California Construction News staff writer
A recent RAND Corporation report reveals that building multifamily housing in California is far more expensive than in other states, with costs averaging 2.5 times higher than in Texas. The findings highlight factors such as lengthy approval processes, high fees, and stringent design requirements as key contributors to these elevated costs. In response, the report urges construction industry professionals to support policy reforms that could reduce expenses and make housing more affordable to build.
Key policy recommendations aimed at lowering production costs in California:
- Faster Approval Processes: Adopt a law similar to Texas’s, requiring local jurisdictions to approve or deny housing development proposals within 30 days. Projects not approved or denied within this timeframe would be presumed approved. This could significantly reduce the current 15-month gap in predevelopment timelines between California and Texas.
- Streamlining Inspections: Implement synchronized inspections rather than sequential ones to reduce the seven-month average gap in construction time between California and Texas.
- Reducing Fees: Reassess the high municipal impact and development fees, which are 10 to 40 times higher in California than in Texas. A cost-benefit analysis should weigh the potential revenue gains from these fees against the financial barriers they create for new housing projects.
- Reevaluating Energy Efficiency Standards: Reconsider the strict energy efficiency requirements currently in place, as they contribute to higher construction costs. Even slightly less efficient housing would still represent a meaningful improvement over California’s aging multifamily housing stock, which is more than 50 years old on average.
Considerable regional disparities within California are highlighted. For example, construction costs in the San Francisco Bay Area are roughly 50% higher than in San Diego, despite both cities being in the same state. These regional differences underscore how local regulations and market conditions further amplify the state’s overall high housing costs.
Delays in project approval and high fees are also major cost drivers. In California, projects take an average of 22 months longer to complete compared to Texas. Municipal fees, such as impact and development charges, are particularly burdensome, with costs reaching up to $29,000 per unit in California compared to just $1,000 per unit in Texas. These additional financial burdens create significant barriers to affordable housing development.
The report also reveals how these high costs hinder California’s ability to produce affordable housing. If California could match Colorado’s lower production costs for publicly subsidized apartments, the $1.25 billion invested by the state’s four largest funding programs could have resulted in more than four times as many units being built. This disparity highlights the urgent need for cost-reducing reforms to address the state’s ongoing housing affordability crisis.
The report underscores that high construction costs in California are a significant barrier to meeting the growing demand for both market-rate and affordable housing. By adopting policy changes—such as faster approval processes, streamlined inspections, and reducing excessive fees—the state could significantly lower production costs and make housing more affordable to build. For the construction industry, these reforms represent an opportunity to reduce delays and improve profitability while contributing to California’s broader housing goals.
