Vacancy control is the only realistic answer to San Francisco’s housing crisis
By Buck Bagot
SF doesn’t have many remaining sites for development of any kind. We should reserve those that remain for affordable housing development.
20 April 2018: San Francisco, CA. Development just below the Potrero Projects. Photo Robert Gumpert
The cost of housing is transforming – destroying – San Francisco and the Bay Area. The crisis is so bad that the even the ruling elite is forced to address it. True to form, all of their proposals are shaped by their self-interest. Ditto local governments responses. Some people – and sadly not just the wealthy – believe that we can lower or stabilize housing costs in SF by building more market rate housing. I don’t. The housing market hasn’t worked for most San Franciscans for decades. I have no faith in market-based solutions. The monthly rent for a typical unit is $4650. The lower-end price to buy a home in the entire Bay Area is over $500,000. In a city like SF, with an international housing market, market rate housing may make the cost of housing even higher, not lower. But most importantly, the debate over market rate housing, and new housing development in general, misses the most important solution – strong rent control, or vacancy control. Vacancy control is the only way to save SF as a mixed-income and multi-ethnic, diverse City. The housing development debate gets far more attention than it deserves. Development is part of the answer, but it is more and more beside the point, as is even the building of affordable housing. The only reform worthy of discussion is strong rent control/vacancy control.
Earlier this year, State Senator Scott Weiner introduced SB 827 – ‘planning and zoning – transit rich housing bonus’. His legislation embodies the corporate elite’s solution – more market rate housing. Weiner’s bill is a gift to for-profit market rate developers, with the false ‘common sense’ rationale that more/denser market rate development will lower housing costs in SF. People on the Left opposed it for my reasons. People on the West side of SF opposed it because they oppose any and all additional development in their neighborhoods. They would oppose affordable housing even more strongly. It stalled in the CA legislature in 2018. He will reintroduce it next year.
SF doesn’t have many remaining sites for development of any kind. We should reserve those that remain for affordable housing development. Prop I – the Mission moratorium – called for declaring a moratorium on market rate housing development in the Mission. It was an effort to preserve any remaining Mission sites for affordable housing development. Development of new housing, affordable or not, will play a relatively small part in the fight to preserve the City as mixed income and multi-ethnic. The only way to save SF is with strong rent control – vacancy control.
The Italian Marxist Antonio Gramsci’s concept of cultural hegemony is useful in understanding why the affordable housing debate is so skewed, and why both the corporate elite and local government refuse to pursue the only realistic solution. What serves the interests of the class in power is taken as common sense and a given, and what challenges it is viewed as irrational or blasphemy. That’s the best way to understand the politics of the market rate housing vs. strong rent control debate.
The belief that more market rate housing will lower the cost of housing is straight up supply side Reaganomics. How much housing of any kind gets built in SF every year? And even if folks built on every available site, how many units are we talking about? The City is 2/3s renters. We need changes that stabilize their rents and permanently lower the cost of rental housing. There’s only one solution – vacancy control.
With the passage of the Costa-Hawkins Act in 1995, landlords and developers got the California legislature to preempt a locality’s ability to institute vacancy control. (I wish there were a more people-friendly term than vacancy control. ‘Strong rent control’ isn’t sufficient, especially for areas where there is no form of even weak rent control). Berkeley and Santa Monica had passed strong rent control, and San Francisco came within one vote of over-riding then-Mayor Dianne Feinstein’s veto to pass it. The Costa-Hawkins Act limits local rent control to vacancy decontrol – controls only on occupied units. A landlord can raise the rent whenever a unit becomes vacant. Over time, the increase in rents remains the same, with periodic unit-by-unit stabilization. Vacancy decontrol also gives landlords a tremendous incentive to evict people, especially longer-term renters who have stabilized rents.
