Fixing The Bay Area Housing Crisis

The San Francisco Bay Area is in the midst of a severe housing affordability and displacement crisis, the result of years of inadequate public policy, a clash of generational attitudes, and ubiquitous obstruction of new housing projects. At the BIL Oakland: Recession Generation conference, hosted by EarthSharing.org on July 9, a panel of four housing advocates shared their thoughts on where to go from here.

Zac Shore, Stephen Barton, Alex Lofton and Tim Colon described a multi-faceted crisis requiring concurrent and complementary solutions.

Zac Shore is the director of development for Panoramic Interests, a construction company focussed on affordable student housing, workforce housing and homeless housing in San Francisco.

The company has a modular construction ethos that crystallized when they traveled to the U.K. and witnessed the construction of 190 apartments in eight days using shipping containers.

“When we saw that, we were convinced, and now we’re starting to build with it on a large scale in San Francisco.”

Panoramic Interests has built hundreds of apartments for students and workers, and is now beginning to build for the homeless. Shore cited demonstrable cost savings associated with housing homeless, cutting down on chronic use of emergency services and offering an economic incentive alongside the humanitarian one.

Stephen Barton represented the Bay Area Community Land Trust and the Committee for Safe and Affordable Homes. Barton has a PhD in city and regional planning from the University of California, Berkeley, and was director of the Housing Department and deputy director of the Rent Stabilization Program in Berkeley, California before retiring recently. He has written widely on housing policy and co-authored Common Interest Communities: Private Governments and the Public Interest.

Barton argues that new construction does not have the ability to solve the Bay Area’s housing crisis.

“It’s not to say that increasing the housing supply is not important, because it’s desperately important,” he said. “But of course we have Prop. 13 here in California and its progeny designed to protect real estate investors’ windfall profits, and of course encouraging land speculation because people who own vacant and under-utilized land hardly pay anything in taxes.”

Using taxes to treat rental property like a business rather than personal real estate would be a step in the right direction, “to recapture through taxation the value that we and those who came before us have created,” Barton said.

“If you applied a two percent tax to rental property in the whole Bay Area, you would raise $500 million a year and it could lead to construction of as many as 50,000 affordable apartments.”

“About half of the rent that tenants pay in the Bay area is not, in fact, necessary to profitably operate and maintain the housing once it’s been built and the construction costs are amortized. Instead, it’s basically an admission charge – ‘welcome to the magic kingdom, here’s how much you have to pay to be here in the Bay area’.”

Alex Lofton is a co-founder of Landed San Francisco, a community-based brokerage organization that raises capital from investors interested in local real estate, and uses that money to support first home-buyers with down payments.

“Our whole system is set up on the intergenerational transfer of wealth: you’ve got to ask your mom or you dad, or brother or sister, or grandparents to help you buy your first house, especially in expensive places. So we just say ‘Why can’t there be other options than mom and dad…to borrow that money?’”

“You live in a place like this and you question if you’ll ever become an owner…the leap from renter to owner is just impossible.”

While affordability was the main problem with Bay Area housing, requiring greater supply and higher incomes, another way forward was thinking about the concept of ownership differently, and coming up with creative ways for whole communities to help people get started in the property market.

“There isn’t a silver bullet, it does take a lot of solutions.”

Tim Colen, at the time of conference, was executive director of the San Francisco Housing Action Coalition, an organization promoting well-designed and well-located housing. Prior to this, he was president of the Greater West Portal Neighborhood Association, and spent 25 years working as geologist.

San Francisco is cursed by having a red-hot economy, and highly-skilled workers flooding into a city that has a history of under-producing the amount of housing it needs.

“We have chosen policies for the last two or three decades that have led us to this position where our population is growing by about 10,000 residents per year… a city that has a historic production rate [of houses] somewhere around 1700-1800 units a year.”

“It’s already a city that’s become hostile to the young, young families, seniors, immigrants, the artists, the weirdos, the hippies, everybody. It’s going in the direction of becoming a luxury resort with a certain amount of housing we can afford to subsidize.”

In Sacramento, liberal democrat Governor Brown has taken a bold step by introducing “by-right housing”, whereby if certain conditions are met by developers then new builds cannot be obstructed.

