ET 02/01: Housing our neighbors: Twelve ideas to correct the housing shortage

Housing our neighbors: Twelve ideas to correct the housing shortage

by Terry Moore, CCIM

or the last generation, our county and our state have produced less than half the new rental housing needed for our neighbors who rent. UC Berkeley's John Landis has powerful information about California's housing supply and demand.(1)

Perhaps unconsciously, government policy has systematically discriminated against renters. In San Diego County, home-owners are primarily Caucasian. Renters are not. If you or I made choices that had the effect of discriminating against protected classes, we could be in trouble with the federal government. Government policies were enacted for good reasons, but they have had unintended consequences. Now is the time to correct that discrimination against our neighbors.

To correct the rental housing shortage, our society needs to make deliberate changes. This article recommends a dozen policy shifts to help house our neighbors over the next generation.

Why should we care?

First, let's state the obvious. In the short run, low vacancy and large rent increases will be good for your pocketbook and mine.

In the long run, there will be costly consequences. We will see two families living in two bedroom apartments and three families living in three bedroom apartments. That level of crowding does not promote domestic bliss or make it easy to study. Kids who do homework are less likely to be in gangs or drugs. Our society does not need more broken marriages or kids at risk.

On the financial side, we will face a prairie fire of rent control fights. It will be expensive in time and money to win those fights and disastrous to lose rent control battles.

Whether we build housing or not, people will have children. Our dynamic economy will draw people into this wonderful area. Apartment demand has exceeded new supply. Until there are structural political changes, the newspapers will be filled with pitiful stories of rent spike victims.

What would a sensible housing policy look like?

These ideas are based on accountability. Our society says that we care about housing. If we are serious, let's show it. If we have been bluffing, let's stop trying to fool people.

The policies are arranged under the branch of government that would implement them. One recommendation is for national government, three are for state, and the reminder are for local jurisdictions.

Federal Level

First, let's expand the low income housing tax credit. This 1986 law has been effective in building more affordable housing in every state. The program has four players. Each receives a benefit. The federal government gives up tax credits to obtain more housing. The states select which housing projects are built, based on unique criteria that each state adopts and applies. Nonprofit groups build the housing, but they don't have enough capital for the down payment. Private companies buy the tax credits from the non-profits. When all is done, the private companies have given cash to the nonprofit builder, who built the housing. The low rents are possible because of the low interest loan and no need to reward the capital.

Each state is allocated tax credits based on population. Nonprofit groups compete for the ability to sell the tax credits. Last year, twelve San Diego County non-profits battled for the tax credits. One group received tax credits; the other eleven got nothing.

Today, each state is entitled to tax credits at the rate of $1.25 per capita. There has been lobbing to increase the rate to $1.75 per capita. Instead, let's triple it to $3.75 per capita. We are expected to have a federal surplus. Can we agree that housing our citizens is a worthy goal?

State Level

Second, California could change the way property and sales taxes are divided. Currently, land use choices are fiscalized: every city in the state has an incentive to authorize large retailers or auto dealerships. These businesses bring sales tax revenue to the cities. Apartments do not. Commercial uses require fewer schools and less police and fire services than do apartments. Under today's system, cities that allow new apartments lose money. Each mayor hopes the neighbor city will build the apartments.

In fact, apartment properties sell more frequently and generate more property tax revenue than do slower turning commercial properties. At every sale, the value is reassessed and it is almost always higher. Over a generation, the more frequent reassessments mean that apartments pay higher property tax revenue than commercial uses. In other words, apartments more than pay their way.

The cities receive less than 20% of the property taxes. State government receives a much larger share of the property tax revenue. State government profits from apartments, while cities pay higher costs for apartments. The state could redistribute the tax load so that more money goes back to the municipalities that are accommodating renters.

There are several alternatives: A) give more back to the counties and cities in general; B) change the sales tax split; C) give a higher percentage of property taxes back for apartment uses than for commercial uses; or D) use some of the proceeds to pay off more bonds under an expanded California low-income housing program. There are other incentives.

Third, change state law so that municipalities that don't use housing redevelopment money within five years forfeit the money to the closest municipality that has used its housing redevelopment money. If a group of citizens don't use the resources, give the resources to a neighbor city that is caring for renters.

