There’s a seductive simplicity in the belief that developers could build affordable housing—if only they wanted to. It’s the kind of narrative that circulates easily in local debates, bolstered by frustration, rising rents, and the visible absence of homes most working families can afford.
But this belief, however satisfying, collapses under the weight of economic reality. If we’re serious about building homes that are both affordable and feasible, we must let go of the idea that the problem is willpower, and confront the fact that the problem is structural.
We’re often told that we just need the “right carrot”—some magical incentive to convince developers to do what they supposedly resist. But even the biggest carrot can’t overcome basic math.
In places like Davis, construction costs are high, land is expensive, and financing comes with significant risk. The result? A home that costs $600,000 to build is still seen by many as “affordable”—even though few families can afford that price, and few builders can make a profit selling for less.
Let’s break this down.
First, construction costs are not what they used to be. According to data from the National Association of Home Builders, the cost of labor and materials has risen sharply over the past five years—especially post-COVID. Lumber prices skyrocketed, then settled at a new normal. Concrete, steel, HVAC systems, and skilled labor are all more expensive. In some California markets, the cost to build a single-family home can reach levels that are already prohibitive per square foot. That’s before a single nail is driven.
Second, land acquisition costs in cities like Davis are prohibitively high. With a long-standing growth boundary and intense land-use restrictions, the supply of developable land is tightly constrained. When land is scarce, its price goes up—and those costs are passed along to homebuyers. Even with density increases, it’s difficult to create meaningful affordability without subsidies or land dedications or both.
Third, there’s the matter of project financing. Developers don’t just build with their own money. They rely on loans, investors, and underwriting assumptions. For a project to move forward, lenders must believe the homes will sell at a high enough price to repay loans with interest. If a developer proposes homes at price points the market sees as “affordable”—say $350,000—they may be unable to secure financing, not because the project lacks moral merit, not because the developers and local government leaders lack the will, but because it lacks financial viability.
Add to that the entitlement process—months or years of public meetings, design reviews, and legal challenges—and you begin to understand why many developers don’t even attempt “affordable by design” housing. The risk is simply too high, and the margins too thin.
So when people say, “Developers just don’t want to build affordable housing,” what they’re really doing is mistaking a broken system for individual refusal. It’s easier to believe in bad actors than broken incentives. But bad actors aren’t the only reason we’re in a housing crisis. Structural contradictions are.
This doesn’t mean developers are victims. It means they’re operating within constraints—some natural, others political. And this is where public leadership matters.
If we want housing that regular families can afford, we need public intervention that makes affordability feasible. That could mean offering land for free or at reduced cost. It could mean providing low-interest public financing. It could mean tax credits for income-restricted ownership housing, or density bonuses that allow more units per acre to spread out costs. It certainly means streamlining approvals and reducing uncertainty.
In short: it’s not about the right carrot. It’s about rebalancing a system that currently punishes anyone trying to build below luxury pricing.
Of course, all of this assumes we agree that affordability is the goal or that lack of housing options is the problem. Too often, the same communities that bemoan high housing prices also resist the density, height, or zoning changes needed to bring those prices down. They want affordable homes, just not near them. They want student housing, but not in their neighborhood. They want equity, but not growth. This cognitive dissonance is a much bigger obstacle than developer unwillingness.
It’s also worth noting that $600,000 is not cheap. And yet, it’s now seen as the floor in many parts of California, including Davis. That’s a profound indictment of our housing market. It means we’ve allowed scarcity and speculation to define our landscape. It means we’ve made housing a vehicle for wealth extraction instead of shelter. It means that even the best efforts at middle-income housing are priced out of reach for teachers, nurses, and working families.
That’s the paradox: the homes we call “affordable” are unaffordable. And the homes that are truly affordable are virtually impossible to build without deep subsidy or public land.
So let’s retire the myth that developers could solve this crisis if only they cared enough. That myth is comforting, but it’s wrong. It distracts us from the real work: changing the rules, reforming the incentives, and reimagining housing as a public good.
