Wednesday, July 1, 2015

Prop 13, Part 2: How to Fix California's Broken Property Tax Law

Proposition 13, the constitutional amendment enacted in 1978, transfers wealth from young to old, from poor and middle-class to rich, from black and Latino to white, and from renter to owner. As the "third rail" of California politics, reforming the law will be challenging. But there are realistic, workable solutions to the problems posed by Prop 13, and reform has the potential to provide incredible benefits for the majority of California's residents.



Image source: Capital and Main.

In Part 1 of this two-part series, I discussed all of the reasons Prop 13 is such a backwards, destructive law: basically, it does a poor job of targeting those most in need of assistance; forces the government to find revenues in other, less progressive places; places a greater burden on young, new, and non-white residents of California; and discourages physical and economic mobility. It also ignores the key fact that people whose homes increase in value virtually always come out ahead. Way ahead. The value of someone's house goes up by 50 percent and they're the ones we're worrying about? In a state with nine million people living in poverty? Really??

Ahem.

So, with the law's many faults laid bare, I'd like to turn to how we make things better—how to change Prop 13 into something that protects those in need of protection, and creates a fairer, more equitable tax structure for the rest of us.

WHAT TO KEEP

There are two things that people really love about Prop 13 as it pertains to property taxes. First is that it keeps their taxes relatively low by putting a cap on the property tax rate (one percent) and limiting how quickly the assessed value of their homes can increase (two percent per year). Second, and for the same reasons, it makes their property tax payments very predictable—as long as they stay in the same place. These are nice things to have, and people who enjoy them are predictably loathe to give them up.

For primarily political reasons, any reforms to Prop 13 will probably need to preserve these two features: low rates and predictability. If changes result in dramatically higher or wildly unpredictable tax payments for a large number of Californians, they're very unlikely to be adopted by a vote of the people. Fortunately, it's entirely possible to resolve many of the worst aspects of Prop 13 without placing any additional burden on homeowners—at least no burden they'll ever feel.

WHAT TO CHANGE

The most nonsensical thing about Prop 13 is that it treats rising home prices as though they're harmful to property owners. This is very obviously false. I know this because if I owned a home and it increased in value by $100,000, I would be very happy, not very sad. Even if it meant paying an extra thousand dollars a year in property taxes (which it would, without Prop 13), I would still be really excited about it.

What we need to do is change the law in a way that recognizes the glaring fact that increasing values are good for homeowners, while also acknowledging that there are some who can't afford significantly higher property tax payments—pensioners and others on a fixed, limited income. And, that while there are quite a few homeowners who could afford to pay taxes on the full value of their homes, they'd rather not. Reform must balance these interests without agitating anyone too greatly.

The way to do that is fairly simple, and it would look like this:

  1. Let people continue paying property taxes on their homes as though they're increasing in value by just two percent per year.

  2. Reassess the actual value of people's homes every few years, and track the difference between what they're paying at the two percent level and what they would pay at the full, actual assessed value of their home.

  3. When they sell their home, collect the difference from the proceeds of the sale.

Under this system, no one is being forced out of their home by rapidly increasing property tax payments. More property tax revenue is collected, allowing the state government to cut income and sales tax rates. Residents are placed on a much more equal footing, regardless of age or tenure. Current homeowners are less discouraged from moving to a new home when it otherwise makes sense for them to do so.

Money is currently being transferred from newer to older residents, and from younger to older and non-white to white homeowners. This is a system very clearly in need of fixing. Source: Dowell Myers, Urban Planning Research.

And people who win big in the housing appreciation lottery still come out way ahead. Take, as an example, a home that's purchased for $400,000 today. Assume its actual resale value increases by an average of 5 percent per year, but under Prop 13 its taxable value only increases by 2 percent annually. Over a 20-year period the taxable value of the home would increase to $583,000 and the homeowner would pay $107,000 in property taxes.

That home's actual value—what it would sell for on the open market—is $1.01 million. If the owner sold their home and had to pay the difference between the "true value" property taxes and the "two percent per year" Prop 13 taxes, they would owe an extra $38,500 in property taxes at the point of sale. They'd still come out with a healthy profit of $465,000 on an initial $400,000 investment. If their home's value instead increased by 6 percent per year, they'd owe $55,000 at the point of sale, but they'd have earned a total profit of $648,000—the faster their property value increases, the larger the difference between their resale value and their total property tax bill. I don't feel too bad for them; do you?

