Grant investigator: Alexander Berger
This page was reviewed but not written by the grant investigator. California YIMBY also reviewed this page prior to publication.
The Open Philanthropy Project recommended a grant of $2,000,000 over two years to California YIMBY (short for “yes-in-my-back-yard”) for general support. As part of our focus on land use reform to promote housing affordability, we’ve supported a number of advocacy organizations in high-wage, high-cost regions (e.g. Seattle and Washington, D.C.) to push for more housing.
We see advocacy aimed at changing California state policies to allow more housing as a promising philanthropic opportunity for several reasons:
- California accounts for 12% of the U.S. population and roughly half of most expensive metro areas in the country.1
- As a result of the state’s high housing costs, California has the highest rent-inclusive poverty rate in the country, and a high rate of out-migration by low-income residents.2
- As we’ve seen with our work on criminal justice reform, state-level advocates can often be very effective in winning statewide victories without enormous resources. By comparison, we expect building city-by-city support for reforms to be much slower and more costly, and in some cases potentially impossible.3
- Housing markets tend to operate at a wider geographic scope than current responsibility for housing approvals is allocated: people looking for housing do not necessarily stop their search at the city limits.4 States have the constitutional authority to determine land use and may be able to more effectively balance the costs and benefits of new housing approvals, but there has not been a lot of experimentation on this front.5
- There is a fairly widespread consensus that California should be building millions more homes.6 Between reducing rents and allowing more people to be able to move to or remain in high-wage areas, we roughly estimate the social value of each new home in coastal California to be in the low hundreds of thousands of dollars, which means that even a very small improvement in the state’s chances of meeting that goal would make this grant highly cost-effective.7
California YIMBY reports that they will use our support to continue work on organizing, communications, digital outreach, data and analytics, and finance and operations.
See estimates in Zillow 2018 (in which 6 out of the 10 least affordable major metros for renters are in California) and Fox 2018 (in which 10 out of the 20 highest-rent of the 100 largest U.S. cities are in California).
California Legislative Analyst’s Office 2015 reports, “High Housing Costs Contribute to Poverty in California. The federal government each year calculates what share of each state’s population lives in poverty. Typically, poverty is calculated by the Official Poverty Measure, which defines a family as poor if their pretax cash income is less than a poverty threshold that is standard across the nation. Based on this measure, California’s poverty rate is slightly higher than the rest of the United States, as shown in Figure 13. The federal government also reports poverty levels using an alternative measure, the so-called Supplemental Poverty Measure, which adjusts poverty thresholds based on local costs of living. Primarily because of California’s high housing costs, the state’s alternative poverty level is 23.4 percent, the highest in the nation and almost 9 percentage points higher than average.” California Legislative Analyst’s Office 2018 notes that domestic out-migration is concentrated amongst lower-income residents.
For a sense of scale, cities like Palo Alto or Cupertino have permitted roughly 100-200 units/year on average in the past decade, compared to roughly 100,000 units permitted statewide according to HUD SOCDS Building Permits Database. To be as effective in generating new units as statewide efforts, local efforts in cities of that size would have to be 500-1,000x easier proportionally, which seems quite unlikely on the current margin of resources devoted to statewide reforms.
See, e.g., Hwang and Quigley 2006 on the regional drivers of home prices.
- Quigley and Rosenthal 2005: “Although casual observers presume that local land use authority arises from the police powers of cities and towns, in the American system local control is, in fact, entirely derivative. Under the traditional “Dillon’s Rule,” municipalities have no more power over their land than their state governments have delegated them…”
- Nolon 2006: “The power to control private land use is part of the states’ police power, and it is regarded as a reserved power of the states, subject to Congress’s power to regulate interstate commerce…. By the mid 1920s, over 500 local governments had adopted comprehensive zoning laws. Their authority to do so was granted by enabling acts adopted by their state legislatures. In the U.S., virtually all 50 states have adopted this method of land use regulation; their legislatures have passed relatively similar zoning enabling laws that delegate the authority to municipalities to regulate private land uses. Local governments are regarded as legal instrumentalities of their states. The states have created various types of local governments: cities, towns, townships, villages, boroughs, or counties and delegated authority to them to legislate regarding specific interests. The legislative authority of municipalities is limited to that delegated by the state and extends only to their geographical boundaries.”
See, e.g., California Legislative Analyst’s Office 2015, California Department of Housing and Community Development 2017, McKinsey Global Institute 2016, and the statements by 2018 gubernatorial candidates in Dillon 2018.
Our rough estimate assumes:
- a logarithmic utility function in income/consumption and landlords with average income/consumption 2-3x renters’.
- a price elasticity of demand of -0.58, based on San Francisco Office of Economic Analysis 2015 Table 12 (correspondence with the author indicates that the value of -0.72 was miscalculated and -0.58 is correct).
- the improvements in wages associated with moving to a higher-wage area are real and can be reasonably accurately estimated based on controlling for observed worker characteristics. This is a strong assumption but appears consistent with recent evidence from de la Roca and Puga 2017.
- benefits last 10 years (which is facially conservative but mostly offset by the fact that we’re not discounting over time).
With these assumptions, about a third of the benefit of new units in our estimate comes from reducing rents (and accordingly redistributing consumption from landlords to renters), while the rest comes from increasing incomes for people who are able to move from or avoid being displaced to lower-wage areas.