“It’s the first tool we’ve seen in ages that says ‘you can’t appeal projects to death anymore’,” Colen said.

The dominant conversation around housing has been one of intergenerational change, and the desire of previous generations to keep things the way they are, Colen said, and this has tipped the balance of power toward those who say no to development and increase construction costs.

“We’re strangling ourselves,” he said. “There is not enough money in the world to subsidize our way out of this problem.”

 

This panel discussion highlights a struggle between established residents and newcomers, who should be joining forces against an entirely different threat. Renters are being squeezed out of the Bay as prices surge, while would-be newcomers, many of whom are tech workers, are kept out by the same phenomenon. Both blame each other, yet it is landowners who are making a killing off the skyrocketing costs for space in the Bay Area.

Yes, tech workers drive up the cost of land, but freezing new construction also makes apartment rents artificially high. Both groups are right, but it is unfettered and untaxed landlordism that is the real problem.

There is a way to help protect those in danger of being forced out of the Bay, while also giving access to newcomers in innovative industries: tax the rising value of land and reduce taxes on working and exchanging. A citizen’s dividend paid out of the revenue from a land value tax, what some call a basic income, should be given to everyone to be spent as they wish. They would use this money to subsidize their apartment, while construction could boom in downtown San Francisco and elsewhere in the Bay. With more people able to fill the new units in the central locations, this would take pressure off areas even slightly outside the central business district. This in turn would retard the rise in rent from what it otherwise would be, while putting more money in vulnerable people’s pockets to secure housing.

 

 

Feature photo: Guner Gulyesil City Romance via photopin (license)

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EarthSharing.org on Stanford Radio KZSU 90.1 FM Promoting the Recession Generation Event

WKZSU 90.1 FM Stanford University Radio Interviews EarthSharing.org

 

July 5th, 2016, Edward Miller and Jacob Shwartz-Lucas were invited onto Stanford University Radio to discuss an event they would organize in Oakland a few days later. The event was titled BIL Oakland 2016: The Recession Generation.

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The discussion revolved around the event’s aim of helping young adults to navigate the challenges of living in our harsh economic climate and rapid technological disruption.

Jacob and Edward discussed their motivations for putting on the conference. This included explaining their backgrounds, and what changes they want to see in the world.

photo credit: Jane Says via photopin (license)
photo credit: Jane Says via photopin (license)
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Can Tiny Homes Solve San Francisco’s Housing Crisis?

“Tiny homes,” residential structures that typically measure between 100 and 400 square feet, have been touted by some as an elegant solution to de-cluttering one’s life and embracing a minimalist lifestyle. Examples have graced the pages of every prominent home and garden magazine, and HGTV has three (yes, three!) shows dedicated to tiny homes. In San Francisco, housing activists and city planners are now looking to the tiny home movement as a potential tonic to the city’s worsening housing shortage.

With a vacancy rate at 0.3% and a population influx to the Bay Area to the tune of approximately 90,000 people per year, San Francisco, known for its stunning Victorian homes and hilly streets, is running out of housing. Chelsea Rustrum, a consultant on the sharing economy, believes that tiny home villages have the potential to increase housing inventory at a greatly reduced cost. Compared with the $1000-per-square-foot cost for traditional construction, the per-foot cost of constructing tiny houses falls between $200 and $400. Eager to develop the first tiny home village in the San Francisco Bay Area, Rustrum has assembled a team of 10 people and is scouting for a plot of land. However, she has run into a problem that plagues most new housing initiatives – zoning.

The tiny homes that Rustrum and her colleagues seek to build violate a number of common zoning rules as set by the International Code Council, a domestic trade group. Most notably, they are below the minimum square footage necessary to be classified by as a residence. Rustrum hopes to overcome such zoning obstacles through negotiations with city governments, but changes to zoning laws have become a flashpoint in the debate over the housing shortage and development in the Bay Area. Homeowners consistently try to stymie new construction because they assume that an increase in population density would decrease their own property values. (In actuality, the opposite effect has been shown to occur: increased population leads to increased land values.)

