Morning view of transmission tower, power lines at Los Angeles, California
A new white paper from the Berkeley Economy & Society Initiative argues that California’s affordability crisis cannot be solved through economic growth alone and instead requires a fundamental rethinking of state regulations that, while often designed to advance progressive goals, have also driven up the cost of housing, energy, child care and other necessities.
The report, To Make California More Affordable, Reform Regressive Regulations, authored by BESI Senior Researcher Samuel Trachtman, contends that California has increasingly relied on what it calls “regressively funded progressivism”—policies intended to promote safety, sustainability and quality that ultimately place disproportionate financial burdens on lower-income residents.
“California has an unaffordability problem,” the report begins. “The first installment in this series on making California more affordable demonstrates how high costs in California drive poverty and out-migration. The second installment makes the case for fostering growth as a key remedy to improve affordability. But growth alone cannot solve California’s unaffordability problem.”
Instead, the report argues, “There is another primary driver of high costs in California: a policymaking pattern that we call regressively funded progressivism.”
According to the authors, these policies are “well-meaning state and local regulations intended to promote safety, sustainability, or quality that, over the long run, drive up the cost of essentials like energy, housing, and child care.”
The report stresses that regulations remain an essential tool of government but argues California has too often financed progressive priorities by increasing the costs of basic necessities.
“Using state regulation to promote safety, sustainability, and quality is important,” the report states. “But funding these policies on the backs of the poor is wrongheaded — doubly so when the policies are too often ineffective in meeting their stated goals.”
The paper is the latest installment in BESI’s Political Economy of California series examining the structural causes of the state’s affordability challenges.
In the introduction, the authors acknowledge California’s remarkable economic achievements while arguing that prosperity has become increasingly concentrated.
“By many measures California’s economy is an enormous success,” the report notes. “If it were an independent country, the state’s GDP would make it the world’s fourth-largest economy.”
Yet the report continues that those successes coexist with growing inequality and rising costs.
“Most catastrophically, California has failed to build the new housing it needs. This has sharply raised costs for Californians. For far too many, it has simply made housing unaffordable, leading some to seek opportunity elsewhere while staggering numbers fall into homelessness.”
The authors conclude that “once the cost of living is taken into account, prosperous, innovative California now has the highest poverty rate in the nation.”
Rather than criticizing California’s progressive policy goals themselves, the report argues that implementation has frequently produced unintended consequences.
“Time and time again the state has promoted progressive goals through policies that increase the cost of essentials — and hit California’s low-income residents the hardest.”
The report devotes significant attention to California’s environmental policies, arguing that several programs intended to reduce greenhouse gas emissions have substantially increased gasoline and electricity prices while delivering uncertain environmental returns.
Among the programs singled out for reconsideration is the Low Carbon Fuel Standard.
The report notes that California already has “the most expensive gasoline in the country,” attributing much of the difference to overlapping state policies, including CARBOB fuel requirements, cap-and-trade and the Low Carbon Fuel Standard.
Researchers, the report argues, “have also called into question the environmental benefits of the LCFS.”
The paper recommends that the California Air Resources Board conduct a comprehensive public analysis of the program’s costs and benefits before expanding it further.
“Moving forward, CARB should produce a rigorous, clear, and comprehensive analysis of the benefits and costs of the LCFS,” the report states. “The state should not be asking California drivers to pay more for transportation without clearly demonstrating the costs and public benefits.”
Electricity costs receive similar scrutiny.
The report argues that California’s rapidly increasing utility rates have been driven largely by rooftop solar subsidies and wildfire mitigation investments financed through utility bills rather than through broader tax revenues.
“For a state struggling with affordability, however, the problem with both is the funding structure,” the authors write. “Ratepayer-funded subsidies and infrastructure investments are regressive by nature. They hit middle- and lower-income Californians the hardest.”
Instead, the report recommends shifting many of those costs into the state General Fund while strengthening cost-benefit review of major regulatory decisions.
Housing occupies another major section of the report.
Although California has strengthened housing production laws in recent years, the report argues that state and local building codes continue to unnecessarily increase construction costs.
One proposal receiving particular attention is allowing single-stair apartment buildings.
According to the report, “Research from Pew and the Center for Building in North America indicates that eliminating the second stairway from midsize apartment buildings could cut costs by 10 percent without compromising safety.”
The report notes that cities including New York, Seattle and Honolulu have long permitted such designs without experiencing higher fire death rates.
Beyond stairway requirements, the authors criticize what they describe as excessive complexity in California’s building code.
“The two-stairwell requirement is just one particularly high-cost standard in a state code that is divided into 12 parts and spans several thousand pages,” the report says. “This produces a ‘death by a thousand cuts’ problem.”
The paper also argues that differing local building codes increase architectural and engineering expenses while limiting competition among contractors.
Occupational licensing represents another major focus.
The report contends California has among the nation’s most restrictive licensing systems, limiting opportunities for workers while increasing prices for consumers.
“California has some of the most onerous licensing requirements of any state,” the executive summary states. “This not only increases the cost of services, it makes it more difficult for younger Californians to access higher-paying careers and incomes.”
The report highlights child care licensing as a particularly important example.
California’s credential requirements for providers, the authors argue, exceed what existing research suggests is necessary to ensure quality while contributing to severe shortages and high costs.
“California suffers from a shortage of child care providers and high costs,” the report states. “California also imposes some of the strictest credentialing requirements of any state for child care providers, even though the evidence for the benefits of these credentials is limited.”
Instead, the report recommends adopting a licensing pathway modeled after Washington state, where mentorship and competency-based training play a larger role than classroom requirements.
Beyond individual policy reforms, the authors devote considerable attention to what they describe as the political obstacles preventing affordability reforms.
The report argues that many regulations survive because their costs remain largely hidden while their stated goals are politically attractive.
“These regulations often have rationales that carry emotional appeal and signal alignment with California’s generally progressive politics,” the report states.
The authors add that concentrated beneficiaries frequently organize to defend existing regulations while consumers bear relatively diffuse costs.
“Political scientists have long observed that policies with diffuse costs and concentrated benefits tend to be difficult to reform.”
To address those institutional challenges, the report proposes expanding legislative oversight of regulatory agencies, strengthening cost-benefit analysis, improving budget governance, increasing Legislative Analyst’s Office capacity and reducing barriers to funding programs through progressive taxation rather than utility bills or regulatory fees.
Ultimately, the report argues that California can preserve its commitment to environmental protection, public safety and consumer protections while reducing unnecessary costs.
“California should undertake a broad shift away from regressive regulations that increase the cost of living,” the authors conclude. “The state can still pursue a progressive agenda that promotes sustainability, safety, and quality, but we must make sure that these policies are not placing such a heavy burden on California’s struggling low-income residents.”
The report concludes that addressing affordability will require both encouraging economic growth and reforming regulations that unnecessarily increase living costs.
“Zooming out,” the report states, “the two broad shifts we have proposed in this paper and in the prior installment — fostering sustainable growth and reforming regressive regulations that increase cost of living — can substantially improve California’s unaffordability problem by flattening cost increases while incomes continue to rise.”
The authors say the next installment in the Berkeley Economy & Society Initiative series will examine California’s system of government benefits and explore additional policy reforms aimed at making the state more affordable.
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Categories: Breaking News Housing State of California Tags: Berkeley Economy & Society Initiative California affordability Energy regulation housing policy Occupational licensing Samuel Trachtman