MORE BENEFITS

Although this system doesn't raise quite as much revenue as if Prop 13 was abolished completely (since the incremental taxes are collected after the actual assessment, when inflation had eroded some of their value), that's actually okay. The purpose of this reform isn't to increase revenue, it's to level the playing field. Over time the property tax would increase as a share of total government revenues and the state could pare back its contributions to local school districts by an equal amount (or a lesser amount, if we wanted to prioritize education). This would in turn allow California to cut sales taxes and/or income taxes—say, by eliminating the lowest tax brackets altogether, and effectively giving every working Californian a pay raise.

Cutting taxes elsewhere to "pay" for this bill would be a great political sell, too: not only would no one's property tax bill go up in the short-term, everyone would also get a break on other taxes. The immediate impact would be to put more money in people's pockets; those tax cuts would be back-filled in the least painful way possible, and by those in the best position to pay. Because this reform's impacts would take at least a few years to accumulate to a noticeable level, reductions in sales, income, and other taxes would also need to be phased in slowly.

Over time, homeowners would see less need hold onto their homes for tax reasons, and we'd see more of them moving to new homes in locations that were actually convenient for them. This would benefit the homeowners themselves, obviously, but would also help young and first-time homebuyers who are competing in a housing market with extremely limited supply. This in turn could help mitigate some of the demand pressures that are making housing so expensive—for both owners and renters.

CONCLUSION

This is just a general framework for reform; the specifics could well look very different. I think this proposal strikes a strong balance between the interests of current homeowners (who will tend to be supportive of preserving Prop 13 and need to be brought along somehow) and those that rent or can't afford to own a home (who will tend to be supportive of reforms in whatever form they take). Both groups will be needed to change the law, and so the needs of both must be addressed.

As with everything else I write about, this isn't the final word on the subject, so let me know what you think of this idea, potential pitfalls, and what you might change to make it work better. And share with your friends, neighbors, advocates, and elected leaders if you think this idea has potential!



Prop 13, Part 1: California's Property Tax Law is Completely Broken

Proposition 13, the constitutional amendment, enacted in 1978, transfers wealth from young to old, from poor and middle-class to rich, from black and Latino to white, and from renter to owner. As the "third rail" of California politics, reforming the law will be challenging. But there are realistic, workable solutions to the problems posed by Prop 13, and reform has the potential to provide incredible benefits for the majority of California's residents.



If there's one reason I don't stay in California long-term it will be because of a law that many state residents have never even heard of: Proposition 13. It's something only a planner could think, I know. But despite its lack of notoriety outside urban planning circles, Prop 13 is among the most regressive, destructive tax structures in the nation—and a great reason to choose somewhere else to live if you don't already own property here.

BACKGROUND

Prop 13, also known as "People's Initiative to Limit Property Taxation," was a ballot initiative approved by California voters in 1978, and was one of the earliest manifestations of the tax revolt that swept through the nation. It included several key provisions, including a cap on property tax rates, limits on the frequency and scope of property value reassessments, and the two-thirds requirement for raising taxes that Californians are all familiar with. It's viewed by many as the "third rail" of California politics, much like Social Security or Medicare at the federal level. Unlike these federal programs, however, it has a very limited moral or economic rationale.

For our purposes, the most important provision in the law is the one that limits annual increases in taxable property value to two percent each year. Since actual property values have increased by an average of much more than two percent per year, this effectively means that the longer a homeowner or landlord retains majority ownership of their property, the greater the difference between the actual value of their home and the value that home is assessed at. For someone who bought a home in LA in 1980, that's very good news: over the past 35 years home values in the city have increased by approximately 450 percent, while the taxable value of their home—assuming they held onto it for that entire period—would have increased just 100 percent. A home bought for $100,000 in 1980 could now sell for $550,000 (and possibly much more), but the owner's property taxes would be the same as for someone who bought a $200,000 home today—if such a thing still existed in California.

