Why Is It So Expensive to Build Apartments in California?

Deanna Lee

You're listening to Policy Minded, a podcast by RAND. I'm Deanna Lee. California is second only to Hawaii in housing and rental costs. And it has the nation's largest unsheltered homeless population. One contributing factor to California's dire housing crisis is just how expensive it is to build new apartments there. Joining us today to discuss this is Jason Ward, an economist here at RAND and co-director of the RAND Center on Housing and Homelessness. Jason, thanks for being here.

Jason Ward

Thanks for having me.

Deanna Lee

You recently led a study that received quite a bit of media attention. It compared the cost of building apartments in California to the cost building apartments in Texas and Colorado. Tell us what you found.

Jason Ward

Yeah, so essentially we looked at completed cost data for a number of apartment projects, about 140 in total built over a period of about eight to 10 years. And what we found is sort of a headline after doing a lot of adjustments to try to make it as apples to apples of a comparison as we could, is that the cost to build an apartment in California is roughly two to three times as high as the cost of build the same apartment in Texas. We found that Colorado was sort of in between these two extremes with costs that were about one and a half times the cost in Texas.

Deanna Lee

Okay, so that's a very big difference. Like anything in public policy, I imagine there's a lot of factors at play, but what did you find to be the primary reason that it costs so much more to build apartments in California?

Jason Ward

Well, I think the thing that we sort of settled on is the most salient point is just a huge time difference in the production times in these states. So the average apartment project from start to finish in Texas took a little over two years for the projects that we had in our sample while the average time in California was nearly twice that long at about just over four years. Now, you know, time per se is not going to make things cost more but what happens with time is that you're just paying for more things for longer. So you can just think about all the ways that longer timelines influence costs. You know you may have more idle work crews sitting around on a site waiting for things to be inspected or approved or having to go away and come back. You may be paying for a land purchase for longer without being able to realize any revenue. You have longer carrying costs of interest for construction loans and things of this nature. You may have to pay more of a return to investors if a project is going to take longer to come to fruition. And so we really found that that was kind of the most salient point and really kind of summarizes a lot of other more in the weeds factors that we can go into.

Deanna Lee

Right. And before we get into some of those other factors, what is it that is making the timeline so much longer?

Jason Ward

So we kind of break up a timeline for a project into two big chunks. The first chunk is pre-development time. So this is like the time between when you might conceptualize a project, try to obtain land for it, et cetera, and when you break ground to be in construction. And then the second part is the construction period. We found that the major difference in timelines was the pre-development time. Construction times, I believe, were about 50% longer in California while pre-development time was well over twice as long. So. This really points towards a lot of processes related to permissions and entitlements and just navigating land use processes and political processes related to building, rather than actually something taking a much longer time to build, though that also was a non-trivial factor.

Deanna Lee

Okay, that makes sense. And I'm sure there's some crossover here, but what are some of the other contributing factors to the huge cost difference that you saw in California?

Jason Ward

Yeah, so we can kind of break it down typically with kind of cost analysis of housing production and other sorts of, you know, built projects. There are three kinds of primary buckets that costs go into. The first one of those is quite easy to understand: land costs. In California, we found that land costs were about three times the average land cost in Texas. And land costs are generally a relatively small amount over a project's total costs, like maybe between 10 and 20%. But that also depends on how expensive the land costs are, right? As they rise, they sort of become a larger share. So land costs were closer to about 10% of total project costs in Texas while they were closer about 20% or so in California on average. The second bucket that also is pretty intuitive is hard costs. And these are really the costs of building a building, like personnel, equipment, and materials and how long it takes to put them together and so on. So, hard costs was actually the smallest difference between California and Texas. And in some sense, it is sort of intuitive because it's not as if people move much slower in California in nailing a nail or these sorts of things, right? So, hard costs were about one and a half times in California the hard cost in Texas. There's certain aspects of building in California that we can talk more about that will mitigate towards higher hard costs. Things like seismic requirements that are obviously important for life safety. And then California also, you know, more on the somewhat discretionary side has much more robust energy efficiency requirements that do influence both the cost of materials as well as the amount of materials. Or in other words, like if you have to have more insulation and things like this, that costs more and maybe takes longer to install. Then the third bucket is called soft costs, and really this is just everything else. This is things like any cost related to legal representation, financing, various kinds of inspections or reports that have to be done in the case of certain affordable housing projects that have labor standards, the cost of monitoring, wage payments, the impact and development fees that many local municipalities charge. This was the largest difference in terms of a categorical cost difference. In California, the average soft cost difference was close to four times the cost in Texas. And this, I think, is where you see that policy really has a lot to do with it, because soft costs are overwhelmingly related to policy choices. That's something we sort of dug into a little bit more to try to get at some of the more policy-relevant recommendations.

