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‘By-right approvals’ will have no real effect on housing supply in SF

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(Jessica Christian/S.F. Examiner)
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Developers and their lobbying organizations are currently working hard to spread a false, but profitable argument: that the way to get more housing faster is by further deregulating development approvals. The assertion underlies the governor’s latest “by-right” approvals bill, which gives the automatic stamp of approval to any private development providing the minimum amount of affordable housing.

This argument often devolves into a never-ending ideological debate on social media. The debate between market-rate development advocates and affordable housing advocates is centered on whether a marginal increase in luxury units in San Francisco will lower prices by any noticeable amount for middle-income people in The City or lessen the pressure on existing rental housing. Both sides base their arguments on economic models, such as the recent State Legislative Analyst report supporting theoretical market solutions to the housing crisis, or, by contrast, the response by UC Berkeley researchers who basically debunk the supply-side argument that market-rate housing will quickly “filter” down. But aside from these statistical models, it is instructive to look at the reality of housing approvals and actual construction over the last two decades.

Between 1996 and 2015, the city of San Francisco approved 51,000 units for construction. In the same time period, developers actually constructed 37,000 units. That’s 14,000 more units approved for construction than have actually been built, and, on average, that backlog has increased by almost 700 units every year. The City’s latest pipeline report, through the first quarter of 2016, puts that figure even higher, at almost 19,000 entitled units! That’s not even counting the approved housing from the massive Park Merced, Hunters Point/Candlestick, and Treasure Island developments.

So what’s going on? Why are the developers and their front groups, the governor, and now some big tech leaders who’ve signed onto the governor’s bill, so dead-set on trying to convince us that increasing market rate housing approvals by making them “by right” will somehow help solve our housing crisis?

First, we absolutely have to look at this city by city. There are many places that have put up road blocks to all new housing approvals, whether market-rate or affordable, and a certain amount of streamlining may have a positive impact on housing affordability in those communities.

But despite what market-rate development advocates say, San Francisco, with a backlog of 19,000 approved units, is hardly one of those jurisdictions. Even if we double the rate of project approvals, that would simply add to the long pipeline of already-entitled development projects — instead of 19,000 units waiting in the wings, we could have 40,000 units waiting for… what? That’s the mystery—what are they waiting for, why is the pipeline of approved projects growing every year, and why aren’t more approved projects being constructed more quickly? It’s clearly not the approvals process that is holding builders back from building more.

The real reason is financing. Financing is what controls whether or not approved units actually get built. And the amount of financing capital is limited — by investors who are risk-averse and want to ensure high returns on investments. At the first sign of a downturn or a drop in market prices, they are likely to flee to other safer investments. In fact, during the lows of the Great Recession in 2010, it was primarily publicly-financed affordable housing development that was responsible for more than 50 percent of the units (and of construction jobs) built in San Francisco during those years.

Why, then, if speeding up the approvals process doesn’t put more units on the ground, are some special interests pushing so hard the idea that “by right” is the solution to our housing crisis? We could speculate: for politicians, they get to look like they are working on “solutions” without having to spend public money, and it distracts from the real issues of reining in powerful real estate market forces and stopping speculation on existing housing. And for individual developers, it helps their ability to profit on the entitlement itself: the gamble is to get your approvals done before the market slows down, and then either lock in your financing or sell your “entitlements” to another investor. The actual immediate construction of units is not necessarily the primary factor in this calculation.

Why should we care about this kind of deregulation? The approvals process is long and complicated, and the bureaucracy could certainly move a lot faster. But the reason we have been able to win meaningful community benefits over the past 40 years (as opposed to the steamrolling of communities in urban renewal) is precisely because of our growing understanding that it’s necessary for developers to dialogue with communities, and that we need safeguards to guarantee a voice for regular people and a meaningful role for a city Planning Commission and located electeds in land use matters.

