In this episode, Sarah sits down with Louis Mirante, Senior Vice President of Public Policy at the Bay Area Council and former Legislative Director at California YIMBY, to discuss the policies, costs, and trade-offs shaping California’s housing crisis. Louis shares insights from his work on major housing legislation, including SB 79. He explains how zoning restrictions, lengthy approval processes, construction costs, and financing barriers have contributed to the state’s severe housing shortage. Together, they explore the importance of transit-oriented development, affordable homeownership for the “missing middle,” and the balance between climate goals and housing production. The conversation also examines how California can reduce development risk, strengthen workforce pipelines, and prepare for the long-term impacts of climate migration while building more affordable and sustainable communities.
About Our Guest
Louis Mirante is Senior Vice President of Public Policy, Housing at the Bay Area Council, where he leads housing policy and legislative advocacy efforts focused on affordability, transit-oriented development, and sustainable growth across California. Before joining the Bay Area Council, he served as Legislative Director at California YIMBY, helping advance some of the state’s most significant housing reform legislation aimed at increasing housing production and reducing barriers to development.
Louis previously held roles with the California Department of Finance, the California Department of Transportation, and the California Air Resources Board, where he worked on transportation, climate, and land use policy. His work today focuses on streamlining housing approvals, expanding affordable homeownership opportunities, reducing zoning barriers near transit, and aligning California’s housing goals with its climate commitments.
In addition to his policy work, Louis serves on the boards of the Casita Coalition and the California Housing Defense Fund and advises organizations focused on infill development and missing middle housing. A graduate of the University of Michigan, where he earned highest honors in political science, Louis is passionate about creating more affordable and equitable communities throughout California
Transcript
Louis Mirante (00:00):
The state has for decades built about half of the homes it needs to build every year to keep prices stable, which is one of the main reasons that it’s so expensive to live in places like San Francisco or Oakland, or Los Angeles, or basically anywhere here in California. The Bay Area, for example, had a huge mismatch between jobs and housing for decades. San Francisco built about one home for every ten jobs that it authorized for a ten-year period between about 2010 and 2020, which had a huge effect on affordability, displacement, and all sorts of other challenges. The response to SB 79 offers is around zoning.
Sarah Johnson (0:43):
Welcome to the Pathway Podcast. I’m your host, Sarah Johnson, and thank you for joining us for this episode. Pathway to Tomorrow is a nonprofit with initiatives in housing, environmental conservation, and water security. In this podcast series, we speak with leaders who are shaping the future of our cities, people working at the intersections of climate, housing policy, and sustainable development to create solutions that meet the demands of a rapidly changing world. Our guest today is Louis Mirante, Senior Vice President of Government Relations at the Bay Area Council, where he represents more than 400 of the region’s largest employers on issues including climate resiliency, transportation, energy, and housing policy. Before joining the Bay Area Council, Louis served as Legislative Director at California YIMBY, helping to shepherd some of the state’s most influential housing legislation. His work has focused on increasing housing production, expanding affordable homeownership, and aligning the state’s climate goals with land use planning.
Louis, thanks so much for being here today.
Louis Mirante (02:03):
Thanks so much for having me, Sarah. I’m excited to talk.
Sarah Johnson (02:05):
To start us off, Louis, could you share more on your career path working with various state government agencies before transitioning to housing advocacy, and how you came to your current role at the Bay Area Council?
Louis Mirante (02:16):
Sure. Yeah, I started as an executive fellow in the state’s Department of Transportation, Caltrans. I also worked at the California Air Resources Board, which has a wide remit over land use and transportation politics and policy here in California. I then went to work for the state’s Department of Finance, which is responsible for the budget proposals from the governor and for maintaining the fiscal health of the state. I was the budget analyst in charge of transportation policy, or one of them, I should say. We had a good small team. The next step in my career was to work for California YIMBY. I was their legislative director for about 4 or 5 years, and worked on a number of pretty transformative land use changes here in California. And today, with the Bay Area Council, I’m responsible for our housing legislation in particular, and have worked on several of the most recent transformative pieces of legislation that you’ve probably heard about in the news, the CEQA streamlining bill that went through last year, the big transportation transit-oriented development bill that Senator Wiener helped get passed last year, and a number of others.