Deanna Lee

I'm glad you mentioned policy choices, because I wanted to ask you specifically, would you say that policies in place in California are the biggest driver of these higher soft costs that you just mentioned?

Jason Ward

I think California has a number of factors that have made it an incredibly restrictive environment to build something. There are sort of state-level macro factors like the California Environmental Quality Act, which is a bill that was passed in the early 80s that was meant to really curtail kind of ill-conceived or potentially harmful projects with respect to the environment. Say a dam that wasn't well thought out or a new road through an area that might have some sensitive impacts, et cetera. Over ensuing decades, court rulings have made this bill, commonly referred to by its acronym of CEQA, be more and more widely applicable. And in particular, it came to be interpreted such that any project that requires a public approval is essentially a public project. So whereas you think like a dam built by the state or something is a public project clearly, but court rulings essentially said, you know, if you need to go to the government and ask for permission to do something, then it's a public project, therefore the California Environmental Quality Act or CEQA applies to it. In the current environment, the most common use of CEQA is to block infill housing in urban areas. So that really has very little to do with the environment in the sense in which the bill was conceived, but what it serves at is a very low bar mechanism for people to attempt to slow down the development of housing or other sort of features of the urban built environment. That's one unique thing about California. There are a few other states that have a bill like this. New York is one exception, but for instance, Texas doesn't really have any mechanism like this. Beyond that, I think California as a state has kind of a history of what's, especially in Southern California, been called the slow growth movement, which was just sort of a backlash to the rapid growth of California in the sort of 60s through the early 80s. This culminated in Proposition 13, which was sort of a ballot initiative that had some really significant implications for tax policy in California. That has a lot to do with the municipal impact fees that we find are profoundly larger in California than they are in Texas and even in Colorado. But I think also more broadly that kind of general movement in the culture of California in terms of political participation and governance has just led to a really restrictive environment in general whereby everyone gets a say in what happens to land and how it's used, whether you're a neighbor or whether you actually own the land or whatever the case may be. California has sort of had a long history of very discretionary approvals of housing projects. There's just been a lot of sort of pay to play to build housing in California. All these things really just add up to a long and often sort of arduous path to get permission to build something. This has been changing in recent decades. There's been a lot of reforms to make more projects go through a pathway that is usually called by-right or ministerial, meaning that if you do the right things, you don't have to ask permission. That protects these projects from CEQA, and it also generally shortens timelines. However, the sort of shortened timeline in California is still quite long relative to the kind of timelines that prevail in a place like Texas.

Deanna Lee

And we're talking about apartments, multifamily housing, but you also had some specific findings related to publicly subsidized housing, right? Can you talk a little bit about those?