The upside to Prop 13, and one of the primary reasons it was voted into law nearly 40 years ago, is that it protects residents from displacement when their home increases in value faster than their income. Consider an elderly homeowner in San Francisco or Santa Monica that purchased their house before their neighborhood gentrified: if their home had increased in value from $100,000 to $800,000 over the past few decades (an entirely plausible story in neighborhoods throughout coastal California), they might genuinely struggle to afford $8,000+ per year in property taxes on a fixed income—Proposition 13 protects them from losing their home and their community to this cold financial calculus.

In order to protect this narrow set of vulnerable Californians from displacement—a protection we generally don't extend to renters, who tend to be much less financially stable, by the way—Prop 13 restructured the housing market in a way that dramatically impacts every person in the state. There are numerous drawbacks to this restructuring; below are a few of the most serious:

  • The greatest tax breaks accrue to those least in need of housing assistance. Generally speaking, the longer you've lived in your home and the faster your neighborhood has appreciated in value, the bigger your tax break from Prop 13. In LA and probably elsewhere, most of the increases in home value are happening in whiter, more affluent neighborhoods. There are real people that rely on Prop 13 to protect them, but much like with the mortgage interest tax deduction, the tax breaks tend to accrue to households that are at no risk of displacement or financial hardship. Further, while rent control in Los Angeles (for example) only applies to multifamily units built before 1979—leaving all other renters out in the cold—all property owners are protected from property tax increases, regardless of when their buildings were built or whether the owner even lives in them.
It's believed that the growth in wealth inequality across the world may be driven by increasing housing costs, and Prop 13's transfer of wealth to older, wealthier property owners exacerbates this. Image source: Matthew Rognlie, Brookings Institute.
  • Less tax revenue from property taxes means more must be raised elsewhere. When we arbitrarily depress property tax revenues we're forced to make up the difference elsewhere, often with less desirable and/or more regressive taxes. Today income taxes make up the largest share of state revenues (about $69 billion in 2014, compared to roughly $50-55 billion in property tax revenues), and while income taxes in California are fairly progressive, it's best to minimize taxes on activities we want to encourage, like work. Worse are sales taxes, which tend to suck up a larger share of poorer residents' incomes than they do for those that earn more. The state collects over $20 billion in sales taxes each year. If we boosted property tax revenue, we could cut these other taxes.
  • Local governments have less control over their budgets, and are more dependent on state support. Property taxes are collected and spent locally, by cities, counties, and school districts—the state doesn't get any of it. Because of Prop 13, though, local jurisdictions can't collect enough to fund their school districts. The state has to step in to provide support, leaving local governments more fully at the mercy of the state and its funding decisions. Relatedly, this encourages poor planning decisions that favor sales tax-producing uses such as big box retail outlets and discourages residential uses that rely solely on property tax revenues to support government services.
  • The greatest tax burden falls on young and first-time home buyers. The longer you've owned your home, the lower your effective tax rate. As a result, first-time homebuyers will always bear the highest effective property tax, even though they're earning less than their more established neighbors. It's entirely plausible to have a couple in their 30s earning $80k and paying $5,000 a year in property taxes, living next door to a couple in their 50s earning $150k and paying $3,000 a year in property taxes on essentially the same home. There's something fundamentally unfair about this.
  • It discourages people from moving, even when it's in their best interest to do so. Staying in your home longer means you pay a lower effective tax rate, and this provides a strong disincentive for moving to a new home. If you've owned a home in Santa Monica for 25 years and get a new job that transfers you to Long Beach, 35 miles across heavily congested LA County roadways, it's probably in your best interest to move nearer to your new place of employment—or it would be, if not for Prop 13. If that Santa Monica home was purchased for $400,000 and it's worth $1 million today, its taxable value is just $650,000. To keep the same tax bill you'll need to find a new, considerably less desirable home at that new price point. People who move take a serious financial hit. Maybe it's just better to stay where you're at and deal with the commute (to the detriment of the region's traffic and your sanity), or maybe you convince yourself that the job's not so great after all. The same goes for seniors looking to downsize their homes or move closer to family, and just about anyone else who's been in their home for more than a few years. These differences in tax treatment mean that homes are worth more to the current owner than to any potential buyer, leaving fewer homes on the market and forcing younger residents to rent later into their lives.
  • It fails to recognize that, even without Prop 13's tax limitations, homeowners win big when their homes increase in value. With a one-percent statutory limit on property tax rates, every time your home value increases by $100,000 you owe an extra $1,000 to the government each year. That is an outstandingly great deal, and homeowners whose homes rapidly appreciate are still coming out way ahead—why are we protecting people against increases in tax payments that literally amount to just one percent of their increase in wealth, especially when household wealth for the median black and Latino household is less than $10,000? An outright abolition of Prop 13 would put some "house-rich and cash-poor" residents at risk, but their problems could easily be solved by a payment deferral system that allows property owners to delay some payments until their home is sold.
Source: Survey of Income and Program Participation (SIPP), 2008 Panel Wave 10, 2011.