Here’s an alternative approach — the politicians, developers, and their advocates who really care about increasing the number of units on the ground in S.F., whether affordable or market-rate, should focus attention on the real problem of financing, working to ensure that investment continues year-in and year-out to finance the construction of a minimum number of units — whether “the market” is up or down. And, beyond our limited ability to influence global investment, really hone in on what we can influence: increasing investments in affordable housing.

Peter Cohen and Fernando Martí are co-directors of San Francisco’s Council of Community Housing Organizations.

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  • Bob

    If you think San Francisco isn’t one of the citys that is throwing up roadblocks “to all new housing approvals, whether market-rate or affordable” then there is absolutely no point in having this discussion.
    Financing is also a problem, but San Francisco’s merry go round of appeals and often decade long approval process is a major component of our current housing crisis.

  • sfsoma

    This is designed to pressure the counties outside SF. San Mateo, Alameda, Contra Costa in particular.

  • Cameron Newland

    If financing is the problem, then why doesn’t the SF BOS create a program to provide financing incentives/subsidies to developers who are able to get their housing projects built within a reasonable amount of time? That might act as a catalyst for getting these housing units built faster. SF renters and first-time buyers can’t wait 20 years for some mythical supply to appear out of nowhere – we need lots of new housing YESTERDAY!

    If we don’t build housing and keep housing costs under control, then more and more middle class families will be displaced.

  • raf

    “The real reason is financing. Financing is what controls whether or not approved units actually get built. And the amount of financing capital is limited — by investors who are risk-averse and want to ensure high returns on investments.”

    You’re saying that we need to make housing development more profitable? Most of CCHO’s political energy seems to go into making new housing less profitable.

  • raf

    +1. By-right will make a huge different in anti-housing suburbs like Palo Alto. RHNA requires them to zone for housing, and by-right means that the cities can’t block it anymore.

  • Earl D.

    We’ve had SF progressives tell us for the last five years that Chinese real-estate investment is culpable in the housing crisis. Now they come to find out that insufficient real-estate investment dollars is the underlying constraint? What it sounds like to me is an ever changing set of justifications for a single unchanging goal: all market rate construction in SF must be stopped. That’s the hallmark of a solution based on ideology not reason.

  • Kraus

    Messrs. Cohen and Marti are ideologues whose bread is buttered by advocating exclusively for subsidized housing.

    Accordingly, to further their mission, they have be arguing against general/unsubsidized housing creation for years. The ideology that they promote is one of the chief reasons that SF is suffering from an acute undersupply of housing and, accordingly, housing is scarce and prices are skyrocketing.

    Their arguments are entirely “fact-free” when it comes to the economics of the housing crisis in SF.

    The truth is that we can’t “buy” our way out the housing crisis. the only way we can stabilize the situation is to build more housing — lot’s of it; as fast and we can.

    Governor Brown — along with virtually every housing economist — understands this.

    Unfortunately, Cohen and Marti — like climate change deniers — prefer to cling to their tired/useless ideology rather than face the facts.

  • agvs

    The entitled projects pipeline has not grown because of a lack of available financing, it has grown because we’re trying to build more housing! It takes more than five minutes to go from entitled to built. There’s always going to be a pipeline of “entitled but not finished” projects and that pipeline will get larger the more we’re building.

  • dr_doodle

    Thanks, @sfsoma:disqus, I was going to write something similar. If by-right has any effect in SF, it will mostly be because it leads to more housing production in the neighboring counties, so there will be a little bit less pressure driving up SF prices. But still, SF is never going to be cheap again, that is the unfortunate outcome of SF having made itself into an attractive and desirable place to live!

  • whateversville

    “The approvals process is long and complicated, and the bureaucracy could certainly move a lot faster.”

    Here’s one idea.

    Let’s get everyone at the table and write some strict rules about what can be built, where it can be built, how much affordable housing each development must include.

    Then, instead of every project being a battleground between developers and the community, we can point to this agreed-upon set of rules and say, “We told you already. This is what’s acceptable to our community.” If the project follows the rules, let the project get built. If not, let the developer try to negotiate a one-off deal with the community, or deny the project.

