Lower costs doesn't equal more affordable

by Carolyn Chase


This is a Cut to the Chase "special edition" in the sense that it's a rebuttal to a commentary by Steve Doyle, President of the San Diego Building Industry Association. For those of you who haven't seen it, I include it below, followed by my response.

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Affordable housing's death by 1,000 cuts


The death of affordable housing in San Diego should come as no surprise. One of the most frustrating parts of dealing with the issue of affordable housing is the myriad of federal, state and local agencies that impact the cost of providing homes. Many public bodies become extremely myopic when dealing with their own issues. They
can't see the forest for the trees.

    If providing affordable housing is to become a priority in this state, we should all agree on one new rule: There will be no more new rules, changes to existing rules, updating of current rules, or any other changes to any regulation that in any way impacts the cost of housing.

    The number of state agencies, federal agencies, special districts and local jurisdictions making new rules that affect the cost of housing is unbelievable. Let me give you a few examples:

1. The San Diego Regional Water Quality Control Board recently adopted a new permit to manage the runoff of storm water. This permit requires all new construction to capture and treat all drainage water before it leaves the property's boundaries. Experts have estimated this cost to be in excess of $3,000 per new home.

2. Last year the state legislature adopted a new energy efficiency law, AB 970. This new law increased the level of energy efficiency in new homes to the highest recommended level of the federal government. The costs for this increased efficiency are approximately $2,000 per new home.

3. The federal government recently approved the imposition of a tariff on Canadian soft wood imports. This 19 percent tax is imposed on all soft wood lumber products imported from Canada. The estimated impact on the price of a new home, $1,000.

4. Many local governments have decided the best way to create affordable housing is to require market-rate projects to provide subsidized product in return for the right to build. The average inclusionary zoning requirement is 15 percent of the project. The average subsidy is $70,000. This equates to a $10,000 additional cost impact on each new home.

5. The state government committed to providing 50 percent of the costs for the construction of new schools. This left approximately $4,000 per new home in school fees owed at time of construction. The state has failed to keep its commitment. The average school fee is now in excess of $8,000. This is a $4,000 increase per new home.

6. Organized labor hopes to require that all new homes be built by labor utilizing "prevailing wage." They state this will only add 2 percent to the cost of a new home. The median priced new home in San Diego is $400,000. A 2 percent increase in cost would add $8,000 per new home.

7. Insurance costs for builders and specialty contractors are skyrocketing. Frivolous litigation has greatly reduced the number of companies willing to write insurance in California and greatly increased the cost of the insurance that is available. The average cost impact to a new home is over $2,000.

8. The use of reclaimed water to irrigate public open spaces has become a requirement for new projects. Reclaimed water must be delivered in a separate system and be completely independent of the potable water system. The average cost to construct a reclaimed water system is $500 per new home.

9. The federal government recently reduced the acreage of impact necessary for an individual Army Corps of Engineers 404 permit from 1.0 acre to 0.5 acre. The individual permit requires a long, complicated and costly process to administer. The nationwide permit program is much shorter and less costly. The cost increase per new home is approximately $1,000.

10. Product manufacturers have been successful in getting some local jurisdictions to require the installation of fire sprinkler systems in all new residential units. The cost of a residential fire sprinkler system is approximately $3,000.

    These are but a few of the recent examples of increased costs being added to new homes. Taken individually, it is difficult to argue that using reclaimed water, saving electricity and providing new schools are not worthy goals. But, are these costs that should be borne by new housing? Reclaimed water comes from the sewage generated by all the residents. Greater energy savings would come from retrofitting older houses that have no insulation and single pane windows. Schools serve the residents of all communities and the cost-sharing program committed to by the state is a fair distribution of costs.

    The burden to provide new or better facilities should be borne by all Californians, not simply put onto the backs of new home buyers.

    The sad reality is that residents of new homes do not live here, yet. They do not vote from the new address. They have no voice in the political process. Therefore, new housing has become the dumping ground for government's failure to meet the needs of its citizens. And, the cost of housing has skyrocketed.

    Granted, there are other factors that impact the cost of housing. The lack of residential land, the extraordinary processing time necessary to achieve governmental approvals and the increased costs of materials, all impact the cost of housing in California. Some of these issues are more understandable and potentially easier to deal with. But, the constant barrage of new regulations and cost burden transfer are issues that are not often discussed, nor recognized as a significant factors in the cost of new homes.

    Therefore, the price of a new home rises, by $500 or $1,000 at a time. The death of affordable housing is caused by damage of these thousand dollar increments. No single increase alone is responsible for the loss of affordable housing. Or, think of it as a losing sword fight. Each cut makes you bleed a little more. While no cut is fatal by itself, you soon grow too weak to go on.