Fourth, cities that are not making progress toward fair share housing within five years lose 20% of their state reimbursements.

Local Level

If we are serious about smart growth then let's put our money where our mouth is.

Fifth, put community resources into the census tracts that accept higher density. Make the rewards TRULY SIGNIFICANT. If North Park or Spring Valley will accept more apartments but Scripps Ranch won't, then infrastructure money will go to the areas that will accommodate our citizens. The city would give those areas huge preferences for: bike lanes, libraries, parks, pools, recreation facilities, sewer repair, sidewalks, street lights, mass transit, police whatever the welcoming local community needs. Community block grant money could fund discretionary programs.

If the affluent areas go for a decade with no community facilities, they might begin to welcome rental housing. Perhaps the plush neighbors will fund their improvements from self-assessment districts. That would be fine; there would be more money for the areas that have no other means to improve their infrastructure.

Sixth, build at least one mixed use, smart growth demonstration project in each city-council and county-supervisor district. Hillcrest already has Uptown District. The local government can hold a design contest. The winning project would pay no development, entitlement, or building fees on the demonstration project. Twenty percent of the residential units would be affordable units for twenty years. Community Block Grants are available for local government to allocate as they see fit.

Seventh, charge all entitlement fees based on either the square footage or the total valuation. Today, the government entitlement costs are more than twice as much per square foot for residential as commercial uses. Currently, a 5,000-square-foot mansion incurs only about 50% more fees than a 500-square-foot studio apartment. Equalize the rate paid by all types of construction. Thus, the 5,000-square-foot mansion would pay the same government fees as ten 500 square-foot-studios, or a 5,000-square-foot fast food building.

Eighth, revise the zoning code so that "granny flats" are automatically allowed in ANY single-family area, with no ability for any neighbor to object. In fancy areas, more maids would live on site. In moderate zip codes, a helper unit would make the mortgage a little easier for the homeowner. Also, remember that baby boomers have aging parents. Having grandmother close by is more compassionate than stuffing her in congregate care ten miles away.

Ninth, cut the fees 25% on mixed use that includes at least 25% of the space as residential use. Smart growth says bring the people and the jobs together. All citizens hate extra traffic. Pedestrian-scale building is popular around the world. If necessary, raise all other building fees one or two percent to offset the discount given for mixed use.

Tenth, modify zoning so that mixed use that includes residential can automatically go into any zone that includes office or retail uses.

Eleventh, increase the density bonus allowance to 20% in targeted areas. Have the rent restrictions on those density bonus units last for 20 years.

Last, the federal government distributes "HOME" funds. Localities can use the money to encourage rehabilitating rental housing or subsidizing first time home buyers. Several of our major cities have imposed so many additional restrictions on renovating rental housing that the money is not used. Then the government directs the money to first time home buyers. There is nothing wrong with helping first time home buyers. However, there are already many programs for these neighbors. This policy is a clear example of discrimination against renters. Eliminate any additional municipality restrictions to assisting the rental housing renovation.

Conclusions

You have heard of the Golden Rule. Our society has two notions of the Golden Rule. "Treat others the way you would have them treat you," or "Those with the gold make the rules." The way we treat renters will show who and what we value.

If we are serious about adequate housing for our neighbors, then we can overcome NIMBYism. If we want our kids - and grandkids to live here, we need to build housing, including rental housing. For most readers, rental housing was the first step on the housing ladder. For many of our residents, there will be nothing but rental housing.

For half of this county, home is an apartment, not a single family home or condo. Let's not force them to share their apartment with two other families.

You and I have been fortunate. We won the birth lottery. We now live in the US. We own income property. With privilege comes responsibility. If we don't act responsibly, who will?

A hundred years after you are buried, what will your legacy be? The old geezer who paid for grandkids' indulgences or a community builder?

You have read a dozen of my suggestions. What are your solutions? Contact Bob Pinnegar at SDCAA or me.