The good news is that a California Alliance of Californians for Community Empowerment (ACCE) led coalition has gathered enough signatures to place repeal of Costa-Hawkins on the November 2018 ballot. If passed, it would remove the Costa-Hawkins preemption and return authority to decide on rent control to the local level.
The only ‘market’ based solution I believe would work is universal Section 8 or deep rental subsidy.
California’s tenant organizations had assumed that folks around the state wouldn’t understand the need for vacancy control unless and until they had experienced vacancy decontrol, and realized its limitations. They have worked, with mixed success, in smaller cities and in the San Joaquin Valley, to win vacancy decontrol. Statewide tenant leaders have felt that it didn’t make sense to go to the ballot statewide until more cities had experienced vacancy decontrol, like SF, Oakland and LA. But – and it’s too long a story to relate here – the Executive Director of the SF AIDS Foundation bankrolled a statewide effort to place Costa-Hawkins repeal on the statewide ballot. He failed to confer with tenant organizations. He had the money to pay signature gatherers. The tenant groups joined in. So repeal has qualified for the November 2018 ballot. CA ACCE, which has a strong base of members in cities statewide, has stepped up to try to provide leadership for the campaign.
It does make sense for nonprofits to build 100% affordable housing anywhere they can. They view any ‘underutilized’ site as a potential development site – parking lots (like the one in front of your local Safeway, one story warehouses, etc. Yet most local governments, like San Francisco, fail to pursue the development of new affordable housing wherever possible. Why don’t they? And why does local government cling to the false notion that ‘inclusionary zoning’ is the solution?
Affordable housing development comes down to two factors – sites, and ‘subsidy’. The primary impediment to creating affordable housing isn’t lack of sites, or Not In My Back Yards resistance. It’s the enormous amount of subsidy required to develop – by new construction or acquisition of existing multiunit buildings – affordable rental housing. Subsidy is the term for the amount of money needed to close the gap between the cost of housing and what a poor, working or middle class person can afford to pay. Even with the federal low income housing tax credit, every unit of affordable housing requires from $3-400,000 in local cash subsidy. The federal government long ago abandoned funding new affordable housing. The State has never provided much support. The City has shied away from passing the enormous general operating bonds required to provide the necessary subsidy.
‘Inclusionary zoning’ is the term to describe when government forces a market rate developer to provide the internal or non-public subsidy to produce a percentage of affordable units. I believe inclusionary zoning is like getting to roast a marshmallow while you’re burning at the stake. Whatever the percentage of ‘inclusionary’ units per development – 15, 20, 25% – it’s still a very small drop in the bucket.
The only ‘market’ based solution I believe would work is universal Section 8 or deep rental subsidy. Section 8 provides a landlord a set ‘contract’ rent. The tenant pays 30% of their income toward that rent – NOT 30% of the rent. The federal government provides the difference. A state or city could provide deep rental subsidy to replace federal Section 8, but the cost would be even greater than providing the subsidy necessary to maximize affordable housing development.
Buck,
As an active developer in San Francisco, and frequent traveler to many other cities, I can tell you that there is plenty of land that could be developed for housing in San Francisco. In fact, there are currently over 25,000 housing units approved but unbuilt within our city limits. This data is public and published by the SF planning department. In addition, the city has ample land for development, if there was political will to upzone along bart and muni transportation routes.
The greater issue is the cost to develop housing here, which is why so many units remain unbuilt. There are many contributing factors, but city fees, entitlement costs, NIMBY related lawsuits posed as CEQA challenges, and the lines of single minded parties asking for concessions to support their specific causes on way to project approval create a significant cost and risk premium.
These units can’t be built because it costs more to build than they are worth. The cost to build an apartment building today in SF, depending on construction type and location, is between 850/ft and 1100/ft. That’s close to and in some cases below, the market value.
The repeal of costa hawkins and potential further rent control imposed in SF will reduce the potential profits from future development, further discouraging development, further limiting the supply we so desperately need, and thereby deepening our housing crisis.
