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Governor’s housing plan is a formula for more inequality

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Last month, more than ninety corporate CEOs, tech investors and their allies called for quick passage of what the governor describes as his “affordable housing” plan. They assert that this plan would solve a housing crisis that threatens their businesses and the region’s economy. And recently in the San Francisco Examiner, a local politician added a Trump-like promise claiming that the governor’s plan would “make San Francisco affordable again.”

These claims appeal to the desperation of tens of thousands of Bay Area residents who are facing soaring and unaffordable rents and out-of-reach home prices.

What the CEOs and politicians don’t explain is that the plan, Trailer Bill 707, is really intended to accelerate housing construction for the wealthy. Under 707’s requirements, in order to gain one unit of affordable housing most cities will be required to allow the development of up to twenty high-end housing units. Such a policy cannot address the needs of most people.

It is a formula for exacerbating inequality. Building more high-rise mansions than housing for working- and middle-class households is also both socially and environmentally unsustainable.

Aimed at compelling suburbs to build more housing, 707 will actually enable more development in the hottest markets — San Francisco, Los Angeles, San Jose — while removing the negotiating leverage that these cities now have to win community benefits. It essentially prohibits local governments from considering or controlling for impacts, which is why it is opposed by every major environmental organization in the state including the Sierra Club, Natural Resources Defense Council and League of Conservation Voters.

In a nutshell, 707 gives developers the power to bypass existing environmental protections and public review by qualifying the project as a “by right” development. By meeting certain zoning and tiny affordability requirements, “by right” projects are exempt from environmental impact review and exempt from public scrutiny and comment.

Now unapprovable projects in sensitive locations will, under 707, receive rubber stamp approval, without a public review process or any ability to prevent or mitigate for environmental impacts of potential toxic soils, permanent shadowing of public parks or increased traffic.

The attack on environmental reviews in urban areas is particularly alarming. First, 707 defines “urban” to include sites that are surrounded with developments on three sides. Developments bordering a park or a wetland on the fourth side would be entitled to these exemptions. Even the Coastal Commission is at risk of losing its power to protect the coast. Giving developers an “environmental” free pass will spur inappropriate development on some of the region’s most sensitive locations.

Second, the proposal ignores the reality that many (if not most) sites in cities were zoned without environmental analysis. For example, we have neighborhoods in San Francisco with zoning that theoretically allows for 200-foot projects. But when those neighborhoods were zoned for such heights there was little or no analysis of the full impacts of developing the entire neighborhood at that height level. The “wind tunnel” effects of such development could pose a risk to all but the sturdiest of pedestrians. Yet the governor’s “by right” proposal would prohibit The City from requiring any study of a project, including a wind analysis. Cities would be required to approve projects based merely upon developer applications.

There are many other specific concerns regarding this top down approach to governance and planning. But we close here with a broader objection. As long-time advocates for affordable housing and for environmental protections, we are both deeply troubled by how the governor’s plan pits these core values against each other. We believe that such short-term thinking is wrong in principle and repeats our history of unsustainable, market-driven development. We need leadership that sets our state on a path toward developing truly affordable housing that respects both our natural and urban environments.

Cindy Wu is a member of the SF Planning Commission, and Sue Vaughan is chair of the Sierra Club SF Group.

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  • adamold

    It’s hard to understand why the municipalities can’t simply zone properly from the outset, excluding development for wetlands and other “sensitive areas” and allowing it, by right, elsewhere.

  • 1976boy

    They can. That’s why the opposition to this is BS. Zoning is locally decided. Groups like the Sierra Club have long been shills for rampant suburban and exurban development despite its negative environmental effects.

    Don’t want a certain type of development in your community? Zone for what you want. If a project confoms to the zoning it should be built.

    That’s all Brown’s proposal does. These opponents have no clue how to make housing affordable. They are the very reason it’s not affordable. The jig is up.

  • disco_burrito

    1. If you don’t build new housing for the wealthy, they will buy existing housing, kick out the tenants using the Ellis act and renovate. If we had allowed enough units to be built over the last several decades (high end or other) the existing housing stock could have remained affordable. I am continually baffled by so called progressive housing activists who do not understand supply and demand.

    2. A recent report from the white house (Jason Furman) found that land use restrictions are a major driver of inequality. Demand for high end units is a symptom of inequality, not a driver of it.

