Housing Hysteria

by Carolyn Chase
August 5, 2002


The irony of the Building Industry Association stumping for affordable housing has not escaped anyone who understands that their direct interest is to maximize the profits on each and every unit. After all, this is one of the duties to investors in a for-profit enterprise. With that as a premise, as long as you can maximize profit building "unaffordable housing" why do anything else?

    Statewide, desirable market conditions are resulting in lots of new, expensive housing construction, unaffordable to most. Rents have risen. Houses being vacated as some move up into larger, newer developments are selling at premium prices. Such are the benefits of the current coincidence of low interest rates and cash fleeing the stock market to more tangible assets. (There is a real reason it’s called "real" estate. You know what it is, you know where it is).

    But while long-time real estate owners are reaping various benefits, lots of others are being priced out.

    Which brings us to the current affordable housing proposal coming before the City Council on August 6th. Unprecedented discussions about San Diego’s unaffordable housing have taken place since a July 2001 City Council direction that staff create proposal for a "flexible inclusionary housing program with incentives."

    Inclusionary housing mandates that new housing developments make provision for some below-market-rate housing. Developments are required to include a fixed percentage of affordable units as part of their product mix. There is already a requirement that 20% of the units developed in the City’s Future Urbanizing Area be affordable to a certain percentage of families qualifying based upon their income.

    But inclusionary policies are anathema to the building industry. This has never been so clearly displayed as with their hardball attacks against the realtors and apartment owners who backed an inclusionary proposal of their own.

    Like some environmentalists who blindly support regulations or litigation that cannot be proven to solve environmental problems, builders will too often blindly oppose regulations even when they would solve a problem they purport to care about.

    After hardball pressure from the B.I.A., the Realtors revoked their support. But here are the summary details of the "Inclusionary Housing Proposal" originally endorsed by the San Diego Association of Realtors and the Apartment Owners Association.

    "The leadership of the Association believes that this proposal will provide much needed housing without significantly impacting the housing affordability of the region.

    "The affordability requirement for all for-sale housing should be an amount equal to 20 percent of the housing units at an average of 65 percent of Median Area Income. [The San Diego countywide MAI is $60,100 for a family of four].

    "Affordable units may be developed offsite as rental units in a rental community with a mix of inclusionary and market rate units.

  • The unit mix must be at least 40 percent inclusionary/60 percent market rate mix.
  • The rental units are required to meet current building code and design standards.
  • The inclusionary units must be an average of 1,000 square feet in size.
  • The inclusionary units must not be distinguishable from market rate units from the exterior."

    Their summary analysis of the impact on the housing market:

"If the developer decides to build the rental product in-house, there would be no overall increase in the cost of housing to the homebuilder. If the builder decided to outsource the development of the rental units, the overall impact on housing costs would be 0.9 percent."

    They estimate that this proposal "would provide the highest number of units at the lowest impact on the overall cost of housing." After being savaged by the B.I.A., city staff dismissed the proposal as "too complicated."

    Staff’s recommendation is for only a 10% inclusionary requirement (20% for Masterplanned communities). However, it allows developers to pay a sliding scale per-foot "in lieu" fee, with a maximum impact of $5,000/unit instead of requiring the inclusionary units to be built.

    The unanimous recommendation of the Planning Commission was that the opt-out of in-lieu fees be limited to smaller projects. Public testimony reported that Oceanside implemented their inclusionary housing ordinance in the mid-90s and, since then, 100% of projects had opted to pay the fee - not a single affordable unit was built. Called a "model of non-success," only recent fee increases have led to inquiries about possibly actually building additional units.

    Given Oceanside’s experience that a $10,000 fee is only now beginning to generate inquiries about actually building units, staff should provide more evidence that setting the fee at half that will produce the units they are projecting. What the in-lieu fees could be used for is also yet to be determined. The Planning Commission asked staff to investigate and recommend ways to best apply in-lieu fees so that they are invested in the same community planning area. One of the principles of inclusionary housing is to attempt to prevent ghettoization – the unhealthy phenomenon of concentrated poverty dominating an area.

    Why is it so difficult to produce results on a problem everyone is proclaiming is so important? The people with the housing problem are politically weak. Most are working low-paying jobs and have little time to advocate for themselves at public hearings or attend obtuse daytime meetings with lobbyists and professional housing advocates. Nor does the complex fashion in which housing is produced lend itself to easy layperson jousting with the system.

    With the proposal narrowed to inclusionary requirements and with the in-lieu fee loophole, all sides agreed that this would not address the need and that a "more comprehensive approach is needed." This also includes addressing community concerns about where additional housing growth is planned. Money alone cannot solve this problem.

    Based on the information provided, I for one, was not convinced that the staff’s proposal is indeed the most financially effective, or that it would produce the highest yield – or even the yield they are projecting.

    But as Planning Commissioner Barry Schultz put it, "if they are not required to build it, they won’t build it."

    The Planning Commission unanimously recommended that the City Council support an inclusionary housing requirement at this time.