State Auditor Attacks Local Land-Use Authority. Study of Housing Agency Finances Turns Political

Documented in “California’s Housing Agencies,” a report issued on November 17 by State Auditor Elaine Howle (photo above), the dereliction includes the loss of $2.7 billion in bond money that could have funded affordable housing.

What the mainstream press mentioned only in passing, if at all, is that the report also issues a broadside attack on local land-use authority.

Contending that “[l]ocal opposition to housing development has long been a major obstacle in California’s efforts to provide affordable housing,” and that “state law and state oversight are not strong enough to ensure that cities and counties are doing their part to facilitate the construction of affordable housing,” the Auditor urges the state to

• create a statewide appeals board to rule on local housing decisions:
• condition local funding for transportation and other non-housing uses on local housing development:
• establish a statewide requirement for inclusionary housing in a local jurisdiction that has already met its goal for housing in the above-moderate-income category but not for affordable housing—which is to say, most jurisdictions;
• increase the existing default densities of 10 to 30 units per acre for affordable housing;
• “streamline”—meaning, no public process—approvals of “all eligible affordable housing projects;” and
• authorize the Department of Housing and Community Development to implement and enforce these and other draconian measures.

The auditor also urges that the provision of affordable housing rely less on “significant state resources” and more on “local and private investment.” The idea is preposterous. Local governments don’t have the money to build housing; and private developers won’t build below-market-rate housing because it can’t yield the returns on investment that they and their lenders demand.

Will these recommendations be embodied in bills that will be introduced when the Legislature reconvenes on December 7, and in the budget that Governor Gavin Newsom will propose in January 2021?

The Auditor’s questionable independence

The mission of the State Auditor’s Office, posted on its website, is to provide “objective evaluations and effective solutions that enhance the transparency, accountability, and performance of California government for the people it serves.” The Office’s staff, we are told,

conduct their reviews in a nonpartisan manner, free from outside influence, including that of the Legislature, Governor, and the subjects of their audits and investigations. California State Auditor staff base their findings, conclusions, and recommendations upon reliable evidence and will not allow preconceived notions or personal opinions to influence their work. The staff strictly adheres to the standards of the auditing profession and exercises the highest standards of ethics.

This averral of independence would be easier to believe if the auditor weren’t appointed by the governor from a list of “three qualified individuals” submitted by a majority of the Joint Legislative Audit Committee. State law makes the auditor “accountable solely to the California Legislature” and stipulates that the appointee “may only be removed from office for cause by a majority vote of both houses of the Legislature.”

Howle’s office made the housing report in response to a February 14, 2019, request that was approved by the Joint Legislative Audit Committee on February 26, 2020.  Authored by the committee chair, Assemblymember Rudy Salas of Bakersfield, the request’s “proposed scope of the audit” says nothing about local jurisdictions and affordable housing or HCD. Instead, it focuses on the California Tax Credit Allocation Committee and the California Debt Limit Allocation Committee (the latter agency is the one that lost the $2.7 billion).

But in its long preface, Salas blames local government for the state’s housing woes and cites Newsom’s crackdown on cities that are “bad housing actors:”

Because local governments are often responsible for blocking new housing developments, the Governor has been aggressive in forcing cities to allow more housing. He sued the city of Huntington Beach for not planning adequately for new housing. Additionally, 40 cities have been placed on a list of bad housing actors, some of which have recently come into compliance with state law. The Governor has also threatened to withhold transportation funding from cities that do not meet their state-mandated housing goals.

Housing policy is political

Howle and her staff are CPAs. When their office ventured into housing policy, it entered an intellectually and politically contested field where accounting criteria are inadequate guides.

It’s one thing to report that “the State does not have a clear plan describing how or where its billions of dollars for housing will have the most impact” and that the “approval process for the [housing] programs’ financial resources are cumbersome for developers who need state resources to support their project” (cover letter). These are issues of efficiency and good bookkeeping.

It’s another thing to assert that local opposition to housing is a major obstacle in the state’s efforts to provide affordable housing. That claim is analytically disputable and indeed hotly disputed. The Auditor presents only one side of the argument, the side taken by the governor and the Joint Legislative Audit Committee, whose roster includes the Legislature’s most conspicuously militant critic of local say in land use, Senator Scott Wiener.

Where’s the reliable evidence?

Has the auditor has supported her position with reliable evidence, which must be drawn from outside her profession? It’s impossible to answer that question today, because apart from a few passing references to a survey conducted by the Terner Center for Housing Innovation at UC Berkeley, which is itself problematic (see below), the report does not specify the evidence that supports its claims.