    3. Nobody wants development near them. Development means more people, less parking, etc. Because we restrict what others do with their land we have come to the crisis we are in today.

    It’s regrettable the Sierra club now opposes urban density and indirectly promotes sprawl.

  • faze

    What this entire region needs is 1) MASSIVE increase in inter- and intra-urban mass transit that is affordable, available, and serves everyone, 24 hours a day, and 2) building middle-income and affordable units UP along ALL intra and inter-urban transit corridors. For example: build UP on Geary, etc. Build UP on El Camino Real. Do it!

  • Philip L. Millenbah

    So, what you are saying is that people in previous decades should have foresaw a 100 flood of high wage earners moving to SF in 2011 and started overbuilding for that eventuality? How exactly does a developer build something in 1980 that has no chance of being rented in 1980 but to the developer it is worth it because being overbuilt in 1980 is preparing the city for the jobs boom in 2011? When you have 100,000 people moving here in one year that places a huge demand on housing- it is as simple as that. It seems that right wingers are all pointing to the recent “White House” housing study. It’s a national study and not a CA study and it ignores what is happening in CA. A big part of what is happening here is, as the Fed Reserve points out, that high wage earners are pushing out middle and low income jobs. The high wage earners then take over the housing the middle income people lived in–but at much higher prices. That isn’t a land use policy causing that but rather it is an economic trend. The fact is that letting the market build affordable housing will never work. The only way to get the housing we need is to make an effort to build for each housing segment–which means local government has to be involved. To think that rich people who are granted the right to add units to their property unconstrained will build for middle and low income people is a complete fantasy. Trickle down housing is just as ineffective as trickle down economics.

  • raf

    SF rents have been going up 6.6% every year since the 1950s. This crisis is older than the tech industry.

  • Philip L. Millenbah

    But how much was the CPi going up during that time? Your number by itself means nothing. My plot of the CPI and the 2 bedroom rents from 1979 to 2015 the two numbers tracked closely. Sometimes the rents were less than the CPI increases. The only two times that the rent increases spiked above the CPI was during the 2000 tech boom and the recent tech boom. So, your conclusion is wrong.

  • jhayes362

    The governor’s plan reflects a common political tactic among special interests with money: when they can’t get what they want at the local level, kick it up a step; in this case to Sacramento. There the legislators who will vote on it have the insulation of distance and media disinterest (don’t expect on the Chron to cover the vote on this one) as well as the luxury of easy campaign cash.

    I have advice for the 90 CEOs who endorsed the governor’s plan: learn to adapt. Isn’t that the genius of capitalism? Unfortunately, they’ve become so accustomed to buying off politicians that they see that approach as the easier and more practical course.

  • disco_burrito

    From 1940 to 1950 San Francisco gained 140,000 residents and managed to build 38000 units of housing. I imagine little was built during the war, so that’s 38000 units in just 5 years or 7,600 units per year.

    Fast forward to today, we’ve gained something like 55,000 residents from 2010 to the end of 2015, yet only added 10,000 units of housing during the same period. At our current rate of 2,500 units per year we are at 1/3 the post war rate despite having a similar population boom.

    The “white house study” makes sense if you think about it. Land use restriction disproportionately rewards existing property owners by artificially raising the value of property via restricted supply. Newcomers (including those born here) must pay artificially inflated rents to existing landowners, resulting in an excess transfer of wealth from newer renters to existing landowners.

    Regarding the fed, rich people can only push out the poor if the supply is contstrained. Say we decide to build our way out of this by adding an impossible amount of housing, eg 100,000 housing units per month with no restrictions. At first, developers will build high end units because the profits are highest. As a glut of high end units comes on the market, developers will be forced to cut prices and profits. At this point it they will start to cut finishes and amenities to remain competitive and the units will start to look decidedly middle class. Eventually this process will grind to a halt as the the market price of the units approaches the cost of construction.

    The cost of construction of a low budget midrise apartment complex is on the order of $175 per square foot, or $175k for a 1000sf condo. The extra $800k we are paying right now is land cost, developer profits, concessions, buyouts, etc. All of these costs will be driven toward zero if supply is allowed to rise high enough.