Sarah Johnson (03:35):
So, given your role shaping statewide housing policy, both as former Legislative Director at California YIMBY, as you said, and now as Senior Vice President of Public Policy at the Bay Area Council, you were deeply involved in the development of SB 79, which is getting a lot of attention right now. Could you walk us through what the bill is designed to accomplish, particularly in terms of increasing housing production near transit?
Louis Mirante (04:10):
Sure. So SB 79 was a transformative bill. Senator Wiener, from San Francisco, authored a bill last year. Governor Gavin Newsom actually signed the bill. It went through the legislative process in October, and we’re now in the phase where we’re revisiting certain aspects of the bill to make sure that they work. It’s largely an implementation focus for us now. SB 79 is a really exciting bill because it directly responds to one of the core challenges related to affordability here in California.
The state has for decades built about half of the homes it needs to build every year to keep prices stable, which is one of the main reasons that it’s so expensive to live in places like San Francisco or Oakland, or Los Angeles, or basically anywhere here in California. The Bay Area, for example, had a huge mismatch between jobs and housing for decades. San Francisco built about one home for every ten jobs that it authorized for a ten-year period between about 2010 and 2020, which had a huge effect on affordability and displacement, and all sorts of other challenges.
The response that SB 79 offers is around zoning. I sort of say there are three main barriers that we need to tackle to get to housing affordability here in the state. One is the process for approving homes. One is the direct cost that we add to homes, things like impact fees. And one is zoning. SB 79 really gets to that zoning piece.
According to the Othering and Belonging Institute, which is a research institute based at UC Berkeley that studies segregation in California, about 80 to 90% of most urban cities in California exclusively zone their land for single-family homes. That means that in most situations, a developer or housing proponent can only build one home per lot.
Now, there have been some changes to state law that have limited the degree to which you really can enforce single-family zoning, but these laws have resulted, for the most part, in only allowing, let’s say, two to maybe ten homes on those lots. Not a huge increase from the single-family zoning that people are familiar with.
SB 79 adds to that list of state laws and says that in areas closest to transit, the state’s highest quality transit, things like trains or really frequent service of bus rapid transit, in those areas, local governments would not be allowed to deny a housing project on the sole basis that it is an apartment or a larger building than the local government would have otherwise allowed.
They still have control of a lot of levers and factors related to the project, but they have to play ball on a slightly larger building than they otherwise might have allowed. In most situations, the tallest you’ll be able to get under SB 79 is about eight stories. That’s roughly what you would see if you went to Paris and walked around their transit areas, best served by transit, and that’s kind of the density that we’re really hoping to go for. That’s the type of infill, walkable development that is going to really help our cities, like San Francisco, build housing and become more affordable places to live.
Sarah Johnson (08:04):
Yeah, thank you for that, Louis. My three-part question was: which provisions have generated the most debate or resistance so far, and what amendments or negotiations do you expect to ultimately reach to compromise on said resistance?
Louis Mirante (08:24):
SB 79 has a couple of big components that I’m excited about and that were quite controversial. One was this transit-oriented development bonus that I was just telling you about, that housing proponents can get additional density and additional height in exchange for making a certain percentage of their building affordable, and locating it next to the state’s highest quality transit. That’s pretty exciting. That’s going to directly add a lot of homes to the urban areas that are most acutely suffering from a housing shortage.
Another aspect of the bill is that it allows transit agencies to utilize underdeveloped land and vacant land that they own for housing. That’s going to be great because it boosts transit ridership, and it allows the transit agency to collect another form of revenue by way of ground leases or what have you, and turn that underperforming asset into something that’s really boosting service and making service more reliable and affordable, which is especially important because ridership declines that occurred as a result of COVID-19 have largely not been reversed, meaning we have a big fiscal shortfall in many of our transit agencies here in California.