Terry Moore, ABR, CCIM, MBA believes in active citizenship. He is a broker with ACI Commercial and Director for San Diego Interfaith Housing. You can reach him at (619) 497-6424 or tmooreccim.net or via www.terrymoore.net

References

1. John Landis' information is available at www.hcd.ca.gov or by calling Anna Golden (916) 445-4775. Ask for a copy of Raising the Roof, projections on the state's housing stock for the next twenty years

Housing our neighbors: Twelve ideas to correct the housing shortage by Terry Moore, CCIM
	or the last generation, our county and our state have produced less than half the new rental housing needed for our neighbors who rent. UC Berkeley's John Landis has powerful information about California's housing supply and demand.(1) Perhaps unconsciously, government policy has systematically discriminated against renters. In San Diego County, home-owners are primarily Caucasian. Renters are not. If you or I made choices that had the effect of discriminating against protected classes, we could be in trouble with the federal government. Government policies were enacted for good reasons, but they have had unintended consequences. Now is the time to correct that discrimination against our neighbors. To correct the rental housing shortage, our society needs to make deliberate changes. This article recommends a dozen policy shifts to help house our neighbors over the next generation.
Why should we care?
	First, let's state the obvious. In the short run, low vacancy and large rent increases will be good for your pocketbook and mine. In the long run, there will be costly consequences. We will see two families living in two bedroom apartments and three families living in three bedroom apartments. That level of crowding does not promote domestic bliss or make it easy to study. Kids who do homework are less likely to be in gangs or drugs. Our society does not need more broken marriages or kids at risk. On the financial side, we will face a prairie fire of rent control fights. It will be expensive in time and money to win those fights and disastrous to lose rent control battles. Whether we build housing or not, people will have children. Our dynamic economy will draw people into this wonderful area. Apartment demand has exceeded new supply. Until there are structural political changes, the newspapers will be filled with pitiful stories of rent spike victims.
What would a sensible housing policy look like?
	These ideas are based on accountability. Our society says that we care about housing. If we are serious, let's show it. If we have been bluffing, let's stop trying to fool people. The policies are arranged under the branch of government that would implement them. One recommendation is for national government, three are for state, and the reminder are for local jurisdictions.
Federal Level
	First, let's expand the low income housing tax credit. This 1986 law has been effective in building more affordable housing in every state. The program has four players. Each receives a benefit. The federal government gives up tax credits to obtain more housing. The states select which housing projects are built, based on unique criteria that each state adopts and applies. Nonprofit groups build the housing, but they don't have enough capital for the down payment. Private companies buy the tax credits from the non-profits. When all is done, the private companies have given cash to the nonprofit builder, who built the housing. The low rents are possible because of the low interest loan and no need to reward the capital. Each state is allocated tax credits based on population. Nonprofit groups compete for the ability to sell the tax credits. Last year, twelve San Diego County non-profits battled for the tax credits. One group received tax credits; the other eleven got nothing. Today, each state is entitled to tax credits at the rate of $1.25 per capita. There has been lobbing to increase the rate to $1.75 per capita. Instead, let's triple it to $3.75 per capita. We are expected to have a federal surplus. Can we agree that housing our citizens is a worthy goal?
State Level
	Second, California could change the way property and sales taxes are divided. Currently, land use choices are fiscalized: every city in the state has an incentive to authorize large retailers or auto dealerships. These businesses bring sales tax revenue to the cities. Apartments do not. Commercial uses require fewer schools and less police and fire services than do apartments. Under today's system, cities that allow new apartments lose money. Each mayor hopes the neighbor city will build the apartments. In fact, apartment properties sell more frequently and generate more property tax revenue than do slower turning commercial properties. At every sale, the value is reassessed and it is almost always higher. Over a generation, the more frequent reassessments mean that apartments pay higher property tax revenue than commercial uses. In other words, apartments more than pay their way. The cities receive less than 20% of the property taxes. State government receives a much larger share of the property tax revenue. State government profits from apartments, while cities pay higher costs for apartments. The state could redistribute the tax load so that more money goes back to the municipalities that are accommodating renters. There are several alternatives: A) give more back to the counties and cities in general; B) change the sales tax split; C) give a higher percentage of property taxes back for apartment uses than for commercial uses; or D) use some of the proceeds to pay off more bonds under an expanded California low-income housing program. There are other incentives. Third, change state law so that municipalities that don't use housing redevelopment money within five years forfeit the money to the closest municipality that has used its housing redevelopment money. If a group of citizens don't use the resources, give the resources to a neighbor city that is caring for renters. Fourth, cities that are not making progress toward fair share housing within five years lose 20% of their state reimbursements.
