How to Make Housing More Affordable in San Diego

by on January 30, 2018 · 4 comments

in San Diego

Photo by Doug Porter

By Murtaza Baxamusa / SanDiegoUrbDeZine Jan. 23, 2018

There isn’t enough affordable housing being built in the city of San Diego. Lenders and banks aren’t lending as much, apartment owners aren’t caring, and builders aren’t building as much since it’s not as remunerative to build for income-constrained households.

This worsens the disconnect between the economics of the housing stock and the demographics of the families it’s meant to serve, as shown by a recent Harvard University study on apartments. In San Diego, less than 10 percent of the rental housing stock is affordable*. With new federal tax policies, things could get worse.

A home isn’t just a luxury that anyone can live without. It’s a social necessity. Yet cities and states don’t build housing, they plan for it and permit it, and then are dependent on private developers to build it at the rents or prices that yield them the highest returns. This is where inclusionary housing comes into play: By allowing the private sector to competitively perform at its optimal level within a uniform regulatory framework that achieves societal goals.

Inclusionary housing uses the planning and zoning process to create affordable housing and foster social inclusion within the marketplace. Since inclusionary zoning programs don’t require direct subsidy dollars to create affordable homes and rentals, they’re a market-based solution for affordable housing, according to Fannie Mae.

Inclusionary zoning ordinances are most effective in strong markets with optimum development incentives, and they are able to produce affordable housing that wouldn’t otherwise be built, according to the Urban Land Institute. More than 170,000 affordable apartments and homes have been created through inclusionary programs nationally, according to an estimate by the Lincoln Institute of Land Policy.

So what can the city of San Diego do to ensure that more homes down the pipeline are affordable?

It’s time to revisit the city of San Diego’s inclusionary housing ordinance. Residential builders have been challenging these ordinances in many cities statewide, most recently claiming that these were “unconstitutional takings,” despite the crisis of affordable housing, and their popularity in being adopted by 170 cities in California. The city of San Diego inclusionary housing law was amended in 2006, after a settlement between the city and builders. The California Supreme Court ruled in favor of the constitutionality of these ordinances in California Building Industry Association v. City of San Jose, and in 2016, the US Supreme Court declined to review the homebuilders’ appeal. The court decided that these inclusionary set-asides are more similar to land-use restrictions, like setbacks, rather than a fee or exaction.

The San Jose decision affirmed the legality of affordable housing set-asides required by cities in the sale of homes. However, an appellate court decision – Palmer/Sixth Street Properties L.P. v. City of Los Angeles – created uncertainty for local governments to apply them to rental housing, by ruling that the rent restrictions were preempted by the 1995 Costa-Hawkins Rental Housing Act.

Fortunately, as part of the housing legislative package last year, Governor Brown signed Assembly Bill 1505 (Bloom) to fix the Palmer problem. State law now explicitly allows a city to adopt an ordinance that requires as a condition of the development of residential rental units, a certain set-aside of affordable units, and also requires alternate means of compliance, such as in-lieu fees, land dedication, off-site construction, or acquisition and rehabilitation of existing units. The legislation was supported by housing advocates and labor unions across the state, including the State Building and Construction Trades Council; it was opposed by the San Diego County Apartment Association.

Here are four elements of the city of San Diego’s current Inclusionary Housing ordinance that need improvement:

