Unleashing a Housing Boom in California by Reducing Regulatory "Limits to Growth"

Today, the Los Angeles Times has published an article titled; “California, epicenter of the nation’s housing crisis, is finally getting a housing agency”.

The article argues that this policy reorganization is good news. It links to a four page memo from the Newsom Administration.

I do not believe that this Policy Reorganization will have any substantive impact on the California Housing Market. If Governor Newsom is serious about creating “abundance”, he should go back and read this book that was published over 30 years ago by my friend Tony Gomez-Ibanez of Harvard’s Kennedy School who co-authored a book titled Regulation for Revenue.

Here are 200 words written by Grok 4 about this book published in the early 1990s;

Direct Quote from Grok 4

“Overview of the Book

The book in question appears to be Regulation for Revenue: The Political Economy of Land Use Exactions (1993) by Alan A. Altshuler and José A. Gómez-Ibáñez, with contributions from Arnold M. Howitt. Published jointly by the Brookings Institution Press and the Lincoln Institute of Land Policy, it focuses on the growing practice of "land use exactions"—fees or requirements imposed on private developers to finance public infrastructure and services as a condition for obtaining building permits. These exactions are often linked to housing and urban development, functioning as "housing fees" or impact fees to offset the costs of growth on communities. The authors examine this trend as a response to public resistance to new taxes and skepticism about unchecked urban expansion, while highlighting its implications for equity, efficiency, and urban policy.

Key Themes and Thesis

The central thesis portrays land use exactions as a major shift in American land use regulation, transforming what was once a peripheral tool into a core mechanism for fiscal and public works decision-making. In the 1980s and early 1990s, as communities faced demands for better local services amid anti-tax sentiments, localities increasingly required developers to fund improvements to ensure infrastructure (e.g., roads, sewers, water supplies, schools, and parks) could support new developments without overburdening existing residents. By the mid-1980s, this practice had spread to about 90% of U.S. localities, up from just 10% before 1960.

Exactions are justified by the idea that "growth doesn't pay for itself," though the authors note this claim is debated, with historical fiscal policies often subsidizing growth more than current ones do. The book integrates political, economic, and legal perspectives, comparing exactions favorably to alternatives like outright growth restrictions (which can stifle development), tolerating infrastructure overload (leading to congestion and decay), or raising general taxes and user fees (politically unpopular).

Discussion of Housing Fees and Impact Fees

A significant portion addresses "impact fees" specifically in the context of housing and development. These fees ensure that new residential projects contribute to public costs proportionally, often financing capital improvements related to housing growth. However, the authors critique the expansion into "linkage fees" for broader "social infrastructure needs," such as child care, mass transit, job training, ride-sharing programs, and affordable housing. For instance, some communities (like San Francisco) imposed fees up to $5 per square foot on commercial developments for transit, under an elastic "nexus" principle requiring a reasonable link between the development and the funded service.

The book argues that while traditional impact fees for direct infrastructure (e.g., $40,000 per single-family home in some California areas) may be defensible, linkage fees for social issues like affordable housing often stem from government regulations themselves rather than market failures—likening it to forcing a business to subsidize unrelated societal problems. This could lead to de facto economic planning, potentially discouraging investment and raising housing costs, with little rigorous study on long-term effects.

Proposed Guidelines and Critiques

The authors propose legislative guidelines to regulate exactions, aiming to balance public needs with private property rights. These include ensuring fees are proportionate, transparent, and limited to genuine development impacts, while protecting developers' ability to build. They acknowledge stakeholder debates: politicians favor exactions for resolving growth conflicts without tax hikes, but lawyers, economists, planners, and developers raise concerns about equity (e.g., fees disproportionately burden new residents), efficiency (e.g., inflating housing prices), and potential overreach into urban reform.

Overall, the book is praised as a readable, integrated appraisal that should inform planners, developers, and officials, though it warns of the risks of unchecked expansion of these fees into broader social policy tools.”

My Thoughts in 2025

#1 California does not need this new housing agency. Instead, each jurisdiction in California should simply announce its housing fee schedule. This pricing scheme would signal to each real estate developer what is the fee it will be charged for building a given building of a given height with a given number of units. Beverly Hills might choose to announce a very steep pricing schedule and few developers may choose to build there.

The data on each jurisdiction’s annual housing fee schedule would be posted on a public webpage and Developers and people could go there and leave comments and there could be direct democracy discussions about the gains to trade in the housing market. Developers could use AI and the Metaverse to sketch out what they hope to build and they could make the case for why their project would improve a given community.

#2 Ideally, there would be no set asides for affordable housing. Instead, developers would have the right to acquire and assemble adjacent parcels of land and build the structure they want to build. The developer would pay the impact fee stated in the jurisdiction’s contract and then the developer could go ahead and build.

This set of rules of the game would reduce regulatory uncertainty as the California cities would use prices (the fee) rather than quantities to regulate entry within their borders. Real estate developers could shop around and see where they want to build. Communities would compete against each other.

#3 Areas that allow real estate development to take place would collect impact fee revenue and greater aggregate property tax revenue (Prop 13 would not apply to these new homes).

#4 The real estate developers would be allowed to build taller buildings as there would be a set marginal price for building buildings of a given height and total unit count. So, the impact fee could be a multi-dimensional function of the height of the structure, its total area and the total number of housing units in the structure.

By simplifying the regulatory rules and committing to a pricing system that treats all developers the same (and thus doesn’t discriminate against anyone), these rules would lead to an increase in housing supply. More people could live more affordably in California in a greater variety of housing products that meet their needs.

#5 How would this “light touch” price regulation approach to housing address the homelessness challenge? Governor Newsom should read this UC Berkeley paper. Here is a free copy!

Here is a direct quote from their paper’s conclusion.

I conclude that if more housing is built in California’s cities, that rents would stabilize and the ratio of rent/income would decline and more of the unhoused could find housing as market competition increases the supply of scarce housing.

Conclusion

I have sketched out a proposal for California’s cities to switch from land use regulations based on quantity restrictions to using prices (taxes) as an entry fee. I have not addressed the politics of how the State could make this transition. I want my state’s Governor to solve that issue. If our Governor is serious about bringing out housing abundance, then he should use his skills to lean into using the pricing system to allocate scarce resources.

UPDATE: I hope that readers think through the case for “rules versus discretion”. A regulatory commitment to pricing rule would reduce uncertainty for developers, raise revenue for cities and direct economic growth to places that want to grow. “Insider developers” would no longer enjoy market power here as there would be free entry into the real estate development game. The cost of development could be even lower if the construction could take place without unionized construction workers. For example, real estate developers could use fabricated buildings built in RTW states. 3D printers could also be used to do part of the work. California’s Electoral College clout would increase. Have you read my old 2016 piece that argued that California and Oregon and Washington State’s anti-home building regulations helped Donald Trump to win in 2016?