The truth is harder to face—but it’s also more actionable. And if we’re serious about solving California’s housing crisis, we can’t afford to keep mistaking complexity for resistance, or wishful thinking for a plan.
“Of course, all of this assumes we agree that affordability is the goal or that lack of housing options is the problem.”
(We don’t agree.)
“Too often, the same communities that bemoan high housing prices also resist the density, height, or zoning changes needed to bring those prices down. ”
(There’s only a minority who are “bemoaning”, and most of them are paid shills. Also, your conclusion regarding “bringing prices down” via a Reagan “trickle down” theory is incorrect in the first place. Would you like for me to post an analysis of that, again?)
“They want affordable homes, just not near them.”
(They already exist. Houses in nice neighborhoods going for less than $100K in Cleveland.)
“They want student housing, but not in their neighborhood.”
(Again, “they” don’t want that. Some advocate for it to be on campus primarily SO that it doesn’t end up in neighborhoods.”)
“They want equity, but not growth.”
(Again, most don’t care about “equity”. But it’s not a byproduct of “growth” in the first place.)
“This cognitive dissonance is a much bigger obstacle than developer unwillingness.”
(It is, when you make up straw man arguments.)
The “other” type of affordable housing (that exists within the state itself) consists of rent-controlled units, subsidized housing, and those that accept Section 8 vouchers.
Why wouldn’t you want affordable housing to be a goal?
When people aren’t sweating being on the street, they have an easier time finding jobs and being productive members of their community and paying taxes. Why wouldn’t you want that?
Unless you see housing as a commodity and not a utility ….
Don’t see Dave mention any kind of “trickling down”. As someone who does his own construction work and has to buy materials, I think Dave’s observation is spot on. Material costs have skyrocketed, and in good old Capitalist America, once a company realizes that someone will pay a price, it will never ever come down – even if the supply side situation changes. Now labor costs will also skyrocket, as Trump is deporting all of the people who do the work of actually constructing homes.
Add to this the obscene costs of permitting – it costs roughly $37,500 for all the permits for a single family home in most places in California, and in Davis that cost is substantially higher, as all major appliances like water heaters must be permitted and written off.
Just because you personally may not want schools in your neighborhood doesn’t mean there aren’t a lot of young working families out there – people who, unlike yourself, don’t yet have homes yet and are looking to buy and get established. They are the ones actually purchasing new homes.
“(They already exist. Houses in nice neighborhoods going for less than $100K in Cleveland.)”
You may have just as well said there’s no bread, so let them eat cake …..
“Why wouldn’t you want affordable housing to be a goal?”
(Because it already exists, as I pointed out. But also – until/unless cities implement rent control, I have trouble taking their stated concerns seriously. I also have trouble taking their concerns seriously when they continue to pursue “economic development” – such as what’s occurred in Silicon Valley. Not to mention the connection that those type of businesses – as well as other business interests – have in promoting never-ending growth). That’s exactly what’s led to the rise and financial support for the YIMBY shills and their political allies.
“When people aren’t sweating being on the street, they have an easier time finding jobs and being productive members of their community and paying taxes. Why wouldn’t you want that?”
(Seems like you’ve put forth a lot of assumptions in that comment.)
“Unless you see housing as a commodity and not a utility ….”
(Again, see comment regarding rent control, as well as other options.)
“Don’t see Dave mention any kind of “trickling down”.
(He mentions it every single day, in regard to pursuit of growth/sprawl, reduction of impact fees, changing zoning.)
“As someone who does his own construction work and has to buy materials, I think Dave’s observation is spot on. Material costs have skyrocketed, and in good old Capitalist America, once a company realizes that someone will pay a price, it will never ever come down – even if the supply side situation changes. Now labor costs will also skyrocket, as Trump is deporting all of the people who do the work of actually constructing homes.”