Make no mistake, our housing crisis is based on exceptionally simple economics, the demand for housing is outpacing supply. We should be focused on finding ways to encourage or subsidize housing development not stymie it.
Buck’s response:
Thanks for your reply. What can I say?
You are dead wrong. You also have no proof. Recent market rate development in the City has exacerbated the affordability crisis. I consider the belief that the development of even more affordable rental housing will save San Francisco as an ethnically and economically diverse City utopian, and misguided. Good-hearted affordable housing developers, if they don’t support vacancy control, are the lap dogs of the big landlords and developers. Affordable rental housing development isn’t bad, it’s just almost beside the point. Only vacancy control/strong rent control can save SF. My Bernal Heights neighborhood has about 7000 households. We have developed 450 units of affordable rental housing. I’m glad that we have, and we’ve made the City affordable for 450 households. But we have had no discernible impact on the gentrifying cost of rental housing in our community. We’re 50-50 rental/ownership. The ownership housing is lost as affordable forever. I’m fighting to save the remaining 50%.
The belief that more market rate rental development will benefit any but the wealthy is self-destructive – unless you are a developer of market rate housing. It’s voodoo economics. Clearly you believe that ‘the market is always the answer’. Your solution isn’t “simple economics” – it’s Reaganomics. The market for what is effectively luxury rental housing in San Francisco is international, and vast. Who are we kidding? A bunch of us placed Prop I, the Mission moratorium on market rate housing development, on the NOV 2015 ballot. We wanted to reserve any available development sites for affordable housing. We lost. It did result in seven new affordable housing developments. Like the units we build in Bernal, they are worthwhile, but a drop in the bucket.
I don’t think the repeal of the Costa Hawkins Act – Prop 10 on the NOV 2018 ballot – will end new construction in SF. I actually wish that it would end any new market rate construction. Nor do I believe vacancy control will cause cancer.
SF is two-thirds rental housing. The only way to save the City is to repeal Costa-Hawkins/Yes on Prop 10 and pass vacancy control.
Buck,
You should try working in property management in SF or Oakland and then tell me how you feel about our rent ordinances in three years.
I consider myself a “reformed progressive” after being exposed to waste, fraud and unintended consequences of the rent ordinance. And I am deliberate in my use of “ordinance” rather than “rent limitations.”
I would also like to see some math behind how your model would work.
Buck,
Thanks for the further thoughts. Usually tenant turnout is lower than owner turnout, and I’m not as convinced as ACCE that there will be overwhelming support from those who do vote. Mike
I have no idea if it will pass. If the folks running the proposition have polling information, I haven’t seen it. The statewide tenants’ group, Tenants Together (TT), had not planned on going to the ballot in NOV 2018. They had hoped to pass limited rent control, or vacancy decontrol, in more cities around the state first. They believed that folks wouldn’t fight to overturn Costa-Hawkins, and fight for vacancy control, until they first had experienced the limitation of vacancy decontrol. TT, and CA ACCE, which is leading the ballot effort, believe that tenants will support the proposition. The votes of homeowners will decide the issue. The questions: Will homeowners perceive the “housing affordability crisis” as warranting stronger rent control? Will they fall for the usual arguments against it, like “your city will turn into the South Bronx”, “all new rental housing construction will cease”? Will they identify more with tenants – and their own children! – than with landlords? The landlords will spend millions and millions to defeat it. I believe that most elected officials will oppose it. Can tenants and their allies mount a strong statewide campaign? We can’t have vacancy control as long as we have the Costa-Hawkins Act. The only other alternative is the CA State legislature overturning Costa-Hawking. The chances of that, even with Democratic super majorities, are very poor at this point. I assume that even if they did, new Governor Gavin Newsom would veto it. The only Democratic gubernatorial candidate that supported vacancy control was Delain Easton.
Buck,
Does the initiative to repeal Costa-Hawkins have a chance of passage? If not, then?
Mike