontractors A lack of construction workers Immigration uncertainty and hostility from federal government Cost, long delays, and uncertainty associated with the California Environmental Quality Act lawsuits Tariffs and trade uncertainty driving up materials costs A building boom to replace homes lost due to wildfires Lack of available sites due to land use protections such as urban growth boundaries, community separators, etc. High costs associated with mitigating water, sewer, transportation, and environmental impacts including endangered species (e.g. California tiger salamander, various vernal pool wild flowers) State regulatory requirements such as low-impact-development storm water requirements Affordable housing inclusionary requirements added to market rate housing projects Loss of redevelopment which was the greatest affordable housing producer in the history of California Federal tax reform which lowered the value of affordable housing tax credits leading to a widened funding gap for affordable housing projects Increased local government capital project spending from new gas taxes, regional tolls and other revenue improvements Whole-house-vacation-rentals taking housing stock off the market Lender reticence to extend credit to construction projects post 2008 melt-down Lack of affordable housing gap funding. Rather than address those issues within its control, some state legislators are seeking to impose “by-right” development projects on local governments, elimination of fees, removing parking, overriding local plans, and limiting public input(more)

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