California legislators patted themselves on the back when they passed a housing package this sessions raising money for affordable housing. But these tough votes to hike real estate document fees (SB 2) and place a bond measure on the ballot (SB 3) will barely make a dent in subsidizing the state out of its extreme housing shortage.
Real estate developer John McNellis runs through the numbers on The Registry, which are pretty shocking in their paltriness, given the scale of the problem:
According to the Los Angeles Times, San Francisco’s 700-unit Hunters View low-income housing project cost $450 million or $643,000 a unit. While appallingly high, that number sounds about right. Thus, if SB2 actually raises $250 million a year, California could add another 388 low-income units annually. And the whole $4 billion from SB 3 would be gone after 6,220 new units. In a state which needs to add 100,000 new dwellings a year just to keep up with its population growth—and not allow the housing crisis to worsen—this is truly spitting in the ocean.
But it gets worse. As McNellis points out, lack of money is only part of the problem. Neighborhood opposition to new affordable projects — which also affects market-rate projects but with more intensity given antipathy to people who need subsidized homes — makes implementation of these projects more difficult:
The problem is you can’t spend affordable-housing money. Last year, the citizens of Los Angeles generously voted to increase their property taxes by $1.2 billion to build housing for the homeless. This year, the somewhat less compassionate Angelenos in Boyle Heights blocked a proposed 49-unit homeless shelter in their neighborhood, a political scenario that has been played out countless times in nearly every city in the state. Tie-dyed progressives, kind-hearted liberals, even Orange County conservatives are all in favor of low-income housing…in someone else’s neighborhood.
Affordable housing advocates would be smart to respond to this dynamic by fighting for more than just more money to subsidize these few expensive projects. Instead, they should be working to lower construction costs overall and reduce neighborhood opposition to new projects, from market rate to affordable ones.
Otherwise, the problem will continue to worsen. And the money we do spend will become increasingly less effective and wasted.
California’s housing shortage has been well documented. But the obvious solutions to the problem — like eliminating local land use restrictions on new growth — have been stymied in part by infighting among the housing advocate community.
The split involves affordable housing advocates and those who want more market-rate development. Here’s the basic summary of their positions, as I see them:
- Market-rate housing advocates typically want barriers to all new housing removed as quickly as possible. They usually support policies to subsidize affordable housing for low-income residents but mainly want to see housing of all types built as fast and cheaply as possible.
- Affordable housing advocates want more subsidies for affordable housing and more affordable units required of market-rate projects. In that aspect, they often align with market-rate developer advocates. But they are also protective of low-income neighborhoods from gentrification, which they primarily blame on new market-rate developments in these neighborhoods, and so will often oppose market-rate projects in low-income areas. They also use existing land use restrictions on market-rate development as leverage to extract more affordable housing units or dollars. As a result, many of these advocates tend to want to keep the status quo (at least for market-rate development restrictions) and limit new development to prevent gentrification.
This split was perhaps most prominent back in 2011, when a bill to reduce excessive local parking requirements statewide on new housing near transit was opposed by affordable housing advocates. Why? Many of these advocates use high parking requirements as leverage to extract more affordable units. Using the state’s “density bonus” law, they can trade reductions in parking requirements for more affordable units.
The split also appears when it comes to raising dollars for affordable housing production. Affordable advocates will attempt to extract the most fees and affordable units they can from market-rate development, which in turn makes market-rate development harder to build.
But there’s a solution to this problem that leaders on both side could support: a separately funded, statewide source of permanent dollars for affordable housing. A separate source of funding would go a long way to eliminating the incentive for affordables to oppose or weaken market-rate development.
Such a plan has been proposed in the legislature, such as SB 2 (Atkins), which would impose a $75 fee on recorded real estate documents to fund affordable housing. But its future is murky, absent more broad-based support.
To be sure, such a fund wouldn’t solve the concerns that affordable housing advocates have about gentrification caused by specific market-rate projects, and it may not reduce their resistance to alleviating local land use restrictions when those restrictions could lead to more affordable units. But at least they would no longer have an incentive to extract higher fees from market-rate development, and a bigger pot of money for affordable units across the board may reduce their desperation to claw every bit they can from new projects.
In the long run, California will not be able to subsidize its way out of the affordable housing crisis. It would require billions of dollars we don’t have. And in fact, most low-income residents don’t live in subsidized housing but rather in the market-rate housing of yesteryear, which has now come down in price with age. So the more we fail to build market-rate housing today, the more we limit affordable units for future generations.
It’s not an easy fight to solve, but a permanent source of dollars for affordable units is not only the right thing to do on its own merits, it could ease our housing debates going forward.