In short, Proposition 13 represents a massive transfer of wealth away from the young, poor, and people of color to the old, prosperous, and white; skews power away from local governments toward the state; and influences decision-making in destructive ways at every level, from personal choices about where to live, to political/planning decisions about how our cities should grow and evolve.

In Part 2, I'll look at how Prop 13 could be changed to improve the fairness of our state's tax system while still protecting the small number of people that are legitimately threatened by increasing property taxes. The reform discussed, if adopted, would help protect the much larger number of people that are threatened by high rents and high property values in general, and needn't increase California's total tax burden.



Wednesday, June 17, 2015

How to Get More Bang for the Affordable Housing Buck

I spend a lot of time on this blog talking about affordability, but in a very broad sense: Mainly, how to keep costs down by providing enough housing to meet demand, and how to reduce household costs by eliminating the need for car ownership (or car dependence, at least). This is in contrast to the work done by most affordable housing advocates, who tend to focus on funding and policies that promote the construction of new, subsidized affordable housing for those with limited incomes. Unfortunately, this often seems like a battle in which you need to pick a side, and the pro-market and pro-subsidy folks don't always see eye to eye. This tension was at the heart of my recent post about San Francisco's bleak future.

So with that in mind, I've been making an effort over the last few months to "cross the aisle" and deal more directly with affordability in the narrower, subsidy-oriented sense of the word. That resulted in a five-part series at Urban One's blog on how to increase the supply of income-restricted affordable housing. It's just a beginning, but I'm hoping that it can bridge some of the gap between the role of the market and the role of government regulation and get a real conversation started.

The series focuses specifically on the density bonus, which is a program written into California law, but readers will find many of the lessons applicable across the country. Basically, the density bonus law says that if you set aside a share of your new building for affordable housing, you can build a bit bigger than zoning currently allows—this is different from inclusionary zoning, which requires that you set aside a share of your units as affordable but does not guarantee any additional density, height, incentives, etc. Looking through the lens of the density bonus, I explored several ways to increase the supply of affordable housing at minimal public cost, and broke the series down into four separate proposals. I summarize each idea briefly below, but I recommend following the links below to read the whole article associated with each proposal.


PROPOSAL 1: Reduce thresholds to improve program participation

There are two key concepts behind this proposal. First, affordable units built through the density bonus program come at no cost to the city, so every developer that doesn't participate in the program is a pure loss from the city's perspective. Second, data shows that many developers are either not participating at all, or aren't taking full advantage of the program. I look at how lowering the threshold for participation—while it would reduce the number of affordable units provided in each new project—could actually increase the number of affordable and market-rate units built each year by increasing the number of developers that take advantage of the program. It's the old idea of "50 percent of something is better than 100 percent of nothing."

Table illustrating how reducing the amount of units provided per project can actually increase the amount of market-rate and affordable units provided each year, all at no cost to the city.

PROPOSAL 2: Fill funding gaps in density bonus project budgets with public sector funds, when necessary, to maximize private investment

Many cities, Los Angeles included, have less money for affordable housing than they did in the past. As a result, they need to make the most of what little they do spend on subsidized housing, and filling gaps in density bonus projects may be one of the most efficient ways to spend those dollars. Rather than spending $100K or more per unit to directly subsidize affordable housing construction, cities can help developers fill relatively modest gaps in project funding to push them over the edge for their "go/no-go" decision on participating in the density bonus. As with proposal 1 this funding assistance can be tied to clawback mechanisms for highly successful developments, and may be able to create affordable homes at a cost of $50,000 or less. Increased density bonus participation also means more market-rate units, which helps mitigate the growth of affordable housing costs in the future.

