California lost 138,000 people to domestic migration in the 12 months ended in July 2017, according to U.S. Census Bureau data, with most of those departing being lower- and middle-income workers destined for Arizona, Texas, or Nevada. At a recent ULI San Diego/Tijuana event, land use experts discussed what is being done at the local, state, and federal levels to ease the cost of housing in California’s populous coastal areas.
Stockton Williams, ULI executive vice president of content and executive director of the Terwilliger Center for Housing, kicked off the event with a discussion of the current state of the Federal National Mortgage Association (Fannie Mae) and Federal Home Loan Mortgage Corporation (Freddie Mac), government-sponsored financial institutions that provide a secondary mortgage system for housing.
“The 30-year fixed mortgage is important to the stability of the housing market, especially for first-time and middle-income buyers,” Williams said. Fannie Mae and Freddie Mac were put under the conservatorship of the Federal Housing Finance Agency in 2008 because they owned or guaranteed a massive portion of the failed mortgages that triggered the housing crisis and Great Recession, he noted.
These firms, created to service affordable housing and other areas not served by private capital, are now also a primary funding source for apartment development, he noted. “Neither [of the past two] administration[s] has come close to creating policy for them,” he said, suggesting that though no reform is expected this year, a new Congress in January could change the environment.
Panelist Andrew Malick, director of San Diego–based Malick Infill Development, said the only way to address the city’s “missing middle”—a shortage of housing for middle-income households—is with dense residential development. He credited two San Diego politicians, State Senator Toni Atkins and Assemblyman Todd Gloria, for leading the charge in Sacramento to create policy that expands middle-income housing.
Atkins introduced Senate Bill 2, which imposes a $75 to $225 fee on real estate transactions to create an ongoing funding source for low- and middle-income housing. This fee would generate $229 million to $258 million each year, according to a Senate Appropriations Committee estimate.
Gloria introduced Assembly Bill 1637, which created the Housing Authorities Law, which authorizes local governments to create a housing authority to prepare, acquire, lease, and operate housing projects and housing developments for low-income households. It also authorizes San Diego and Santa Clara County to implement a pilot program to develop and finance a middle-income housing project.
Governor Jerry Brown has signed both bills into law.
Gloria’s bill also raised the income limit for affordable housing to 150 percent of the area medium income (AMI), noted panelist Debbie Ruane, executive vice president and chief strategy officer at the San Diego Housing Commission. It gives San Diego two years to create the middle-income demonstration project, but the city is still seeking funding, she said.
In February, Todd also introduced A.B. 2372, known as California’s Sustainable and Affordable (CASA) Housing Act, which would provide incentives for production of affordable housing. Proposed by San Diego City Council member Georgette Gómez in her 2017 Housing Action Plan and sponsored by the city of San Diego, the statewide bill would give developers a 20 percent floor/area ratio (FAR) density bonus for projects in transit priority areas that include 20 percent pre-density, low-income units at prices affordable to households earning 50 percent or less of AMI.
The FAR bonus would be calculated based on dwellings per acre to “naturally” result in smaller, more affordable dwellings for working families and low-income individuals, said panelist Lara Gates, chief of policy for Gómez. The bill also would reduce developer costs by calculating fees according to square footage rather than by unit. Encouraging YIMBYism (yes in my backyard), the opposite of NIMBYism (not in my backyard), the bill calls for at least 20 units per acre in residential neighborhoods.
Gates noted that the city decided to take this initiative to the state level for two reasons: it would allow these incentives to be used across the region and state, and it would expedite implementation. Local initiatives require developers to go through a lengthy community approval process, which not only adds time and expense to a project, but also increases uncertainty because opponents can launch a ballot initiative to delay a project or halt it entirely.
“There’s not one solution to the housing problem,” Ruane said. “We need to come up with as many tools as possible in the toolbox.” As an example, she said, in response to its huge problem with homelessness, San Diego enacted a “bridge to housing” plan providing three industrial-size tents with personal hygiene facilities that can accommodate up to 250 people each. Just this temporary solution got people off the streets during winter months and helped the city combat an outbreak of tuberculosis.
Moderator Ian Gill, principal at Silvergate Development, said pop-up hotels rooms similar to ones he saw in Mexico could also house the homeless, but the building code does not allow such an approach in San Diego. “Working with the city [to clear the way], we become more creative in providing housing for the homeless and low-income residents,” he said.
Gates said Gomez’s staff has been working diligently to introduce a “tiny home communities” program to San Diego; a similar program has been successful in increasing housing for middle- and low-income residents in Seattle, she noted.
Infrastructure fees are also thwarting effort to create more low- and middle-income housing, Gates said.
“The biggest issue is affordable and middle-income housing, but also residential real estate at large in both urban and suburban areas,” Williams said. He suggested that local governments consider tax relief to encourage production of more of this type of housing. Some jurisdictions suspend property taxes for the first ten years in order to generate desired development, and others defer impact fees for the same period. Tax relief or fee relief can be tied to inclusionary zoning, he noted.
“California, for better or worse, is on the forefront of land use control at the local level that has gotten in the way of solving housing problems because it gives local communities that lack housing a mechanism to block development,” Williams said. “What’s happening in California will start to spread.”
The middle-income housing crisis can only be solved is at the state level because of NIMBYism in suburban markets, said Gill. Such impediments as the high cost of land and high prevailing wages, which add 5 to 20 percent to project costs, make it hard for workforce housing projects to make economic sense in the urban core.
Gates, who played a central role in community plan updates for two San Diego neighborhoods, North Park and Barrio Logan, said NIMBY opposition in those cases focused on traffic and parking issues created by higher density. Barrio Logan homeowners thought up-zoning meant that high-rises would be built next to their single-family homes. Residents launched a successful referendum to block an increase in density.
The North Park community plan update calls for medium to high density, with up to 145 units per acre along transit corridors and in two mixed-use village areas. The city considered a 100 percent density bonus, which adds 50 units; the FAR bonus doubles that, Gates said. However, in order for a community to support that level of density, residents need to move from a reliance on automobiles to use of mass transit and bicycles, she said.
Retirees who attend council meetings to oppose projects “don’t understand the first thing about commuting on mass transit,” Gill said. “That is part of our young people’s lifestyle.” He suggested that a study of actual parking needs would help city officials achieve consensus for increasing density. “Downtown should be ground zero for mass transit, and we should not be creating projects in downtown at suburban parking standards,” he said.
“I am encouraged by the governor, the 14 housing bills passed last year, and adoption of the high-density community plan update in Uptown/Hillcrest,” he continued, but noted that 40 percent of the cost of housing is fees and regulation associated with the California Environmental Quality Act (CEQA), water quality, and the California Coastal Commission. “This is why housing costs at least 30 percent more in California,” he said.
Williams noted that as part of its plan to advance environmental goals, California will require that all new homes be net-zero energy beginning in 2020, which will add to the cost of construction. “Policy has to support living-wage goals and must pay for the extra infrastructure required,” he said.
Development regulations imposed by local, state, and federal governments, along with the high cost of land near transit and energy efficiency requirements, help bring the construction cost of affordable apartments to $450,000 to $500,000 per unit, Ruane said.
The San Diego City Council is changing regulations to reduce the amount of time it takes to get projects through the entitlement and permitting process and providing incentives such as density bonuses to encourage production of all types of housing located in transit priority areas, said Ruane. The city has approved too much luxury housing, she added, whereas housing for those with middle incomes has received the fewest permits. Meanwhile, a majority of middle-income residents are struggling to find housing, she said.