Despite numerous efforts to make housing more affordable and plentiful, California’s notoriety as one of the nation's most difficult places to build any housing type continues to grow. A battle royale between the “not in my backyard” and “yes in my backyard” camps spools out, with no seeming end.

Recently enacted state laws that permit and provide for density increases in single-family areas have encountered legal challenges. One such law, the HOME Act, passed in 2021 and ending single-family zoning across the state, is still in court after five cities won a reprieve.

Other cities discovered loopholes in the law, prompting a new law last September designed to nix what advocates call onerous local ordinances. The law aims to end bans on multifamily housing next to public trains and rapid bus transit lines.

But California land use and environmental law attorney Jennifer Hernandez argues that the focus on infill and public-transit oriented development exacerbates the Golden State’s housing crisis instead of taking steps to solve it.

Holland & Knight partner Hernandez, leader of the firm's West Coast Land Use and Environmental Group, said that laws reflect the state’s climate laws and policy related to significantly reducing “vehicle miles traveled" by focusing on infill development.

An infill-only policy agenda “100% of the time means higher land and development prices,” she said.  

Hernandez grew up in Pittsburg, California, a western version of a Rust Belt city about 40 miles east of San Francisco in Contra Costa County. From 1910 until its closure in 2023, U.S. Steel operated a plant in the city, and Union Carbide had an asbestos plant.

Hernandez’s father lost his job in the 1980s and worked a minimum-wage job to make ends meet. But they owned their home outright – the mortgage had been paid. So the home subsequently passed to the next generation – and that home provided a source of rental income.

It is impossible to replicate that today” in California, Hernandez said. The California Air Resources Board’s “climate policies have literally crushed that dream.”

She said that in a healthy housing market, housing prices are typically three to five times the local median household income. In California, they are nine times the median household income.

You’d need decades to come up with a downpayment,” Hernandez said.

Her recent paper, “Bad Climate for Housing,” notes the ownership rate differences between California’s coastal and inland areas.

In 2010-2013, “in the aggregate, under 50% of coastal California households are homeowners, far below the 65% national and the 55.9% state rates, and lower even than in New York (54.2%), the state with the smallest proportion of homeowners,” the report said. Outside the coastal areas, “single family homes account for 69.3%, and 10-plus unit buildings just 9.3% of total housing units in the rest of California.”

Inland areas are where a majority of the state’s Black and Hispanic populations live and ownership rates are about 63%, according to the report, highlighting that workers endure some of the longest commutes so they can own a home.

Home affordability in the state plummeted from 51% in 2010-2012 to a mere 16% in 2023-2024, far below the national average, according to the report.

Cutting the Carbon

In 2022, California unveiled a plan to achieve carbon neutrality by 2045.

California is drastically cutting our dependence on fossil fuels and cleaning our air – this plan is a comprehensive roadmap to achieve a pollution-free future,” Gov. Gavin Newsom said at the time. “It’s the most ambitious set of climate goals of any jurisdiction in the world, and if adopted, it’ll spur an economic transformation akin to the industrial revolution.”

A key part of the policy meant banning the sales of fossil fuel vehicles by 2035. CARB approved a plan to reduce air pollution and cut greenhouse gases significantly. It is also projected that 4 million new jobs will be created as a result.

California, though, has been losing population and companies for years and could lose more. The population loss registered in 2020 and cost the state a congressional seat.  

Hernandez said the CARB plan is far too aggressive. In her report, she said CARB could have boosted affordability and reduced emissions by prioritizing townhomes in coastal cities, easing rental pressure, and meeting housing demand.

However, it didn’t.

Another point in the report is that CARB could have reduced transportation emissions by promoting hybrids and other innovative transit, such as autonomous vehicles, and avoiding subsidies for wealthy electric car buyers. Instead, CARB focused on restricting single-family homes, promoting dense rentals, and mandating drastic reductions in driving, including among zero-emission vehicles. Combined, CARB rules would more than double the traffic reduction during pandemic lockdowns.

The result: Tens of thousands of apartment units were approved all over California, and “don’t pencil” because of the cost of building, Hernandez said.

Souring On California Ground-Up Development

The net result will be identical to what apartment developers and institutional investors have done over the past several years.

Not much new apartment development has occurred in the Los Angeles area, for example, relative to its size. Commercial real estate firm Cushman & Wakefield data shows 20,267 units under construction in 2023, with 9,400 completed during the year. Last year, the total inventory of units grew to 371,378, with the addition of 6,900 units. At the end of the year, there were 18,700 units under construction.

Los Angeles has a population of about 12.7 million. The Nashville, Tennessee, area has a population of more than 2 million, and more than 12,700 apartment units were added last year to take the total apartment inventory to 169,500.

Two years ago, Alexander Goldfarb, an analyst with investment bank Piper Sandler, questioned Houston-based Camden Realty Trust, which has 3,600 apartment units in Los Angeles and San Diego, about when it may be time to exit California given “conditions there for landlords get tougher and tougher every year.”

Keith Odin, Camden’s executive chairman and president, responded:

Everything is going to be trickier, everything is going to be a little bit stickier in terms of moving forward on new initiatives, etc. But that's something that we've lived with for 20 years, and we know how to do it. We're good at it.”

Jay Parsons, head of investment strategy for Lubbock, Texas-based Madera Residential, recently highlighted in a podcast that apartment REITs call L.A.’s regulatory environment “dysfunctional, unwelcoming to investment and development.”

Eviction moratoriums in Los Angeles during the pandemic accounted for 50% of the real estate investment trust’s bad debt at the time, while properties there represented about 10% of the revenue, Ric Campo, Camden’s CEO, said on the podcast.

“That kind of environment is just not conducive for great long-term business,” Campo said. “It would take a whole lot for us to, for a lot of change, for us to increase our portfolio concentration to LA.”