    Personally I think it would be better to reduce housing costs by building tiny units instead of subsidies for BMR units. Why build one 1000sf BMR unit when we can build two 500sf market rate units? Or three 333sf market rate units? This would make a bigger impact on affordability for more people, not just winners of the BMR lottery.

    San Francisco per square foot prices are now substantially higher than Tokyo (by some estimates double) and yet we continue to build giant housing units that few can afford.

  • raf

    Could you share your data?

    Adjusted for inflation, 6.6% growth is about 2.5% rent growth. Over 60 years, that’s a 4.4x real increase.

    I’m using eric fischer’s data. Disqus won’t let me post a link to it, but you can find it by googling “experimental-geography Employment, construction, and the cost of San Francisco apartments”

  • Philip L. Millenbah

    I am very familiar with Eric’s data. If you look at the site you mention you will see extensive discussions between us. I did the study first (in 2015). But he is missing a lot of data and he consequently comes to the wrong conclusions. I have a graph but I can’t seem to post it here. One thing Eric doesn’t mention or calculate is “eviction” data. By eviction I mean the conversion of a unit to a non–residential unit, not just an eviction as a legal action. For instance, changing a unit to an AirBnB unit is an ‘eviction’ of the unit for rental purposes. So over 10,000 units are off the market in SF because of these “evictions” but Eric with his data is assuming those units are there and rentable. Building more market rate housing will not provide for housing for middle or lower income people. Look at the city’s housing element. Market rate housing was “overproduced” (staff’s word) and yet only 16% of middle income was provided for. I have been a planner for 30 years. I have never once seen that a large amounts of market rate housing provides for middle or low income housing (aka affordable housing). Affordable housing needs special attention by the city if it is ever going to be built. To suggest that rich property owners are going to invest in affordable units on their property without some sort of subsidy is pure fantasy,

  • dr_doodle

    What a load of BS. The claim that this will produce only luxury housing, and 20 units for each affordable unit? BS from math-illiterates. 20% affordable means one affordable unit for each four market rate unit. And the only new housing that we are getting now is luxury, because that’s the only housing that is profitable enough for developers to invest in years and years of litigation and uncertainty. Eliminate the litigation and uncertainty, and middle-income housing becomes a bit more likely. Not certain, not easy, but at least no longer impossible.

    By meeting “certain zoning” requirements, housing will be exempt from review? Err, yeah, but why didn’t the authors mention that those “certain zoning” requirements are WHATEVER ZONING THE CITY WANTS TO REQUIRE? Nobody is forcing anything down the throat of a city, just eliminating obstacles to building what a city’s zoning claims that it wants.

  • dr_doodle

    @philiplmillenbah:disqus, if “the only way to get the housing that we need is to make an effort to build for each housing segment–which means that local government has to be involved,” how well is that working out? There is a massive shortage of affordable housing for low and middle income workers. Local government can “be involved” but it doesn’t BUILD housing unless it has lots of subsidy money, hundreds of thousands of dollars per unit. How do you scale that up to how big the need is? Alameda County is planning a $500 million affordable housing bond, assume healthy 2-1 leverage and that will produce maybe 3,000 units. Problem solved? No way, just scratching the surface. Are you going to get a new $500 million bond each and every year? No way; voters might pass one every 10 years. What we are doing just isn’t working, and defending it isn’t a solution.

  • disco_burrito

    The reason you haven’t seen an effect is the “large amount” is nowhere near enough.

    Phillip, I’m going to hazard a guess based on your comments: you’re either a baby boomer or a senior citizen who bought an apartment long ago, or live in a rent controlled apartment you moved into long ago. If I’m right, don’t you think your situation clouds your judgement? Even a little?

    You may have been around, but you do not have a real vested interest in seeing prices fall.

  • Philip L. Millenbah

    I am a boomer, but my situation is more complicated than you outline. I have been a city planner for a long time and am very familiar with housing issues, the needs of the community, and what it takes to build an economically strong city.I have a professional interest in helping all income segments not just the wealthy. If a city builds a diverse set of housing types there would be no reason to hope that rents of all income segments fall. For instance I could care less if Rincon towers prices rise or fall–or if units in the building that are for rent have rising rents or falling rents.

    Personally, I am a EU permanent resident and can live in Europe much cheaper than here-which I hope by this time next year I am doing, People seem a lot happier there than here and I think the cities are much more livable than here. My housing situation isn’t as you infer.

