Dive Brief:

• California is facing a shortage of affordable housing. A new report from consulting firm McKinsey — "A tool kit to fix California’s housing gap: 3.5 million homes by 2025" — offers a few ideas on how state lawmakers, the private sector and residents can close the gap by adding more than 5 million single-family and multifamily properties across the state.

• The report studied the state’s 12 million-plus households across 34 markets and 16 income brackets. It found that 50% of households can’t afford housing costs in their market.

• Because residents are spending outsized amounts on housing, the state’s economy is missing out on more than $140 billion annually in consumer spending as well as the economic activity that would otherwise be generated by the construction of new housing.

Dive Insight:

It’s no secret that California’s housing market has an affordability problem — and it’s not isolated to major metro areas, either. The McKinsey report identified areas of the state in which the addition of housing could yield the biggest returns. Among these so-called "hot spots" are Los Angeles, San Francisco and Fresno. The firm recommends incentives for local governments, the use of modular construction and speeding up land approval among its proposed solutions for bringing more housing online in the state.

Inclusionary zoning laws, which require new housing developments to contain a set number of below-market units available to individuals below a certain income cap, are a solution that many cities and counties across California are exploring, Construction Dive reported earlier this year. Developers often argue that such laws raise housing costs, but the courts have contested that claim, citing density bonuses and the ability to pay a fee to an affordable housing fund instead.

A proposal by California Gov. Jerry Brown to build affordable units in housing developments "as of right," intending to speed up building review, was stifled by opposition from construction unions who wanted the measure to include prevailing wage requirements.

Still, California cities are finding solutions that meet the needs of their populations and local industries. In June, San Francisco approved Proposition C, which requires housing developments with 25-plus units to make 25% of them affordable, up from 12%. In San Jose, a new 15% requirement for inclusionary housing faced pushback from the California Building Industry Association, which attempted to take its case to the U.S. Supreme Court after the California Supreme Court ruled in favor the city. The higher court denied a review of the challenge.

A report from Beacon Economics found that between 2007 and 2014, the state experienced a net loss of 625,000 residents, mostly due to high housing costs. Recent news of major employers moving out of the state is another indicator that housing costs are becoming too much for locals to bear. Toyota is relocating its headquarters from Torrance, CA, to a new $350 million building in Plano, TX, and Jacobs Engineering announced this week that it’s moving its headquarters from Pasadena, CA, to Dallas.