I would say the biggest, most controversial aspect of the bill in the legislature was that transit-oriented development bonus that I mentioned earlier. We’d originally contemplated it as something that would happen on most big transit stops in California. But as the bill progressed through the state Senate, which was its first house, we made some substantial changes that made it more based on a network approach. So now, instead of getting that TOD bonus just because you’re next to a really high-quality stop, you need to be in what’s called an urban transit county to get access to the bill. An urban transit county is one that has a network effect going between major transit stops, meaning that people who live in that housing are going to be more reasonably able to get around the county, to get to jobs, get to daycare, get to the grocery store, get to all sorts of stuff using that transit.
Louis Mirante (10:52):
In the Senate, we also made some changes to how the bill operates, but not a ton. The big changes to the bill came in the Assembly, the second house to review the bill. And I think the biggest one that we made was we took out the third of three tiers that had applied to the bill originally coming out of the Senate.
When we converted the bill into this network effect approach, we created three tiers of transit service that would be eligible for that urban transit county distinction. And we eliminated the third of those three in the Assembly in response to feedback we got from folks that the bill was just too broad.
We barely made it. The bill, I think, got out of the Assembly with 44 or 45 of the 41 votes that it needed, and in the Senate it passed by 21 votes of the 21 it needed. It didn’t have a single vote to spare back in the Senate. And then we were off to the governor, who signed the bill in October [2025].
This year, we’re working on cleaning up the bill and making sure that the provisions of the bill work as intended and that everything is clear. There’s a lot of stuff that we just need to clean up this year, and we’re working on that with Senator Wiener and a broad coalition of folks.
Sarah Johnson (12:05):
Thanks for that clarification. You mentioned this kind of network of transit as a determining factor for how housing is concentrated. I know there have been some questions around how it was determined what areas within a particular city housing would be concentrated, while being along transit. Would you say that that’s solely how it was dictated, through the way that you define high-quality transit?
Louis Mirante (12:44):
Well, we wanted to align our climate goals as a state with our housing goals as a state, with our transportation goals as a state, to the greatest degree that we could. In doing that, it meant that we were locating this density bonus next to places that had the best transit service in those areas. So that’s going to be heavy rail lines or things like bus rapid transit.
The law implements certain standards for what you would consider a high-quality transit stop. But that high-quality transit stop definition is one that’s been used in state and regional planning for decades, and isn’t one that we came up with.
But you can think of it as Union Station in LA, or the MUNI line, or BART in the Bay Area. And those are the types of places where we think it’s most effective to put housing, because people are going to get the biggest bang for their buck living there. They’re going to have lower transportation costs. They’re going to have lower housing costs in general. That’s best for the economy, which is closely located to those places as well. And it’s all around just the most efficient way to do urban planning and policy, and is one that will have exciting benefits for California’s climate emissions as well.
Sarah Johnson (14:17):
For my next question, I’d like to ask about your advocacy around expanding affordable homeownership. You’ve been a strong advocate for expanding affordable homeownership opportunities, particularly for the “missing middle”, which is a very challenging population to build for.
What kinds of state policies or financing tools do you think could most effectively enable for-sale multifamily housing? And as a follow-up to that, why do you think California has fallen so far behind places like Vancouver, where 30% of multifamily units are for sale, compared to just 3% here in California of multifamily units that are for sale?
Louis Mirante (15:02):
Yeah, those numbers are right and really concerning. So as you mentioned, in peer markets like Vancouver, about 30% of multifamily buildings are built as condos or as some for-sale product. That number in California is about 3%, so ten times lower.
We are only building a few hundred to maybe a few thousand condos or for-sale homes in multifamily structures every year, meaning that we’ve built up an acute shortage of homeownership products, especially in urban areas, that is distinct from the general shortage of housing in California, and is one that I think largely explains why people feel so frustrated with the housing market. They can look at these prices and not see themselves able to buy them. So they have to think about moving to far-flung areas. And that can mean they spend hours in their car, or they have all sorts of increased transportation costs. And it just gets really dispiriting really quickly.
The state has several laws that relate to homeownership projects that don’t apply to rental projects. I think it’s critical to understand those and for the legislature to reform them. It’s important for a lot of reasons. One of them is that we should just have more for-sale, affordable homeownership options. That’s a California dream, that’s an American dream. That’s really important for wealth building. So many benefits to that.
