San Diego’s Land Barons Are Not Capable of Solving the Housing Affordability Crisis

by on June 25, 2019 · 2 comments

in San Diego

By Doug Porter / Words&Deeds

The housing market in San Diego is just a few short steps away from being a disaster. Take the latest guesstimate (8,000) of unhoused humans in the county and city, multiply it by twenty five, and it’s possible to visualize being just one stock market crash away from dystopia.

If your budget is highly stressed because of housing costs, you may as well make contingency plans for being homeless in San Diego.

This includes 28% of the renters (who pay more than half their income for housing) in San Diego County, according to statistics from the Census Bureau’s American Community Survey. Multiplying the number of rental units by the average number of occupants and taking .28 of that number leaves us with roughly 397,000 humans facing homelessless.

Assuming half of those people can find another place, often by doubling up occupancy with others, we’re still left with over a potential 200,000 homeless humans.

Obviously this is an extreme scenario, destined to be torpedoed by somebody with other statistics or insights that I lack. But the point I’m making about huge numbers of people living on the precipice of disaster remains.

An article in the business section of the San Diego Union-Tribune by Philip Molnar started me down this rabbit hole of housing despair.

Despite all the yammering about build, baby, build, the number of residential permits pulled locally is down 58% from last year. It’s down 70% for multifamily units.

We’re told the reasoning behind the slowdown is because rents are not increasing fast enough.

Real estate analyst Nathan Moeder is quoted in the UT account:

  • “Projects are having a hard time achieving feasibility, so it means a lack of new projects in the pipeline,” he said. “Developers used to be able to count on long-term inflation of rents. But, we’ve pretty much hit a ceiling.”
  • Rents had increased at a rate of 2.7 percent annually as of the first quarter, said real estate tracker CoStar. That compares to 6.1 percent at the same time in 2017 and 4.6 percent in 2018.
  • Moeder said he doubted San Diego County would return to the levels of homebuilding seen in recent years, despite calls by housing advocates to increase supply. Even Mayor Kevin Faulconer’s latest proposal to increase housing density near transit stops, Moeder said, would mostly be smaller, in-fill projects — not the scale needed to address housing shortages.

According to the Payscale Index, wage growth in the San Diego metro area was a half of a percent (year over year) for the first quarter of 2019. That figure represented a .7% decrease in wage growth over the last quarter of 2018. And real wages nationally are 9% lower than in 2006, before the last recession.

So if wages weren’t increasing as fast as the needed amount of rent charged by developers, the long term prospects don’t look good for increasing the amount of available housing.

Added to the rent inflation/ability to pay factors are the rising costs of construction.

The Trump administration’s tariffs on goods from China are the equivalent of a $2.5 billion-a-year tax on the entire U.S. home-building industry. Impacted are stainless steel and iron, molded glass paving blocks and tiles as well as lead, nickel, building stone, cement and copper. Items critical to HVAC infrastructure are also part of the new tariffs (from air compressors to heat pumps), as are interior materials for flooring, walls and furniture.

***

Matt Strabone’s most recent Show in Progress podcast featured three guests with different perspectives on solutions for the housing shortage.

Jim LaMattery, realtor/spokesperson for anti-development group Raise the Balloon, argued for more forethought on changes making it easier to change zoning rules and build denser housing.

Maya Rosas, president of the YIMBY Democrats of San Diego County, advocated for building as much new housing as possible.

And Andy Kopp, described as “a public housing advocate,” dared to discuss the third rail of NIMBYism, namely getting the government more involved in financing construction.

If you listen to the podcast, you’ll discover that nobody was absolutist in their positions, meaning the usually irrational parts of such a discussion were left out.

***

While San Diego and California’s housing shortage is driven somewhat by local ordinances and neighborhood opposition to new construction, there are bigger issues at play.

Nationally we have built 7 million fewer homes in the 10 years since 2009 than needed to break even. There is also a shortage of an additional 7 million units of affordable rental housing. It’s no wonder prices keep rising: The law of supply and demand cannot repealed.

The way the economy is presently structured, with near-stagnant wage growth, even if those residential units had been privately built, they couldn’t be rented/sold. Developers know this, which is why they’re not building.

Where the private sector is incapable of solving a societal problem, it becomes necessary for the government to step in.

The elephant in the room is racism.

Public housing has been used as a weapon, its residents demonized to the point where even the discussion of such a thing is enough to create panic in some quarters.

So let’s not call it public housing. Let’s call it social housing.

Social housing is public housing, but only in the sense that it is government-financed. European social housing is subsidized yet serves middle-class as well as low-income households, thereby avoiding the stigma associated with America’s public housing.

There are countries all over the world that do this successfully.

California suffers from the aftereffects of Constitutional Article 34, which prohibits the construction of public housing projects without a public vote.

Here’s a quick summation, via Pacific Standard:

  • There’s no better example of the tyranny of the ballot measure than Article 34.
  • An amendment to the California state constitution passed by public referendum in 1950, Article 34 states that: “No low rent housing project shall hereafter be developed, constructed, or acquired in any manner by any state public body until, a majority of the qualified electors of the city, town or county … approve such project by voting in favor thereof at an election to be held for that purpose, or at any general or special election.”
  • It’s California’s original housing sin, a binding not-in-my-backyard clause that has forced municipalities to adopt creative workarounds to build low-income housing. That it was enacted before the Fair Housing Act or even Brown v. Board of Education raises questions about the historical purpose of the rule. But today, it’s a powerful weapon for communities that want to keep low-income families out—a legal path to de facto segregation along race and class lines. When it comes to housing, California’s progressive reputation doesn’t apply.

