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Thursday, July 29, 2021

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News + PoliticsThe bogus housing study the Chron loves

The bogus housing study the Chron loves

Inconvenient truths about a “Clear-Eyed Report”

Authors’ note: This opinion piece was submitted to the San Francisco Chronicle in response to the paper’s editorial on Sunday Oct 22nd titled “A clear-eyed report on the housing crisis,” but the editors would not publish our submittal. So it is provided here to allow San Francisco readers the opportunity for an alternative perspective from the Chronicle.

The San Francisco Chronicle last Sunday gave a glowing review to the Bay Area Council’s latest report on housing policy.  At least the BAC was correctly characterized as “a pro-business think tank.” Though in the same breath the editors claim that the report “avoids ideological dogma.” Well, let’s dig a bit into the Bay Area Council’s analysis, then.

The city's own figures, presented in this chart, show that SF is building far more luxury housing that it needs -- and that's missing from the BAC report
The city’s own figures, presented in this chart, show that SF is building far more luxury housing that it needs — and that’s missing from the BAC report

First, what is “the supply problem?”  In the Bay Area region over the period from 2007-2014, the total permitted new housing was only 57% of the official need as identified in what’s called the “Regional Housing Needs Allocation” that is prescribed by the state of California. One might jump to the conclusion, as does the Bay Area Council, that therefore any policies to increase whatever kind of housing supply is a “solution.”

But an inconvenient truth, of many hidden in this report, is that the RHNA is broken down into categories of housing affordability, and the fact is that 99% of the market-rate housing need was permitted across the Bay Area region from 2007-2014. By contrast, only 28% of all needed below-market housing was permitted for households from the poorest to middle-income families. So, “the supply problem” is about affordable housing that the real estate market is simply not producing for the vast majority of Bay Area residents. Policies as advocated by the Bay Area Council and the development industry that simply fuel more market-rate housing in the name of solving an affordable housing deficit are misleading at best.

Second, what is “the permitting problem?” The BAC asserts that enough housing isn’t being built because cities are slow or obstructionist in issuing building permits. So, the solution they and others in the development industry have peddled is to make the approval of development “by right,” eliminating local discretion. But it is important to clearly understand, as the Bay Area Council’s “clear-eyed report” does not, that approval of a development project—what in the business is called an “entitlement” approval—does not mean that a project will actually get built.

The inconvenient truth here is that cities don’t build market-rate housing, developers and their financiers do. So, approving a development project is no assurance that the developer will actually break ground and build the project any time soon.

Real estate development is a business, like any other commodity production, and the timing of constructing a housing project is based on playing the “market-cycle” to maximize investment returns, not necessarily on the needs or timing of public policy. The result is a disconnect between the approval of housing projects (the entitlement by local governments) and their actual production.

In San Francisco, for example, there are approximately 14,000 or more units approved for construction in the “pipeline” than are actually being built, and, on average, that backlog has increased by almost 700 units every year. That’s not even counting the approved housing from the massive Park Merced, Hunters Point/Candlestick, and Treasure Island developments, already-approved units of housing for which those developers have not pulled building permits.

So, the BAC “solution” to eliminate local discretion over approving development—and in the process cutting out environmental review, community involvement and the ability to maximize public benefits from development—are traded off for total uncertainty and simply a wish that this will result in actual new units on the ground. You won’t hear the development industry advocating for a “use it or lose it” provision that requires an approved project to begin construction within a specified period of time, let’s say a generous 18 months, as that would mean they’d be on the hook to actually build housing rather than simply speculating on housing approvals.

Real solutions to the local and state affordable housing needs would start with: 1) adding real “teeth” to state Housing Element law, such as linking transportation funding to actual affordable housing permitting and construction; 2) authorizing local “inclusionary” requirements on private development to ensure lower-income and middle-income housing is produced; 3) closing loopholes in state Ellis Act to preserve existing affordable housing, and regulations on short-term rentals and second-homes that are reducing available housing supply, and; 4) creating a new permanent source of state funding for affordable low-income and middle-income housing, such as a document recording fee on real estate sales. 

These are just some of the tangible policy actions that would clearly target the problem. Politically difficult, yes, given the guaranteed resistance from the “pro-business” interests who want the public to believe in their own brand of solutions. But certainly more useful than the doe-eye magical thinking that is dished up in the latest report from the Bay Area Council.

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17 COMMENTS

  1. Upzoning will reduce the amount of land each unit requires and make the per unit costs lower. If we had more buildable land we could build more units.

  2. Come on boys, you were just getting started when I know you have so much more to say…..I envy your endurance!

  3. 1. Here’s a link to the actual report, if you’d like to read it yourself.

    2. Despite Fernando and Peter scare-quoting “the supply problem” as if it’s not real, consider the following: From 2009-2015, San Francisco added 123,000 jobs, 50,000 residents, and 12,000 housing units. Last year, the entire Bay Area added 133,000 jobs and 16,000 units of housing. The shortage is real.

    3. RHNA allocations are based on affordability, not “market-rate” vs. “below market-rate.” The shortage of housing in the Bay Area has made “market-rate” and “very expensive” synonymous, but this wasn’t always the case. Ten years ago, a couple could afford to rent a 2br apartment if they earned 131% of the area median income—$96,000. Two first-year teachers can earn that. Now, between the two of them, they’d need to earn 242% of the area median income—$193,000.

    4. Fernando and Peter give the impression that the BAC report is only calling for more supply and less regulation. This is false. One of the three main points of the report says “It is not just about increasing supply, the overall impact on affordability matters.”

    5. I know it’s too much to ask that CCHO and 48Hills offer a nuanced analysis of housing policies, but it’s a little amusing to see them write off the BAC analysis as bogus, doe-eyed wishful thinking, since it has many suggestions that the progressives would rally behind. Of the twenty housing policy proposals analyzed in the report, the SF Affordable Housing Trust Fund and restricting non-primary residences are identified as very positive steps.

    Oh well.

  4. Ellis provides more affordable housing for those who want to become owners. At least in theory. The percent of Ellis evictions, percent of total rentals, is so low that it hardly makes a dent in the availability of rental or owner occupied housing.

  5. Sadly while “half a billion” dollars sounds like a lot of money, recent subsidized housing projects in SF cost more than $800k per unit for land and building costs. So that’s 625 units for the entire state of California; or about 13 units for the city of SF if we allocate in proportion to population. A drop in the bucket.

    There is no such thing as affordable new housing in California. It just costs too much to build here. These articles have no real solutions when you look at the real numbers.

  6. I’m fearful that there is no real solution. Cheap housing in Carmel? The best that may be expected is for increased transport (not cheap either) to allow needed services to be supplied at reduced cost. A one-hour commute is a one-hour commute, whether it comes from 48th Ave or Tracey/Suisun.

  7. Not sure what even a $100 fee would really bring in. In SF last 12 mths there were 542 sales (http://www.socketsite.com/archives/2016/10/closings-of-new-condos-goose-recorded-sales-activity-in-san-francisco.html) = $54,000 per year. Not even enuf to hire an architect! for that “affordable” unit that will cost $500+k (and rent for $342/mth).

    One could say that ‘broad public policy’ has been ‘regulating’ SF (and Bay Area) development for 30 yrs. We can all see the result. Efforts to further tighten that regulation (and therefore product) don’t bode well, if past performance is any indicator.

    Can ‘cheap’ housing be ramped up? Unlikely. The costs are enormous, and the funding is just not there. 10,000 units @ $500,000 is $5 Billion? Certainly orders of magnitude above a lil ole transfer tax (increase); and 10k is < 100% of the current goal.

  8. I don’t think this article offers real solutions either…
    I see recent developments selling at $1100-1200 per sf and architects tell me $500/sf to construct moderate level residential – without land costs. The private sector is not really not incentivized to build (create) affordable housing, it just doesn’t make financial sense, unless it is subsidized somehow or forced by some inclusionary requirements. So your first 2 solutions do not improve a private developers incentives.
    Additional Ellis act regulation only help the few in rent controlled properties. A new source of state funding – I don’t think the state wide population in general would feel happy about subsidizing other folks cost to live in san francisco.

  9. 99% of the market-rate housing need was permitted across the Bay Area region from 2007-2014

    Correction: the RHNA performance report found that 99% of the needed above-moderate housing was permitted, not that 99% of needed market-rate housing was permitted. Market-rate housing also includes almost all of the moderate-income housing that was permitted throughout the Bay Area, and there was not nearly enough of that. It’s also worth noting that because the RHNA does not estimate the housing filtering from higher-income households to lower-income households, its division into income categories may be less meaningful than the total number (only 57% of the total number of housing needed by projected population growth was permitted).

    So, approving a development project is no assurance that the developer will actually break ground and build the project any time soon.

    Peter Cohen and Fernando Martí made this argument before that projects can be halted due to either failures to secure permits or failures to secure capital. But they haven’t explained why this is a reason to decrease the number of permits that the City issues or make them expire. If anything, isn’t it a reason to issue a higher number of permits in order to account for the failure rate downstream?

    Politically difficult, yes, given the guaranteed resistance from the “pro-business” interests who want the public to believe in their own brand of solutions

    Strangely enough, the Bay Area Council actually said the same thing about putting “real teeth” into the RHNA one year ago, but Peter Cohen fought to defeat one of the tools they suggested to further this goal (by-right approval of projects containing affordable housing). And the Obama Housing Development Toolkit was also ridiculed by CCHO founder Calvin Welch even though it also encouraged inclusionary housing and taxes to fund affordable housing as two of its tools. Given these examples, it seems like the CCHO is the one that is refusing to believe other brands of solutions, when they should be working with other interests to promote affordable housing for everyone.

    As an aside, I didn’t find the most recent BAC paper very convincing (particularly its calculations on Airbnb).

  10. That this commentary appears here and not in the Chronicle shows just how far the city’s major daily has fallen. There was a time this would have appeared in the Chronicle in the interest of providing a contrary opinion (much as the Examiner does). Now in editorials, and often in news coverage, it’s one view and one view only. Sort of like the Fox News of the Bay Area.

  11. Actually, a lil ole real estate document recording fee of $75 could have generated more than half million annually in new funding for affordable housing.
    https://www.facebook.com/CaliforniaHomesandJobsAct/
    Two-year attempt in 2013/14 died in legislature, thanks to the Realtors.
    Yes, development is a speculation business. Which is exactly why the only way the real estate “market” can work in the interests of broad public need is when it is properly regulated. That is the role of public policy.

  12. Wait – so a “speculator” is someone who uses tens or hundreds of thousands of their own money, hires architects, engineers, and expediters; and pays for plans, permits, and lawyers — but then doesn’t go on to hire contractors, pay financiers, and market the product? Ok. Yes. Those are very vile, bad people. Makes one nostalgic for the lynch mobs, almost.

    I wish commentators and pundits would stop using the phrases “market-rate” and “affordable” housing, and return to using “expensive” or “privately funded” and “cheap” or “publicly subsidized” instead. A little truth-in-advertising, as it were. (ed) At least then the public wouldn’t be so clueless about why there is such a discrepancy about resulting anomalies. And, NO, the reason we don’t have as much “publicly subsidized” housing is because its just so damn expensive – and who wants to pay for someone elses cheap housing? Er, not like all the market-rate, excuse me, “expensive” housing, that is currently planned and built, but is paid for by the people who buy and live there. And then, calling housing that is Ellis’d as “affordable” when it is really ransomed, run-down, and ‘neglected’ (or managed with the resources commensurate with the income stream). Talk about “avoiding ideological drama”.

    And no, the problem won’t be solved by a lil ole ‘document transfer fee’ (increase).

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