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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Is The American Dream Dead in Northern California?

In 1931, historian James Truslow Adams said the American dream mandates that “life should be better and richer and fuller for everyone, with opportunity for each according to ability or achievement”, regardless of social class or circumstances of birth. But what does that actually mean?

For some, the vagueness of the American dream concept makes it difficult to quantify. Identifying a more specific metric of focus would offer a clearer picture of American opportunity for prosperity and success, and an upward social mobility for all people.

TechCrunch.com journalist Kim-Mai Cutler delivered a presentation at Earthsharing.org’s BIL Oakland 2016: Recession Generation event on July 9, in which she focused on the intersection between opportunity, technology, and land. To address this intersection, she referenced the research of Stanford University economist Raj Chetty.

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Figure 1

Chetty analyzed the family income records of 40 million children over the past 20 years and calculated the likelihood of a child born into the poorest 20 percent (lowest quintile) of society reaching a higher quintile in income. Isolating geography as a determining factor, Chetty found that, for example, the city of San Jose provides the best opportunities for a poor child to reach the 80th percentile in income distribution, compared to all other cities across the country. This is shown in Figure 1.

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Figure 2

Despite this, Figure 2 shows a trend reflected statewide and across the United States wherein median wages are increasing, but poverty is also on the rise, and homeownership is falling.

This trend in Santa Clara County flies in the face of conventional thinking, whereby poverty should decrease as incomes and opportunities multiply. If people are making more money, yet are less able purchase a home, the home price must be rising faster than the wage.

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Figure 3

Similarly, apartment rent is skyrocketing. There is a lot of job growth, which would tend to indicate that labor is more in demand and that incomes will be higher, but most of the new jobs do not pay well – most make less than 50 percent of the average median income (AMI), as seen in Figure 3.

To add insult to injury, Figure 4 shows that many lower-wage workers fall well short of average asking rents, and are therefore unable to work and live in the same area. These people must either cohabitate or commute long distances in order to secure housing that they can afford.

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Figure 4

These are direct consequences of Proposition 13, which greatly limits property taxation in the state of California. Proposition 13 defines what a parcel of real estate can be taxed, how much that tax can grow annually, and when the parcel’s value can be reassessed. Over time, this has created severe market distortions, as developers have no incentive to build additional housing that is affordable. This ultimately limits housing supply, forces workers to commute further from the urban centers, and leads to additional sprawl.

How does this all affect upward mobility? For starters, family commute times correlate with a child’s future success and earnings. Figure 5, from Chetty’s study, shows that a transit time of 15 minutes or less significantly enhances a child’s upward mobility.

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Figure 5

If the American dream is precipitated by upward mobility from one income quintile to the next, it is becoming an unattainable dream for an increasing percentage of the population. Without significant policy change, it will become impossible for many families to escape wage slavery.

Remedies do exist – some to resolve the problem altogether, and others to mitigate it. Metro San Francisco has seen a significant growth of working professionals choosing cohabitation, as well as the tiny house movement of 100-400 square-foot spaces. Unfortunately, these behaviors do not address the structural inequities and land misuse created by the current policy environment and Proposition 13.

With this in mind, it would be sensible for new housing construction in the Bay area to occur where economic activity is most concentrated, namely downtown San Francisco. Downtown areas tend to have the greatest land values, but traditional strategies for construction in the city center tend to be very expensive, politically treacherous, or otherwise ineffective. While cohabitation and tiny houses might make the area more affordable for a few, government must incentivize urban development in high-demand areas to effectively turn the tide of this crisis. To this end, the city and state must consider a Land Value Tax.

The economist Henry George documented this phenomenon of market exclusion 137 years ago in his seminal work Progress and Poverty. George demonstrated how rent increases faster than wages, and to expedite new construction, he recommended eliminating taxes on work and consumption and shifting the source of revenue to Land Value Taxation. His idea was to encourage landowners and developers to increase residential and commercial space in order to pay the Land Value Tax, while generating a respectable return and providing value to others. Land Value Taxation naturally becomes even more effective wherever land values are higher, like the urban core of cities. Implemented in cities, Land Value Taxation leads to a substantial increase in both living and working space.

California faces a unique challenge due to the limits imposed by Proposition 13, and overcoming this would require a difficult voter-approved constitutional amendment to completely overhaul the property tax system. State legislators and regional and city planners would be remiss not to consider a Land Value Tax, which has had demonstrated success in increasing residential space in the United States and abroad.