Inclusionary zoning — requiring market rate developers to provide or fund a certain number of affordable units — has been under legal attack by builders and property rights advocates. Earlier this week, the California Supreme Court upheld San Jose’s inclusionary zoning ordinance, although as my colleague Rick Frank suggests at Legal Planet, the battle may soon continue on appeal to the U.S. Supreme Court.
But the question remains: does inclusionary zoning really work, when it comes to producing enough affordable housing? The results at least in San Francisco have not been promising:
John Rahaim, chief of the San Francisco Planning Department and formerly planning director in Seattle, said inclusionary zoning was also a major tool in the Bay Area. Developers have the option of paying a fee, providing the affordable housing on-site, building off-site, or dedicating a piece of land for the city to build affordable housing. San Francisco is also looking at the density bonus approach, where additional height is allowed in return for more affordability.
But for all that effort, a total of 1,787 affordable units have been built since 1992, Rahaim said. “We should be building that many on an annual basis.” Currently, average rent for a two-bedroom apartment in San Francisco is $4,580 per month, and the median home purchase price is over $1 million. All the while, the Bay Area continues to grow, in people and jobs. Projections are for a population increase of 250,000 over the next five years. The city has already hit 40 percent of its 30-year projected job growth.
If this paltry result is consistent across other cities, then affordable housing advocates shouldn’t either get too excited by the California decision or too afraid of a U.S. Supreme Court intervention. Because we’ll need policy tools that offer a much better chance at providing a sufficient affordable housing supply. A permanent source of funding for affordable housing would be a good start.
California is raking in the bucks from its cap-and-trade program. Sales from auctioning off permits to pollute will net the state close to $900 million in this budget year, and it could go to $8 billion a year by 2020, now that transportation fuels are firmly under the cap. Of that amount, about half is dedicated to transportation and infill development that can reduce greenhouse gas emissions. Here is the breakdown on that piece of it:
Transit Capital: $25 million (10% of total auction revenue)
Transit Operations: $25 million (5% of total revenue)
Housing & Sustainable Communities: $130 million (20%)
High Speed Rail: $250 million (25%)
The rest will go to wetland restoration, energy efficiency upgrades for public buildings, and recycling efforts.
But it’s that $130 million piece that’s been in the news recently (it’s actually $120 million, due to an additional $10 million set-aside for agricultural projects). Called the Affordable Housing and Sustainable Communities (AHSC) Program, state agencies have been trying to adopt the guidelines for disbursing these funds for meritorious land use and transportation projects for over a year. That process was finalized a few weeks ago by the Strategic Growth Council, which issued a complicated set of criteria for project proponents to be eligible to apply.
According to the new guidelines [PDF], half of the funded projects must provide affordable housing near transit, while the other half must provide benefits for “disadvantaged communities,” per this map.
But the problem is (at least for this first round), $120 million won’t get you very far. Affordable housing projects have a minimum grant award of $1 million and maximum of $15 million, while transit projects in disadvantaged communities have a minimum $500 thousand and maximum $8 million. You can see how that money will go quickly with only $120 million to disburse. As Streetsblog LA reported, Strategic Growth Council staff “expect to be able to fund between 15 and 25 projects in the first round.”
15 to 25 projects is, frankly, not much. And not much to get excited about in this first round. Fortunately, more money will be available later this year in the second round, and an expanding pot of auction funds could mean almost 10 times this amount in a few years, if the $8 billion-by-2020 projection comes true.
But even at 10 times this amount (over $1 billion a year), that’s just a couple hundred projects per year — not enough to make up for the loss of redevelopment funds. These funds were a primary source of infill financing, and the program netted about $5 billion annually statewide until it self-immolated in a 2011 California Supreme Court case.
I hate to be a Debbie Downer, but California will need to do better than this given the extreme housing needs in the state. It’s hard not to look jealously at the high speed rail set-aside and wonder why more of that money is not flowing to transit-oriented housing. After all, high speed rail was sold as a viable public-private investment that would essentially pay for itself. But after voter approval, the route was politically gerrymandered to accommodate powerful political interests. The politically motivated route changes to Palmdale and the eastern San Joaquin Valley drove up the price tag due to more complicated construction, reduced travel speeds between the major population centers, and made the project less attractive to private investors.
Perhaps as more constituents get a taste of cap-and-trade dollars, it will put political pressure on Sacramento leaders to retool the formulas to give more money to transit-oriented housing. It won’t happen while Governor Brown is in office, given his attachment to high speed rail as a legacy project, but I wouldn’t be surprised if it happens before 2020.