Jason Ward

Sure. Yeah, so the entire publicly subsidized housing sample that we used are projects that have as their primary funding source funds from the federal low income housing tax credit program or LIHTC. What that program is, is a program that the federal government essentially issues credits to states that can be awarded to developers of projects that are going to be income restricted affordable housing projects. These credits are then sold on to financial institutions that have, will have a tax liability to the government. So in, in essence, these developers are sort of given this free IOU to the government to sell to people who do owe the government money, and then they essentially raise equity for their project through this. LIHTC is the largest funding source for affordable housing production in the country and has been for some decades now. However, the LIHTC funding itself is not enough for an entire project in virtually all cases. So what projects like this have to do is they have to build what's called a capital stack. LIHTC funding may pay for 60% of the project costs, and they may have to raise the other 40% through other funding sources. So in the case of a place like LA, there are sources like the Los Angeles Housing Department, the Los Angles County Development Authority, who have annual funding. The state has some funding as well, and they'll award additional funding to projects to help get to the amount of funding they need to raise. All these different funding mechanisms tend to have various sorts of requirements related to design and building standards that are maybe well-intentioned. We want these to be nice buildings. We don't want the community to think that this is going to be a problem and have these kind of stigmas against affordable housing. But what has ended up happening over time is that a lot of these requirements have just accreted and become larger and larger and more involved. And every funding source has its own requirements. Over time, the number of funding sources required as these costs have risen for housing production have grown. So you may have a project now that has a capital stack with six, seven, eight funding sources in it. All these funding sources have requirements. These can include really consequential requirements for costs, such as the requirement to pay union-level wages to the construction workers. But it also can include incredibly prescriptive things like how much cabinetry you have to have, how much of a share of windows, where the laundry rooms must be located, what kind of cladding can be on the exterior of the building, and on and on. Essentially developers building these projects have to build what is essentially the union of all these requirements. They have to pull them all together, bake them all into a design, and then build that building. That leads to strictly higher cost because you're just telling people all these features of building has to have. There are some funding sources that require basic cable to be in every unit for instance. I think if you're a developer or you're an architect that works on these projects you have to become an expert in navigating all this sort of arcana of doing these projects. And in the end, that leads to higher costs as well. So in terms of how that plays out, what we found is in California, affordable projects cost, on average, about one and a half times the cost of market rate projects, which were between two and three times the cost of market-rate projects in Texas. So affordable projects in California are closer to, on average, four times the cost of a market-rate project in Texas. Affordable projects in Texas are also about 50% more expensive on average than market rate projects in Texas, so this isn't a California situation uniquely. However, notably the only place we did not find a statistically meaningful difference between market rate apartment production and affordable apartment production was in Colorado. Colorado seems to have some factors that have allowed them to really control costs on these affordable projects. That's actually sort of one of the mysteries that came out of this research and that it was surprising, and I've literally been contacted by people who've read the report and said, what's going on in Colorado? And my only answer right now is I don't know, but I really want to find out. Right? so that's maybe one of the areas I'm interested in trying to plumb in the future because spending public money on producing housing is a worthy goal, but it's starting to look like a very inefficient use of money in many cases. So I think going to places where it's being done in a way that seems notably efficient is really, people should really be learning from that in other states. So that's something I hope to dig into a little more.

Deanna Lee

Absolutely, and some unfortunate irony that affordable housing projects are more costly to build than market rate projects.

Jason Ward

Yeah.

Deanna Lee

You mentioned Colorado controlling costs related to subsidized housing. Let's talk about how Colorado and Texas, what they're doing to control costs when it comes to multifamily housing more broadly. Why is it that these two states, when you compare them to California, have been able to make it cheaper to build apartments?

Jason Ward

I would say that one important modification I would make to that question is that I think the problem is more that California has made it more expensive to build. I don't think it's that everywhere was expensive and Texas figured out how to become really less expensive and Colorado sort of figured out to become moderately less expensive. It's really that California's just become a lot, lot more expensive. And I think that really is attributable to sort of layering on all this permission type structure, all this discretion. Because, you know, essentially when you introduce a lot of idiosyncratic discretion into expensive projects, what you do is you introduce uncertainty about whether a project is feasible. When you do that, fewer things are going to get built in the first place. Those things that get built are going, to say, require a higher return on investment from investors because they're sort of having to bake in the idea that this whole thing may go bust or may never work out in the end. I think that has sort of just been the issue in California over many years, is layering on all these often well-intentioned policies that have just made, you know, to some extent, I think have made the perfect be the enemy of the good. You know, we have, for instance, with things like California's environmental efficiency requirements, these sound like very good things to have apartments be really energy efficient, you now, and when you hold all other factors constant, that is true, right? However, one thing we point out in the report, just as sort of a policy implication, is that if you have environmental efficiency standards that are so exacting or so costly that fewer things get built, then what you're doing is you're sort of locking in the existence of very inefficient housing, right? I think, in some sense, policymakers think of some of these kinds of requirements as, you know, we can have a less efficient place built or we can a more efficient place built when, in reality, the choice is more like, we can have a more efficient place built or we can nothing built and we'll be stuck with whatever energy efficiency standard prevailed 50 or 60 years ago as the housing that actually exists, right? And so it may be that, for instance, in terms of policies by lowering energy efficiency requirements in California, you might actually increase the energy efficiency of the entire housing stock because more fairly efficient housing would get built instead of less housing being built. So there's just those kinds of factors where I think California has had a tendency to layer policy on top of policy, on top of policy, and all those things just add up to complexity and longer timelines.

