Assault on local control equals deregulation of housing

Democrats in Sacramento guarantee that real-estate interests will trump affordability

“Democrats have a comprehensive agenda to invest in America’s cities, grounded on the premise that local leaders are best equipped to create a better future for their residents…” 

Democratic Party Platform, July 2016

Well, not so much here in California.

Between July and September, California Democrats, led by Gov. Jerry Brown and empowered by a two-thirds majority in both houses of the Legislature, have passed legislation that guts effective local control over climate change and housing development issues, arguably the two most pressing issues facing  the people of California.  

The first was the July extension of California’s “cap and trade” program that gutted the power of regional air quality districts to fine and regulate local major polluters. Jack Broadbent, executive director of the Bay Area Air Quality Management District, which was reportedly just about to impose new emission controls on oil refineries in Richmond, called Browns bill “legislation that attempts to strip away our authority, muddle jurisdictional lines and propose flawed control strategies.”

Wiener, Chiu, Brown and Ting: Four Democrats who support deregulating housing


AB 398 not only preempted regional bodies like BAAQMD from imposing local controls but also limited the amount of  the cap and trade “allowance” polluters must pay. An odd position for our governor, who endlessly promotes himself as a self declared “world leader” on the environment yet finds it impossible to tax oil extraction at the wellhead (California is the only toil producing state NOT to have such a tax) and allows state-regulated fracking. The bill narrowly passed against strong environmental and regulators opposition. Our local state delegation —Sen. Scott Wiener, and Assemblymembers David Chiu and Phil Ting —  voted unanimously with the governor.

Then, earlier this month the Assembly approved Wiener’s SB 35 , which deregulates market-rate housing development in California by requiring mandatory approval of all housing proposals if the regional housing needs targets for that county are not BUILT in a given year. 

Note the emphasis: SB35 allows the state to approve all housing developments in a locality if the annual allocation for that housing is NOT BUILT.  Since local governments have absolutely no control over when a developer actually goes forward and builds a project, but only control over approving a development, requiring the development to be built to return to local control is simply an inside-the-Beltway gift to developers.  

That Wiener knew full well the difference between approving a project and building an approved project is clear by the fact that as soon as the building trade unions were given their prevailing wage concession on development projects and removed their opposition,  Wiener amended the bill to switch  the requirement from local approvals  to the project having to be built.

Requiring the project to be built, something local government and the now mystically powerful Nimbys have no real control over, before local control can be exercised shows that the real object of SB35 was to de-regulate housing development. When added to last year’s Sacramento legislation, which allowed massive density bonuses with minimal affordability  requirements, the deregulation agenda of  corporate real estate interests in California took a giant step forward, eagerly assisted by California Democrats  Again, San Francisco’s entire Sacramento delegation — self styled “progressive Democrats” all — voted for both measures.

The progressive fig leaf

The fig leaf that allowed our three Sacramento Democrats, who voted as Trumpian de-regulators, to call themselves “progressive” was the passage of SB2 and SB3 on the last day of the Legislative session.  These two measures are touted as critically needed “affordable housing funding.” The insider line was that Brown would not support them unless he got his SB35.

Yet, even a  superficial analysis shows these two measures, at best, will apply an band aide to a growing cancer and provide far less affordable housing than we need. 

SB3 is pitifully underfunded $4 billion bond for “affordable housing.” And it offers less affordable housing than it appears. Off the top, some $450 million is dedicated to local infrastructure costs to meet density increases allowed by new state laws, which require a minimum amount of the new, more dense, development to be affordable.  Approximately $1.5 billion goes for homeownership assistance, again with minimal affordable requirements  Not a dime is earmarked for housing currently homeless Californians. Only $1.5 billion of the bond can be called truly affordable housing development assistance for low-income  renter households.  

Even the governors ally, Oakland Mayor Libby Schaaf, publicly called for a $6 billion bond  to ” help make up for more than a decade of state disinvestment in affordable housing…[which] has shrunk by more than $6B” since 2006.

SB2, on the other hand, had real possibilities. When introduced in March  it called for a $75 fee on “each real estate document” and was estimated to produce $200 million to $300 million a year, with 70% going for shelters and affordable housing development, 20% for “workforce” ownership housing for households above 120% AMI, and 10% for farm-worker housing.

But what passed in September was far less appealing.  Some 55% of the first years funding was dedicated to local “streamlining” plans to increase density and “to eliminate the need” for new environmental planning with no minimum affordability  requirement, and to pay for the governors’ staff  to oversee this process. 

But most significantly, the measure was transformed into an implementation program for SB35. Instead of being placed in a fund with specified affordable housing goals as originally proposed the new formula for allocating the funds were to be based upon the governors’ staff determining that a local jurisdiction was in compliance with SB35! 

The trade off of giving up local control over housing development for state funding for  affordable housing was not much of a trade. What we got was state funding for instituting state mandated deregulation and a tiny one time bond program that equals just about one year’s funding the state got from tax-increment financing before Jerry Brown abolished it in 2008. 

Why the assault on local government?

As 48hills has reported, last November saw a significant series of victories at the local level for both affordable housing and rent control with more then $2 billion in local funding and the establishment or expansion of rent control in the Bay Area. The tactic of  passing local market controls and supporting  public funding for truly affordable housing, a model fashioned here in San Francisco, has been embraced by a growing number of voters seeking protection from displacement and economic and social diversity in their communities in the face of market induced  “economic cleansing” of neighborhood after neighborhood and community after community across the bay Area. 

The passage of SB35 and the amendments of SB2 and SB3 undermines the ability of local voters to craft solutions that meet local realities.  SB35 will actually drive market rate development into localities already suffering from over-development of high-end market-rate housing and steer development away from suburban  jurisdictions that need to allow more housing development by leaving the decision up to market rate developers and limiting local government from imposing necessary affordable housing requirements.

That it could have been different, that the state may have actually offered INCENTIVES to suburban counties for doing more housing development thus relieving pressure on “hot market” localities like San Francisco, Oakland and San Jose, can be seen in the sad failure of the state to adopt such polices in SB1, the ten year, $52 billion tax increase for transportation.

Last year in the debate before the state Senate Housing and Transportation Committee (yes, the state Senate sees the two so linked that the committee is supposed to deal with both issues together!)  on Gov. Browns ill fated “by-right” assault on local government, San Francisco community advocates for affordable housing urged the committee to link suburban housing development to state assistance for the road and freeway repairs so avidly sought by suburban county officials. The linkage would be clear and effective: no state funds for highway or freeway repair unless and until the affordable housing targets of these sub-urban counties were addressed. It is the failure of these counties to produce affordable housing that has placed such unprecedented demand on the affordable housing produced in urban areas such as Oakland, San Jose and San Francisco. 

Failing to link transportation funding to affordable housing development as SB1 did means “transit oriented development” will be mainly market rate housing often occupied by folks driving or taking private tech shuttles to Silicon Valley, not taking cross town public transit to work as asserted by the housing advocates for rich people (HARPS). The urban working class, like 90% of all other urban residents, simply cannot afford market rate TOD, dramatically reducing the policy’s  effectiveness.

SB35 will be equally ineffective for essentially the same reason: It fails to link affordability to housing development. By preempting local regulations requiring significant affordability, SB35 and state density bonuses will combine to assure that the rules of real estate will trump (!) local rules of affordability. And the first rule of real estate is “location, location, and location,” meaning that what will result from state deregulation will be an increased pace of high-end housing development in the already “hot” real estate markets like San Francisco.  

There will be little or no new affordable housing and more of One Oak type multimillion dollar condos with plenty of off-street parking for tech types to continue to drive to Silicon Valley, making public transit slower and slower as it has to compete with all the traffic driving south.

In 1996, the Democratic Party had majorities in both houses of  the Legislature. The party passed and Republican Governor Pete Wilson eagerly signed AB1890, which de-regulated the entire electricity market in California.  

By 2000, wholesale electricity prices increased by 800% and PG&E went bankrupt.  Later studies found that market manipulation, in part caused by AB1890, was mainly responsible.

When we revisit the impact of SB35 and the paltry affordable housing funding in SB2 and SB3 in four or five years it will be clear why we still will have a dramatic shortage of affordable housing in California: corporate solutions based on de-regulation produce profits, staggering profits,  for owners at the expense of everyone else.