California's Affordable Housing Crisis

27 Pages Posted: 22 Oct 2021 Last revised: 7 Dec 2021

See all articles by Daniel Murphy

Daniel Murphy

University of Virginia - Darden School of Business

Aldo Sesia

University of Virginia - Darden School of Business

Abstract

This public-sourced case uses the California housing crisis to analyze economic policy in an environment featuring a rising cost of living and shrinking affordable housing options. The case discusses policy options as well as the role and incentives of the private sector in helping develop more affordability. In the case, economist Renee Bowen examines the tradeoffs involved in government intervention in housing markets. This includes understanding the causes of the state's rising costs of living, evaluating whether California needed more affordable housing, and assessing policy options to address high housing costs. Three big-picture questions are considered: Should the state government intervene to address housing affordability? What interventions might be most effective? And what would caution against government invention?

Excerpt

UVA-GEM-0194

Aug. 30, 2021

California's Affordable Housing Crisis

On February 21, 2020, California governor Gavin Newsom released a statement that included the appointment of several scholars to a Council of Economic Advisors. His goal was to move the state's economy to a more “inclusive, resilient, and sustainable” model, and he attributed the state's current shortcomings to a lack of affordable housing in the state. “If we want a California for all,” Newsom said, “we have to build housing for all.” Within slightly more than a year since Newsom's inauguration, the California state legislature passed several laws to address the housing crisis—with attention to the “missing middle housing”—while failing to pass others.

Renee Bowen was among the distinguished list of economists and sociologists on the Council of Economic Advisors (). While honored to be a part of the council, Bowen's academic background was in international trade rather than urban housing. She would need to further study the tradeoffs involved in government intervention in housing markets. This included understanding the causes of the state's rising costs of living, why California needed more affordable housing, and any proposals, long term and short, around reducing housing costs. To that end, there were three big-picture questions for council members to consider: Should the state government intervene to address housing affordability? What interventions might be most effective? And what would caution against government invention?

The Housing Environment in California

. . .

Keywords: policy interventions, rent control, housing subsides, land use, Accessory Dwelling Units, ADUs, markets, government, society

Suggested Citation

Murphy, Daniel and Sesia, Aldo, California's Affordable Housing Crisis. Darden Case No. UVA-GEM-0194, Available at SSRN: https://ssrn.com/abstract=3942688

Daniel Murphy (Contact Author)

University of Virginia - Darden School of Business ( email )

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

Aldo Sesia

University of Virginia - Darden School of Business

P.O. Box 6550
Charlottesville, VA 22906-6550
United States

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