February 26, 2021 - From the February, 2021 issue

We're Solving the Wrong Crisis: Finding & Fixing the Real Housing Crisis in California 

As the state legislature turns its attention once again to efforts to 'streamline' local planning and landuse practices in the name of the 'housing crisis', TPR shares the latest newsletter from Embarcadero Institute on the state's housing needs and the legislature's incongruous approach to solving the state's affordable housing shortage. Embarcadero Institute president and co-founder, Gab Layton reminds readers that when incentives are created for market-rate housing, Big Tech and real estate interest groups benefit at the expense of addressing the 'real' crisis: California has far too little affordable housing for the minimum wage-earners who live in metro areas. In the spirit of "you can't manage what you don't measure," Layton advocates for an accurate accounting of housing need in order to target resources where they're needed most: developing and preserving affordable housing.


Embarcadero Institute

" According to California State Lobbying Search, tech-backed CA YIMBY spent more than $1.2 million lobbying for bills that favored market-rate housing. The state should realize the market will take care of itself, and focus on the real challenge – providing sufficient housing for its most vulnerable workers and residents."—Gab Layton

1. We're solving the wrong crisis. 

The real housing crisis is a serious shortage of housing for families below median income. Contrary to popular belief, the data say that if you’re earning a median-income or above in places like the Bay Area, there may be no better place to live in the country on your residual income (income after subtracting rent and taxes and indexed for cost of living). This is not the story that is circulated in housing crisis memes for two reasons.

Firstly, journalists conflate rent with affordability, but affordability has a denominator – income. Median rents are sky-high in the Bay Area, but so are median incomes. 

Secondly, there’s an incentive for tech companies (who want as much market-rate housing as possible) and real estate interests (who want to develop as much market-rate housing as possible) to shift the focus away from affordable housing to market-rate housing. Money (tech millions financing the YIMBY movement and real-estate millions flowing into political donations) purposefully perpetuate this misdirection. The meme is so strong that it is now considered heresy to suggest the focus should be on affordable housing.

The real issue: Our ratio of jobs-to-housing units suggests metro areas in California have a healthy balance of jobs and housing units.  However, there’s a serious mismatch between the type of housing and the type of job. California has far too little affordable housing for the minimum wage-earners who live in metro areas. Minimum-wage earners, in large numbers, are forced to either stretch well beyond their means or combine households to pay market-rate rent in places where they live and work. That’s the crisis.
 

For the record, the Embarcadero Institute takes the real housing crisis seriously and is committed to measures – whether taken at the federal, state, or local level (and ideally there’d be a coordinated effort by all three) – that would turn the tide of longstanding problems of housing inequity. 
 

2. Doubt and uncertainty have politicized the problem and the solution.

State legislators, such as Senator Wiener, have undermined the work of the Dept. of Finance (DOF) and created doubt and uncertainty about its estimates of housing needs. This has paved the way for other special interests to question the targets. Big Tech and real estate interest groups benefit when incentives are created for market-rate housing, but none of that helps affordable housing. According to California State Lobbying Search, tech-backed CA YIMBY spent more than $1.2 million lobbying for bills that favored market-rate housing. The state should realize the market will take care of itself, and focus on the real challenge – providing sufficient housing for its most vulnerable workers and residents.

3. Only two estimates clear the state's feasibility hurdle.

It turns out there is a limit to how much housing is good for the economy. Given the number of jobs that exist in a labor-market area, there is a ‘goldilocks’ ratio for the number of housing units relative to jobs. If too few housing units people have to commute in for jobs from housing that is outside the metro area, but if too much housing the problem is reversed, i.e., too many people have to commute out to jobs. Neither situation is great for fighting climate change. Two housing estimates, both from professional demographers, produced a healthy balance of jobs and housing, according to the American Planning Association: 1) the Dept. of Finance estimate, that does not include the second round of adjustments called for by Senate Bill-828, and 2) the Federal Home Loan Mortgage Corporation (Freddie Mac) estimates.

4. Clarifying the cause clarifies the solution.

NIMBYism isn’t the cause of the affordability crisis. That’s a convenient but unsubstantiated deflection. The affordability crisis is a result of the state’s deliberate abrogation of its responsibility to provide housing for lower-income families. For decades the state has set a target of one affordable home for every one market-rate home but has failed to provide funding for those affordable housing targets. As a result, the Bay Area has for decades been building one affordable home for every four market-rate homes, and more recently only one affordable home for every seven market-rate homes. After several decades no trickle-down housing has materialized. Instead, lower-income households have been either forced to stretch well beyond their means or combine households in order to pay market-rate rents. 

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The solution: the state either needs to commit to a state housing voucher program to supplement federal efforts for lower-income families, or it needs to prioritize a statewide, state-funded effort to build affordable housing. If solving the housing crisis is the state’s number one priority as many state legislators and the governor suggest, then the budget should reflect that. Instead, we have seen state funding for affordable housing gouged in 2010 with the shuttering of Redevelopment Agencies and never replaced. In addition, Governor Newsom has twice vetoed thoughtful bills that would have increased funding for affordable housing. It will only become a more expensive problem to solve going forward, as increased density drives up the price of land.
 

5. To our critics: Please read and check before opining.

Housing needs analysis is complicated and careless readers of our reports keep suggesting we said things we didn’t. We’re a little tired of guys with degrees from elite colleges who either aren’t able or can’t be bothered to follow the arguments we make with government data and then misrepresent our work. You can read more below, but in summary here’s what the Embarcadero Institute believes.  

  1. We believe the analysis of California’s Dept of Finance. Unlike some state legislators, we think those guys really know what they are doing.

  2. Adding fudge factors to the housing numbers doesn’t help solve the problem. It actually hurts because a) it camouflages the real problem – that we have a very serious shortage of affordable housing; b) it leads to sloppy, unsubstantiated magical thinking such as the state's 60% affordable housing target will materialize if we just build more market-rate housing;  c) it provides cover for Big Tech and real estate interest groups to push their profit-seeking agendas at the expense of lower-income families.

  3. We think the state needs to accept responsibility for its role in under-funding affordable housing for decades. The state should stop blaming cities for the fiasco they created. Cities are exceeding their state-mandated historical market-rate housing targets. They’re only failing their affordable housing targets because they don’t have the funding to make affordable housing projects economically viable for developers. The state not only doesn’t support them in their efforts to build affordable housing, it undermines them by creating more incentives for market-rate housing.

One of our detractors, Professor Elmendorf (UC Davis), has published his own proprietary model to estimate housing needs in the Bay Area. His model is the basis for a tech-backed YIMBY Action lawsuit against the state Dept. of Housing and Community Development (HCD). In reviewing his work, however, we found a number of errors. He used simple averages where HCD had used weighted averages. In other cases, he used only five instead of all nine Bay Area counties, and may have selectively excluded certain qualifying "fast-growth" metros from his data set. It also appears he may have used only owner-occupied instead of owner-occupied and renter data in his cost-burdening statistics. The red flag for Elmendorf should have been that he couldn’t reproduce the HCD numbers (the Embarcadero Institute could). Instead of figuring out where his analysis went wrong, he assumed he was right and that the error lay with HCD. It begs the question (and harkens back to our point about state legislators undermining the work of their own departments) how it can be that a proprietary housing assessment with data errors ends up being the basis for a lawsuit against the HCD.

Read the full newsletter, here

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© 2021 The Planning Report | David Abel, Publisher, ABL, Inc.