 

Tiny Houses via photopin (license)

 

Even if zoning obstacles were overcome, could the construction of tiny home villages truly reign in the careening San Francisco rental market? Eric Fischer, a San Francisco resident, recently analyzed 30 years of rental prices (the median rent for a 1-bedroom apartment having reached an astonishing $3,500) and created a model that explains housing costs in the city. According to Fischer, it would take a 53% increase in the housing supply (200,000 new units) to reduce costs by two thirds. Given that the entire land area of the city is 7 x 7 miles, most of which is developed, tiny home villages do not pose a realistic solution in San Francisco County, because there just isn’t enough unused land to construct them on.

The Bay Area, by comparison, is comprised of multiple cities, some of which have far more available land than San Francisco. However, there is concern over the effect tiny home villages would have in these areas A criticism of proposed tiny homes developments is that, though less environmentally damaging than traditional tract home developments, they still represent a form of urban sprawl. And more sprawl is not something that the Bay Area can handle right now. The area’s burgeoning population is already crushing public infrastructure. Bay Area Rapid Transit (BART), a major transportation system, has $5 billion in unmet capital needs over the next 10 years, and interstate highway commute times are at all-time highs. Any housing solutions that place people further outside of urban centers could add pressure to already strained transportation infrastructure.

 

Nothing Gold Can Stay via photopin (license)
Nothing Gold Can Stay via photopin (license)

 

With this in mind, it would seem that any new housing construction should occur where economic activity is most concentrated: downtown San Francisco. Problematically, downtown areas tend to have the greatest land values, and traditional strategies for construction in the city center tend to be very expensive (using subsidies and eminent domain), politically treacherous (due to entrenched residential and commercial landlord interests), and ultimately ineffective. While tiny home developments might make the area more affordable for a handful of individuals and families, to effectively turn the tide of this crisis and resolve the housing shortage, government officials must take steps to build up housing inventory in urban centers, particularly in downtown areas near the business district. To this end, the city and state must consider a land value tax (LVT).

American political economist Henry George hypothesized that both property taxes and taxes on the value of improvements (structures) discourage new construction, as any residential or commercial development will result in higher overall property taxes. To expedite construction, Henry George recommended eliminating taxes on improvements and shifting the revenue burden towards higher land value taxation (LVT), which would encourage landowners and developers to increase residential and commercial space in order to pay the land value tax while providing them a respectable return as they provide value to others. LVT naturally becomes even more effective wherever land values are higher, such the urban core of cities. Implemented in cities, LVT leads to a substantial increase in both living and working space.

California faces a unique challenge due to the limits imposed by Proposition 13. Overcoming those challenges in the long term would require a difficult–but not impossible–voter-approved constitutional amendment to completely overhaul the property tax system. State legislators as well as regional and city planners would be remiss not to consider the solution of the LVT, which has had demonstrated success in increasing residential space the United States as well as abroad. For the moment, housing advocates have their eyes on Rustrum and her tiny home villages, a pop culture trend that could provide a short-term solution to a steadily worsening housing crisis.

Cover Image: Boneyard Studios. Licensed under a Creative Commons Attribution-NonCommercial 4.0 International LicenseCreative Commons License

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Rent Subsidies Fail to Help Homeless in Los Angeles

Laura Luevano, a homeless woman struggling with severe diabetes and arthritis, failed to find an apartment in Los Angeles after searching for several months–despite holding a federally subsidized rental voucher. She is one of more than 2,000 people in Los Angeles who remain homeless despite holding these rental vouchers. Her story represents one of many that demand a fair and just solution.

In Los Angeles, a city known for its pristine beaches and Hollywood glamour, 35,000 people are without homes, and the situation is not improving. Just last year, the  homeless population increased by 5.7%, which has been deemed a crisis by Peter Lynn, the executive director of the Los Angeles Homeless Services Authority. City and state officials are hoping that rent vouchers will help abate this crisis, but that measure so far has shown poor results.

Rent vouchers are, in the eyes of officials, a quick and easy solution to the increasing homelessness problem. The voucher, subsidized by the federal government, can be used to pay rent to a landlord. But quick fixes often fail to provide long-term solutions, and the rent voucher approach has been no exception.

