With a new Governor, California’s next legislative session with likely look for a different approach to addressing the incessant affordable housing crisis in the state. The carrots-and-sticks approach in the last couple of years has yielded new statewide revenues for homeless and affordable housing and has made local cities more accountable in their housing production.
Given the scale of the problem, policymakers need to consider more innovative and ambitious ways to move forward. There are three big-picture challenges that the legislature faces:
- Balance between state and local control
- Preservation of existing stock and cost of building new stock
- Traditional roles of the public and private sectors
Unlike most other public goods and services (like education, roads and firefighting), the state and local governments are considerably reliant on the private sector for the provision of housing. Therefore, there is no guarantee that even if the legislature were to magically grant all the wishes of the disparate private interests, that there would be a significant impact on the affordable housing stock in the event of a recession in the coming years. In fact, Wall Street (through the availability and terms of financing) has a greater impact on California’s housing production than all the politicians in Sacramento.
This fundamental limitation about the role of government in housing accentuates the challenges of housing legislation:
Balance between state and local control
Land-use plans and zoning are the exercise of the “police power” of the state in ensuring the health, safety and welfare of its residents. Because planning and development input is often community driven, it has been the bulwark of citizen democratic participation in local governance. The level of interest is often high and informed by temporal nuances and neighborhood-based idiosyncrasies. Since all real estate is local, the site characteristics of each location are unique. Which is why planning regulations are tailored by cities and counties to meet these specific needs. In essence, the land-use plans are the expression of self-determination of the community over its own future destiny.
However, when there is a state interest (such as a housing deficit) that may conflict with the local interest (capacity for growth), the appropriate roles for the state and local governments needs to be better defined. The capital needs problem becomes particularly acute in older urban areas with deteriorating infrastructure, and no way of supporting new homes without taxing existing ones. Here are two examples of approaches used in the past:
State – standards on displacement/discrimination, affordability, and workforce (e.g. SB 35 streamlining)
Local – cost of infrastructure (roads, transit, water, wastewater, stormwater), neighborhood amenities (such as parks, schools) as well as public services; upzoning and plan amendments require community benefits (Measure JJJ in Los Angeles)
A word of caution here. There is a recent “Blame CEQA” fad among developers and planners. The California Environmental Quality Act (CEQA) didn’t cause the housing crisis, and undermining the law’s critical environmental and public health protections won’t solve it. Sprawling projects in fire-prone areas, and polluting projects that harm residents, need to address their impacts. This 1970’s law encourages transparency and public participation and is critical to ensuring that people affected have a seat at the table, particularly in order to prevent environmental injustice and fight climate change.
The CEQA bogeyman is often invoked with a horror story about a frivolous lawsuit. The quest by developers to have “ministerial approval” for projects is fueled by their desire for getting entitlements without CEQA review. However, these concerns about CEQA review are not factual. In fact, urban infill projects and affordable housing near public transit is already streamlined under state law. According to BAE Urban Economics, the estimated rate of litigation for all CEQA projects undergoing environmental review was 0.7 percent for the past three years. In those limited cases where projects do go to court, more often than not, CEQA makes bad projects better.
Preservation of existing stock and cost of building new stock
No matter what developers claim, housing prices are not going to come down in California. This is because as our population and employment grows, land is not growing. It is the key ingredient for housing, and developers consumed a lot of it in inefficient sprawl during the 1980s. Between our coasts, deserts, forests and wetlands, there is not much developable land left. Therefore, increased housing density in urban areas could decelerate the increase in housing prices in the long-run, if the more expensive units start filtering down over decades of depreciation to lower income tenants or owners.
Without any commensurate public benefits, increasing zoning entitlements and decreasing the cost of permitting is just a way for land-owners and developers to make a fast buck today. Rents, evictions, and displacement are being fueled by speculation, gentrification, and short-term rentals. Developers and local officials are prioritizing luxury high-rises over affordable apartments. In addition, Proposition 13, which provides perverse tax incentives to cities and counties to favor commercial and industrial development over housing, plays a role in our state’s dynamics.
Here are some ways to address this challenge:
- Build more affordable housing with rent and price controls. Last year, state law allowed cities to require that a certain share of new apartments be provided at affordable rents. Implementation of Assembly Bill 1505 (Bloom), as is proposed in the city of San Diego, needs to occur in cities to build inclusionary affordable housing within the market-rate rate housing. The word “affordable” in a general sense means that whatever your income, no more that 30 percent is spent on housing. The lower your income, the more likely you are living in unaffordable housing. However, legislators are trying to wiggle out of the concept of “affordable housing.” For example, “workforce housing” is a misnomer since at the lower end, most of the workforce cannot afford it. Another ambiguous term is “middle income housing” since nobody knows what it is (an euphemism for “cheap market rate housing”?), who it is for (does it exclude 70 percent of the population?) and how much is produced (developers and apartment owners do not want to publicly report on new units’ prices/rents).
