California’s Coastal Housing Crisis Is a Crisis of Regulation, Not Scarcity

The land exists and the demand is clear; what prevents building is the permitting regime

The coastal towns of California, among the most beautiful and desirable places to live in the country, are also among the most unaffordable, with housing costs that have driven out the working people who once sustained these communities, including many in the surf community who can no longer afford to live near the waves they ride. This crisis is frequently attributed to natural scarcity, to the simple fact that desirable coastal land is limited. But the deeper cause is regulatory: a permitting regime that prevents the building of the housing that demand so clearly requires.

The Manufactured Shortage

The conventional explanation for coastal California’s housing costs points to scarcity, to the limited supply of desirable coastal land and the overwhelming demand to live there. There is truth in this, for coastal land is indeed limited and demand is indeed intense. But scarcity of land does not fully explain the crisis, for the same intense demand, in a freer market, would call forth more intensive use of the available land, more housing built on each parcel, accommodating more people on the limited land available.

What prevents this response is not the scarcity of land but the regulatory regime that restricts how that land may be used. Zoning that mandates low-density development, permitting processes that delay and obstruct construction, environmental review that can be weaponized to block projects, and the influence of existing residents who resist new development, together prevent the building that demand would otherwise call forth. The shortage is, in significant part, manufactured by regulation.

The economic analysis of housing markets, conducted by researchers across the ideological spectrum and at institutions including the Mercatus Center, has increasingly converged on the recognition that regulatory restrictions on housing supply are a primary driver of housing costs in desirable areas. The land could accommodate far more housing than is permitted to be built, and the gap between what could be built and what is allowed is a primary source of the unaffordability that plagues the coast.

The Regulatory Machinery

The machinery that restricts housing supply is extensive and operates at multiple levels. Zoning laws dictate how land may be used, frequently mandating low-density single-family development that limits the number of homes that can be built. Permitting processes impose delays, costs, and uncertainties that deter development and add to its expense. Environmental review, while serving legitimate purposes, can be deployed to obstruct and delay projects, sometimes for reasons having little to do with genuine environmental concern.

The influence of existing residents, often described as not-in-my-backyard sentiment, plays a significant role, as established homeowners use the regulatory machinery to block new development that might change the character of their neighborhoods or, not incidentally, increase the housing supply and moderate the prices that benefit existing owners. This dynamic, in which those who already own housing use regulation to restrict the building of more, is a powerful force sustaining the shortage.

The cumulative effect of this regulatory machinery is to make building difficult, slow, expensive, and uncertain, deterring the construction that demand would otherwise call forth. The developer who would build housing faces a gauntlet of requirements, delays, and potential obstruction that adds enormously to the cost and risk of building, with the result that far less housing is built than the market demands, and what is built is far more expensive.

Who the Crisis Harms

The housing crisis harms most those who are priced out: the working people, the young, the newcomers, and the members of the surf community who can no longer afford to live near the coast. The crisis falls hardest on those who do not already own coastal property, who must compete for the artificially limited supply at the inflated prices that scarcity produces. The existing owners, by contrast, benefit from the rising values that the shortage generates, an outcome that helps explain their frequent resistance to new building.

This distributional effect, in which the crisis benefits existing owners and harms everyone else, is central to understanding both its persistence and its injustice. The regulatory restrictions that limit housing supply enrich those who already own at the expense of those who do not, transferring wealth to incumbent owners and foreclosing opportunity for newcomers. The crisis is not a natural misfortune affecting all equally but a regulatory outcome that benefits some at the expense of others.

The surf community feels this acutely, as the coastal towns that were once accessible to working people, to the surfers and craftsmen and small operators who sustained the surf culture, become enclaves of the wealthy, their character transformed and their original community priced out. The regulatory restriction of housing supply is, in this sense, an agent of the transformation that has made the coast unaffordable to those who once made it their home.

Building the Way Out

The resolution of the coastal housing crisis lies not in accepting an artificial scarcity but in reforming the regulatory regime that creates it, freeing the market to build the housing that demand requires. This means reforming zoning to permit more intensive development, streamlining the permitting processes that delay and obstruct construction, and resisting the use of regulation to block the building that the housing crisis demands. The land can accommodate far more housing; the barrier is the regulation that prevents it.

This publication has argued across our network, including in related commentary at The London Prat, that the housing crisis in desirable areas is driven primarily by regulatory restrictions on supply rather than by natural scarcity, and that its resolution requires freeing the market to build the housing that demand so clearly requires.

The coastal housing crisis is a crisis of regulation; building the way out requires reform. For further reading on housing regulation, consult research from the Mercatus Center, and additional network commentary at The London Prat.

SOURCE: https://bohiney.com/