Some of the limited supply is due to building restrictions, but addressing those requires more than just issuing building permits. We can't build high density housing and ignore transportation and infrastructure, and upgrading those tends to be more difficult than building more units.
Therefore, California cities charge outrageous impact fees on construction. The time of construction is the only time the property can contribute its full share toward transportation and infrastructure. These impact fees are passed to the consumer in the cost of new housing. Thus, new housing does not get built until the shortage has inflated the cost of all housing enough to cover the fees. The vast majority of that increase becomes homeowner windfall profits.
In this respect, low interest rates are actually good because they raise the cost of existing housing high enough to make new housing worth the extortionate impact fees. Even better would be the repeal of Prop 13.
I see this sentiment a lot in these threads, that somehow the fat cat homeowners are laughing all the way to the bank. For most of these homeowners this property is their home, just because it goes up in value quickly over 5-10 years doesn’t net them any “windfall”, and it could all vanish as quick as it came.
As somebody mentioned in response to a similar article, individual homeowners aren’t in it for the increased property value. They’re in it for lower taxes and a safety net against change. Just like (individual) “NIMBY”s aren’t in it for property values, they’re in it because they don’t want change.
Now, if the developers are willing to pay for the infrastructure improvements to handle all the people, that's great, but I haven't seen that happen often, although it admittedly does happen.
We could repeal prop 13 and increase property taxes, but there's nothing requiring that increase in revenue be spent on improving the infrastructure related to the new development. Local government could spend it on something else.
There's also Mello-Roos for the specific improvements that need to be made, but that hurts demand for new housing because it's another cost tacked on, which developers don't like.
The fact of the matter is, as we build more housing, we also need to build more infrastructure to support more people. Developers don't want to do this, but requiring them to do it insures it gets done.
I'm in a state without anything like Prop 13. If someone wants to build some development nearby which drives up demand for land and housing in my area, and so drives up property values, and so drives up my property taxes then I've got an incentive to oppose that development.
If we had something like Prop 13 so I didn't have to worry about that development driving up my property taxes wouldn't I then have less incentive to oppose the development?