  1. Require inclusion: The baseline should be an onsite requirement to build, and alternatives should discourage not building onsite. The original intent of the 2003 ordinance required “at least ten percent (10%) of the total dwelling units in the proposed development shall be affordable to targeted rental households or targeted ownership households…” and then stated that the requirement to provide affordable units could be met in alternative ways such as payment of an in lieu fee. In fact, the city of San Diego already had an onsite inclusionary requirement of 20 percent (set-aside land or units) with no in lieu of fees for the North City Future Urbanizing Areas. That requirement is still the law today. (SDMC Section 143.0450(d)). The 2011, amendment reversed the intent by requiring the fee with an option to build the units. Other cities are going for an onsite requirement. The city of San Jose, which already requires 15 percent of for-sale housing to be set-aside, wants to extend this requirement to rental, rather than charging a fee as it does currently. Measure JJJ of Los Angeles adopted by voter initiative in 2016, imposed a 15 percent inclusionary requirement for density increases, and 20 percent inclusionary for zoning use changes.
  2. Require higher inclusion: State law allows cities to set any inclusionary requirement. However, a requirement above 15 percent, allows the state to intervene if the city’s housing production goals are not being met. It is, therefore, likely that 15 percent will be the norm for newly adopted ordinances.
  3. Plug the loopholes: Fees in lieu of building the units should reflect the costs to build the units. The method of calculation of the fee is laid out in the Implementation and Monitoring Procedures from the SD Housing Commission. It’s based on the median prices for home sales and the average size of homes being sold, rather than the actual cost of construction of a comparable new unit. Home sales are just a small snapshot of the housing market and fluctuate from macroeconomic factors many of which are irrelevant to the construction of apartments. This is the reason why inclusionary fees fell almost 25% (from $9.36/sf in FY2017 to $7.03/sf in the FY2018 year, despite increasing costs and rents. Under Measure JJJJ of Los Angeles, the alternate methods of satisfying the requirements are:
    • building offsite (between 1-1.5 times the number of units depending on distance);
    • acquiring at-risk affordable units and converting them to non-profit, Community Land Trust, and/or tenant ownership; or
    • an in lieu fee equivalent to 1.1 times the required amount of on-site affordable units, multiplied by an affordability gap that is to be determined by a study which will be produced by the City of Los Angeles and adjusted on a biennial basis. Inclusionary fees that actually reflect the gap between market-rate and affordable-rate provision not only remove the economic incentive for developers to avoid building the units, but also augment the Affordable Housing Fund that can pool together resources and build more projects.
  4. Create good quality jobs. Projects subsidized by inclusionary funds should have job quality standards for local residents so that we are not accelerating the demand-supply cycle for subsidized units by paying people less. The city of San Diego does not currently require the payment of prevailing wages on affordable housing funded construction even though the use of city funds for most other projects, including infrastructure, requires the payment of prevailing wages. Prevailing wage requirements also include the use of apprentices for a fifth of all hours worked. The City of Los Angeles requires prevailing wages and skilled and trained workforce for affordable housing. Alameda County just adopted 30% local hire requirements for all large Measure A1 projects and is targeted at disadvantaged workers in areas of high unemployment.

There is a moral imperative to act, in the face of our unprecedented homelessness crisis, and its direct conflict with new development. But the crisis on the streets is only the tip of the iceberg of the deeper struggle that thousands of individuals and families face in the continuum of hardship. This continuum extends from those struggling to make rent payments, to being evicted, to doubling up on families and friends’ couches, to living in cars, to being homeless. At some point in the future, we need to have a serious discussion about a statewide inclusionary housing policy with matching state funds, that create a standard baseline and make it feasible for market-rate developers to start building housing that is affordable for all Californians.

__________________

*I estimate about 25,000 units in the city of San Diego are “affordable,” with a variation in enforceability, from public housing to private covenants, to voluntary agreements, to evolving laws that govern them (like Single Room Occupancy hotels). San Diego Housing Commission’s Housing Resource guide lists 164 apartment projects with a total of 15,869 units. However, if one views “affordability” as paying up to a third of household income on housing costs, independent of the underlying regulatory enforcement, then 44 percent of the rental stock would fall into this category. Based on the 2015 Census, 148,000 renter households, out of a total of 265,000 renter households in the city of San Diego, are paying more than a third of their income on rent. Of these, 72,000 are paying more than half their income on rent, and are considered severely cost burdened.