But I think reforming these laws and allowing more homeownership products in cities is important from a climate aspect as well. When people move to these areas that are more suburban or exurban, they increase their transportation emissions quite a bit, and they’re often doing that because they can afford to buy something in those places. If we can build more homeownership options in urban places, I’m hopeful that people who want to stay in those urban places will make the decision to do that, resulting in a lower emissions profile for that family or for that person.
It also means a higher quality of life in many circumstances. They’re spending less time in their cars and more time with their kids or with their family. And we should prioritize quality of life and well-being in housing policy. We shouldn’t just think about the numbers; we should think about the people behind the numbers as well.
So we’re working on a couple of things that would reform those laws holding back homeownership products here in California. I sort of see 2 or 3 major components to this challenge. One is California’s construction defect liability law. This law is very well-intended. It largely says that if you buy a home that has defects, for ten years you’re able to go to the developer and get those defects fixed or get money back from the developer. But the law doesn’t work. The law’s process for giving the developer an opportunity to fix your home is deficient. And that means that most people who sue actually sue for damages. They sue for money.
This has a lot of effects on the development pipeline and the cost of developing homeownership products. The law, though, is very broad. If you have paint peeling, for example, that’s something that a developer might be held accountable for. It’s for minor defects and for major ones. And it’s that minor component that makes this really challenging. If your consumer protections are hugging your consumers so tightly that there’s nothing on the shelf to consume, we should really reevaluate whether those consumer protection laws are actually protecting consumers.
I think consumer protections in California would be better served by adopting one of a number of different options for solving this problem. One would be a warranty program similar to what they have in Canada, where you would be allowed to build something, and you’d have to offer a warranty on it. And that warranty would be limited, and you’d have to fix major deficiencies, but maybe you wouldn’t have to fix minor ones, like paint peeling. That would de-risk the projects quite a bit. And de-risking projects is important because that means that your lender is charging you less for your construction loan, which can be an enormous cost in development.
It also means that you’re paying less for insurance. Getting insurance is a huge problem these days, as California’s insurance market responds to climate change and a host of other things. The other option is that we could limit the tail. Ten years is quite a long time for this construction defect law to apply. Other states have limited the term to eight years or to five years, and that would again help people de-risk their projects and deliver them more affordably and more reliably.
Another big one is that California only allows a small amount of your initial deposit on a home to go to constructing that home. The number here in California is 3%, so if I give you $100 to build me a home, you can only use three of my dollars to actually build that home. You have to borrow the rest. But that kind of doesn’t make sense. Obviously, if you don’t deliver me the home, there should be a law that protects me and gets me my money back. That’s the spirit of this deposit law. But there are other options for this that could drive down costs.
For example, we could require that you, as the developer, buy some sort of insurance product that would refund me if you didn’t deliver the home, or you could be required to hold a bond of some sort. But not allowing you to use the money that you already have in your bank account means that you have to go get an 8% or 9% or 10% construction loan, which is going to be much more expensive to you and to the full project than just using the money that I already gave you for that project
.
Then there are just a couple of other really technical things. I’m passionate about reforming the state’s Subdivision Map Act, which governs how subdivision processes, including the condo mapping process, happen in local governments. This is a state law that governs local functions, and the Subdivision Map Act was largely written in the 1970s, with the generation before our current generation’s ethos in development. Everything is very discretionary. There are a lot of opportunities for local governments to object to your process or to add different things that will increase costs to your project. They’re allowed to require you to upgrade streets and all sorts of different things. A certain degree of that is definitely appropriate, but when these decisions are made ad hoc, it’s very hard for developers and for their investors to predict what their costs are going to be.
In California, that’s really why we’ve had such a hard time building housing. It’s that the process for building housing in California is inherently very risky. I would love instead to see local governments write down in a capital improvement plan the different things that they want improved, and then to adopt an objective fee schedule on development for improving them, so that people who want to build can know, going into that process, what they’re going to pay to accomplish it.
There’s just really no reason to have such a risky development process in California. And it’s driving down housing production, and it’s driving people to the suburban and exurban places that we discussed before, because those places are inherently much less risky to develop.