Local Level
	If we are serious about smart growth then let's put our money where our mouth is. Fifth, put community resources into the census tracts that accept higher density. Make the rewards TRULY SIGNIFICANT. If North Park or Spring Valley will accept more apartments but Scripps Ranch won't, then infrastructure money will go to the areas that will accommodate our citizens. The city would give those areas huge preferences for: bike lanes, libraries, parks, pools, recreation facilities, sewer repair, sidewalks, street lights, mass transit, police whatever the welcoming local community needs. Community block grant money could fund discretionary programs. If the affluent areas go for a decade with no community facilities, they might begin to welcome rental housing. Perhaps the plush neighbors will fund their improvements from self-assessment districts. That would be fine; there would be more money for the areas that have no other means to improve their infrastructure. Sixth, build at least one mixed use, smart growth demonstration project in each city-council and county-supervisor district. Hillcrest already has Uptown District. The local government can hold a design contest. The winning project would pay no development, entitlement, or building fees on the demonstration project. Twenty percent of the residential units would be affordable units for twenty years. Community Block Grants are available for local government to allocate as they see fit. Seventh, charge all entitlement fees based on either the square footage or the total valuation. Today, the government entitlement costs are more than twice as much per square foot for residential as commercial uses. Currently, a 5,000-square-foot mansion incurs only about 50% more fees than a 500-square-foot studio apartment. Equalize the rate paid by all types of construction. Thus, the 5,000-square-foot mansion would pay the same government fees as ten 500 square-foot-studios, or a 5,000-square-foot fast food building. Eighth, revise the zoning code so that "granny flats" are automatically allowed in ANY single-family area, with no ability for any neighbor to object. In fancy areas, more maids would live on site. In moderate zip codes, a helper unit would make the mortgage a little easier for the homeowner. Also, remember that baby boomers have aging parents. Having grandmother close by is more compassionate than stuffing her in congregate care ten miles away. Ninth, cut the fees 25% on mixed use that includes at least 25% of the space as residential use. Smart growth says bring the people and the jobs together. All citizens hate extra traffic. Pedestrian-scale building is popular around the world. If necessary, raise all other building fees one or two percent to offset the discount given for mixed use. Tenth, modify zoning so that mixed use that includes residential can automatically go into any zone that includes office or retail uses. Eleventh, increase the density bonus allowance to 20% in targeted areas. Have the rent restrictions on those density bonus units last for 20 years. Last, the federal government distributes "HOME" funds. Localities can use the money to encourage rehabilitating rental housing or subsidizing first time home buyers. Several of our major cities have imposed so many additional restrictions on renovating rental housing that the money is not used. Then the government directs the money to first time home buyers. There is nothing wrong with helping first time home buyers. However, there are already many programs for these neighbors. This policy is a clear example of discrimination against renters. Eliminate any additional municipality restrictions to assisting the rental housing renovation.
Conclusions
	You have heard of the Golden Rule. Our society has two notions of the Golden Rule. "Treat others the way you would have them treat you," or "Those with the gold make the rules." The way we treat renters will show who and what we value. If we are serious about adequate housing for our neighbors, then we can overcome NIMBYism. If we want our kids - and grandkids to live here, we need to build housing, including rental housing. For most readers, rental housing was the first step on the housing ladder. For many of our residents, there will be nothing but rental housing. For half of this county, home is an apartment, not a single family home or condo. Let's not force them to share their apartment with two other families. You and I have been fortunate. We won the birth lottery. We now live in the US. We own income property. With privilege comes responsibility. If we don't act responsibly, who will? A hundred years after you are buried, what will your legacy be? The old geezer who paid for grandkids' indulgences or a community builder? You have read a dozen of my suggestions. What are your solutions? Contact Bob Pinnegar at SDCAA or me.
Terry Moore, ABR, CCIM, MBA believes in active citizenship. He is a broker with ACI Commercial and Director for San Diego Interfaith Housing. You can reach him at (619) 497-6424 or tmooreccim.net or via www.terrymoore.net References 1. John Landis' information is available at www.hcd.ca.gov or by calling Anna Golden (916) 445-4775. Ask for a copy of Raising the Roof, projections on the state's housing stock for the next twenty years