Who Paid Attention in Economics 101?
Something unsettling has occurred – the ghost of Ronald Reagan has spoken from the grave and he's chosen a San Francisco Supervisor as his mouthpiece.
A colleague of mine, Supervisor Scott Wiener, recently published a letter addressing affordable housing activists and an unnamed elected official. The letter claims that people who don't believe in laissez-faire housing policies also don't believe in the law of supply and demand. While affordable housing advocates are used to the mischaracterization of their policies, I have to admit I am surprised that a San Francisco Supervisor in 2015 is dusting off tired, warmed-over Milton Friedman tropes and trying to pass them off as smart housing policy.
Let me be clear – not a single affordable housing activist denies the existence of the law of supply and demand. Where we all agree is that the incredibly complex San Francisco housing crisis won't be solved by the recitation of freshman economics notes. But while we're talking about Econ 101, here's a refresher – the policies they are pushing aren't referred to by liberals as “supply and demand” they're called “free market development” – otherwise known as deregulation. And deregulation is a bad idea for most markets, especially housing.
Let Them Eat Cake Development
If the invisible hand of simple supply-side economics worked, then the overwhelming demand for affordability would lead developers to build housing that actually meets the needs of the majority of our residents. Unfortunately, affordable housing is difficult to build and sometimes more expensive to finance than high profit pied-à-terres and luxury apartments. In the last 7 years we've built over 23,000 luxury units, and only 1,200 units for middle class families.
So despite the overwhelming demand, the majority of affordable housing in San Francisco was fought for by advocates and built only through government intervention. When free marketeers tell you that the only way to build affordable is by building luxury, don't believe them. Federal HUD housing and state-funded affordable projects make up the majority of our affordable housing stock, with a smaller portion built using city dollars and fees on market-rate housing. Housing advocates have said for decades that if we don't prioritize building affordable housing on San Francisco's limited land we'll face a serious housing crisis. After years of deregulation and general apathy for building affordable housing, here we are.
Free marketeers are claiming that if we build enough luxury housing it will eventually trickle down and turn into housing for the poor and middle class. This is the failed policy of Reaganomics at its worst. Housing isn't like most commodities. Consumers can abstain from many goods, but shelter, like food and water, is a basic human necessity. If you're currently seeking housing in our city and can't afford market rates you have three choices: be homeless, leave, or get on a long wait list for low-income housing. While some free marketeers go so far as to say that if you can't afford a $3,000 one bedroom you should leave the city, others are pushing the policy of 'let them eat cake development' that ultimately has the same outcome – displacement. Think about it this way: if there were a bread shortage in San Francisco and the cost of bread skyrocketed, no amount of fancy cake would fix the bread market.
My Moratorium is Better than Yours
There has been a lot of speculation and hand ringing about possible interim controls in the Southern Mission. Here's some history. In the last 20 years, the Mission District has lost 1,400 Latino families. My office and the Mayor's Office of Workforce and Economic Development – with the unanimous support of the Board of Supervisors – funded the creation of a neighborhood group called Calle 24. Its goal is to protect the character of the Southern Mission and prevent displacement of its residents and small business. Following an almost two year process, the community group made up of local residents, merchants, and artists came up with a plan.
The group has called upon the board of Supervisors and the Mayor to do three things: fast track the development of affordable housing in the Mission; pass interim controls to preserve land for affordable housing development in the neighborhood; and form a special use district, with controls similar to those in Japantown, to preserve the neighborhoods unique historic and Latino character. Ironically, the same colleague who has criticized Calle 24's recommendations, recently introduced similar development controls on what he calls “monster houses” being built in his own neighborhood. Free marketeers often try and stop poor communities from having a voice in development, but are happy to exchange their 'supply and demand' hat for a nimby hat when it comes to protecting their own backyard.
I agree with Mayor Lee that to meet population demand we need to build close to 15,000 units of affordable housing for San Francisco's middle and low-income residents by 2020. But right now, only 16% of the units approved for construction in San Francisco are affordable to the poor and middle class. In the Mission, it's even worse: a dismal 7% of the units approved for construction will be affordable. If the city needs more affordable housing then let's build affordable housing. Pretending that market rate development fees will somehow result in the voter mandated 50% affordability is both bad policy and bad math.
But let's take a minute to talk about supply and demand. Tenant Evictions have risen 38% in the last 3 years. Ellis Act evictions, which take rental units off the market forever, have doubled every year for the past three years. Almost 2,000 tenants were evicted last year, the highest in 15 years. Housing advocates have consistently asked the Mayor and Board of Supervisors to support policies that would end the erosion of our current supply of affordable units and have consistently been rejected. When people are evicted from their rent controlled homes we diminish supply. When apartment owners convert units to condos we diminish supply. When homeowners put units on the short term rental market we diminish supply. Civic leaders are going to have to take this crisis seriously and be willing to put forward innovative solutions that don't rely on false cause and effect – the people of San Francisco are demanding it.
David Campos is a San Francisco supervisor.