When you have fewer neighbors, there are fewer people who are going to object to a development to the city council. I have a colleague who loves to say that cows don’t file lawsuits, and that’s a shame; that’s how development works here in California.
Sarah Johnson (23:44):
I love how you framed this. The solution is really about de-risking, which is ultimately – that’s the heart of the matter. For my next question, I would like to dive into California as a landscape for building. California is often cited as one of the most expensive places to build housing. The RAND Corporation released a study recently that found that you can create 2.1 homes in Texas for the cost of 1 home in California. Can you walk us through the main reasons for this cost difference, and could you speak about how these costs uniquely shape California’s housing shortage?
Louis Mirante (24:24):
Absolutely. So first, before I get into what’s driving the differences, I actually want to describe what’s not driving the differences, because I think there’s a lot of misperception about this particular study and about why different regions in this country are building different amounts of housing.
One reason that there is no difference between California and Texas in affordability levels and construction costs is labor and wages. The hourly wage that you pay on a housing project in Texas is lower than in California, but not explanatorily so — it’s maybe 5 to 10% lower than you would expect to pay here in California. But Texas, including specific regions like Dallas, has enormous amounts of housing construction compared to California. And in general, Texas’s metro areas are building 2 to 3 homes for every one home that California is building. So it’s not construction labor wage costs that are driving this difference.
It’s also not the materials cost, at least not the price that you would pay a wholesaler for lumber. The materials costs that are most typical in a residential project are not that different across California. They are different. Again, they’re cheaper in Texas for a variety of reasons, but again, not explanatorily so.
And sort of the last major reason that housing production is not different between Texas and California is the cost of borrowing money. Your construction loan cost is virtually identical in Texas as to what it would be here in California.
And those three are kind of the major things that most people, when they’re thinking about housing development, think about.
The RAND Corporation study that you mentioned found that the difference was largely in policy. So, California requires an enormous amount of fees compared to Texas. The UC Berkeley Turner Center for Housing Innovation, which has extensively studied this fee topic, finds that in California, fees on one home can be as much as $100,000 to $200,000 per home. So there was a period, I think, in 2016 or 2017, where Fremont, California, was charging as much per home in fees as it would cost to buy a home. The median-priced home in the United States at that time was about $250,000. That was an enormous amount of fees.
The rest is related, I think, to our policies on streamlining and processes, and to the unique and bespoke expensive building code here in California. So I’ll start with that process. California has a much more difficult process for entitling homes than Texas does. In San Francisco, the average project takes close to five years to be fully entitled, which is an enormous amount of time that you have to pay for attorneys, architects, and engineers to twiddle their thumbs and wait for reviews to happen. It’s a huge waste of time and energy from a municipal perspective and from the private development side. In Texas, it’s much shorter than that — it’s less than a year in general.
Louis Mirante (28:11):
And the last thing, the thing that I’m thinking the most about these days, is California’s building code. We don’t have a ton of great data on this, and that’s something that I’m hoping to improve. But California has the California Building Code, which adds a lot of additional costs on top of the International Building Code, which is used in the United States and Canada. The California Building Code has all sorts of different things for solar and for all sorts of things that Texas doesn’t have.
And many of those things are individually worthwhile. But we have to think about whether or not, as a sum total, they’re worth the cost that they’re adding to the project. In California, we’ve always said, ” Oh, that’s a good marginal idea, let’s throw it on the pile. But we have never evaluated the pile itself. We have never said, ” Is this too expensive? Do we have too many good ideas? Are we making the perfect project the enemy of the good? That, I think, is the legislature’s next step. It’s the advocacy world’s next step in driving down the cost of housing here in California.
And it’s important for a whole host of reasons. Obviously, if you can’t build housing affordably, you can’t sell it or rent it out affordably, and that’s obviously important. It’s also important, though, from an affordable housing standpoint.
As you know, affordable housing is generally subsidized by taxpayers. And in California, the bill for that subsidized affordable housing is going concerningly high, which is having ramifications on voters’ willingness to pay for it. When you tell voters that it costs $1.1 million to build a home, will you please pay some more taxes to buy those homes for other people? They are pretty inclined to roll their eyes at you and tell you to find cost savings, waste, fraud, or abuse, which is unhelpful when you’re trying to get bonds approved or other things approved for increasing the amount of affordable housing being produced by the subsidized industry here in California.
