California leads the nation in housing unaffordability. In a healthy market, a family earning the average income could afford the average-priced home. Not so in California. As estimated in a recently released analysis by the Legislative Analyst’s Office, a California family must earn more than twice the average state income to afford an average-priced home.
Unaffordable indeed!
The consequences are both financial and emotional. A June 2026 survey found Californians are feeling “significant anxiety about retirement security driven by the cost of living, especially housing costs and taxes.”
This anxiety is chasing away families and businesses that continue to leave California at record levels. Without a course correction, this exodus will drain the state’s economic vitality. A less prosperous economy will mean lower incomes, slower job growth, and fewer resources for the state.
Unfortunately, Gov. Newsom’s latest (and last) budget throws money at the problem rather than addressing the structural barriers that make housing so expensive.
One example: the governor supports a measure on the ballot that would issue $11.25 billion in bonds to build affordable housing around the state, including the state’s multi-family housing program, as well as home aid programs for veterans and students. A complementary initiative asks voters to approve $25 billion in bond sales to help finance loans for newly constructed single-family homes for middle income families.
Without taking a poll, we can stipulate that most Californians want families, veterans, and students to have affordable places to live. That’s not a question. The relevant question is, how can California best promote housing affordability?
The governor is essentially arguing that the state can come in and build housing for less money than the private sector and thereby expand the supply of affordable homes. The math on the November bond initiative argues otherwise.
According to Speaker Rivas, “the bond is expected to help more than 40,000 Californians purchase a home by providing down payment assistance, affordable mortgage financing and other homeownership support.” The majority of the bonds ($10 billion) would “finance the construction, rehabilitation, acquisition and preservation of affordable housing for lower-income Californians.”
Yet California already spends billions on affordable housing, and the state’s construction record does not match the initiative’s goals. At $11.25 billion for 40,000 homes, the state anticipates spending roughly $281,000 per unit. The problem is it is exceptionally costly to build all housing – including affordable housing – in California. The average is often around double the initiative’s anticipated costs, and in some instances has even reached $1 million per affordable apartment.
Herein lies the problem. Throwing billions of dollars at affordable housing programs does not make housing cost less. If past is prologue, these homes will still cost at least a half a million dollars to build. The difference is that the costs have been shifted from the potential homeowner to taxpayers. California’s housing is still unaffordable.
The Speaker would likely object to this framing. After all, $1.25 billion in the bonds are dedicated toward supporting the CalVet Home Loan Program. This program is supposedly “self-supporting” because the costs will be repaid through mortgage payments. This, of course, is the same argument used to justify the undocumented home loans in the early- to mid-2000s. And we all know how this story ended – in the 2008-09 financial crisis.
If the goal is to improve housing affordability, then state programs need to address the fundamental flaws causing the problems in the first place. These stem from overly burdensome regulations that restrict the supply of homes and inflate the cost of building the homes that are available.
State and local regulations, including exclusionary zoning ordinances and the California Environmental Quality Act (CEQA) make it difficult, costly, and time-consuming to build new homes. Due to these regulations, builders have been unable to keep up with the growing demand for housing for decades, causing a shortage estimated to be as high as 2.7 million units.
Worsening the impacts from the supply shortage are the mandates that inflate the costs of building a new home. These include labor regulations such as prevailing wage obligations and environmental mandates such as the requirement that all new construction include solar panels. Due to these regulations, the costs to construct a new home in California are generally the highest in the country – more than twice the costs in Texas.
Since regulatory burdens are driving the problem, the state can best promote housing affordability by implementing comprehensive regulatory reform. To his credit, Governor Newsom has promoted faster permitting and streamlined regulatory reviews for CEQA, but these proposals are too narrowly focused.
Borrowing billions of dollars will neither reduce the costs of building new homes nor meaningfully expand the supply of housing. This spending is a feel-good policy that provides good talking points but will fail to improve housing affordability in the state. Instead of ever more government spending, the best way to make homes more affordable is to repeal the policies unique to the state that make California’s housing market the least affordable in the nation.
Wayne Winegarden is a senior fellow in business and economics and director of the Center for Medical Economics and Innovation at the Pacific Research Institute. You can reach Wayne at: wwinegarden@hotmail.com