Public funding for affordable housing has been on the decline in Los Angeles and in cities throughout the country. New ideas are needed for how to create new affordable homes with limited public resources.

PROPOSAL 3: Capture value of increased development potential in upzoned neighborhoods

This proposal takes a look at two case studies in Los Angeles where newly transit-accessible neighborhoods—Cornfield Arroyo Seco and the Exposition Corridor—have been upzoned to allow for new development, and how those neighborhoods are using zoning tools to capture the value created by the increase in development potential. While not strictly related to the density bonus, this policy falls in the same class of "private investment for public benefit," and the specific plans for each of these communities focus heavily on the provision of affordable housing.

The new zoning dramatically increases the value of many parcels in these neighborhoods, but claws back that value for reinvestment in the local community by requiring a suite of "public benefits" for any developers that hope to take full advantage of the new development potential. This kind of plan is dependent on upzoning and so it can't be applied universally, but where rail and other infrastructure investments encourage rezoning of specific neighborhoods, it's an effective tool for retaining that value within the community.


PROPOSAL 4: Create an alternate fee-based density bonus program; use these funds to subsidize units in less expensive market-rate buildings

This idea is the most exciting to me, as it involves thinking about affordable housing in a completely different way. Right now all of our affordable housing comes from new construction, which is extremely expensive on a per-unit basis (especially when so much of the market is oriented toward more affluent tenants), and it's virtually all privately-owned, so that after 55 years the covenant runs out and the units go back to being market rate. At the same time, we have hundreds of thousands of existing rental units in Los Angeles, many of which are in great shape and can be acquired at much less cost than new construction.

The median asking price for multifamily units in Los Angeles is about $220,000, while new units typically cost upwards of $300K-$350K each.
Enabling an in-lieu fee system—rather than requiring on-site affordable housing in new density bonus projects—could help fund acquisition of these existing buildings while simultaneously increasing the supply of market-rate rental units. Development of new units is absolutely essential to long-term, broad-based affordability, but once those units are built there's no particular reason they need to be owned and operated for a profit. Acquiring them for management by a non-profit removes this profit motive from the equation, funneling revenues into a fund that allows a share of each building to be set aside as affordable. It also means that the buildings become permanent assets for the city and its residents, with a sustainable source of revenue that can be consistently used to fund future acquisitions—in other words, it's self-propagating.

An acquisition-based affordable housing strategy opens up a lot of opportunities that I haven't heard discussed in the past, so I'm excited to do more work in this realm and explore the possibilities. So again, read the whole article and let me know what you think!


Links for each article in the five-part series can be found below.

Monday, June 1, 2015

San Francisco is Doomed: A Cautionary Tale for Growing U.S. Cities

Graffiti on a development rendering in San Francisco's Mission District. Photo by Flickr user Torbakhopper.
The fact that San Francisco is home to the most obscene rents in the country is old hat by now; it's not really news to anyone. That said, the latest battle in the affordability war—currently being waged in the Mission between those that believe more housing is needed and those that want a moratorium on nearly all new construction—got me to thinking about where this is all leading. And those thoughts are bleak. San Francisco, by any reasonable measure, is doomed.

More than a year ago I wrote about the general phenomenon that rents tend to be more stable than housing prices, and that rents very rarely actually decrease, whereas housing prices can swing wildly. Short of a mass exodus of residents, which is unlikely for a variety of reasons, current demand for housing in San Francisco is unlikely to decline. Even if it did, the immediate response would be for developers to lose interest in building more housing. They would bide their time, waiting for demand to pick back up and profits to return before constructing any more new housing. It's very hard—probably impossible—to go back to the good old days.

The Bay Area is still booming despite the incredible housing crunch, and for all I or anyone else knows, that may very well continue. But it definitely weighs on the minds of potential future residents and workers, myself included, deterring future talent that's interested in someday owning a home, or even just paying less than half their income on rent. I'm sure that many current residents say to that "good riddance," but this extends to new industries and employers as well. The region may have a lock on the tech sector, but startups for unaffiliated industries would generally be foolish to locate in the Bay Area. San Francisco is on its way to becoming a monolithic populace, not just socioeconomically but commercially as well.