So I think reforming these processes, reforming these fees, and reforming the building code in California is important for a variety of reasons. But it’s probably most important because we need that housing, and Californians are paying a huge amount of extra money in rent that they should be able to keep because of these factors.
Sarah Johnson (30:41):
Absolutely. Thank you again, Louis, for a really great, thoughtful, thorough explanation of all that’s at play. So I want us to switch gears now, Louis, and talk about climate change and how that relates to all of the things we’re discussing today with regard to the housing shortage.
So you’ve talked publicly about the looming challenge of global climate migration, and you’ve cited Bangladesh as a country facing existential risk from sea level rise. Bringing this closer to home, which cities or regions in the United States do you think are expected to see the greatest population displacement due to sea level rise or extreme flood risk? And how do you think states should be prepared for internal climate refugees? And then, as a follow-up to that, do you foresee the need for the United States and other countries to plan for climate refugees from other countries?
Louis Mirante (31:48):
I will sort of say in starting out that we’re never not talking about climate change in California. Obviously, building infill housing is a huge strategy for reducing climate-forcing emissions. Getting folks out of their car and into transit or walking around is a great opportunity for the state to clean its air and to lower its carbon emissions profile. Also, building housing in California, more generally speaking, is a huge opportunity because our grid is naturally much cleaner.
For example, a person living in Texas has about three times the carbon emissions that a person would have living in California, even controlling for all these different other factors, because California’s grid is so much cleaner than Texas’s grid. So just building housing in California is itself, I think, a very important climate strategy.
But to get to your point about climate change and climate refugees, this is something that does very much concern me. The United Nations estimates that anywhere between 200 million people and as many as 1.5 billion people will be displaced by climate change or by climate-related events by 2050 or 2075.
We don’t have a billion extra homes just hanging around anywhere in the world. And we need to start thinking about what it’s going to take to actually make sure that everybody has a safe home and that we don’t see the types of displacement-related conflict that we, frankly, are currently seeing in a lot of Africa, and emerging in South Asia.
The biggest risks here in the United States are for coastal cities, of course. So much of San Francisco is built, actually, from bay fill and would be mostly underwater, but for our interventions in shoring the bay and all that sort of stuff, it’s at great risk for flooding. The capital city of California, Sacramento, is inland, and people don’t think of it as having a huge flood risk, but it has an enormous flood risk because much of the central city is actually built under what were floodplains or marshland in the Sacramento and American River Valley in the 1800s.
Louis Mirante (34:27):
Los Angeles also has flood risk, although less so, in part because it channelized the LA River so heavily. But these are all places that we should think about as places where we need to be planning. We need to be adapting to a climate reality that’s going to hit us quite hard. In the Bay Area, we’re looking at an enormous price tag for doing that.
The Bay Area Conservation and Development Commission, BCDC, is responsible for shoreline armoring and for development that’s close to the bay shore. They estimate that we’re going to need about $110 billion to become a resilient region to climate change. That’s an enormous amount of money, and it’s an amount of money that nobody has, and nobody really has a strategy for getting. I think it’s possible to get it.
My strategy for getting it would be to redirect property taxes away from bay shore development to resiliency efforts, which would require a host of changes to state and local laws and a pretty broad regional willingness to redirect that money. It’s possible, but it would require us to build quite a lot close to the shore and to redirect quite a lot of money to that resiliency effort. It’s possible, though.
In the United States, there are a lot of cities that are at risk from climate change. New Orleans obviously comes to mind, but there are so many more. What we need to start thinking about as a region and as a state, though, is, I think, a step beyond just adaptation and resiliency. We need to start thinking about planning for the people who aren’t going to be able to live in the places they currently live.