 


Murtaza H. Baxamusa, Ph.D., AICP is a certified planner, writer, and thinker. He develops affordable housing for the San Diego Building Trades Family Housing Corporation and teaches urban planning at the University of Southern California (USC). He has more than 12 years’ experience in economic development and sustainable urban planning and has previously worked for the USC Center for Economic Development as well as the Center on Policy Initiatives. He has doctoral and master’s degrees in Planning from USC, and a bachelor’s degree with honors from the Indian Institute of Technology, Kharagpur.

{ 4 comments… read them below or add one }

Avatar RB January 30, 2018 at 1:36 pm

If the government wants more housing they should decrease regulation, fees and taxes on low income housing. How about no property taxes on low income units? Or if the government wants more housing they should build it. I believe the name Cabrini-Green is available for a government project.

Reply

Avatar Bearded OBcean January 30, 2018 at 2:20 pm

A 15% allocation for affordably units is probably a bit on the high end, and would make MF construction not terribly feasible. There’s a reason new units cost $1900/month for a 1-bedroom unit. Developers can’t build units for less than $240,000, forcing them to charge upwards of $2.75/SF for their units. Easing up parking requirements might help, since underground parking runs in the neighborhood of $70k/space and above ground lots run closer to $10k/SF. The shortage in construction workers and a surge in construction costs that’s running upwards of 10% year over year also play into the problem.

Reply

Avatar Doug Blackwood January 30, 2018 at 7:45 pm

Frank, great job on illuminating this critical issue!
3 human basic needs: food, clothing, and shelter.
Seems like shelter is #1 in our current climate.
Where are our elected peeps at on housing?

Reply

Avatar Eddie January 30, 2018 at 10:33 pm

I see you describe yourself as a “thinker”, I suppose that isn’t false advertising because we all think but, apparently, logical thought escapes you.

Let’s break down the problem in terms even a Ph.D , AICP can understand:

First: the “crisis” in housing affordability is almost entirely a creation of government meddling. If you make the production of housing costly and time consuming because of insane government over regulation then it will be…uhhh…expensive and not affordable. If you constrain supply because of concerns over “environmental impacts” such as traffic congestion, greenhouse gas emissions, etc. then the lack of supply (scarcity) will lead to higher prices. If you burden only new projects with the cost of infrastructure and affordable housing impact fees, then new housing will be more expensive and less “affordable”. The logic is easy to follow and if you want to understand how it works, study other states where barriers to development are much lower. In those states, supply is higher and costs are held in check because of it.

Second: Private equity to fund new projects comes from a number of sources including CALPERS and CALSTERS. Pension funds invest in housing projects not because of their great social consciousness but because they have promised a certain benefit to their members in retirement and must achieve a certain return on investment of their pensioner’s funds to be able to pay the promised retirement benefit. If the State of California prohibits, through fees or rent control measures, private developers from acheiving the investment returns required by private equity (including state employee pension funds) then that equity will flow to other states where the return can be achieved (and therefore promises to pensioners can be kept). Perhaps you suggest that teachers, firefighters, police, and other government employees should reduce their pensions in order to fund public housing (affordable housing)? If so, you should directly propose that instead of pretending that a government mandate only takes from the wealth fat-cat developers.

Third: Mandating “prevailing wage” (i.e., UNION) jobs for new private development is yet another illogical, counter productive (yet typical of government) measure. If you really want to see wages rise, lift the artificial caps on private development and let all developers compete to get their products to market first. In a tight labor market, wages will rise for all workers and profits will be squeezed from all private development (a socialist’s dream!). Instead, muddle-headed government bureaucrats and socialist-leaning dolts propose measure after measure that restricts new development. The result of restricting supply is predictable – cost increases and increase profits for evil developers and pension funds!

In short, everything you propose only serves to make the problem worse. If this is the result of all of your “thinking” then perhaps you should stop.

Reply

Leave a Comment

Older Article:

Newer Article: