The economic illiteracy of SB 79

The bill is Sacramento’s latest attempt to bend the laws of economics via legislation

California state Senator Scott Wiener (D–San Francisco) with an unintentionally appropriate sign behind him.

For much of the last decade, California’s political and financial classes, with a strong assist from Silicon Valley and the academy, have sought to solve the state’s stubborn housing affordability crisis through supply-side economics. Since 2017 the legislature has passed hundreds of laws aimed at expanding housing production. Not just any housing, though. The new laws incentivize the construction of dense, multifamily apartment buildings in dense urban cores. Where those urban cores don’t exist — which is to say, in the vast majority of the state — the laws seek to create them. The current leadership in Sacramento has their sights set in particular on suburbs, with their single family homes and smaller multifamily homes.

Which is where the agenda runs into the first of its many fundamental problems. According to the Census Bureau, nearly 70% of Californians live in single family homes. That includes detached and attached houses, mobile homes, ADUs, houseboats, and other one unit residences. Another 14% live in smaller multifamily buildings like duplexes, fourplexes, and apartment buildings with nine or fewer units, and 5.1% live in buildings with 10 to 19 units. Only 12% live in larger buildings.

The latest assault on this reality is SB 79. The bill focuses on so-called “transit oriented development,” which seeks to site apartments near mass transit stops, on the theory that it will boost transit ridership, reduce car dependency, and, therefore, reduce emissions and combat climate change. The smallest buildings SB 79 permits are five stories. A typical five story urban apartment building fits between 90 and 115 units. SB 79 buildings closer to transit stops can be up to seven stories, which can accommodate as many as 150 units. Add in existing incentives and concessions, particularly the state’s density bonus law, and those minimums can double (which is why the most recent amendments to the bill require union labor for buildings over 85 feet).

Notably absent from the — oh, let’s call it “thinking” — behind SB 79 is the quality of life these new units will provide actual human beings. That’s a major problem. People don’t chose where to live based on ideology. They chose where to live based on their needs and wants. “Access to mass transit” is way near the bottom of those needs and wants.

Only politicians and ideologues think otherwise. Their theory is to flood the market with a vast supply of the least popular and desirable kind of housing. They even get supply side economics wrong! It would be like a car company reconfiguring its supply chains and production lines to build as many of its worst selling model as possible. The CEO would be out on his or her arse faster than you can say Ford Edsel.

But, again, this is politics. The metaphorical CEO of California’s housing push, state Senator Scott Wiener (D–San Francisco (because of course)) is not only a rising star within the state’s political class, he may well get a major promotion in two years when he runs for Congress.

And so we have the spectacle of leadership of the world’s fourth largest economy pursuing a policy that amounts to economic illiteracy. SB 79 – like nearly all YIMBY legislation over the last decade – is based on a fatally flawed premise: Building millions of units of a single type of housing, apartments in urban cores, will bring down the prices of all categories of housing. To stick with the automobile metaphor, it’s akin to arguing that building two million Mercedes Benzes will drive down the price of Toyotas and Chevys. Of course it won’t. You’d just end up with 1.9 million unsold luxury cars collecting dust on dealer lots and a German motoring company in dire financial straits. 

That’s because housing isn’t fungible. It’s basic economics. A fungible product is one that can be replaced by another identical item. A synonym is interchangeability. Most fungible products are commodities. Think gold bars, currency, and gallons of gasoline. I’ve previously written about this YIMBY fallacy, which unfortunately has come to infect much modern thinking in California, at length.

SB 79, somehow, is even worse. Between the author and various legislative committees in the Senate and the Assembly, the bill has been amended 14 times in nine months. It’s like the T2000 in the vat of molten metal at the end of Terminator 2, desperately assuming every human form in a bid to stay alive (granted, comparing state housing legislation to a fictional killer robot from a 90s action movie is a bit of a stretch, but bear with me here). At this point, it’s barely recognizable. At this point in a rational world, rational heads would prevail, withdraw the bill, do some serious research and constituent outreach, and try again next session.

But this isn’t a rational world, this is Sacramento. There are less than 48 hours left in this year’s legislative term. It’s safe to say that, outside political circles, no one is paying attention. Yet Wiener and his YIMBY allies are playing every political card they can, deploying every trick and trying every procedural device buried deep in the playbook. It’s a bad dream all over again, a rerun of this summer’s shamefully anti-democratic gutting of the California Environmental Quality Act, another example of economic illiteracy (pro tip to the YIMBYs: environmental review helps ensure long-term sustainability and in many cases survivability of new housing, which in turn helps preserve that new housings’ market value).

The Assembly is about to convene. It’s likely they’ll take up SB 79 today. The good news is, with this bill Wiener and the YIMBYs have found themselves in a political dogfight the likes of which they never expected. They’re too used to getting their way with minimal resistance. This time, though, they’ve pushed too far. SB 79’s flaws are myriad, manifest, and irreparable. Could this bet the twilight of the YIMBY idols? 

I’d say “we can only hope,” but we can do a lot more. To write to the full California Assemblymember and urge a “NO” vote, click here. To write to your own Assemblymember and urge a “NO” vote, click here. Better yet, do both.

The YIMBYs come armed to the teeth with seemingly endless rivers of cash from big real estate, big finance, big tech, and big law. What they don’t have is the support of a majority of Californians. Just yesterday evening, for example, the Santa Monica Democratic Club hosted a debate among the candidates for Senate District 24 (Agoura Hills, Calabassas, West Hollywood, Beverly Hills, Santa Monica, Marina del Rey, El Segundo, Torrance, Manhattan Beach, Hermosa Beach, Redondo Beach, Rancho Palos Verdes). 

The second question was whether the assembled candidates support SB 79. Six of the seven said no. Including candidate Nico Ruderman, who was not in attendance due to personal obligations (full disclosure, I work on Mr. Ruderman’s campaign) and you have seven out of eight. That’s about as resounding a rejection imaginable.

SB 79 is a catastrophically flawed bill that amounts to economic gibberish. It’s time to end the charade, and start working on housing policy that serves actual Californians, not special interests and ideologues.