TWO PATHS, BOTH BAD

Since rents are unlikely to ever dramatically decline in San Francisco (or just about anywhere else—even Detroit's median rent has consistently increased over the past 25 years, while home prices fell by about half from 2006 to 2011), there are really two possible outcomes. In one, the supply-siders get their way and lots of new market-rate housing, and a decent share of affordable housing, is built in the Mission and across the city. In the other, the anti-development folks get their way and very little new housing is built in the coming years, with most new construction coming in the form of affordable housing constructed with city, state, and federal funds. The first outcome is extremely bad, the second is utterly disastrous.

Path 1: Increased Supply, Increased Short-term Displacement, Bifurcated Population

If the supply-siders' dreams come true, San Francisco will get off its ass and at least make a show of trying to build enough to meet the phenomenal demand for housing in the Bay Area. The city's housing production hit a 20-year peak in 2014, with 3,514 new units in a city of about 850,000. Seattle, a smaller city of about 670,000 that has also struggled with rent increases (though not nearly to the degree of San Francisco and other Bay Area cities), built 8,311 new units last year.

20-Year new housing construction trends from 1995 to 2014, from the 2014 San Francisco Housing Inventory.
What many anti-growth, pro-moratorium advocates fear—justifiably—is that more new construction will need to more displacement of existing residents, many of whom are low income and could not afford to rent a market-rate unit in nearly any part of the Bay Area, to say nothing of San Francisco itself. Owners of some apartments will evict current residents in order to build larger multifamily developments—those residents are generally compensated by up to $50,000, though even that maximum payout is not enough to afford unsubsidized rents in the city for very long. A share of those new units must be set aside as affordable to low income households, but the number of new affordable units may or may not exceed the number of households that are displaced.

Following this path, more total housing is provided in the city, which somewhat moderates rent increases in the long run. A pretty sizable amount of affordable housing is built, funded entirely by private investment, because of the inclusionary zoning program mentioned above. The majority of homes are market-rate though, and with median prices of $3,000 or more per month in many areas, they are far out of reach even to middle class households. In neighborhoods with a lot of development, we end up with a lot of rich people housing and a decent amount of poor people housing, and basically nothing in between.

Path 2: Limited Supply, Decreased Short-term Displacement, Homogeneous Population

At the other extreme there is the anti-growth path, which I should note is not necessarily the long-term vision of all those in support of the Mission moratorium—instead, it's viewed by many as a "cooling off" period where the community and city planners can create a framework for more equitable development. That said, in a regional market that's not providing enough housing overall, there's not much one neighborhood in one city can do to limit rent increases in the long run.

If moratorium supporters succeed at limiting the pace of development for years to come, it will be a Pyrrhic victory. Fewer residents will be evicted to have their units torn down or renovated, which is no doubt of great value to those that are protected, but that won't mean the neighborhood will maintain its character. Rent control only stays in effect as long as people stay in their units, so when they move out, those units will revert to market rates, forever out of reach for low income residents. Many of these units will be fixed up as rent controlled residents move out, pulling even higher rents. For those who don't move out, well, no one lives forever.

Private development is a relatively cheap way to provide income-restricted affordable housing, and there's just no way that fully publicly-subsidized construction is going to fill the gap at upwards of $300,000 per unit. Nor should San Francisco or any other city want to rely on public funds for all of its affordable housing needs: Every dollar spent on affordable housing is one that isn't spent on education, parks, public health, or infrastructure. Over time, without a meaningful amount of private housing construction, the city will consist of essentially nothing but luxury housing—or rather, pretty standard housing at luxury prices. The transition will take longer than in Path 1, but the transformation will be absolute in a way that even private sector developers cannot hope to match.

The Third Path: Something in Between

The examples above are, to some degree, two extremes on a spectrum of infinite possibilities. Many of the in-between approaches are probably superior to either of the extremes, and I imagine that many of the pro-moratorium advocates and community members are just looking for some breathing room to develop an in-between framework that suits their needs and recognizes the validity of their concerns. A revised development framework has the potential to affect the lives of real people in positive ways, so I don't mean to discount it entirely. But whatever the outcome, it will amount to tinkering at the edges compared to the scale of the problem.

