Durable Growth

Markets are the best path to affordable housing

Boston, with 53 units per acre of pure character and almost nothing over 4 stories. Image from Google Maps

Boston, with 53 units per acre of pure character and almost nothing over 4 stories. Image from Google Maps via Placemakers.

It’s no secret that the cost to buy or rent a home in the Bay Area is extremely high and rising. Thanks to a regional economic rebound and renewed interest in the kind of walkable living that defines San Francisco, demand for Bay Area housing is at a high.

Unfortunately, this means that only the most privileged can afford to purchase a home in our inner-ring suburbs. Blue collar workers, service workers, and young professionals making less than astronomical sums are having an increasingly difficult time finding homes they can buy or even apartments they can rent. And so a debate over how to accommodate affordable housing swirls around every planning meeting and town council election.

Advocates rally behind nonprofit housing and the state’s regional housing needs assessment (RHNA) process, which assigns each municipality and county a certain number of units they must accommodate. Others, especially in Marin, say cities and counties are managing their affairs just fine and resent anything that could be construed as meddling from Sacramento or ABAG.

Yet both perspectives neglect the economic underpinnings of our housing cost. Fundamentally, we have a shortage of housing for any income. Until either side begins to address this fact, we’ll continue to face deadlock and continuing cost escalation.

Market urbanism

Our housing shortage isn’t everywhere. Stockton and Vallejo can attest to that. Rather, the cost hikes have been in the walkable areas that have come into vogue over the past 10 years. Downtowns both large (San Francisco, San Jose, Oakland) and small (San Rafael, Napa) have seen their prices rise since the end of the recession.

While some of the demand in the big cities may come from name recognition, the principal reason for the price spike is that the supply of housing in walkable neighborhoods has not grown with demand for it. We have a classic housing shortage, and the only way out is to boost supply of walkable housing for all incomes, from luxury to low-income, by making it profitable to build such housing.

To some, this will sound like nonsense. We need affordable housing, not luxury housing. But the theory that increasing supply will stabilize prices has been borne out in at least one market.

Washington, DC, has seen a massive population boom. Since 2000, it has grown by nearly 10 percent, and now is adding 1,300 new residents every month. Though housing costs have increased (partly due to a lack of financing in 2007-2008 and partly due to a lag between demand for apartments and their completion), this year they are expected to be stable despite the continuing influx of people. Regionally, nearly 40,000 apartments are coming online in the next year, with another 30,000 the following year.

No government program could have forced such broad rent stabilization without direct price controls. Next year’s stable rents will only have come about because the region’s governments have worked with demand rather than against it. In the central city, DC is working on a revised zoning code that will promote high- and moderate-density walkable living. In the suburbs, counties are converting drivable retail centers into walkable mixed-use areas, sometimes far from the Metro rail system, relieving some of the demand in the central city.

The Bay Area could join DC and stabilize its housing market only by stepping back from the dysfunctional No Development vs. Affordable Housing debate. We must boost the supply of housing for all incomes or we’ll never get a handle on the problem.

Reform the laws, boost supply

Bay Area developers face a potent mix of restrictive zoning and anti-developer sentiment. We fear that any changes to our much-beloved downtowns will destroy their character, and that rapacious developers just won’t care.

Arguably, they didn’t care in the 1950s or 1960s. Ugly concrete replaced beautiful Victorian. Grassy hills became rolling tract homes. Governments helped by marking poor neighborhoods “obsolete” and tagging for them for demolition.

The laws put in place to stop this kind of idiocy worked, and developers now try to work within a city’s character rather than against it. Developers now face strict design review to ensure developments work with local character and architecture, or are built on characterless strip malls and dead zones.

Still, some of those laws hold back development to an undue degree. Take density limits, put in place to maintain neighborhood character. These ensure that only, say, 30 units per acre can be built in a given acre. While that seems like plenty of density, they encourage the largest units instead of the most rentable mix of units. A developer can’t charge as much for a studio apartment as he can for a two-bedroom, but since both count as a “unit” he’ll build a bunch of two-bedrooms. In Marin, this has meant continuing undersupply of studios and a rent hike of 14 percent since 2011.

Other constraints, such as parking minimums and inclusionary zoning, squeeze even more money from a project, rendering small infill developments unprofitable and impossible.

Cities should reform their zoning codes to make attractive and character-rich development profitable again. Density could be substituted with height limits, which would allow cities to keep a low-rise or mid-rise character while also adding housing units. Parking minimums, too, should be abolished in favor of alternative means of transportation and neighborhood parking plans.