 

Watch Kim-Mai Cutler’s presentation below:

 

Images: Keynote presentation by Kim-Mai Cutler at BIL Oakland: Recession Generation 2016

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Joshua Vincent: Land Value Taxation In Practice

Significant changes to any system of taxation require significant upheaval, and perseverance from citizens in and out of government. EarthSharing.org spoke with land value taxation proponent Joshua Vincent earlier this month, in a conversation covering attitudes towards land value tax, its applications, and the activism required to advance it. Watch the interview below, broken into three parts.

Vincent has been executive director of the Center for the Study of Economics since 1997. He has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to promote land value taxation, and has testified as an expert witness on its impact. Vincent is the editor and publisher of Incentive Taxation.

Best Valuation Methods

Vincent lays out best practices for calculating land values, most of which “rely on values that have already been established by the assessor.” By looking at sales prices in an area, particularly of vacant lots but also of derelict buildings set for demolition, a fairly accurate picture of land value can be obtained.

Building values are more complex, but still absolutely necessary for revealing land values: by subtracting building value from a property’s total value, the ideal taxable land value can be calculated. Vincent says that “if we want to help capital and labour escape taxation we have to figure out what the building is worth, because that’s where the labour and the capital goes.”

The most effective valuation systems are in states that “update their assessments on a fairly regular basis, and they also change the percentage of land value to building value to reflect essentially what the market is,” Vincent says.

Using the example of an Atlantic City casino, Vincent says that while 20 years ago the property value would have skyrocketed due to market dominance and profit levels, today that profit has been reduced substantially. “Right now the land value is half of the total parcel value, because the building has lost its revenue-generating capacity,” he says.

Approaching City Officials

A land value tax is not just an end unto itself to reduce inequities in wealth. Vincent says the focus of any campaigners for land value taxation should be its application to almost any pre-existing problems in a city.

“You have to identify a problem that the community suffers from,” Vincent says, whether it be blight, population loss, or perceived high taxes. City officials will usually tend toward enlightened self-interest, and the revenue-neutral tax abatements that a land value tax allow are attractive to public representatives whose priorities are job creation and citizen well-being.

“We would then propose: well how about a universal permanent abatement on all buildings, and not just new buildings, not just condos, but all buildings past, present and future?”

Joel Bedford SoHo 1 via photopin (license)
Joel Bedford SoHo 1 via photopin (license)

One discussion is not enough to effect real policy change, and Vincent says any correspondence should be followed up with a second meeting, further information, and a push for the council to crunch the numbers of what is a very practical, “nuts-and-bolts” policy.

“The mistake a lot of reformers of all types make is they march into a city council chambers or a mayor’s office and say ‘here’s a reform, do it’, and then they turn around and leave. I think what we are putting forward is something that is practical, it is doable, and you can demonstrate immediately how it is doable.“

Who Is Likely To Oppose Land Value Taxation?

Entrenched interests exist that have made fortunes extracting rent from populations without investing back into them, and these interests comprise the most likely and vigorous opponents of land value taxation. Vincent points the finger at speculative, “absentee owners who have a business model that depends on blight and the decay of the neighborhood.”

“A lot of people that oppose land value tax are people that have adopted business models and used tactics to thrive in a declining city,” he says. “You extract rent, literally, from the tenants but you don’t put anything into the property; you let it run down. That’s the successful business model. And they will oppose a land value tax, because their buildings have fallen apart to such a degree that they wouldn’t benefit from such a land value tax.”

Automobile-intensive businesses are another example, and in the past, owners of flat-surface parking lots have voiced opposition to changes of the tax structure. Vincent says these businesses feed off the value of urban land, itself the product of the people and the government, but “they’re doing nothing to create that value, and they’re doing nothing for the community”.

Vincent points out that some among these interests have actively funded anti-land value taxation campaigns, like in Allentown in 1997.

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Creating Strong Towns With Localized Self-Government

BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th in Oakland, California. Keynote speaker Chuck Marohn presented his experiences as an engineer, city planner, and founder of the non-profit Strong Towns to explore the problems with large, specialized systems of government, and the case for localization.

In a world where city planners and engineers must work within a narrow vision on the same sorts of projects, Marohn says there is a disconnect that only leaves space for endless repairs and fix-ups, and very little room for real creative thinking or new technology. With many cities struggling financially or going broke, Marohn makes a case for innovation that not only can increase the productivity and self-sufficiency of a town, but can improve the lives of all who live there.