Anyone who's read my blog knows that my opinions are decidedly on the "build more housing" side of the argument, but this post isn't about villainizing moratorium supporters in the Mission. It's about acknowledging the fact that rents are very unlikely to decline, and that, as a result, things are unlikely to get any better for San Francisco or its low income residents. No city can afford to subsidize the rent for half its population.

San Francisco is in a particularly unenviable position because, despite its failures, it has actually done more to combat increasing rents than other Bay Area cities—places like Palo Alto and Mountain View that have greedily attracted tech employers while leaving the un-sexy, and much more costly work of providing housing to their larger, more compassionate neighbors. Not to absolve SF entirely, but no single city should be forced to completely transform itself to appease the greed of its neighbors, especially when those neighbors make no sacrifices of their own. Because of the limited size of San Francisco relative to the Bay Area as a whole, even a complete "Manhattanization" of the peninsula might only have delayed its fate in lieu of similar efforts from Oakland, San Jose, and all the smaller cities in between. San Francisco was never in a position to fix the problem of housing affordability all by itself, but this is not the case for many other places in the U.S.

So, growing coastal cities throughout country, take note.

THE LESSON FOR OTHER U.S. CITIES

Nothing new here: Growing cities need to build more housing where and while they can, period. The more they build, the less competition there is for each available housing unit, and the less rents will increase. Period. More development also means more opportunities for inclusionary zoning and other value capture mechanisms. The takeaway here isn't anything you haven't heard a million times before, but hopefully this framing adds some sense of urgency for cities that are still in the early and middle stages of across-the-board gentrification.

Rental affordability is clearly related to the supply of new housing, captured here by the housing "permits per 1,000 new residents" metric. Graph from Zillow.
San Francisco is a harbinger, but the fate it foreshadows is not an inevitable one, as Tokyo and other cities have demonstrated. Places like Los Angeles and Seattle are on the cusp, and Chicago and Philadelphia are moving in the same direction, but they're all still salvageable. Boston and Washington, D.C. are further along than even LA or Seattle, and they'll have to adopt a regional housing strategy to address housing supply in their regions. This will be considerably more challenging than a go-it-alone approach, but their small size necessitates partnerships with neighboring cities that share responsibility for the affordability and equity of their respective regions.

These and many other cities have significant control over their fates because they represent a much larger geographical footprint in their respective regions, though they've yet to really take advantage of it. They have more of an opportunity to allow for redevelopment while still not growing at an unmanageable rate. Even Seattle, which has done a decent (though still not quite sufficient) job of providing lots of housing to respond to surging demand, has only grown by a few percentage points each year recently—and that's with only a tiny slice of the city's total land available for redevelopment.

As demand cools off in the coming years, homes built during this boom will serve as a buffer against future rent increases and filter down from high-end to middle-income markets. Better still, if we "overbuild" during the boom years, when the current real estate cycle ends—they always do, sooner or later—there is a good chance of rents actually declining somewhat. Not enough to dramatically change the landscape of any city's affordability, but every little bit helps.

Cities change, and for some people that's not good news. Those committed to sticking with their cars might deal with more congestion even as other transportation options improve. Those who love the feel of a largely low-slung neighborhood—or even those who prefer a five-story streetscape to a ten-story one—might have to accept the change and just make the most of the new shops and park space that accompany increased density. Call me selfish, but if it means I don't have to pay the majority of my income on rent, or fight to secure a rent-controlled unit and squat in it for the next few decades just to stay in the city, or watch my neighbors leave the city and never have enough money to come back, I'd say that's a pretty small price to pay.

Wednesday, April 15, 2015

Manhattanization isn't a thing; your city has plenty of room to grow comfortably

Sorry to readers that I haven't been writing over the past month or so; wrapping up my time at USC while working has proven more time-consuming than I'd like. I did manage to put together an interesting post at my work blog, however, and I wanted to share it here too.