Even in large cities, this will encourage dense development beyond BART stations. Though BART-oriented development is useful, there aren’t enough BART stations to make much of a dent in the housing supply. More importantly, these developments are often islands of walkability in a pedestrian-hostile sea if infill development is restricted to the BART station. Real cities are integrated fabrics, with buses, walking, and biking dominating short trips. Most of the walkable centers in the region follow this pattern and aren’t anywhere near rail transit. There’s no reason not to expand those town centers into the retail strips that dot the region or the vast office parks that dominate swathes of the East and South Bay.

Matthew Yglesias has written extensively about the need for infill development and upzoning. It is simply not tenable to prevent first-wave development from being redeveloped. Our land is simply too valuable to remain parking lots for offices and strip malls.

If the Bay Area is serious about affordable housing, its governments must tackle laws that keep supply from catching up with demand. We cannot rely upon nonprofits or government largesse to solve this economic problem effectively, nor can we freeze our cities and rents and call it a day. Only the market can fix the market.

The blog Sightline Daily has an 11-part series on legalizing real affordable housing, from zoning to density to rooming houses. It should be required reading for anyone involved in affordable housing policy.

This was cross-posted with The Greater Marin.

Written by David Edmondson

David Edmondson

David is a native Marinite working in Washington, DC. He writes about how to apply smart-growth and urbanist thinking to the low-density towns of his home.

11 comments to Markets are the best path to affordable housing

  • Hey David,

    Thanks for the informative article. I’m with New Avenue (newavenuehomes.com), a Berkeley startup. This shelter shortage is certainly something we address. We design and build small homes, backyard cottages, and accessory dwelling units. We have projects throughout the Bay Area that serve as rental units, guest homes, creative spaces, and so on. If not utilized for generating income on the side, the second units serve to create multigenerational homes – families can live and grow closer together.

    Cheers,

    Justin

  • voltairesmistress

    A thought-provoking article. Dave, how would you deal with cities’ sometimes very strict rent control ordinances? Would you keep them in place until other still stifled market forces had been unshackled? I ask, because in San Francisco rent control both lends a modicum of stability to existing tenants and neighborhoods and keeps an estimated 10% of existing potential units off the market. While I support rent control as a stop gap measure, it has always seemed to me to burden private property owners with what should be a community wide task — providing housing for all.

    • Thanks. It seems to me that the most fair method is to faze it out. Don’t force other rent-controlled units. Once someone moves from a rent-controlled space, the unit can jump to market rate. Part of such a low would be something like, If the owner of the building wants to redevelop while there are still rent-controlled units, she must provide for equivalent accommodations while the building is under construction. Once the building is completed, the rent-control tenants must be given the option of the same lease arrangements in equivalent units in the new building.

      Housing vouchers are far more fair for landlords and for the low-income. They provide better mobility options for the poor (good for getting out of bad neighborhoods), better income mix in wealthier neighborhoods, and so on. It would have to be structured carefully to ensure the market isn’t too egregiously distorted, but it would be better than the mess we have now.

      • Mark

        David, you say “Once someone moves from a rent-controlled space, the unit can jump to market rate.”

        Isn’t that how SF rent control already works? You may want to check your facts.

        • voltairesmistress

          Mark, in SF a rent controlled apartment once vacated can be put back on the market at the current market rate. That new tenant starts out at market rate but receives rent control, so that several years later the unit is again well below market rate.

  • Stuart

    Amen. Is there anything that we, as residents, can do to encourage local officials to get their heads out of their asses on this issue? That this is the right way to go is so obvious but entrenched NIMBYism seems really hard to combat.

  • @Mark

    Facts checked, and you’re right. But what I intended to say was that the unit would from then on be free of rent control.

    • voltairesmistress

      Dave, you are wrong. As I replied to Mark earlier, a rent controlled unit, once vacated by the tenant, can be rented to a new tenant at whatever price the owner wishes to charge. The new tenant, however, is still covered by rent control, in that he/she pays limited rent increases each year. Rent controlled apartments stay that way unless an owner does substantial changes to the building that create a virtually new building.

  • @voltairesmistress

    I think were were saying the same thing. To summarize:

    At present, units begin at market rate but increases are limited so that they are eventually below market rate. This is rent control. Once the units are vacated, they can start again at market rate. Just as you explained.

    My proposal is to remove the rent control entirely from units as they’re vacated.

  • [...] there are plenty of reasons to oppose the regional housing needs assessment (RHNA) process, density and the specter of [...]

  • [...] there are plenty of reasons to oppose the regional housing needs assessment (RHNA) process, density and the specter of [...]

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