Welcome to the March Business of Wine issue of NorthBay biz magazine. Operating a successful wine business doesn’t happen by accident. It takes specialized business acumen and involves much more than managing a vineyard or pouring wine in a tasting room. That’s the reason behind this issue—to provide insights into the industry that drives so much of the work and leisure activities that surround us each day in the North Bay. So please enjoy all the stories, columns and special features in the North Bay’s only locally owned, formerly glossy business publication, NorthBay biz.
This isn’t a revelation to North Bay residents, but California has a severe housing crisis that’s only getting worse. While politicians stumble all over themselves and dither in agreement with that statement, their solutions are often just clever gimmicks that don’t address the root cause of the problem: demand vastly outnumbers supply. The solution is to remove the barriers government has erected to build not just affordable housing, but more housing of every kind. Let the market work.
Today, all the rhetoric still focuses on low-income housing, which, obviously, is a severe problem, but the housing shortage has grown so bad that it’s impacting more and more working and middle-class families as well. The long established rule-of-thumb was 25 to 30 percent of disposable income was spent on housing. Today in California—and especially in the North Bay—the lack of housing has driven that cost to often exceed 50 percent of household income.
The housing shortage is a staggering problem. To put it in perspective, it’s estimated that between 750,000 to 1 million units of new housing stock are required just to keep up with the state’s population growth over the past decade. Government officials and policymakers profess dismay at this longtime problem, but real solutions never seem to materialize and proposed solutions are largely ephemeral. So what’s really going on here?
Beyond the overall high cost of doing business in the state, grappling with debilitating regulations, high land acquisition costs, exorbitant fees and mitigation costs, local developers still want to build more housing. So while the above is an obstacle and often thought of as the underlying reason for the lack of growth, it’s not, in and of itself, prohibitive. There are profits to be made despite the labyrinth to be navigated. With demand as high as it is for housing at every price point, free market entrepreneurs would seize the opportunity and fill the void with the product in demand.
That absolutely happens in every “free market.” However, California’s housing market has some other formidable barriers. The first is explained by the now familiar axiom, “follow the money.”
In 1978, Proposition 13 changed how property taxes were created and shared between our state and local governments. In maybe the only tax area in which California lags behind the rest of the nation—by keeping property taxes low, local municipalities aren’t incentivized to encourage residential growth, since it produces less in tax revenues. Commercial development instead of residential is often favored by cities, because it can bring in more revenues through different types of taxes and fees. As a result, after 1978, the state legislature dramatically affected the principle of local control by further limiting local revenues and by mandating programs and services to be performed, (but not fully funded) at the local level. As the relationship between the state and local governments was altered, so were the services provided, how they’re delivered and how local governments manage them. Over the last 30 years cities, counties and school districts have all lost significant autonomy—so much for local control.
The other barrier to development and housing growth is CEQA (California Environmental Quality Act). As usual, the original intent of CEQA was a noble one. Let’s have a statewide uniform mechanism that ensures responsible growth; also, as usual, it’s well-intentioned purpose was hijacked by “special interests” to be used as a tool to immensely slow or stop any growth. When you throw in the ever-popular NIMBYs that arise locally to protest the creation of any new development, you begin to understand why something as simple as creating desperately needed housing becomes a herculean task.
So as government officials publicly declare something “must be done” to alleviate this crisis, nothing changes. Talk about Prop 13 waxes and wanes in Sacramento, and task forces are created to address the flaws inherent in CEQA, but the band plays on and all the talk of solutions is nothing but that: just talk. Meanwhile, California residents struggle, with too many choosing to find a better quality of life elsewhere—taking their skills and promise with them.
That’s it for now. Enjoy this month’s magazine.
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