Louis Mirante (36:19):
We need to think about, for example, as we plan for the growth of Sacramento or for Los Angeles or for San Francisco, we need to be thinking about the people who will no longer be able to live in Texas, or in Florida, or in Bangladesh, or in India, or wherever. We need to start thinking globally about this because those people are going to need a home. We’ve contributed to them not having the home by 2050 that they currently have by way of climate-forcing emissions that we’ve produced here in this country. And I think it behooves us, if we want to avoid international conflict, to make room for them. But that’s so far beyond the planning and development paradigm here in California that I really wonder whether we’ll actually get to that stage. But if people pick up the phone and call their assembly members and senators to ask them to plan for climate refugees, maybe it’ll happen.
Sarah Johnson (37:09):
I like how hopeful you sound, Louis. We’ve got to be hopeful. And I think it starts with conversations like this.
So now I want us to switch gears back to the conversation we had earlier around the public perception of what publicly funded affordable housing means. I think there’s a lot of misconception, or a lack of understanding, around how publicly funded affordable housing is built and financed.
So if you could define this for our listeners, including the types and numbers of funding sources a project typically requires, and the role that prevailing wage requirements play in a developer being awarded public funds, then if you could just summarize why these distinctions matter so much for a project’s financial feasibility.
Louis Mirante (37:58):
Yeah, absolutely. So most affordable housing — I call this type of affordable housing capital-A affordable housing — it’s the subsidized product that is going to be affordable to somebody who’s making low-income wages, and is sort of the main source of new affordable housing that people think about when they think about actual development.
The affordable housing in California and the United States more generally is largely financed by something called the Low Income Housing Tax Credit, or LIHTC for short, which is a very complicated system by which affordable housing developers are awarded tax credits that they can sell to people who want to reduce their tax liability. Mostly, banks are buying those tax credits, and then they take the proceeds from selling those tax credits, and they reinvest that back into development. And that cycle continues.
There are several funding mechanisms here in California, though, that are relevant. LIHTC is just one of them. Those funding mechanisms, though, are generally greatly oversubscribed. There are far more people applying for those dollars to build than we have dollars to award. It’s also really challenging to develop under this paradigm, because you often need to cobble together a large number of individual sources. You can rarely get your subsidized, affordable project constructed using only one source of subsidy.
Louis Mirante (39:46):
The Terner Center, the UC Berkeley Terner Center that I mentioned earlier, has studied the effect this has on development as well, and has concluded that for every new source of financing, you’re adding about six months of time to your construction costs, and several hundred thousand dollars to the overall cost as well.
So these costs can add up because many projects have 8 to 10 sources of financing that they need to juggle. Those sources of financing all have different reporting requirements and legal requirements on the project, and all sorts of different things that get really complicated, really fast, and mean that developers have to be highly skilled in all sorts of different arcane stuff to be able to use these revenue sources.
One of those requirements for using many of these revenue sources is that projects pay something called prevailing wage. This is the modal wage for certain crafts in California. Prevailing wage sounds like it’s the average wage, and it technically is the average, but it’s the modal average. So it’s not the mean or the median. Because it’s the mode — it’s the number that recurs the most in bids that are submitted here in California. It is administered by the Department of Industrial Relations, which publishes the prevailing wage for a host of categories of labor and for different regions.
And in California, most developers will tell you that prevailing wage is very high. So, for example, the hourly base rate in Northern California for carpentry, you’d be expected to pay about $99 an hour all in — that includes things like personal time off or other benefits like health care. But compare that to about $35 to $40, which would be the mean or median wage. And you can immediately see why prevailing wage is something that developers will tell you drives costs on projects quite a bit.
Now, I should say unions, who are largely supporters of prevailing wage, contest that prevailing wage adds greatly to costs. They argue that prevailing wage workers are more efficient and more highly skilled, so you have to redo work less, and all sorts of other efficiency gains come from using prevailing wage. I’m not really going to stake a position one way or another on that, other than to say the research on prevailing wage is not very clear when it comes to individual residential projects. There isn’t a robust set of data that we can really look at to answer this question as to whether prevailing wage is much more expensive than market rate wages when factoring in things like efficiency.
I’ll just say prevailing wage is much more expensive. And so the developers I talk to, who look at that price tag, get very concerned by it because they again look at it as a risk. And their goal is largely to de-risk their project. So prevailing wage is one of these things that we’ve added to projects that I think probably has increased those projects’ costs. And so it’s something that we should evaluate in the context of all these other things.
