This week, the Santa Ana City Council voted to abandon the sort of stringent, but ultimately counter-productive – affordable housing policy that Councilman Jose F. Moreno wants to impose in Anaheim.
Councilman Jose F. Moreno relentlessly pushes for the imposition affordable housing mandates on home builders – conditioning project approval on setting-aside a certain percentage of housing units as “low-income” and “very low-income.” Moreno believes the market will not meet the demand for affordable housing without government diktats.
Santa Ana went down that path in 2011, approving its Housing Opportunity Ordinance (HOO) requiring that any new housing project had set aside at least 15% of them as “affordable” – i.e. sold for less than the cost to build them. This is known as “inclusionary” zoning. It also applied to apartment-to-condominium conversions and projects that involved increasing permitted housing density in an area.
Developers who couldn’t or wouldn’t comply with that mandate could instead pay an “in-lieu” fee of $15 a square foot fee (which would then be folded into the price of homes and passed on to the buyer) – thus significantly increasing the cost of the project.
This mandate was applied to projects with as few of 5 units, and to both rental and for-sale properties.
In the nine year’s since its adoption, only 33 affordable units have been developed as a result of HOO’s requirement. Furthermore, Santa Ana has collected zero in-lieu fees in the last fiscal year.
Over the past 20 years, Santa Ana’s stock of multifamily housing units has grown by only 7.5% compared to 20.1% county-wide.
According to federal American Government Survey estimates, Santa Ana added only about 3,000 housing units between 2010 and 2018. At the same time, the share of multifamily projects with 20 or more units declined – dropping from 16.6% to 14.4%.
Given lagging housing supply, it isn’t surprising that rents in Santa Ana have increased faster than in the rest of Orange County as a whole: during the past decade, rents of gone up 42% in Santa Ana compared to 36% countywide.
Clearly, HOO’s stringent inclusionary mandates didn’t work as planned, and the Santa Ana City Council responded effectively abandoning the policy – raising affordable set-aside requirement threshold from 5 units to 20 units, and slashing the in-lieu penalty from $15 to $5.
Councilman Moreno is fond of tweaking When lecturing his more conservative council colleagues about their aversion to inclusionary zoning mandates, Councilman Moreno asks them how bad it can be if “Republican” Huntington Beach and Newport Beach have some form of inclusionary zoning in their housing policies?
Santa Ana has the most politically progressive city council in Orange County. A nearly decade-long experiment with the kind of strict housing mandates and penalties favored by Moreno has been a failure, and Santa Ana’s solidly Democratic city council responded rationally by effectively throwing those mandates and penalties out. The data is in. The question is whether Councilman Moreno will benefit from the experience of Anaheim’s similarly sized and situated neighbor, or continue calling for Anaheim to repeat that failure for itself.
The most effective way of lowering the cost or price of any good is to increase the supply. Moreno’s policy prescription creates disincentives to increase the supply of affordable housing. Thanks to a thicket of state regulations, mandates and fees built up over many years of progressive governance, it is virtually impossible to cost-effectively build affordable housing. That is failure of government policy making, not a market failure. When Moreno’s council colleagues draw his attention to this reality, he dismisses it as a “tired argument.” It may be tired, but it is true.
Councilman Moreno claims to be data-driven. And the data from Santa Ana’s decade-long experiment with Moreno’s preferred option makes clear it is a failure.