Marohn suggests that while big governing organisations tend towards specialists as decision-makers, localized government is most effective when generalists are in charge. People who can make connections with others, seek out the experts on any given subject, and bring together combinations of skills will be the most successful leaders.

“The large systems that we have created – really a byproduct of the things that happened in the Depression and World War II – allowed us to accomplish a lot of things in a very short period of time, but come with their own fragility, their own kind of disconnectedness.”

“You can see in things like the Brexit vote, you can see in things like the conversation we’re having in our election cycle… you can see this disconnect between the large systems we have to govern ourselves, the large systems we have to run our economies, and the way we actually live our everyday lives.”

He has also advocated for shifting from the traditional property tax to a land value tax. He explains:

“The property tax system punishes investments that improve the value of property. The land tax system… punishes property that is left idle.”

Charles “Chuck” Marohn works as a licensed engineer in the State of Minnesota.  He is a member of the American Institute of Certified Planners and founder and president of Strong Towns, a national media organization that supports the development of resilient cities, towns, and neighborhoods. Marohn holds a Master’s degree in Urban and Regional Planning from the University of Minnesota and a Bachelor’s degree in Civil Engineering from the University of Minnesota’s Institute of Technology.  He is the author of Thoughts on Building Strong Towns. Volume I and A World Class Transportation System.

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Robin Hanson On Life With Replicable Robots

BIL: Oakland 2016 Recession Generation was an Earthsharing.org event which took place on July 9th, 2016 in Oakland, California. Keynote speaker, Robin Hanson, shared a fascinating vision of the future in which cheap, replicable robots are able to do most human work, and the implications of such a possibility.

Hanson presents an idea divergent from what he says are the two most prevalent in the world of artificial intelligence, those being either slow, ongoing developments in AI research over the coming decades, or some “grand new theory” that hasn’t been discovered.

“The third scenario is where we port the software that’s already in the human brain,” Hanson says.

“If we have good enough models for how each of the cell types work, we have a good enough scan of a particular brain, we have enough cheap, fast computers, then we can make a model of that particular person’s brain on those computers; and if it’s cheap enough, you could run that simulation cheaper than you could rent the human, that changes everything.”

He thinks this means “humans retire” and become completely replaced in the labor market by these emulated brains. However, he says humans “start out owning everything” and “their investments double as fast as the economy, i.e. every month.” So he thinks this means that humans who have access to wealth, and he mentions real estate in particular, will profit tremendously. He implies that those who don’t have wealth will suffer.

This parallels a lot of the discussions we usually have at EarthSharing about the need to fairly share the fruits of nature, so that we can all benefit from technological progress. Even these far-future forecasts aren’t, ultimately, so different from ages past. In the Guilded Age, we had industrialists profiting enormously off resource wealth and land during a time of rapid technological growth.

What this discussion shows is that no amount of technology can be relied upon for solving the problems of political economy. Poverty, in particular, cannot be solved without economic justice.

 

Robin Hanson is associate professor of economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. He is known as an expert on idea futures and markets, and he was involved in the creation of the Foresight Institute Foresight Exchange and DARPA FutureMAP project. He invented market scoring rules like LMSR (Logarithmic Market Scoring Rule) used by prediction markets such as Consensus Point (where Hanson is Chief Scientist), and has conducted research on signalling.

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How Optimal Taxation Can Create a Better World

optimal taxation panel 2016

Earthsharing.org organized BIL: Oakland 2016 Recession Generation on July 9th in Oakland, California. The Optimal Taxation Panel participants were Yoram Bauman, Joshua Vincent, Fred Foldvary, Robin Hanson, and Kris Nelson. The panel moderator was Edward Miller (bios below).

The discussion revolved around the essential role that natural phenomena play in all economic activity and how to fairly treat these resources vis a vis taxation. Resources like land, minerals, access rights, the electromagnetic spectrum, domain names, and atmospheric carbon were discussed.

Optimal Taxation Panelists:

Yoram Bauman: PhD environmental economist and “stand-up economist.” Bauman is the founder of the revenue-neutral carbon tax proposal (I-732) that will be on the ballot in Washington State in November 2016. He has been working on environmental tax reform since his 1998 co-authorship of Tax Shift, which helped inspire the revenue-neutral carbon tax in British Columbia. Bauman also co-authored the Cartoon Introduction to Climate Change and the two-volume Cartoon Introduction to Economics. He lives in Seattle with his wife Laura and their two-year-old daughter.