    Relative to affordable housing, what I have found and you could find too if you looked, is that in virtually every city in CA that I am aware of,cities meet their market rate housing by private developers doing their own thing but cities almost never meet their affordable housing needs without a city’s involvement. So, it is absurd to call Browns idea one that will help affordable housing. This ‘build market rate housing and affordable housing will come’ seems to be a political orientation that exists only in sf. There are decades of studies that show that won’t work–like other forms of trickle down there is no housing trickle down. But I am sure you have this “Idea” in your head that it works because it makes sense to you. But again, if you go and look at the history of any city or group of cities in CA you will see that market trickle down doesn’t work. So, Brown’s plan of using the graces of the state–and the state is composed of all people–to grant this special privilege, will end up benefiting wealthy property owners while harming lower income people.

  • raf

    You’re conflating “Affordable”, meaning subsidized, and “affordable”, meaning most people in the area can afford it.

    Yes, I agree that the the very poorest households will always need some sort of subsidy. Jerry Brown also agrees. This bill in Sacramento would provide that.

    I disagree with the claim that for-profit developers cannot build housing for moderate-income households. In the vast majority of the US, people earning 100% AMI can afford to buy market-rate housing. In CA, the typical household cannot afford it because we allow so little housing that the high-earning households buy it all.

    I’m not sure why you prefer the planning status quo over this bill. I don’t think the status quo is working for most Californians. It’s certainly not working for me.

  • Philip L. Millenbah

    No, that isn’t right. When I say “affordable” I mean it to be a function of a person’s AMI. I don’t care how the units are built in fact I am a big believer in density bonuses (with cost reduction based on lowered parking standards, etc).

    Market developers “could” build affordable housing but they almost never do. Many don’t have the necessary experience in putting those kinds of deals together or managing the property. Build, Inc, Mercy, etc all all developers who build just affordable housing. Again, go to some city and pull up real data and not just your political opinion. See how many market rate developers build affordable units, how much market rate and how much affordable housing is built in a given city.

    I actually don’t believe in the “planning status quo”. There are many developers who liked dealing with me when I worked on large projects and unlike many people in SF I would actually call myself pro-development. I am not a big fan of CEQA-especially in urban areas. I wish Brown would fix.Remember too that Brown took aaway redevelopment agenies and they financed most of the affordadble housing in the state. But knowing that affordable housing won’t be built from yet another market rate windfall I wish that his “by-right” law would required that x % of those units would be “affordable”. A benefit given by the state should help all citizens and not just the wealthy.

  • Kraus

    SF’s current housing crisis is not the “fault” of “tech” and the “sudden influx of high wage earners”. This crisis as been brewing for decades.

    “Tech” has merely been the “straw that broke the camel’s back” and has exposed the true cause.

    The housing crisis is the result of massive undersupply.

    SF’s undersupply of housing (the “housing crisis”) is the result of 40+ years of poor policy i.e., anti-housing development — supported by an unholy alliance between existing “I’ve-got-mine” homeowners, NIMBY’s, preservationists, ill-informed/ideologically-driven “activists” and gullible renters — our very own “so-called “Progressive” version of the Tea Party.

    Social, cultural and economic diversity is best nurtured and maintained by vigorously and continuously adding to the housing supply — as well as investing in and expanding well-coordinated local and regional public transportation networks — so everyone can benefit, in an economically, socially and environmentally sustainable manner, from the wide spectrum of employment opportunities across the Bay Area.

    From end of WWII until the late 70’s SF produced about 32,000 housing units per decade — which was accomplished even during a period of decreasing population in the City.

    However, due to SF’s unnecessarily-restrictive, increasingly exclusionary zoning practices and anti-development policies since the late 1970’s, it’s average production of housing units per decade has fallen catastrophically to a woefully inadequate 19,500.

    So our productivity in housing has dropped drastically and, what’s even worse, it’s been during a period of continuously increasing demand In the City.

    Accordingly, we are experiencing the full “benefits” of this self-induced shortsighted approach to housing development — where those fortunate few that own homes are enjoying skyrocketing valuations, but the majority of our citizenry, i.e. “the renters” are now experiencing skyrocketing costs and severe “housing anxiety.”

    As a Professional Planner, Mr. Millenbah, you should know better.