I won't get into the details here—visit the Urban One site for the full story—but I'll tease it with this chart, showing the current population of a number of U.S. cities, in addition to the population if those cities grew to the same density as Manhattan (70,000 people per square mile), and how many times more people would need to live in each city to get there:

The full post—again, find that here—has another chart showing how many years it would take for these cities to fully Manhattanize. (Hint: for most cities its at least a few centuries, longer than the entire history of our country.) It also has a map comparing population growth to physical expansion, because not all cities are growing by increasing density. Instead, places like Phoenix and Austin are mainly growing through annexation, with density relatively unchanged.

There's a lot of interesting facts to be pulled from the data, so check it out and let me know what you think! And feel free to share the charts and map as you like (with attribution, of course)!

Monday, February 16, 2015

Seattle's Sound Transit Hostage Situation

Joe Fain giving himself a high-five after stealing money
from the Seattle region to fund wasteful highway projects
in rural and suburban Washington.
Talk like this pretty much sends me into a frothing rage:
"In order to get, you got to give. There’s a recognition that Sound Transit 3 is very important to our Democratic colleagues, just like finishing some of these incredibly important mega-projects are important to some of the commuters in our districts. So we’re comfortable giving the voters in the ST area an opportunity to vote on whether they want to increase their transit service as part of this larger statewide package."
That's from State Senator Joe Fain (R-Auburn), making the point that the largely Democratic three-county region under Sound Transit's auspices has to do some horse-trading to get the funding they desire. That's politics.

And frankly, that'd all be well and good if we were actually getting anything. In truth, all we get is the right to tax ourselves to build what we need, at no cost to anyone outside the three-county area. What we give is our actual money—billions and billions of dollars—shipped out to the far corners of the state to fund their low-productivity, high-liability highway projects. They'll let us spend our own money on what we want, but only if they get a cut. Somehow they're able to support this with a straight face, as though they're doing us a favor.

The Puget Sound region already subsidizes most of the Republican-dominated areas of the state, and it's ironically the "local control" conservatives that are holding that control hostage to the needs of their own constituents' gas-powered fiscal profligacy.

The best part? They didn't even give us the full taxing authority we asked for. You can count on us getting it eventually—as long as we pitch in a little more of our own money to buy them some fancy new rural interchanges and extra highway lanes.

Thursday, February 5, 2015

Why Uber and Lyft Wouldn't Have Succeeded If They'd Tried to Follow the Law

If you can fly a school bus in space, why can't
you drive it from Oakland to San Francisco?
Over at Pacific Standard there's a really interesting story about Night School, a San Francisco-based company that tried to improve evening transportation in the region by making use of school buses during after-school hours. It sounds like a great idea: on the one hand we'd be making more efficient use of our infrastructure and equipment, and on the other hand we'd be making life easier on people who want (or need) to get around without a car. And who knows, maybe the extra revenue for the school bus operator would have meant cheaper lease rates for school districts, too.

But as it turns out, we'll never know because the California Public Utilities Commission decided to step in and make life a living hell for the hopeful business owners. After trying to push their way through the bureaucratic morass for nearly a year, the founders threw in the towel and abandoned their innovative business idea. Call it a transportation own-goal on the part of California government.

As I read this, I kept thinking that this is exactly why Uber and Lyft probably wouldn't have been successful if they'd waited to work things out with the myriad regulatory regimes that might claim some authority over their operations. They'd have probably ended up in a similar position to Night School, beating their head against the wall for a few months or years, all the while giving regulators the time they need to prepare effective roadblocks to the new service model. Some people might dislike the way these businesses went about establishing themselves, but I suspect that most of them would prefer a little lawlessness to continued reliance on the old model of traditional taxi service. (And make no mistake, we'd still be stuck with 1980s-era taxi service if e-hailing companies hadn't entered the market.)

Although there are plenty of forward-looking governmental organizations out there, most are not looking to shake things up, especially groups like public utilities commissions which have little to gain personally from things like new transportation services. Uber and Lyft were successful because they built their support base first, by providing a service that consumers found useful and a source of income for a lot of drivers — then they leveraged that support to secure regulatory and political cover. Night School tried to address the regulatory issues up front, and they found that without a proven base of support, the utilities commission had little incentive to work with them in an accommodating, expedient manner. And here we are.