Efforts are underway to repeal Article 34 via the 2020 ballot. In the meantime, as Andy Kopp explains in the aforementioned podcast, there are workarounds, things that can be started today.

What’s true for California is true for the nation, as this excerpt from Smithsonian Magazine demonstrates:

  • In the early 20th century, a number of cities, particularly border cities like Baltimore, St. Louis, and Louisville, Kentucky, passed zoning ordinances that prohibited African-Americans from moving onto a block that was majority white. In 1917, the Supreme Court found in Buchanan v. Warley that such ordinances were unconstitutional, but not for racial reasons. The Court found it unconstitutional because such ordinances interfered with the rights of property owners.
  • As a result, planners around the country who were attempting to segregate their metropolitan areas had to come up with another device to do so. In the 1920s, Secretary of Commerce Herbert Hoover organized an advisory committee on zoning, whose job was to persuade every jurisdiction to adopt the ordinance that would keep low-income families out of middle-class neighborhoods. The Supreme Court couldn’t explicitly mention race, but the evidence is clear that the [Commerce Department’s] motivation was racial.
  • Jurisdictions began to adopt zoning ordinances that were exclusive on economics, but the true purpose was, in part, to exclude African-Americans. So they developed ordinances that for example, prohibited apartment buildings from being built in suburbs that had single-family homes. Or they required single-family homes to have large setbacks and be set on multiple acres, all as an attempt to make the suburb racially exclusive.

Ryan Cooper at The Week set forth some principles for what publicly financed housing should look like going forward.

  • 1) Abandon the Stalinist, gigantic apartment block model. These are more expensive, require a lot more land and maintenance, and tend to be built on mad-architect lines with a total disregard for functionality. Worse, they concentrate poverty, a known factor for all manner of social ills.
  • 2) Public housing should be ordinary. Though obviously it should be built efficiently, public housing ought to appear just like any other building. Abolish the “projects” stigma.
  • 3) Public housing should be dispersed. Smaller buildings ought to be spread out all over the place, not just in the poorest districts. Though the super-elite residents of Georgetown would collapse in paroxysms of rage to hear it, there ought to be a good number of units there as well. Indeed, rich neighborhoods are particularly well-suited to public housing. Poor people need the high-quality services and schools a lot more than rich people do.
  • Again, this is only part of the solution. But while there is broad agreement that additional construction should be brought to bear on housing supply, advocating for public housing is typically met with scorn or sheer bewilderment. On the contrary, these are two great tastes that taste great together.

To those thoughts I’d like to add the caveat that social/public housing should not be run by government. History (think Chicago) shows housing agencies rarely get the funding or oversight needed to maintain safe and sane living spaces.

Non-profit or cooperative models are the way to go here. Making sure the people living in properties have a say in keeping them well run is smart.

San Diego has unbuilt land. I pass the San Diego Unified School District headquarters on a daily basis and dream of what good could be done there. They could find a way to facilitate a complex including their offices and affordable housing for educators and staff. It’s more likely they sell it for quick cash and move the headquarters somewhere else.

WE can solve the housing problem. But as long as it’s ME (Nimbys), ME (developers), ME (short sighted public officials) in control, nothing is going to happen.     

I’ll close with a few thoughts from Henry Kraemer and Peter Harrison at Data for Progress, published as It’s the Housing, Stupid at Buzzfeed:

  • True reform to the American housing system would be incomplete without restoring our commitment to homes as places to live, instead of shelters for capital.
  • Doing that will take eliminating tax privileges for rental properties, dismantling speculative real estate practices, and encouraging alternative ownership models.
  • Federal tax subsidies for purchasing, operating, and reselling rental property attracts speculators eager to flip buildings, which raises rents and destabilizes neighborhoods.
  • Progressives should pare down rental property depreciation to just long-term building improvements or investments in decarbonization. Rent and the sale of the property should be taxed like wages to keep landlords from disproportionately benefiting from the rising property values that stem from public investment and land scarcity, and incentivize holding on to buildings and tenants for longer.

{ 2 comments… read them below or add one }

Avatar ZZ June 25, 2019 at 2:22 pm

“Doing that will take eliminating tax privileges for rental properties, dismantling speculative real estate practices, and encouraging alternative ownership models.
Federal tax subsidies for purchasing, operating, and reselling rental property attracts speculators eager to flip buildings, which raises rents and destabilizes neighborhoods.
Progressives should pare down rental property depreciation to just long-term building improvements or investments in decarbonization. Rent and the sale of the property should be taxed like wages to keep landlords from disproportionately benefiting from the rising property values that stem from public investment and land scarcity, and incentivize holding on to buildings and tenants for longer.”

All of this will make building rental housing less profitable, which means less will be built. The articles says more federal support for building, then take away existing support.

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Avatar Chris June 26, 2019 at 6:03 pm

I know one thing for sure. I will not be retiring here. I’m not leaving in the near future but at some point I’ll have no choice. This situation is simply not going to get better. Probably wind up in a red state where hopefully I can find a blue town within or a blue neighborhood with in the red town.

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