< The Latest 2025-05-30T20:23:42+0000
The Pasadena Star-News | Fri 05/30 01:23pm PST | Wayne Winegarden
A housing crisis has cascading effects, but the cause is quite simple: when demand outpaces supply, costs rise and options dwindle. California is a case study in this problem, with a housing deficit that widened by nearly six million units over the last three decades. A revolving door of policymakers has promised more affordable housing, but none have truly come to terms with the root cause: the state simply does not allow itself to keep up with its growing housing needs. Others should learn from these failures.
Make no mistake: California is doing its best to add to its list of hurdles to affordable housing. A bill in the California legislature claims it would lower housing costs by imposing limits on the roles that large financial institutions can play in the single-family home market. The legislation, Assembly Bill 1240 by Asm. Alex Lee, D-Milpitas, would limit investors from owning more than 1,000 single-family residential properties. However, rather than improving housing affordability, these efforts would boomerang like so many others, worsening the crisis and putting affordable housing further out of reach.
State lawmakers in Georgia and Nevada have considered similar proposals to limit the number of single-family homes investors can purchase in a year. The problem with these proposals is that over-regulation created this affordability crisis in the first place. They are based on the faulty assumption that financial institutions are inflating the cost of housing with large cash offers that beat out potential first-time buyers and drive them from the market. By banning investors from buying and leasing single-family homes, proponents falsely claim that more housing supply will be available to families looking to buy.
It’s tempting to think that eliminating certain buyers from the market will drive down prices. But in a volatile economy, this is not how the market will respond, especially when the state lacks a diverse housing stock.
These institutions own significantly less than one percent of all single-family homes in California and have been decreasing their holdings, according to Assembly Judiciary Committee testimony provided by the National Rental Home Council. The minuscule and steadily declining number of units owned by professionally managed housing providers demonstrates that these few investors are not worsening the housing crisis as lawmakers in Sacramento and elsewhere accuse them of doing.
The issue is supply. According to the California Department of Housing and Community Development , the state’s housing production is consistently falling short of the projected need for additional homes. The legislation would regulate an industry that offers a viable path towards building and providing more homes, which as a result, can reduce housing costs.
Additionally, the lack of housing is a product of inept regulations, such as overly restrictive zoning laws and costly building codes. According to estimates by the state industry association, the state’s litany of building standard updates over the last 15 years has added between $51,000 and $117,000 to construction costs on each single-family home, compounding the problem and further inflating the state’s housing costs.
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Targeting investors would not make single-family homes more accessible to first-time buyers but would erode the already-insufficient rental supply. The housing crisis is, at its core, a problem of inadequate supply. Policymakers should allow the marketplace to correct the regulatory failures that created the housing shortage. They should be looking to reduce barriers to adding houses to the market, not implement more convoluted schemes that focus on non-existent problems.
Wayne Winegarden, Ph.D., is Senior Fellow of Business & Economics at the Pacific Research Institute (PRI), a Pasadena-based think tank advocating free market policy solutions. Matt Fleming, MBA, is PRI’s Communications Director.