Louis Mirante (43:34):
I personally think that the wages people earn building buildings are some of the most important ancillary public policy benefits of construction. We should see the construction sector not just as a pathway to prosperity for people who live in homes. We should see it as one for people who build them as well. My family actually came to this country and largely built its wealth in home building in the East Bay. And they were able to do that with a sixth-grade education and not much else.
That’s a really great opportunity for delivering people a shot at California’s and the United States’ middle class. That’s something that I am passionate about helping continue. The rest of the stuff may be less so. There are so many things that California does to add cost to projects, things like fees and all that sort of stuff that get in the way of projects.
As we talked about earlier, there are so many things that stack up to insurmountable costs for development. And I think we should evaluate that pile as a whole and try to bring them down. But that doesn’t necessarily mean we have to pay people less to do that work. It does mean, though, we have to find other cost savings.
Sarah Johnson (45:00):
That was a really thorough answer. So that leads me to my next question. Given what you know, and given what sounds like a very extensive background in the space that spans generations, how do you feel California can balance strong labor protections and living wages for construction workers with the urgency of addressing the state’s housing shortage and affordability crisis?
We know that HCD estimates that California needs about 2.5 million additional homes by 2030, including over 1 million affordable units. And based on the pace at which we develop, that seems like a goal that’s far outside of our reach, at least based on the development pace of the last couple of years.
And the ability to meet this need is also further challenged by rising construction costs driven by material price inflation, regulations, and a persistent and ongoing labor shortage that appears to actually be getting much worse in the last couple of years. How do you think policymakers should approach these trade-offs without undermining either housing production or worker protections?
Louis Mirante (46:07):
Great question. So I see these as twin goals, actually, rather than in conflict. As you mentioned, California needs about 2 or 3 million new homes to just get back to 1990 levels of affordability. Not even a super affordable state at that point, but to make progress, we need millions of new homes. That’s going to require hundreds of thousands of new workers.
We build about 100,000 homes per year. If we wanted to build what we think we need to keep up with rising housing costs and with the job market in California, we would have to build about 200,000 to 300,000 homes per year. That gives us a little bit of room to actually reduce our shortage, that 300,000 home number. But it’s a far cry from what we’re building today. It’s a far cry, in part because we simply don’t have the workers to build those homes. California is facing a labor shortage in construction, but it’s one that we know how to solve.
I see labor protections and wages as hand-in-hand strategies with affordable housing and housing production, because we need to attract workers to the sector to build homes, if we want to build the number of homes that we say that we need.
We have to, for example, bring in about double to triple the workforce that we have here in California. We’re only going to do that by making construction an attractive proposition for the people who are working in it. I think it also hurts that we’re cracking down on immigration at a time when we should be expanding the pool of people who are eligible to do these jobs.
Louis Mirante (48:05):
Immigrants have been a core component of the construction sector for decades. They play a really important part in delivering affordability to California. I personally feel it’s a great shame that the United States is turning its back on these people, and it’s going to have ramifications for our affordability. It’s going to make our cities and state less affordable, I think.
It’s a little bit shallow to say that because of the moral rights abuses that are happening, but it’s an important acknowledgement, too, that there are going to be economic effects in addition to the terrible things that are happening in people’s lives and families right now.
Anyway, I really see labor protections and worker protections as hand in glove with affordability here in California. They’re in tension sometimes, for sure. But fundamentally, we need much more of all of the above to deliver a California that’s affordable for people.
Sarah Johnson (48:07):
Well, Louis, thank you so much again for joining us today. I found our conversation today to be very enlightening, and the opportunities we have to rethink how policy can help us meet the challenges that persist in construction, streamlining, funding, and creating affordable homeownership models.
So I’m leaving our conversation today very hopeful, and I hope our listeners are as well, as to the fact that there are tangible solutions to the crisis that we’re currently facing as a state and also as a country.
For our listeners, thank you for joining us as well. And don’t forget to subscribe to The Pathway Podcast to catch upcoming conversations with leaders working at the forefront of housing, climate, and water security.
Louis Mirante (48:42):
Thanks so much for having me on, Sarah.