California Has a Housing Plan. But Permits Tell a Different Story
California has spent years talking about its housing shortage.
Cities have been given housing targets. Land has been rezoned. New laws have been passed. Local governments have created housing plans designed to accommodate millions of additional homes.
On paper, California has been busy. The actual building permits tell a very different story however.
According to a recent CalMatters analysis of California Department of Housing and Community Development data, cities and counties across the state have collectively been directed to plan for approximately 2.5 million new homes by 2030. Yet only five jurisdictions in the entire state are currently permitting housing at a pace that would allow them to meet their targets across all four affordability categories.
That raises an important question.
If California has identified where millions of homes can theoretically go, why aren't they being built?
Planning for Housing and Building Housing Are Two Different Things
Every eight years, California assigns cities and counties housing goals across four affordability categories: very low income, low income, moderate income and above moderate income.
The numbers are intended to address anticipated population needs while also helping California work through a housing shortage that has developed over decades. The latest numbers show just how large the gap between planning and production has become:
Only 28.6% of California jurisdictions are currently permitting enough “above moderate income housing” to remain on pace with their state assigned targets.
The percentages fall even further for the other categories.
Only 10.5% are on track for moderate income housing, 13.4% for low income housing and just 5.9% for very low income housing.
Some of California's largest markets illustrate the problem clearly.
San Diego has exceeded the pace necessary for its above moderate housing target, reaching 108%, but remains considerably behind in the other affordability categories.
San Francisco is at only 27% of the pace needed for above moderate housing and 17% for very low income housing.
Los Angeles is at 63% for above moderate housing but only 9% for very low income housing.
San Jose is at 60% for above moderate housing and 35% for very low income housing.
These are not small rural markets without demand for housing. They are some of the largest and most expensive real estate markets in California.
So What Is Actually Holding Housing Back?
This is where the housing conversation becomes more complicated.
A city can approve zoning that allows an apartment building.
It can identify a parcel as suitable for hundreds of homes.
It can approve a housing element showing exactly how it intends to accommodate future development.
None of those actions necessarily mean someone will build the project, however.
California's current statewide housing target works out to approximately 312,500 new homes per year. Yet annual production this decade has remained only slightly above 100,000 homes. Even during some of California's strongest historical periods for residential construction, production never reached the level currently required to meet today's statewide targets.
Why?
Because ultimately someone still has to make the numbers work!
California housing officials identified many of the variables that can determine whether a proposed project moves forward, including interest rates, construction costs, land costs, access to capital, insurance expenses and the rents or sales prices a finished project is expected to generate. That is an important part of this story.
A piece of land may be zoned correctly, a city may want the housing, and the project may even have regulatory approval. But if the cost of acquiring the property, financing it, constructing the project and carrying it until completion exceeds what the project can reasonably support, it may never leave the drawing board!
The Affordable Housing Challenge Is Even Greater
The economics become even more difficult when we move down the affordability spectrum.
Projects designed for lower income households frequently require public subsidies, philanthropic funding or other sources of capital because the rents generated by the finished project may not support the full cost of development.
Moderate income housing presents another challenge. These projects may not qualify for subsidies intended for lower income housing, while the rents being affordable to moderate income households can still be too low to make an unsubsidized development economically attractive.
In other words, some housing gets caught in the middle.
The state may want it, cities may plan for it and residents may need it but someone still has to determine how to finance and build it.
California Is Trying to Speed Things Up
The state has increasingly tried to address the gap between planning and actual construction.
Certain jurisdictions that fall behind their housing targets can now become subject to streamlined approval requirements for qualifying apartment and condominium projects.
Of the 212 California cities and counties that recently reached the halfway point in their current planning cycle, all but 3 failed to meet the applicable housing thresholds and became subject to the state's streamlining law.
That may make the approval process easier for some projects.
It still does not eliminate the financial realities behind development.
Since 2018, the streamlining law has reportedly helped advance nearly 28,000 housing units. That is meaningful production, but against a statewide target measured in the millions of homes, it also demonstrates the size of the challenge California is trying to solve.
The Pacific Direct Bottom Line
We may not be able to solve California’s housing shortage, but we see firsthand how access to capital can determine whether a real estate transaction moves forward or stalls.
A specific purchase or refinance of a property could make sense and the equity can be there. The opportunity can be there. Yet traditional financing may not work because of timing, borrower circumstances, the property condition itself, or guidelines that simply do not fit this particular circumstance.
That is where Private Money can serve an important purpose!
California needs more than housing plans on paper. It needs viable real estate opportunities to actually move forward. And sometimes, having another creative financing option available can help make that happen!
Whether it is a purchase, bridge loan, refinance, or cash-out transaction, we focus on finding a short term mortgage solution when conventional financing is currently not the right fit.
It’s just another reason we’re the Private Money Lender everyone’s starting to talk about.
Husband & Wife Team Phone: 707‑708‑0797 / Office: 1400 N. Dutton Ave #22 Santa Rosa, CA 95401 Ken: CA DRE Broker #01858042 / NMLS #1221130 Ari: CA DRE #01858152 / NMLS #2170867 Ken & Ari are a husband & wife team with combined 3+ decades in real estate and private money industries. They own Pacific Direct Mortgage & Real Estate, specializing in Private Money loans (also known as Hard Money home loans). Having helped thousands of Borrowers & working directly with Brokers, Agents and Lenders to help when needed with fast, flexible, alternative financing for real estate purchases and refinances throughout California. No issues with DTI ratios, credit issues, property condition, difficult to prove income ‑ we want to help
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