    Since we’d no longer have to have months and months and months of back and forth for every project, surely some “investors who are risk-averse” would come back, and alleviate “the real problem of financing”!

    I call this idea, Governor Brown’s “By-Right” Housing Proposal (2016-17 Budget Trailer Bill). Maybe it needs a better name.

  • neighbor

    Cohen will say just about anything to stop housing production. CCHO is walking the halls in Sac, with the support of Supervisor Peskin saying SF should be exempted the State bill because “we have done enough for affordable housing”. Honestly if this city had real affordable housing advocates, rather than Cohen and his wiley NIMBY army, this City could be having productive conversations about protecting residents and building housing. Instead we have to listen to this wealthy white male homeowner espouse crap in the name of the low income community. CCHO is trying to reduce the Mayor’s proposal even for 100% affordable housing. Examiner can you please stop letting these people dominate your op eds? Why don’t you ask any of the dozen or more state wide affordable housing advocates to opine on this issue?

  • Malo Halo

    the authors assert that fast tracking housing projects will have no impact on housing because the problem is actually due to limited financing available for projects. Yet they disingenuously never bother to ask the next logical question – why is financing so limited? It’s not because there is limited capital available out there. There are literally trillions of dollars of investment capital sloshing around the world looking for opportunities; more than enough to fund a complete rebuild of the city. The reason very little of this makes its way into San Francisco is because development projects in San Francisco are a lousy investment due to the massive risk associated with funding development here in the city. Risk that comes from an unpredictable and unmanageable approval process – exactly the problem Jerry is trying to address.

  • S. Bird

    The ‘housing crisis’ is not really a matter of not enough housing, there’s more housing than ever. It’s a matter of too many people wanting to move to SF. The powers that be have been intent on encouraging the creation of certain types of jobs for years, and very few of the people who live here can fill those jobs. As long as more people *want* to live here than *can* live here, there will be a housing ‘crisis’. Most of the world’s problems that are portrayed as a shortage of X,Y, or Z are in fact problems with the same cause: too many people.

  • josephine

    why does everyone come to SF, want to stay, love it here? because of our policies that have made our city so beautiful, now short sided tech boom, bust, fans want to mega develop our city? killing the goose that laid the golden egg.

  • josephine

    thank you realtor lobby, appreciate your addition to the convo :)

  • De Blo

    Yes, 100% correct. All of our problems would be easily solved if we 1. abolish affordable housing mandates, 2. repeal rent control, and 3., reduce excess regulation and anti-landlord and anti-development regulations.

  • De Blo

    It is wonderful that San Francisco real estate is so valuable and that our property values continue to increase! After the recession of 2008, many San Franciscans faced foreclosure and displacement. Now, we are all doing well, services and property tax revenues, parks and schools are improving and San Francisco families are building wealth and improving our City. Small businesses are thriving and our City is booming. San Francisco is rated as the nation’s healthiest housing market and that is a great development.

  • De Blo

    ‘Affordable housing’ (i.e., taxpayer-funded housing for lazy people who refuse to get jobs or move to more affordable cities) is the problem. We just need developers and sellers to be able to charge what is needed and then there will be an incentive to build more and to bring vacant homes onto the market. Reduce the affordable housing mandate to 0%.

  • De Blo

    ‘Strict rules’ limiting what is built are THE cause of the housing crisis. Haven’t you figured that out?

  • whateversville

    Yes, so I’ll spell it out a little clearer:

    We already have a very detailed zoning code. If someone proposes a project that conforms to the code, they should be allowed to build it. If people disagree, they should try to change the code.

    The governor’s plan is exceedingly mild. “If you write down rules, let people follow them.” Not very tyrannical.

  • Bob

    Ridiculous. It is only the smallest of minds that think SF is the center of the universe and that everyone just simply has to live here.
    We’ve built virtually no housing for decades. We’ve failed as a city to plan for growth, and instead legislated no growth.
    This no growth exclusively benefits those that already have housing to the detriment of all others.

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