- Encourage employers to provide housing for their employees. Employers should be able to build “employer sponsored housing” such as for teachers and school district employees, or technology companies pooling together. There may be fair housing concerns about discriminating against other non-employees ‘ ability to access the housing. This strategy needs to be carefully thought through and diverse demographics need to be included. The result could be that instead of being dependent on the existing housing stock, job generators would add to it, and ensure their own sustainability in attracting or retaining employees.
- Preserve the affordability of the existing housing stock and the quality of life for impacted communities. Development pressures often build up in urban areas where there is speculative pressure on land values. The concept of elite land-owners seeking governmental entitlements to increase their land values without any benefit to the community is called “rent seeking,” which was described by sociologist Harvey Molotch in “The City as a Growth machine” in 1976. Planners need to acknowledge and address ways to prevent new luxury and market-rate projects from undermining the existing housing stock. The high cost of free zoning (as urban density increases, the cost of supporting infrastructure and public services goes up at a faster rate) needs to be considered – an upzone is a constitutionally protected entitlement to a landowner, so it cannot be taken back or exacted for other benefits easily. These benefits would include protections from unjustified evictions, exorbitant rent increases, assistance during mortgage foreclosures and adequate tenant relocation.
- Recapture increased land values since construction costs are not coming down. Residential land values in coastal California are over seven times the average in the U.S. Therefore, the primary method to control costs must be in land values using planning tools like conditional zoning and incentive zoning to depress speculative growth. Due to constraints on urban infill sites, the type of construction and the housing product will change. These site constraints are compounded with additional challenges that include:
- little room to adjust the building envelope,
- limited staging area and access during construction,
- higher skilled labor costs,
- higher materials costs (such as concrete and steel), and
- as well fuel-consuming heavy equipment.
As a result, the cost of construction increases as much as five-fold comparing low-rise wooden frame housing in suburban sites to high-rise steel and concrete towers on urban sites. The need for skilled and trained workers will also continue to grow, and the pipeline for recruitment and training is critical for future production. In order to meet this projected demand, California’s Building Trades invests more than $100 million a year, and has 230 apprenticeship programs for every trade.
- Affordable housing needs to be built at prices that workers can afford at the wages they earn. Therefore, the state should encourage hiring local area residents, payment of area wage standards and union apprenticeship training in order to reduce economic and racial disparities, and to provide access to good, middle-wage jobs and career pathways. State and local jurisdictions can provide non-financial incentives (such as density bonuses) to developers and contractors who commit to job quality standards in the construction and operation of new developments.
Role of public and private sectors
California’s legislature has played an historic role in raising funds for addressing homelessness and building affordable housing. The passing of Proposition 1 and Proposition 2 last month, as well the statewide refinancing fee established by Senate Bill 2 last year, will generate over $10 billion in the next five years.
There may be further opportunities to leverage these funds with health funds, transportation, cap and trade, and other local measures. There may be new tax increment funds, some call it Redevelopment 2.0, but it is actually Redevelopment 3.0, since the first version of redevelopment was post-war urban renewal that led to displacement (for example on Bunker Hill in Los Angeles). The last iteration included standards on affordable housing and job quality, and the next version needs to build on these standards.
However, it is unlikely that increased funding alone can ensure affordable housing for most Californians. Furthermore, in the foreseeable event of an economic recession, there may not be an appetite among bankers and investors to put money into housing, especially in the less profitable mid-range stock. Here are two ways to continue to produce housing using the public sector, even when the private sector fails to do so:
- Establish a state bank to fund housing projects that keep their rents/prices within affordable ranges. This will allow market-rate developers to borrow lower-cost money when Wall Street becomes expensive and build mid-range products that are less risky. The bank could use pension funds or insurance funds, and provide conventional loans with socially responsible lending criteria, but without the strict regulatory structures around tax credit investments.
- Start a conversation about the role Public Housing Authorities in the state. These authorities have traditionally been in the role of operating federally-subsidized public housing. However, there may be a role for the public sector to act as an entrepreneurial developer as long as they adhere to community benefit standards. They could thus leverage tax credits and other financing tools that private developers use. Additionally, housing authorities could provide community benefits such as skilled trades training for public housing residents in partnership with Joint Labor-Management Apprenticeship programs.
As we are embarking on the next legislative session, these challenges should be viewed as not just about state versus local; affordable versus market; public versus private, but about workers and residents that simply feel that the rent is too damn high.
Here is a legislative update for the housing bills introduced.
Bird’s eye view of Honeycomb cul-de-sac by tessellar at Wikimedia commons (CC 3.0)