    We must make the issue of affordable housing priority one. We must recognize that any political action can have an unintended impact on the cost of housing. And, we must be vigilant in defending this wounded warrior -- the affordable home.

Doyle is president of the San Diego BIA and president of Brookfield Homes.

Carolyn's response:

Lower Costs Doesn't Equal More Affordable

Reduce Costs, Not Standards


Steve Doyle's Building Industry Association Commentary, "Affordable housing's death by 1,000 cuts," is yet another recitation of "poor me" by one of the wealthiest sectors of industry. One has to wonder - if the industry "cannot" offer more affordable housing products under recent market conditions - when could they?

    Of course, the BIA never discusses how the prices of houses are actually set: what the market will bear and what the lending industry will finance. Even as they complain about higher costs, they are still raking in sales at record prices because a sufficient number of people are still able to finance and purchase whatever they build.

    The argument against energy efficiency standards is particularly offensive because these investments allow people to better afford to actually live in any dwelling by reducing monthly energy payments - forever. The fact that existing residences can also make a variety of such investments is irrelevant to whether or not new construction should apply the latest available technology and not opt for the cheapest and most polluting.

    At least the BIA admits there are many complex factors that contribute to the cost and to the price of any unit. But another big one the tract-housing industry declines to discuss is the size of the units. The bottom line is after all, the bottom line. In a "build it and they will come" climate like San Diego, you can build for the mini-mansion market for a long time and never choose to build more affordable kinds and sizes of housing.

    The builder's opposition to living wage proposals is especially galling. They seek to keep their workers' wages down instead of paying enough so their workers could afford to purchase homes. Another way to increase the affordability of housing never discussed by the building industry is to raise wages thereby increasing the number of people who can qualify to meet the required monthly payments. If major employers, making major profits are unwilling to pay living wages, society can never "meet the needs of its citizens."

    As for using Canadian softwoods - and their rising prices - is it really smart to continue to build houses that in essence constitute food for regional termites? This is another cheap choice that passes higher costs to the owners later on. Other, more sustainable materials for our region - as well as less expensive choices exist. I know it's hard for some builders who are owned by major tree plantation owners to take this into account. But rising materials costs should drive a search for better alternatives, increased efficiency and industry innovation.

    Instead we hear incessant whining about the costs of standards put in place to protect consumers, workers, their health, and the environment. And would you want to imagine how San Diego would look if we catered to this industry even more than we already do? If we repealed all those laws tomorrow, do you really believe that the market price for housing would go down? Or that the quality of response to the regulated issues would improve? Or would the landowners and builders just be making even higher profits?

    These issues have had to be regulated because the industry would not - or could not - deal with them properly to begin with. Furthermore, the building industry is protected by state law that fees cannot be applied to any project without a direct nexus with the cost. And if the costs don't get paid for - or restraints are not in place to protect a community's values - then our quality of life goes down and the things that make San Diego, San Diego - get bulldozed out of existence. One of those values is housing for those who cannot afford market rates. But that should not be defined as a reduction in standards defined by the building industry itself - and without opening their books.

    By definition, you can never make money building housing for people who cannot afford it. The question is - how do you really get housing provided for those people. There is no question we are doing a poor job of it, but reducing standards is not the answer. Targeted loans to meet standards that payback should be routine. Density bonuses and clustering are other tools. Good project designs, efficient land use, more multi-family zoning, integration with large private projects and increasing funding for non-profit builders are also key answers. Those who are motivated to build quality housing de-linked from the profit pressures are best suited to fill the gap the marketplace always leaves.

    I support applications of methods and technologies that allow for reduced costs, but not under the guise of affordable housing. Standards themselves should not be reduced unless we want even more beach closures, traffic and filled-in canyons.

    Remember the classic Joni Mitchell song that forever documented the zeitgeist of the California building industry: "Pave paradise and put up a parking lot, don't it always seem to go, that you don't know what you've got til it's gone." San Diegans are increasingly striving and voting against the ways things "always seem to go" and are determined to protect what we can of paradise against the perpetual pursuit of pavement and to support housing for those who cannot afford market rates and to raise wages so that many more can.

    We should never forget that the purpose of government as cited by Mr. Doyle - to "meet the needs of its citizens" - is established with government of the people, by the people and for the people and not, of the building industry, by the building industry and for the building industry.

    Before we gut the regulations and standards that protect the public, let's ask the building industry if they are willing to cut the price of housing several thousand dollars for each regulation that is lifted.

    Until then, affordable housing must not be defined by the building industry as reduced standards which will not lower market prices nor improve housing affordability.