A proposed California housing measure aimed at expanding factory-built home construction is drawing criticism from policy analysts who argue it could shift financial risk from private developers to taxpayers without addressing the state’s core housing challenges.
In a recent commentary published by the Orange County Register, author Eliza Terziev warns that the legislation, known as Assembly Bill 2166, could expose public funds to unnecessary risk while offering limited long-term solutions to the state’s housing affordability crisis.
California lawmakers have increasingly turned to factory-built housing as a potential solution to rising home prices and supply shortages. These homes, often produced in controlled environments, can reduce construction timelines and limit weather-related delays.
However, Terziev argues that the proposed approach misdiagnoses the problem.
“A proposed state law aims to encourage factory-built housing through a state-funded credit backstop program, but this approach ignores the root of California’s housing challenges and risks losing taxpayers’ money,” she wrote.
Assembly Bill 2166 would allow the California Housing Finance Agency to issue credit backstops to private firms and insurers that provide construction bonds for prefabricated housing factories. Supporters say the measure would reduce financial risk for developers and accelerate housing production.
Critics, however, say it effectively transfers that risk to taxpayers.
“Instead of putting taxpayers on the hook for failed private-sector projects, lawmakers should continue recent efforts to remove barriers to housing construction,” Terziev wrote.
Under the proposal, developers and insurers would benefit from expanded bonding capacity and reduced exposure, while taxpayers could be responsible for covering potential losses tied to unsuccessful projects.
Terziev contends that factory-built housing is already a proven model in states such as Texas and Florida and does not require government-backed financial support to succeed. Instead, she argues that California should focus on removing regulatory barriers that continue to constrain housing supply.
“Developers elsewhere across the country have successfully increased the number of factory-built homes without a publicly funded safety net,” she wrote.
The commentary also challenges the notion that developer hesitation represents a market failure, suggesting instead that uncertainty is inherent in large-scale development and emerging construction methods.
California has enacted several housing reforms in recent years aimed at boosting supply, but results have been mixed. Some legislation, including Senate Bill 9, has faced criticism for provisions that limit its effectiveness, such as owner-occupancy requirements that restrict broader developer participation.
At the same time, more comprehensive reforms — particularly those supporting accessory dwelling units — have led to measurable increases in housing production.
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Terziev argues that future policy efforts should focus on strengthening and refining these reforms, including reducing restrictions such as minimum lot sizes and parking requirements.
Environmental regulations also remain a key hurdle. The California Environmental Quality Act continues to present challenges for developers, with its review process often cited as a source of delays and legal uncertainty.
“Streamlining and standardizing the environmental review process would help fully implement pro-housing reforms in the state,” she wrote.
Ultimately, Terziev concludes that California’s housing crisis stems from decades of regulatory constraints rather than a lack of financial incentives for developers.
“Instead of risking taxpayers’ money to insulate builders and suppliers from the consequences of their project choices and investments, California should continue liberalizing its land use laws and allow the market and homebuyers to determine the state’s need and desire for factory-built homes,” she wrote.
Originally reported by Eliza Terziev in The Orange County Register.
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