Deanna Lee

So if these layers of policies are a big part of the challenge, then what can California realistically do to solve this problem? Can these layers be easily removed? I imagine not, but what are the viable solutions here?

Jason Ward

Yeah, so I think that is the solution, is my opinion from the evidence. California is beginning to do that. To be fair, this has been happening, right? As I mentioned earlier, in a place like LA, many more projects have been made by right. So for instance, there are programs that have goals like increasing the density of housing around mass transit. So what they will have is like there's a program called "Transit Oriented Communities" in Los Angeles, where if you build within a half a mile of a major transit hub, you can gain an incentive to allow you to build many more units, have less land setback and less parking requirements in exchange for adding a certain amount of affordable units to your project. In other words, units that would be cross-subsidized by the other market rate renters in a project. Those projects have also been made by right. So if you meet all these requirements to participate in this incentive program, you don't have to get special permission to build your project. Right. So that's grown a lot. It's grown through state programs. The state has a density bonus program that again, trades additional density and streamlining of permissions for providing affordable units that aren't subsidized with public dollars. So that sort of thing has been a big boon. There have also been a lot of laws passed in California to sort of lock in the current state so it can't get any worse. But California is now beginning to, I think, take a pretty hard look at some real reforms that would probably move the needle much more significantly. One that is in the California process right now and the legislative process in the state is a blanket exemption of urban infill housing from the California Environmental Quality Act. That, I think, has been sort of a holy grail of housing reformers for decades. And it seems as if it may have a reasonable chance of passage finally in this session or maybe in a near future session. There's also a large slate right now of permitting reform bills that do things like reduce the discretion of local municipalities in California to draw out the process of approving housing and things of this nature. Those are also making their way through the California legislative process right now. So there's actually maybe a lot more on the horizon than there has been. And I think these are the kinds of things that could actually start to have a meaningful impact.

Deanna Lee

Good news. Forgive me if I missed this, Jason, but I'm wondering, can you explain more generally what by right means?

Jason Ward

Yeah, sure. So when we were talking earlier about the fact that sort of all these permission requirements or something that draw out projects by right or ministerial pathways for development, essentially mean pathways where the requirements are specified in advance. And if you meet them, your project will be approved, right? There are many projects where it's like, I'd like to build a giant apartment complex. I've bought this land. Can I do it? And they sort of say, well, will you build a park? We don't want this to be this tall, make it shorter. You know, we don't like the way this balcony faces this, you know, direction or whatever. If you do all these things, maybe we'll let you build it, right? A buy right pathway just says, a building may be this tall. If you have this many affordable units, if you meet these requirements, then you may build this apartment development. What that does is it gives developers some level of certainty that they can do a certain amount of things and move forward with the project. And then as I mentioned earlier, it also gives it an exemption from being susceptible to a challenge under CEQA or under the California Environmental Quality Act. So that's really a key feature of well-functioning housing markets in general is that they have a lot of by-right pathways, which just give developers more certainty that they can build something at a certain cost and on a certain timeline.

Deanna Lee

Yeah, it sounds like it simplifies things quite a bit. So Jason, what would you say are the top three things that California could do to address the high costs of building multifamily housing?

