Our Dingo Babysitter: Market Boosterism and Planning for Affordability

It seems post-Trump despondency has hit the San Francisco affordable housing debate, leading some housing advocates in the world’s sixth-largest economy to turn to the private market to resolve affordable housing supply… just as they did during the Obama administration.

A recent missive from State Senator and former SF Supervisor Scott Wiener opines that, “absent a federal housing Marshall Plan by the federal government (not gonna happen in our lifetime), we simply do not and will not have the massive resources we would need to shift to a dominant public-subsidy-based housing approach.” Randy Shaw of BeyondChron laments that affordability advocates “want to stop building market rate housing in San Francisco until every site can become affordable housing — which at the rate federal and state housing funding is going, should take about 200 years.”

There’s a substantive difference between opposing all upzoning and new construction of market-rate housing and supporting a city planning process that keeps the construction and preservation of permanently affordable units front and center. The former is a straw man shoddily constructed via its own insufficient planning and approval process used to knock down advocates of the latter. Getting additional resources for housing from the state level is not an easy lift, though Wiener has promised his constituents that he is working on it. So, he argues, why not spend political capital on streamlining the private market instead?

In other words, when the door to the nursery breaks down, just let the dingo babysit.

Some “build, baby, build” boosters are reluctant to confront the obvious elephant in the room: The competing interests of landlords, developers, and homeowners in the private market may not harmoniously synchronize with the interests of tenants in a 48-square mile city which itself is part of one of the great powerhouses of capital in modern history. Or as The Stranger’s Charles Mudede recently put it:

For [orthodox urbanists], things fall neatly into two categories: supply and demand. The less friction or stickiness there is between these ends, the better the market provides the goods to the public. This would be close to the truth if only property was a standard commodity. It’s not. It also has the aspect of a financial asset, like a bond or a share in a company. As a consequence, property can store wealth (something that’s hard for, say, a loaf [of] bread to do) and also move through time. The latter attribute opens it to speculation… You will not find a moment in the economic history of housing that has the poor benefiting from a deal struck between the public and the market.

It’s impossible to ignore the proliferation of housing crises in every major metropolitan area across the globe, to the extent that even the UN is sounding the alarm about housing becoming a high-end commodity in urban centers. The larger problem that housing as profit opportunity now supersedes housing as a place to live must ultimately be answered by a global movement for housing equity, but for today let’s talk about more challenges specific to San Francisco.

Affordable housing constraints in San Francisco today:

Right now, the affordable options on your hypothetical lot are (1) market-rate housing with an inclusionary affordable requirement and/or a density bonus, (2) public affordable housing managed and/or developed by nonprofits with state and federal funding, (3) not much else (although there absolutely should be). Per economist Albert Saiz, 73 percent of the land in SF is geographically undevelopable due to terrain constraints like hills and all that pesky water, making it the third most physically constrained city in America. To top it off, here’s a late-2016 map from McKinsey showing vacant lot availability in the city. If large-scale affordable housing construction needs to happen, a lot of it will need to happen on these spots:

SF McKinsey 2016 open lots

But for whom will these lots ultimately be developed? SF is still constructing housing at a faster clip than the rest of California (including Los Angeles). Unfortunately, the proportion of that newly constructed housing that is affordable to families making area median income or less is obscenely low compared to the Regional Housing Need Allocation (RHNA) goals prescribed by the State of California:

Screen Shot 2017-05-07 at 10.50.58 PM

The process of “filtering” upon which market-rate boosters rely — whereby rich people move from existing units to new luxury condos, leaving the existing spaces to the middle class and driving down prices — can contribute to affordability over decades, eventually approaching a point where the unit is just as likely to “trickle up” to richer occupants as it is to “trickle down” to lower-middle income occupants.

Filtering is also disrupted by speculation. Recent estimates from the Fitch Ratings agency suggest that at least a third of all-cash home purchases in San Francisco are for investment only. They also estimate that 14 percent of SF income comes from capital gains, and just three industries generate half of total wages in the city, which combined with an influx of foreign cash into the SF market creates conditions ripe for speculative activity.

Some affordability advocates don’t like the fact that requiring affordable unit construction can slow down approval and construction overall. Prioritizing speed over outcomes seems sexy and efficient until you realize affordable housing is supposed to be permanent. It is several orders of magnitude easier to mandate a permanently affordable unit than it is to somehow force a private unit to become affordable. In an environment where we are potentially overbuilding market-rate housing and under-building just about everything else, for whom does deregulation ultimately work?

There are also cautionary tales of cutting planning corners like the Millennium Tower, one of SoMa’s biggest post-upzoning luxury projects. With its value now down to effectively $0 due to a fast-tracked and shoddy approval process, the city is stuck with a literal sinking ship that no developer with enough capital wants to spend time tearing down to rebuild.

Which takes us back to Senator Wiener’s piece, specifically his rejoinder that “anyone who advocates that we ignore process and zoning problems [author’s note: Wiener sees the process as onerous] and instead focus our housing policy exclusively or dominantly on subsidized, income-based housing is advocating to perpetuate the housing crisis”.

The circular logic of “we’re never going to get enough affordable housing money, so let’s stop trying to build large-scale affordable housing” is surprisingly seductive, however preposterous a statement to be pushing in a state whose economy is bigger than France’s. Moreover, there are serious challenges that public or nonprofit initiatives face from private development interests.

What challenges?

Expensive public acquisition of housing. For one, local housing trusts like the Community Land Trust can mostly only purchase sites that are insufficiently desirable that a private buyer will not snap it up for a much higher premium. This in turn entails higher maintenance costs over time. Keep in mind that about three-quarters of purchases in the current market are currently closing above the asking price. This is a bear market for the city buying up and renovating sites although it absolutely must continue to do so.

Upzoning for affordable. Zoning for more density will expand supply in bull housing markets, though the extent to which it alleviates or exacerbates local gentrification and displacement is up for debate. But even in a deregulatory fantasyland where the city is completely de-zoned overnight, the process of building on a lot where someone’s Victorian is currently parked would require a lot of time and a lot of buyout money. The likelihood that the up-zoned land would end up in the hands of nonprofits, or the public, at any point is accordingly slim.

Attempts to undermine non-profit developers. Deep-pocketed real estate interests have repeatedly used their clout to undermine non-profit affordable housing development. Take Proposition P, foisted onto the November 2016 ballot by realtor groups. Prop P would have required the city to receive no fewer than three bids for an affordable housing development for any project to proceed. Never mind that the process for bidding on affordable housing is already very competitive, as the winning nonprofit must already prove that they will require the least amount of state and federal funding to complete the project. Since the cost of affordable housing is based on land and construction costs, “more competitive bidding” would allow large private developers to swoop in and build low-quality housing for profit. (Thankfully, it was ultimately voted down).

People concerned that private interests will undermine our current options for public subsidy-based housing in a physically constrained land market are not utopians chugging Market Haterade. Nor are proponents of a policy agenda that refuses to give up hope on public subsidy-based approaches when the market is clearly still building, building, building for the rich and the rich alone. At the end of the day, the luxury condo with zero affordable units down the street from you is going to be in your life a heck of a lot longer than Donald Trump will. Bigly.

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