 

Homeless man and his dog sleeping via photopin (license)
Homeless man and his dog sleeping via photopin (license)

 

While vouchers increase the capability of the poor to access housing, they provide minimal incentive for landlords to increase the residential housing supply. Thinking in terms of supply and demand, vouchers serve to increase demand, but a lack of increase in supply to meet that demand ultimately defeats the program’s purpose. People tend to attribute the lack of supply to zoning and rent control–and indeed these issues are a part of it. However, the most overlooked factor is that the supply of land is fixed, and thus the owners can make an easier buck just sitting on undeveloped property and waiting for it to rise in value.

As a result of these simple market dynamics, recipients of vouchers are facing a harsh reality – the Los Angeles rental market is crowded and extremely competitive. LA County currently has very little housing inventory available for immediate rental – an incredibly low 2.7% rental vacancy rate. At a vacancy rate below 5%, the power dynamic between landlords and renters shifts dramatically towards landlords. Landlords can afford to be selective about tenants, choosing those that are least likely to fail to pay their rent. Often, the tenants that lose out are veterans and minorities.

These landlords have been reluctant to take on the homeless as tenants, citing concerns that they will be troublesome tenants and will fail to pay rent. But the County is taking action to erode these barriers by providing financial incentives to landlords. Through the voucher program, the city guarantees first and last months’ rent, as well as a security deposit, to landlords. Santa Monica County has gone a step further and gives landlords a $5,000 bonus for accepting rent vouchers.

In general, subsidies such as guarantees and bonuses have much the same effect on housing supply as vouchers. Subsidies of all kinds spur demand without any significant increase in supply, resulting in even higher rents for everyone. This goes to benefit landlords while hurting renters.

 

FOR RENT - Central Avenue via photopin (license)
FOR RENT – Central Avenue via photopin (license)

 

The city is educating landlords to reduce stigma and make the benefits of accepting vouchers clear. Vouchers are guaranteed rent, and voucher tenants have substantial support from the city in the form of case managers and tenant mediation, helpful in the case that a disagreement arises. The city also hopes that appealing to landlords’ sense of civic duty will increase their willingness to accept vouchers. Convincing hesitant landlords, however, is just one piece of the homelessness puzzle.The best additional measure would be one that encourages building more housing units.

Rent vouchers cannot be applied to 1- and 2-bedroom apartments that rent for greater than $1,150 and $1,500, respectively. With housing costs in Los Angeles soaring, and new rentals averaging $2,094 per month, federal vouchers cannot be applied to a large swath of available housing. Some counties have eased restrictions on these caps but have still not seen an increase in the number of voucher recipients renting apartments. This further validates the notion that this is a supply problem that calls for incentives to build the necessary units.

The voucher program is, in addition, actually squeezing low-income families that do not qualify for vouchers, creating a problem where there previously wasn’t one. When a homeless person receives a voucher, they are competing for the same rentals as low-income families, says Santa Monica housing administrator Jim Kemper. So while the program has had some success in taking homeless people off the streets, it is often at the expense of the working poor, making a bad situation even worse. Legal analysts have long criticized the City and State for focusing on voucher programs instead of building new units at the rate necessary to decrease rents. Ultimately, for the voucher program to succeed, Los Angeles must enact policies to ease its housing shortage.

 

Haley Pk 01 via photopin (license)
Haley Pk 01 via photopin (license)

 

To address the housing crisis, Los Angeles should consider implementing a land value tax (LVT) to replace its current, traditional model of limited property taxation, which may well require changing California’s constitution via voter initiative. In the late 19th century, political economist Henry George observed that a tax on property improvements reduces a landowner’s incentive to build, as improving the value of his or her property would increase the amount of taxes owed. Henry George hypothesized that, by eliminating the tax on improvements and implementing a relatively high LVT–which depends only on location value and surface area–landowners would be incentivized to increase residential and commercial space in order to create the necessary revenue to pay the LVT while generating desired return on investment.

Despite the proven success of the LVT in several countries around the world, Los Angeles cannot, at present, implement such a change. The California constitutional change known as Proposition 13 makes it exceedingly difficult to enact any measure of change to either land or building value taxation. Enabling such changes would require either changing or circumventing Proposition 13’s limitations.

At present, the human cost of inaction is quite severe. While a reaching an effective long-term solution requires bold measures, the humanity in us demands that we commit to positive change for all.

 

Cover image: Renting Property via photopin (license)

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