The 3% Solution – A Response to the City’s Proposal to Add 24,000 Residents to the Peninsula at Midway.

by on June 12, 2018 · 4 comments

in Ocean Beach

The City Is Posed to Begin a Massive Redevelopment of the Midway District

By Michael Winn

We are told there are 550,000 homeless people in America. We’re also told of a crisis, called, “housing affordability” in urban coastal California cities. Statements of politicians of every stripe: Brown to Cox, Beane to Zapf, Faulconer to Fletcher, all assume we will address housing affordability by developing more housing. This assumption is politically motivated by a desire for endorsements from local governments and for campaign contributions from a development industry that financially benefits from development.

To mortgage lenders and property managers, “affordable” means that a household’s mortgage payment or rent amounts to no more than 28% of gross income. Using this definition, “affordable” housing cost is easily extrapolated from income data. However home and rental unit prices are affected by cash purchases and investment projections. Increasing supply into this kind of market hasn’t lowered prices, and can’t do so, unless  rents are artificially restricted in some way. This restriction is the logic of “workforce housing” projects, in which taxpayer subsidies are tied to rent restriction agreements and annual rent increases are pegged to changes in the area’s annual median income.

It cost the San Diego Housing Commission about $400,000 per 2 or 3 bedroom apartment, using financing from Low Income Housing Tax Credits with State housing bond financing, which are both taxpayer subsidized finance vehicles. At $400k/unit, it would cost more than $55 billion to meet the current need for 143,000 affordable apartments in San Diego. However, $55 billion in tax credits and state bond financing isn’t available, not to mention that adding 143,000 homes in San Diego communities would require a huge new investment in infrastructure, and all this combined would reduce livability.

Affordability is part of a big issue for Californians: that our state and local officials are beholden to a development industry that finances local and state election campaigns. So we see government officials telling constituents that we must permit development, even when not it’s sustainable and infrastructure doesn’t support it. Land use planning that supports this agenda pre-dates our current knowledge about human causes of climate change, as well as water shortage,  energy cost and waste disposal issues, and that the impact on quality of life in communities like Point Loma is horrific, and where real estate investment in mortgage-backed securities supports new business plans based on converting homes to short-term vacation rental in residential-zoned neighborhoods.

In view of the impact from all these conditions, there is no reason to believe affordable rent can be preserved by building more homes, nor that the affordability problem will be significantly addressed by subsidized “workforce housing”. In the longterm the strategy is unsustainable and promises to diminish quality of life for everyone in San Diego. At this moment, our city is proposing to add 24,000 residents to the Peninsula at Midway.

Fortunately, we needn’t invent the wheel. There are tried and proven ways to address the affordability issue, which are fair for both renters and landlords: The city can directly address affordability by tying rent increases to changes in area median income, or it can simply cap annual increases at 3% per year. The City can also limit short-term occupancy (vacation rental) in residential neighborhoods to 30 days per year.

{ 4 comments… read them below or add one }

Michael June 12, 2018 at 5:42 pm

This article makes some serious omissions and assumptions to support a head in the sand no more new people agenda. The argument conflates several issues, which while related, have different characteristics altogether.

Let’s start with the connection of the homelessness crisis and affordable housing. I’m not sure why Mr. Winn is referencing a national statistic for a local problem. There are less than 10,000 homeless in San Diego. Efforts by the public sector to build income restricted housing universally results in higher construction costs. Real construction costs are about a third of what is referenced here.

Secondly, the article makes an assumption that this monumental cost will be shouldered by tax payers. Obviously people take out loans and contribute to a homes cost so this billion dollar number referenced is inapplicable.

The issue of home ownership affordability is not the same as rent affordability. Due to a confluence of factors, it is drastically cheaper to rent in Southern California than buy. You cannot make a good return buying up STVRs. Even running a conservative model will show you that the unit needs to be rented out around 25 days to cover a mortgage. This leaves very little room for profit.

So the real argument should be separated into three. Homelessness, rising rent and homeownership.

Statistically, there are just more people moving here than there are new units. There was a tremendous building boom in the 60s-90s when folks who are the authors age had a chance to buy a home. We all know of the horror stories from events like the Salton Sea. Those days are gone and now projects take at least 5 years to get approved even if you bought residential zoned property and you’re not changing anything. There exists a litany of construction regulations designed solely to increase the cost of construction. Like taking a year to approve a simple landscape plan or to require parking lots next to model homes that dont need them. Baseless CEQA lawsuits. Changing the position of a water valve arbitrarily to cause the developer re chlorine the entire water system. Charging $40,000 for a permit on a $400,000 home and now solar is a requirement which will increase construction costs by $15,000 a unit.

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Frances O'Neill Zimmerman June 12, 2018 at 5:53 pm

Thank you for telling the truth here.
Rent control is anathema, but a huge-scale Midway area demolition and redevelopment is okay? Developers and politicians are joined at the hip by campaign contributions followed by reciprocal favors and these densification schemes are offspring of those deals. It is amazing the way this stuff is getting jammed through, billed as if it actually will improve housing affordability and end homelessness. I would say it’s because there’s a real estate developer in the White House, but this profiteering trend in California pre-dates Trump. San Diego doesn’t even have a full-fledged planning department down at City Hall, but officials are pushing these projects as if they have social merit? It is scandalous.

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RB June 12, 2018 at 9:58 pm

Michael
A vacant lot in OB/Point Loma could easily cost you $800,000-900,000 or $3,500 per month. The property taxes on this vacant lot could cost you $800 per month.
If you put a cardboard box on your vacant lot you should expect to pay at least $4000 per month. There is no affordable housing in Point Loma, even if you exclude all developers and live in a cardboard box, because the land cost and taxes are not affordable.

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Tyler June 13, 2018 at 5:55 am

Rent control doesn’t work and only ends up helping a few at the expense of many others

https://web.stanford.edu/~diamondr/DMQ.pdf

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