Jason Ward

So I would say that the number one thing would be finding ways to reduce the pre-development time. That would be requirements that might mirror a law that was passed in Texas not too long ago, but I think that reinforced more of a norm in Texas, which is limiting the amount of time that local jurisdictions have to approve a housing proposal. In Texas, a law was passed fairly recently that essentially said you have 30 days to approve or deny a proposal to improve a piece of land, which is essentially to develop something on it. And if you do not do this, then the project is presumed to be approved. So there's a bias towards approval rather than denial. There's an additional component of that law that says that if you don't dispose of 80% or more of the proposals that you're presented with under this time constraint, then you must begin to sort of farm this workout to outside actors, right? So you must essentially let other people start approving projects for you. This kind of thing, I think, is a powerful incentive for local governments to make sure that they're moving things through a process that's sort of transparent and expedient. I think another thing that many local municipalities could do that's a little bit harder to enforce at the state level, but good faith actors can really do things to reduce the way in which inspections happen during the construction phase of projects. So right now, In many cases, inspections are not synchronized. So like maybe the seismic inspector and the electrical inspector and the plumbing inspector all come through at one time and just make a pass. Or they're set up so that when you finish one phase, the next person is ready to inspect and so on, they're often just pretty willy nilly. And hopefully this person will come by reasonably soon, but the next person can't come by until they come by and things like this, right? So I think there's issues there that can be improved. And then in general, I think there's things in California like the energy efficiency requirements that maybe we should take another look at because at least to understand whether these kinds of requirements are actually net improving energy efficiency or whether they may actually be retarding the overall progress of energy efficiency in the housing stock as a whole. So those are three things that we think are pretty important to take a look at.

Deanna Lee

And of course, the housing crisis is not unique to California, it's pretty widespread across the country. Did your study have any lessons for other states or can any of these things be applied more broadly?

Jason Ward

Yeah, I think so. I mean, California is certainly emblematic of the housing crisis, I think, in a way that few other states are. But there are other states, you know. I think Hawaii is the only state that on average has higher housing costs than California. Hawaii obviously has some really significant structural issues with being an island in the middle of the Pacific Ocean that are sort of legitimate, you now. But they're probably lessons to be learned for Hawaiians. I think in the U.S., New York is a uniquely byzantine place to departments and they have additional really problematic factors like a property tax structure that disproportionately burdens apartments versus single-family home and condo owners. But, you know, really anywhere you look where costs are high, there are many similar factors to what's happening in California, places like Massachusetts, you, know, even Chicago. A lot of these places have very similar types of issues with regulatory structure, with long timelines and things like this. So I think there's a wide applicability of this kind of research and I'm hoping to be able to develop this recent research on and take a look at more regions and try to see really what one region can learn from another region and so on. This is particularly true because a lot of these regions are undertaking meaningful reforms right now. So I think in the next few years, there's going to be a really good chance to try to get more of a causal estimate of what these kinds of reforms can do to the status quo around housing production costs and around timelines.

Deanna Lee

Absolutely. Okay, Jason, do you want to talk a little bit about methodology?

Jason Ward

Yeah, so I guess one thing that I think was notable about this project, and that is one of the reasons it's maybe had an outsize impact relative to other projects that I've worked on, is that there has really been very little evidence at all on cost of multifamily housing production. There have been a few studies I became aware of when I started working on this project for the cost of publicly subsidized affordable housing, because these projects generally have to report costs. But to the best of my knowledge there's been no previous research at all on the cost of market rate production across regions. And this is in part, I think, because private developers may be reluctant to share these cost data, or it may just be too much trouble to do so. So this is one of those things where I sort of discovered through the process of doing this research. I had a prior that like, there isn't much on this topic, but when you write a report, you often go in and sort of start to try to say, like, how do I place this in the existing body of knowledge. And then you have to go and look for what's there and try to figure it out. And I literally kind of got to this point in writing this report where I said, I'm pretty sure there's nothing. And I actually reached out to colleagues, you know, and I'd say, do you know of anything that looks at completed market rate apartment project costs? And people would just say, no, no no. So I think that was a really remarkable thing. In terms of the challenges for this research, I would characterize this project as comprising about 80% obtaining and cleaning and harmonizing the data and about 20% analysis and writing. Like the amount of work that myself and my co-author, Luke Schlake, had to do to just get these data sort of in shape to make comparisons was really surprisingly large. And that may help explain why there's so little research in this area. Most existing research I'm aware of uses sort of cost estimates with estimating software that will say, we think it would cost this much to produce a project in a certain area, which I think is not bad research at all. But I think we discovered in doing this that these data are generally not meant to be researched. They're just meant to get a job done and people keep them in different ways and things like this. So we learned a lot doing this in a way that I think will make it easier for us to push on and continue to work in this space. But it was a pretty steep learning curve, and a lot of effort went into just sort of making it feasible to even generate what, on their face, seemed like very simple cost comparisons.

Deanna Lee

I'm wondering if you have any plans to expand on this study or build on these findings, perhaps by looking at other parts of the country?

Jason Ward

So one of the things, as I alluded to earlier, that we're hoping is that we can really build off this research to look at some of these factors that we uncovered while doing this study, such as kind of better understanding of, for instance, what a state like Colorado is doing to really control affordable housing production costs. That is something that we really want to build on, and I'm already working actually with a colleague to try to obtain more of these affordable housing cost data. We're also sort of trying to build a broader effort within the Center on Housing and Homelessness here at RAND that I co-direct to try to really turn this study into a building block for a broader research agenda around regional cost variation and to try and really start leveraging some of the reforms that we're seeing an increase in to really uncover more causal evidence about the potential effects of these different kinds of reforms that people are experimenting with around the country on costs and try to disseminate best practices in that way that can really help to inform policy making.

Deanna Lee

Now, I wanna talk briefly about homelessness. This is another area that your research focuses on and there of course is a connection between construction costs, the housing supply and the issue of homelessness. You lead a research effort that regularly counts those who are unhoused in Los Angeles, specifically looking at three neighborhoods that have some of the highest concentrations of homelessness: Hollywood, Skid Row and Venice. Can you talk about what you learned in your most recent analysis?

Jason Ward

Yeah, so thanks for asking about that. Our new report, which focuses on data from 2024, this project is something we've been conducting for about three and a half years now in terms of our periodic counts of unsheltered homelessness in these neighborhoods. In the most recent report, what we detail is that we're starting to actually see notable declines in unsheltered homelessness across these three neighborhoods, but it's driven by declines in Hollywood and Venice. In Skid Row, we see more of a flattening of growth in the number of unsheltered Angelenos, but perhaps the most notable finding from this year's effort that we have been sort of tracking kind of through 2023, but it's becoming really clear, is a substantial decline in the number of people living in tents and to a certain extent, vehicles. And a very related growth in the number of people sleeping rough, as they call it, just essentially living literally unsheltered on the streets. This is in large part somewhat predictable. There have been a lot of policy moves in Los Angeles aimed at bringing people living in tents indoors sort of en masse, like going to a large tent encampment and just saying, everyone get on a bus now and we'll take you to a hotel. That's reduced the presence of large encampments. There's also been a lot more enforcement of sort of anti-camping ordinances that will tend to mitigate against having possessions, having a vehicle, et cetera. What we're seeing though is that, you know, this in many ways is maybe a sign of progress, but it's also maybe a side of more difficulty in making future progress. Because if you go from having groups of stationary people around that you can sort of return to and try to deliver services to and try go through the long and arduous process of getting scarce housing for these folks. And suddenly you have to just sort of find someone who's walking around and maybe you have to find them over and over again to try to like get them to develop a trusting relationship to believe that you can assist them with housing, get them in line to do all the sort of necessary paperwork and things like this. This finding suggests to us that the job of seeing further substantial reductions may become more difficult kind of due to a certain extent to the ostensible success of some of these past efforts.

Deanna Lee

So since we've been talking primarily about the high costs of building new housing, and we just discussed homelessness a little bit, how important is bringing down the cost of building apartments in California to addressing the homelessness crisis?

Jason Ward

In my opinion, based on the preponderance of evidence from my own work and what I'm aware of from others, I think it's fundamental. I would say it's a necessary, but not sufficient condition to ending homelessness. And there's two key dimensions, right? The first is that housing production costs directly relate to rents or sale costs. But in this case, when we're thinking of apartments, we're really thinking of rents, right? And there there's a sort of a very strong mechanical relationship between how much it costs to build something and what the break-even rent will be. So ultimately like what you can feasibly rent these units for as a floor, and make the project make financial sense, right? So if you can lower costs, you directly lower break- even rents. And essentially, you know, there's sort of a, there's a notion that you hear bandied about that, you know developers only want to build luxury units, right? But in a place like California there's a certain constraint where developers sort of can only build luxury units or at least higher end market rate units, because it is very expensive to build apartments. The developer that provided data for us for this project on market rate projects in Texas builds a whole line of housing that's really aimed at workforce tenants. It's basically, you know, kind of slightly lower amenity, lower cost to produce housing. And the goal there is to serve the segment of the market that is people who don't make as much money. These are still profitable projects and they still function, right? But I've been told by people on the development team that shared these data with us that they simply can't make these projects work in California. And I think that we see examples of that in California too. There have been reforms periodically in for instance LA that did some really dramatic streamlining for projects timelines if you proposed that they were 100% affordable. And affordability can be this kind of like missing middle or workforce housing. It doesn't have to be very, very affordable housing. And when that reform was first passed, there was a rush of developers putting in essentially 100% affordable project proposals at this kind of workforce housing level of rents. Because of the amount of time that would be saved by this streamlining, which essentially might take a 10 month wait down to like a two month wait. And so I think that was a really clear sign that there's a desire to build to this kind of market segment, which is like sort of regular working class Angelenos in the case of that policy and this kind of reform that can reduce costs. The other side of that is that reducing production costs for affordable publicly subsidized housing could profoundly increase the efficiency of using public funds to address homelessness. The typical housing built to address the needs of people experiencing chronic homelessness is often called supportive housing or permanent supportive housing. It's essentially just apartments that have services attached to them, but generally these apartments need to be aimed at people who essentially have zero income. So these take massive amounts of subsidy to build. Because of all the sorts of additional requirements layered onto these projects, like labor standards, environmental efficiency, all the other sorts of things I was talking about, cabinetry, et cetera, appearance, these apartments are, in general, costing upwards of $600,000 or $700,000 per unit to build in California. This is for a one-bedroom apartment, in many cases. So you can simply imagine, it's just mechanical, that if you could lower production costs by half, you can build twice as many of these for the same amount of money. In recent years, California has spent something like $1.25 billion to build publicly subsidized affordable housing. In practice, this built about 3,000 apartments, which seems kind of staggering when you think of it. That sounds like an extraordinary amount of money. If you used that same amount of the money in Colorado, according to our cost data, you would have built roughly twice that many apartments. So that's one simple way that you could be serving a lot more people with a dire need for subsidized housing and then there's the broader point I just made that lowering housing costs just increases potential affordability across the board. So I really can't overstate how important that is in my personal opinion as a researcher.

Deanna Lee

And of course, homelessness is not the only impact of the housing affordability crisis. There are many effects. I think a good way to wrap up our conversation might be to talk about what do you think is at stake if nothing changes in California?

Jason Ward

Yeah, so that's a very, very important question. And I think to some extent that the answer to this question may be why we're starting to see things move in California in terms of reforms. In the last 2020 census, the redistricting of electoral college and congressional seats in the U.S., California lost congressional seats for the first time in its history as a state. I think they lost two congressional seats if I have that right. If current trends continue in terms of the lack of growth in California and the growth in other states, California may lose more than twice that many seats. That starts looking like a real problem in terms having relevance at the national stage to help direct resources to your state, communities within your state and things like this. And really when you get that kind of shift, those things are very difficult to reverse, right? You're sort of locking in a lower level of relevance for national politics and other sorts of representation. I think that on the local level, LAUSD, the Los Angeles Unified School District, is experiencing a large decline in enrollment and it's projected to get worse over time. When you lose population, you lose property tax revenue, you lose sales tax revenue. You lose all sorts of ability to provide services and to grow your community. And these things can become really path dependent. So they're really difficult to sort of shift. So I think that there's this sort of just general future of life in California that seems very much on the line in terms of getting a grip on housing costs because these are really the largest costs that people face in their lives. It limits the ability of, you know, intergenerational families to live close to one another, you know many parents now that live in housing don't really have any hope that their child could afford to live near them unless they live in their home. And these are really important things for, you know, helping people to age in place. There's just there's just almost an endless number of implications with with respect to letting this problem continue to fester.

Deanna Lee

Okay, I think that's all the time we have for today. Jason, thank you so much for joining us on Policy Minded.

Jason Ward

Thanks for having me and thanks for the interest in the research.

Deanna Lee

And thanks to our listeners. You can learn more about the research we discussed on this episode at rand.org/policyminded. This episode was produced by me, Deanna Lee. I recorded it along with Emily Ashenfelter, who was also the editor. Pete Wilmoth is RAND's director of digital outreach. We'll see you next time on Policy Minded. RAND is a nonprofit institution that helps improve policy and decisionmaking through research and analysis.