(I’m failing to see how building more market-rate housing would change that. In fact, building more would INCREASE demand and prices for labor and materials. And you’re right, so would deporting millions of those who arrived in the country illegally.)
“Add to this the obscene costs of permitting – it costs roughly $37,500 for all the permits for a single family home in most places in California, and in Davis that cost is substantially higher, as all major appliances like water heaters must be permitted and written off.”
(It’s possible that this figure doesn’t even pay for the cost that cities experience as a result of a new single family house. Also, who do you propose to pay for “water heaters”, as you put it? And do you propose that type of work to be “unpermitted”, instead? (Reminds me of that high rise collapse in Thailand the other day.)
“Just because you personally may not want schools in your neighborhood doesn’t mean there aren’t a lot of young working families out there – people who, unlike yourself, don’t yet have homes yet and are looking to buy and get established. They are the ones actually purchasing new homes.”
(Where did I ever say anything regarding “not wanting schools in my neighborhood”? I did repeatedly state that schools exist to serve communities – not the other way around – as some seem to advocate).
(But on a broader level, I don’t see why every community needs to (or can) “compete” with $100K houses in Cleveland, for example.)
“They already exist. Houses in nice neighborhoods going for less than $100K in Cleveland. You may have just as well said there’s no bread, so let them eat cake …..”
(There’s people, including investors buying those houses right now. Sometimes by the dozen. So apparently, they have a more positive view of the future of that community than you do.)
(In contrast, some stubbornly try to “change a community” – rather than adapt themselves and take advantage of opportunities where they DO exist.)
(Guess who “repeatedly loses” when they fail to adapt. I suspect that a large portion of current homeowners in Davis came from somewhere else, partly because they were “priced out” of their original home cities.)
(Even now, there’s lots of people who “look down on Davis”, since it’s not in the Bay Area. Are you saying that Davis is an inferior community, as well?)
Complaints about permit costs (and regulation) are frequent, in my experience (nearly 20 years in real estate). The thing most people don’t understand is that, since prop 13, if you don’t get the public’s costs for schools, roads, and other infrastructure covered by permits, then those costs won’t be covered at all. Butte County tried lowering its permit costs (to around $10K, in my memory), sparking a building boom, and every new home cost the county tens of thousands of dollars. Butte County avoided filing for bankruptcy by the skin of their teeth.
Prop 13 raised property prices because it made it cheap for vacant land owners to hold the property off the market cheaply until land prices went through the roof. This is the opposite of 19th century journalist/economist Henry George’s recommendation. George said to tax land heavily, inspiring the “Landlord’s Game” – the predecessor to modern Monopoly, invented by a woman, Elizabeth Magee. There are two sets of rules for this game: 1. Monopoly – low land taxes, and one person bankrupts everyone else, and 2. Prosperity – high land taxes and everyone wins, not just one person. You can get the rules for Prosperity online still, but Monopoly dominates the board game market.
So…wish for an end to prop 13 if you want cheaper home prices. Otherwise, our feudal masters will keep raising and financializing (most of it’s bank loan) real estate prices.
Since profit guides just about every single decision in capitalism, it is to non-profit we must look for its systemic solutions. Rent control and section 8 are not profit. Milton Friedman, the apologist for pure capitalism says profit excuses all behavior, no matter how bad.
Incidentally, since the people guiding capitalist enterprises observe the “iron law” of declining profits (in a totally free market, firms lower prices to increase sales, impairing profit) the CEOs’ efforts go to creating barriers to entry, monopoly/oligopoly market dominance and unproductive pursuits (cf. military spending). Monopoly means the monopolist is a price setter, not a price getter. Land (excluded from the calculations of conventional economics) is a mini-monopoly. Monopolists set prices to extract economic rent–money paid for unproductive pursuits. The land speculators aren’t creating any new land.
