The California Housing Dividend Initiative (2022)
Over the past 50 years, California has endured a slow-motion housing crisis that only continues to worsen each passing year.
California is home to 47% of the country's homeless population.
Accounting for the cost of living, California leads the nation in poverty. Today, over 50% of California households cannot afford the cost of housing. Californians are 4x more likely to live in crowded housing, a factor that has also contributed to the spread of COVID-19 within the state.
The average California home costs 2.5x the national average, putting home ownership out of reach for over two-thirds of residents.
California’s housing shortage costs the state more than $140 billion per year in lost economic output.
Loss of diversity and culture arises when existing residents are displaced by higher income brackets.
Workers in California’s coastal communities commute 10 percent further each day than commuters elsewhere.
California is not building enough housing, not by a long shot.
We must double the current rate of housing production just to keep up with population growth (68% of which is driven by the birth rate and growing families)
We must quadruple our housing production over the next 7 years for housing costs to actually decline
The majority of solutions proposed to date would not even come close to addressing the magnitude of the problem.
Housing is regulated locally. Each individual city benefits from leveraging land use authority to constrain housing growth, resulting in home price appreciation for existing residents and greater municipal tax revenue from nonresidential development. Every individual city would prefer that housing be built elsewhere.
Collectively, all cities suffer from the resulting housing shortage and affordability crisis.
The California Housing Dividend Initiative
The buck stops here. It is a market failure that housing costs have become unaffordable for over half of all Californians. For decades, local municipalities across the state have used land use authority to inhibit growth to benefit entrenched interests, and our republic is withering for it.
This initiative aims to right these wrongs.
The Housing Dividend
This initiative would establish the right-to-shelter within the state of California, in the form of a monthly dividend paid to all lawful California residents over the age of 18 (akin to universal basic income). The amount of this dividend would be sufficient to cover the cost of market-rate housing, pegged to the 20th percentile of rental costs statewide (roughly $700 today).
Directly Tax The Housing Shortage
Funding for this redistribution would be assessed directly on California municipalities, proportional to each city's contribution to the housing crisis. Cities with unaffordable housing (i.e. whose average housing costs exceed 30% of the area median income) would bear the heaviest contribution requirements. Cities with sufficient housing affordability would receive more in dividends than would be collected in taxes.
How each municipality chooses to handle this tax burden would be up to them:
Increase the supply of housing to drive down housing costs and reduce the tax burden
Accept high taxes in exchange for maintaining constrained housing supply
Increase the area median income to reduce the tax burden
Additionally, each municipality would have full control over how these taxes should be raised:
Establish a property tax
Work together with other regional municipalities to establish other tax mechanisms
Cut the city budget, reduce services
Compare The Numbers
CA annual GSP: $3,133bn
US military budget: $721 billion
California annual home appreciation: $684bn - $812bn
CA economy is suppressed $150 - $400bn annually
California Housing Dividend Initiative (2022): $257bn / year
CA annual budget: $227bn
Positive redistributive effect of UBI on CA economy: ~$78bn / year
Current spending on homelessness: $5bn
How will this initiative be any different than what we're doing today?
California currently has very few tools available to enforce housing production. While the state successfully sued Huntington Beach to allow for more affordable housing, this is not a scalable strategy. After campaigning on a promise to withhold state funding from cities that don’t approve enough housing, the governor backtracked following the predictable backlash.
Every 8 years, cities must "plan" for population growth. There are no consequences for missing these targets. 98% of cities do not meet their stated goals.
"What I’m seeing here is an elaborate shell game, because we’re kind of lying. It’s the only word I can come up with. We have no intention of actually building the units." (Foster City city councilman Herb Perez)
By contrast, the initiative would immediately make it expensive for cities to restrict housing growth. Unlike RHNA, no city could rig the metric to their benefit; both local housing costs and area median income are determined by market forces.
What about all the existing housing initiatives, permanent supportive housing, and other homeless outreach programs that exist today?
There are dozens of local initiatives and housing programs that already do a commendable job at addressing some of the most acute symptoms of the housing crisis. The goal of this initiative is not to replace them, but to provide a tailwind such that their work becomes easier over time. Rather than getting buried under a constant stream of newly homeless, this initiative should turn the tide and allow for a higher rate of people leaving homelessness than entering.
A core tenet of this legislation is that it not be overly prescriptive and remain as simple as possible; while all Californians are burdened by the housing shortage, its effects manifest in different ways across each community. By focusing only on the realignment of financial incentives with respect to housing growth, we hope to be a force to permanently lighten the load.
Why not just focus on deregulation?
It's undeniable that an onerous regulatory environment has contributed to high construction costs and the housing shortage we're experiencing today. Local zoning laws, environmental reviews, building codes, energy and water efficiency mandates, parking requirements, density restrictions, cumbersome permitting processes, complex labor requirements, historic preservation requirements, rent control ordinances, and developer impact fees have all combined to foster an environment inhospitable to growth.
However, while this local land use authority can be (and regularly is) used disingenuously to thwart new construction, it should not be the role of the State to override or supersede that authority. Municipalities are justified to be wary of legislation like SB 50 that would usurp local zoning control. There truly is no one-size-fits-all solution that fits the needs of each jurisdiction.
Rather, to the extent that misuse results in more expensive housing, this initiative aims to impose a cost on regulation. Our goal should not be to threaten bad actors, but to collectively align incentives to equitably account for negative externalities arising from the housing shortage.
What about Prop 13?
Well-intentioned as it may have been, Prop 13 has resulted in massive economic distortions that continue to hamstring the state. It has artificially constrained the supply of houses available for sale by disincentivizing property turnover and keeping homeownership out of reach for younger Californians. It's a privileged tax break that predominately benefits wealthy homeowners and shifts the tax burden to more regressive sources like utility and sales taxes, as well as impact fees that effectively tax development itself. Most importantly for the housing crisis, Prop 13 has created disincentives for cities to approve housing developments, with the costs associated with population growth far outstripping the additional tax revenue available to support it.
At the same time, it's not the role of this legislation to strike down Prop 13's provisions. While repeal would surely help alleviate the tax burden associated with the Housing Dividend, our express goal is to leave control and accountability in the hands of local governments, means of tax assessment included.
Why not focus just on building more affordable and permanent supportive housing?
Because this addresses only the symptoms, not the cause of the housing crisis. No matter how much we build, it will never be enough as long as rising prices continue to force more and more people from their homes. Only by directly confronting the underlying economic distortions that have created this crisis can we hope to fix it.
Build some affordable housing and you reduce homelessness for a day. Realign growth incentives and provide a universal housing dividend and you eliminate homelessness for good.
What about rent control?
Rent control is a perfectly acceptable stopgap measure, but it should not be considered an adequate long-term solution to the housing crisis.
The goal of this legislation is to normalize market prices to the point that rent control is rendered obsolete and is no longer necessary to prevent displacement.