Appendix C of the auditor’s report lists the 13 tasks that Salas’s letter asked the auditor to investigate. Her consideration of local land use practices is apparently predicated on the twelfth assignment: “Identify any best practices that encourage the creation of additional affordable housing throughout the State [sic], including balancing the needs of high-cost and rural areas.”

To address this objective, the auditor’s office says it:

• Interviewed a selection of stakeholders—including a housing advocate, building association, and local government association—and reviewed an existing survey of local governments to understand statewide affordable housing problems and best practices.
• Reviewed existing affordable housing research from governmental and academic sources to compile a list of the main barriers to and solutions for increasing affordable housing development.
• Reviewed recent housing-related legislation to identify remaining gaps in state law that, if amended, could provide for more affordable housing development.

These are all generalities. I’ve sent the Auditor’s Office a Public Records Act request asking for specific citations and also for documentation of any communications between her office and outside sources regarding a variety of claims made by the report.

The growing scholarly debate about regulation and housing affordability

In arguing that local constraints significantly hamper the provision of affordable housing, the auditor has aligned herself not only with Newsom and some of the Legislature but also with the overwhelming consensus in the planning profession and academia. The criterion of analytical validity, however, is not the number of people who support a position, but the soundness of the evidence adduced by its proponents. A growing number of scholars have applied that criterion to the leading arguments in favor of the state preemption of local land use authority and found those arguments wanting.

An article appearing in Urban Studies in September 2019 posited that “there is no clear and uncontroversial evidence that housing regulation is a principal source of differences in home availability or prices across cities.” The authors, economic geographers André Rodríguez-Pose, who teaches at the London School of Economics, and Michael Storper, who teaches at LSE, UCLA, and Sciences Po in Paris, contended that

[b]lanket changes in zoning are unlikely to increase domestic migration or to improve affordability for lower-income households in prosperous areas. They would, however, increase gentrification within metropolitan areas and would not appreciably decrease income inequality.

After three of Storper’s UCLA colleagues disputed their claims and defended “the conventional argument that regulation drives up prices,” Rodríguez-Pose and Storper sharpened their critique in an article published in August, “Dodging the burden of proof: A reply to Manville, Lens and Monkkonen.”

Meanwhile, the Winter 2019 issue of the Hastings Environmental Law Review included an article by three UC Berkeley legal scholars, Moira O’Neill, Giulia Gualco-Nelson, and Eric Biber, that concluded that although “the relevant research on the relationship between regulation and housing costs has found a strong connection,” that research has relied on inferences drawn from the gap between construction costs and sales prices or on surveys of planners [e.g., the Terner survey cited in the Auditor’s report] and other stakeholders about their understanding of the regulatory process. While some research uses mixed method case studies, the methods still limit generalizability.”

A paper posted in July, “Superintending Local Costraints on Housing Development,” authored by O’Neill, Biber, and two other UC scholars, Chris Elmendorf and Paavo Monkkonen, flatly states that “HCD has no reliable data about the severity or prevalence of local governmental constraints” on housing.”

In his book A New Model for Housing Finance, published in June by Routledge, San Diego-based planner and USC instructor Murtaza Baxamusa wrote:

Studies on the impacts of land use regulations on housing are mostly biased. They evaluate the cost of the regulation to the developer but ignore the benefits of regulation to the public.

Baxamusa’s objections to “one of the most commonly used indicators,” the Wharton Land-Use Regulation Index, also apply to the Terner study:

It is a static model based on a point in time survey, whereas the variables that are being tracked, such as permits and prices, are dynamic. Even the political climate changes over time. The sample selection bias raises questions on who filled out the survey and when?

Baxamusa called out the Wharton researchers’ question about the importance of “community pressure.” That question, he wrote, “is clearly leading, especially since there was not a balanced “developer pressure” in the choices.” The Terner survey has the same bias.

Baxmusa’s reference to changing prices suggests another limitation of the conventional approach: it fails to gauge the relative effects of regulation and citizen pressure on the one hand and market variables on the other. The auditor acknowledges that “[c]onditioning non-housing funding on local housing development does present challenges—the LAO [Legislative Analyst’s Office] noted that some factors—such as landowners’ decisions and the health of the economy are outside of local jurisdictions’ control but significantly affect home building.” Indeed, they do.

What’s missing, then, is any consideration of how much, such as landowners’ decisions and the health of the economy—and exactly how is that defined — affect home building; any comparison of those effects and the ones resulting from local land-use policies and practices; and most importantly, whether the effects of local control are proportionate to the auditor’s recommendation that the state effectively take over land use authority.

For the Legislature or the Governor to act on that recommendation amidst the widening analytical debate would be an unconscionable state power grab.

(Zelda Bronstein, former chair of the Berkeley Planning Commission, writes about land use and transportation planning in the Bay Area and beyond. This was posted on 48Hills.org.)

-cw