The bottom line: pure capitalism can **never** solve systemic problems like housing. It structurally can’t. The supposed “price-lowering” strategies like deregulation and lower taxes (prop 13!) mean speculation becomes rampant, financializing assets like
housing and land occurs, and the beggar-on-every-corner economy is inevitable. Economist Michael Hudson observes that lenders are the real winners in home appreciation–after all, the lenders really get bigger loans for the vast majority of housing. Bigger loans = bigger bank profits, and bigger bank scandals. The subprime/derivatives meltdown was 70 times bigger than the S&L scandal.
We’re heading for an economy dominated by the villain in “It’s a Wonderful Life,” Mr. Potter, crushing the debt peons. Meanwhile, the Chinese have made their banks public utilities, and now–believe it or not–have dramatically reduced the number of beggars in their streets by giving them jobs. We can’t even consider that because capitalism is a religion, not an economic philosophy.
Another question I have: Why the focus (solely) on housing? If it’s actually (only) supposed to require 1/3 of income, what about the “other 2/3rds”?
Does anyone complain about those 2/3rds, in regard to “producing more of it or reducing regulations” (other than some of those who support Trump)?
I’m specifically referring to those who oppose Trump on EVERY OTHER ISSUE except this one.
Fixing measure J to create an exemption for the construction of missing middle housing would change those incentives sufficiently.
Developer are currently building market-rate missing-middle housing in infill sites here in town, so we know it pencils.
A measure J amendment that lays out a peripheral transit line corridor ( as I have written about many times before) and allows development within 1/4 mile of that line if the project meets certain criteria is a direct way to get us exactly the kind of housing we most need.
I think my biggest question is: Should we be trying to “fix” measure J itself, or just have citizens put forward a plan and vote on it as a measure J election by itself…. leaving the rest of the measure alone. I almost think the latter is easier. We have been talking about that transit way, and the housing that could be created along it for a long time now. Nobody has put forward a better idea…. maybe we should just do it.
“That’s the paradox: the homes we call “affordable” are unaffordable.”
And so it will always be. Welcome to California.
“And the homes that are truly affordable are virtually impossible to build without deep subsidy or public land.”
And that’s why it will always be.
“So let’s retire the myth that developers could solve this crisis if only they cared enough.”
Seriously, I didn’t know that was a myth to retire. Seems freaking obvious.
Who is initiating building missing middle housing since interest rates have gone up?
“If we want housing that regular families can afford, we need public intervention that makes affordability feasible. That could mean offering land for free or at reduced cost. It could mean providing low-interest public financing. It could mean tax credits for income-restricted ownership housing, or density bonuses that allow more units per acre to spread out costs. It certainly means streamlining approvals and reducing uncertainty.”
Any public intervention is very likely to trigger prevailing wages which causes your project to be financially unviable. The only viable methods mentioned here would be on the density bonus (except the drag of the subsidized units can often kill a project), and streamlining approvals/zoning deregulation. These would produce a small cost savings that could help at the margin.
If someone had the goal of housing affordability, their approach should be the exact opposite of “a public intervention.” The development cost structure has been warped and inflated precisely by public interventions via regulations, taxes, and other nonmonetary costs. This isn’t to say that some of these do not have valid reasoning, but they clearly and unambiguously raise the cost structure in the development production function. If you want to make housing more affordable you can either subsidize demand–very expensive and likely not a stable general equilibrium, or you can reduce regulations, taxes, and other frictions developers face. You can just ask us and we will be able to give you ideas how to reduce the cost of housing based on actual experience.
Obviously, anyone who simply says “housing is expensive because of greed” or some similar facile argument is not interested or qualified to seriously engage in the discourse. I am quite confident the development community would be happy to provide a list of solutions to lower the cost of housing, but I doubt that anyone who is working in the field wants to spend time engaging with people who have never produced housing, never dealt with capital markets, and never dealt with the entitlement or building dept process if these tyros are more interested in spouting their opinions rather than listening to people with actual knowledge.