As San Francisco’s Housing Debate Heats Up, Some Push for Development Moratoria

Kilroy Realty Corporation, Core & Shell, US Green Building Council, Dropbox, Rios Cleme, nt, i Hale Studios, Flad Architects, Hathaway Dinwiddie

San Francisco Investment Demand, commercial real estate, LaSalle Investment Management, Bay Area, CBRE Group, San Francisco, Newmark Realty Capital

San Francisco is a unique place. Yet, its singularity comes with emotional baggage, because this city is dealing with issues that plague almost no other place on earth.

Emerging from the Great Recession was relatively swift and dramatic in the Bay Area, and no one will argue that the largest beneficiary of that outcome has been San Francisco. The technology sector took root in the city very quickly, and the sector’s dominance has remained strong and persistent. Colliers International reported that nearly 60 percent of all new commercial leases in San Francisco in 2014 were technology companies.

[contextly_sidebar id=”x05Wbuuedm00VSkg9bAMuqhDxnVnYklS”]The rise of the regional economy has spurred development of new offices and with it new housing stock, as well. However, the latter has not grown nearly as fast as the former, and it has become a major point of contention in the region. This is just one of the reasons why the Bay Area Council, a business-sponsored, public policy advocacy organization for the nine-county Bay Area, organized an event last week focused on exploring the possible effects of proposed moratoria on development in the region.

“The big picture is that over the course of the past seven years, we have built less than half of the housing in this region that the state estimates that we need based on population growth,” said Micah Weinberg, president of the Bay Area Council Economic Institute, who was the moderator of the event. This has now caused a shortage of housing, in general, which has not only helped balloon the cost of renting and owning a home in the region but also helped dislocate a vast number of working-class families who cannot afford to live in neighborhoods where they grew up and had been living.

This comes as little surprise to Chris Thronberg, founding partner of the Los Angeles-based Beacon Economics, who has been tracking the housing shortage since the 1990s and who was one of the panelists at the event. “Even when foreclosures were peaking, we still had the second or third lowest housing vacancy in the nation,” Thornberg said during his presentation at the event where he reviewed causes, consequences and possible solutions to this conundrum.

“What you see here is an economy that is truly on fire,” he said. According to his research, California is the 14th fastest growing state, achieving 2.2 percent job growth year-over-year (in absolute terms, California was second, just behind Texas), having completely erased the job labor gap created during the recession and starting to surpass the national growth overall. So, Thornberg sees the issues being less about affordability, and more about San Francisco, and the region more broadly, being a victim of its own success. And this is part of the uniqueness of this situation, things are so good, they’re starting to be bad.

Thornberg sees the housing shortage and affordability becoming very acute over the next few years, making any opportunity for future economic growth of the region in serous jeopardy.

“That, of course, is where the housing issue becomes so important,” he said.

Some of what is happening in our region is a direct result of the circumstances in the housing market nationally during the last couple of decades. Another reason has been rising income in the Bay Area. Comparing average amount of income spent on supporting a house or a household with a mortgage, Thornberg contrasted the figures in Miami, which are at 38 percent, to Inland Empire at 33 percent and San Francisco at 30 percent. “What is going on here is not so much the prices here are getting out of whack relative to incomes. Quite the opposite; incomes here have been absolutely exploding,” said Thornberg.

To put that in perspective, the number of households bringing in less than $75,000 per year has been dropping as a share of the total population in the region, whereas the fastest growing group is households making $150,000 per year or more. That group has almost doubled in the last 30 years, he said.

A lot of income wants to call San Francisco home, Thornberg concluded.

David Campos, a supervisor representing district 9 in San Francisco attacked those facts right away likening the economic research to a Ronald Reagan-era policy, which he called a failure.

“With all due respect, I think that what you presented is a perspective, and it’s a perspective that while it nicely puts up numbers, it’s a perspective that is based on a number of assumptions, assumptions that at the end of the day come down to this idea…that when it comes to housing that you go back to the days of supply-side economics and to the days of Ronald Reagan. And just like with Ronald Reagan you focused on how you cut taxes for the very wealthy among us, the benefit of those tax cuts will trickle down to the middle class and to the lower class.”

He was directly responding to Thornberg’s conclusion that limiting supply of housing in San Francisco, even high-end housing will only exacerbate the housing demand across the entire city.

“One of the biggest problems that happened here in San Francisco recently was when they voted down those 2,000 units on the waterfront,” Thornberg said illustrating how in that one example gentrification gained a stronger foothold into other parts of the city.

Campos’ retort was that a solution to a shortage of affordable housing was to build more affordable housing, not expect a “trickle-down” economic effect to take place. He went on to summarize the needs of the city as well as the shortage of funds to make those needs a reality. There is a shortage of roughly 16,000 affordable units in the city for which the city could supply funding for only 5,000. In addition to that, neighborhoods like the Mission, which he represents, continue to lose its working-class population each year.

“In the Mission, we lost 8,252 latino residents [in the last] 13 years. In year 2000, Latinos were 50 percent of the population in that neighborhood. Right now we are at 38 percent of the population,” said Campos.

Thornberg addressed the shortage of affordable housing and even proposed ways that could alleviate the pressure. One of those was to loosen the restrictions that CEQA (California Environmental Quality Act of 1970), which passed during Ronald Reagan’s tenure as California governor, imposed on developments. Another was to eliminate various cost controls and subsidies, things like rent control, inclusionary housing, affordable mandates and impact fees. Thronberg sees them as a tax on supply and suggested instead that the city should focus on creating zoning laws that would enforce creation of appropriate housing in certain neighborhoods and enforce other demands that would work toward resolving issues of parking and congestion.

Yet, the proposal that Campos is championing is quite different. The solution the supervisor wants to enact is one that would cease all development for a certain amount of time in his district.

“We need a new approach,” he said. He did not provide a clear roadmap of the new approach, although he did say that one of the first steps would be to expedite construction of affordable housing projects. The basis for the proposed moratoria, he added, was that the current trends are only going to make things worse, and a pause was needed because it will help bring to light efforts that should be pursued.

Julie Pierce, president of the Association of Bay Area Governments and former mayor city of Clayton, grounded the discussion as the third panelist.

“We know we have a supply issue. We’re not building enough of anything,” she said. “Instead of stopping housing production altogether, we need to look at how to build the appropriate housing and the high quality neighborhoods for all income levels.”

The region is facing a funding issue, she said. With the cessation of the redevelopment agencies that helped these efforts in the past, the state has left the municipalities to deal with these issues on their own, and in too many cases, especially in cities of the Bay Area, that has proven to be a formidable challenge.

“We need to have a will to build,” she concluded.

West Coast Commercial Real Estate News