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Though the word “crisis” has become a ubiquitous descriptor, few would call it hyperbole when applied to California’s housing market.
The numbers tell a panicked tale. The state’s median home price now exceeds $600,000, double the national rate. Forty-one percent of residents surpass the threshold of “cost-burdened,” defined as spending 30% or more of one’s income to keep a roof over their head.
In the Bay Area, only one unit of new housing is being built for every five new jobs. When McKinsey & Co. examined California’s needs three years ago, it estimated the state would require 3.5 million new units by the mid-2020s. The revised reality: It will likely take until 2050 to reach that figure.
Housing in California has been unaffordable relative to the rest of the country for about two decades now. The difference now is in the degree of unaffordability. And while this crisis has many fathers, among those whose role has been most overlooked is former Gov. Arnold Schwarzenegger, whose forward-thinking, green ideas a decade ago came with unintended consequences.
The beginning of the problem
Back in 2008, Schwarzenegger was dealing with entirely different circumstances. America’s housing market was in collapse, forcing a reexamination from tip to tail. The Republican governor chose to think big by making the greenest housing stock in the country — supercharging any previous policy on how to make that happen.
His idea wouldn’t become law until 2011, just as he was leaving office. The California Green Building Standards Code — better known as CALGreen — was the nation’s first mandatory climate-fighting housing code, designed to radically stem greenhouse emissions and energy and water use.
The ultimate goal: By 2020, new homes would produce as much energy as they consumed.
Today, such ambitions are being codified in city halls across the land. But Schwarzenegger was traversing new territory. The technology and materials to achieve his goals were nowhere near perfected, and the coming costs largely unknown.
Yet with the very fate of the planet at stake, he reasoned, this was no time to be skittish.
‘Extreme makeover’
CALGreen would usher in an extreme makeover of the state’s building industry, regulating everything from insulation to doors, toilets to caulk in increasingly demanding phases. Solar panels would be a must, and extensive remodels would fall under the new code as well. Pricing had nowhere to go but up.
Though California has since pulled back on Schwarzenegger’s 2020 deadline to ensure homes created as much energy as they used, his dream is largely fulfilled. California has one of the greenest new housing stocks in the country. Earlier this month, Schwarzenegger and his fellow former governor Jerry Brown celebrated the installation of the one millionth solar roof in the state, a figure once considered impossible to reach
Yet CALGreen naturally shoved home prices aloft — based on our anecdotal accounting, as two entrepreneurs well-versed in the industry, for roughly $60,000 of that $600,000 median-priced home. If Schwarzenegger was a visionary in pushing the needle on climate change, he also offers a cautionary tale. As other cities and states now bandy about arbitrary dates to achieve similar goals, CALGreen illustrates how, even with the best intentions, unknown minefields await.
Dearth of trades workers
Schwarzenegger was fashioning his plan at a moment of relatively depressed prices and idled construction. What he didn’t know was that the housing collapse would cause an exodus of tradespeople seeking more stable employment. Just as his law required more sophisticated homes, the skilled labor to build them fell in increasingly short supply. When demand for homes returned, the industry was unprepared, thus deepening the crisis in a way that’s led to stunning, statewide anecdotes.
These days, a Bay Area plumber is in such high demand that they might have a waiting list of 50 projects. It can often take up to $5,000 just to get them to drive to your site.
Contractors take up to five months just to deliver a simple estimate. And with so many jobs to choose from, things like bathroom and kitchen remodels are too small to draw their interest.
Some San Francisco builders are hiring contractors from as far away as Sacramento, where the labor is cheaper, even with added hotel expenses. But this can present unique woes on its own, like when traffic precludes workers from making the two-hour drive.
Then there are cities like Sonoma, where soaring price out builders and contractors. If a fire takes out thousands of homes, there’s no one near to rebuild them. Those that remain are charging a premium, sometimes up to twice as much per square foot as it might cost to build a custom home in pricey San Francisco. And because of demand it might take them five years to finish.
Even a single, subsidized apartment of modest size and architectural flair now costs $450,000 to build in places like Los Angeles and the Bay Area, according to the Terner Center. While Schwarzenegger foresaw the necessity of a green revolution, he didn’t accompany it with more expansive zoning to counteract pricing and shortages.
Not in my backyard
Like most of the country, Californians in single-family neighborhoods are loathe to welcome condos and apartments arising next door. The resulting dearth not only exacerbates price, but pushes new building ever outward into fire-prone areas.
By the time he left office, Schwarzenegger’s governorship had been routed by the Great Recession. California’s unemployment rate was at 12%, its budget deficit at $25 billion, his approval rating wallowing in the 20th percentile.
But his environmental activism would not be stayed. He’s since launched a non-profit to push green investments. He’s joined former presidential aspirant John Kerry in “World War Zero,” among a cast of politicians, military leaders and celebrities urging action on climate change. He’s starring in comedy skits for electric cars and bicycling with his “friend and hero,” Swedish climate change wunderkind Greta Thunberg and published op-eds in The Washington Post decrying President Trump’s attempt to scale back auto emissions restrictions.
Even in retrospect, it seems unfair to fault Schwarzenegger’s initiatives as governor. Most politicians still stumble with the same issues today, despite grand advancements in technology, materials and their costs.
That’s the problem with reading into the future. No one is above the laws of unintended consequences, and no one can imagine what a crisis might look like until it’s at their front door.
Jared Levy and Gordon Stott are the co-founders of Connect Homes, a prefab-home builder based in Los Angeles.