Joshua Vincent: Executive Director at the Center for the Study of Economics since 1997. Vincent has consulted for more than 75 municipalities, counties, NGOs and national governments. He works with tax departments and elected officials to restructure taxation to a land-based system, and has testified as an expert witness on the impact of land value taxation. Vincent is the editor and publisher of Incentive Taxation, a journal on land value taxation.

Fred Foldvary: Board member at Robert Schalkenbach Foundation (RSF), a non-profit organization established in 1925 to spread the ideas of the social and economic philosopher Henry George (1839-1897). Foldvary received his B.A. in economics from the University of California at Berkeley, and his M.A. and Ph.D. in economics from George Mason University. He has taught economics at the Latvian University of Agriculture, Virginia Tech, John F. Kennedy University, California State University East Bay, the University of California at Berkeley Extension, Santa Clara University, and currently teaches at San Jose State University. Foldvary is the author of The Soul of Liberty, Public Goods and Private Communities, and Dictionary of Free Market Economics. He edited and contributed to Beyond Neoclassical Economics and, with Dan Klein, The Half-Life of Policy Rationales. Foldvary’s areas of research include public finance, governance, ethical philosophy, and land economics.

Robin Hanson: Associate Professor of Economics at George Mason University and a research associate at the Future of Humanity Institute of Oxford University. Hanson is known as an expert on idea futures and markets, and he was involved in the creation of the Foresight Institute Foresight Exchange and DARPA FutureMAP project. He invented market scoring rules like LMSR (Logarithmic Market Scoring Rule) used by prediction markets such as Consensus Point (where Hanson is Chief Scientist), and has conducted research on signalling.

Kris Nelson: Principal at Phoenix Finance, which provides access to capital without collateral to small businesses and startups. Nelson also serves as Legislative Director of Common Ground OR-WA, a non-profit organization that promotes a more democratic treatment of land and natural resources. Previously, Nelson worked as a Principal at Genomics Consulting, where he helped launch a clean technology venture capital firm. He holds a Master’s degree in Business Administration from Willamette University and a Bachelor’s degree in Journalism from Evergreen State College.

Edward Miller: Co-organizer of the Recession Generation event. Miller is the Administrative Director of the Henry George School of Chicago, a non-profit educational organization which provides educational opportunities to the public on the topic of classical political economy. He serves as a board member for the Center for the Study of Economics. Previously, he has worked with the Institute for Ethics and Emerging Technologies.

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Chelsea Roff: A Non-Profit Is A Business Too!

Chelsea Roff Discusses non-profits at BIL Oakland 2016: Recession GenerationChelsea leads Eat Breathe Thrive, a Los Angeles based non-profit focused on treating and preventing eating disorders. Eat Breathe and Thrive began as a free program that Chelsea began at local clinics, as her personal passion, in her free time. After some timely and fortunate media exposure, the opportunity suddenly arose for her to convert this program into a meaningful career as part of a non-profit organization.

Chelsea was one of the featured speakers at BIL Oakland 2016: Recession Generation.  The event served as a skill-sharing event for those interested in social, economic, environmental justice.  In addition, a myriad of revolutionary ideas aimed at promoting greater social, economic and environmental justice like land value taxation were introduced and discussed at length.

In the talk, Chelsea introduces the similarities and differences between non-profit and for-profit businesses. During it, she explains how to effectively manage and fund raise for a non-profit. In particular, Chelsea carefully introduces the potential revenue streams available to non-profits and how the unique status afforded to nonprofits serve to better enable their sustainability, all while satisfying the extensive byzantine legal requirements that the IRS places upon all 501 (c) non-profits. 

About Chelsea Roff (bio)

Chelsea Roff is the Founder and Director of Eat Breathe Thrive, a nonprofit organization that prevents and helps individuals overcome disordered eating and negative body image. An internationally recognized author, speaker, and yoga teacher, Chelsea has spent the past seven years pioneering integrative health programs for people with mental health challenges. Prior to her work in mental health advocacy, Chelsea worked as a researcher in a psychoneuroimmunology laboratory. Her research explored how stress affects mental, emotional, and social health, and how mind-body practices like yoga can improve the outcome of chronic immune diseases like HIV/AIDS and cancer.

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