It’s great that a “grand bargain” on housing affordability is being discussed via the Mayor’s Housing Affordability and Livability Agenda (HALA) action plan. People are talking to each other, and the result might be relatively balanced. But we could do so much more!
For starters, we need WAY more focus on holding back development costs. Designated-affordable housing is important, but most renters and new buyers depend on market rates. HALA seems to recognize cost control only in small ways, and only to offset additive costs. It largely skips the big stuff. We’re risking a sizeable reduction in development volume as the market reacts to higher costs, which will mean higher rents.
We’ve already cut way back on micro units, applied design review to more projects, piled on the height bonus fees, limited above-grade garages (not complaining on that one), and enabled a lengthy entitlements/permitting backlog. Sidewalk protections (a good idea in theory) will add more cost by substantially impacting site logistics. Electeds appear shaky on accessory units and other flexible zoning in single family neighborhoods. We’re discussing moderate upzones but those won’t keep up with demand, so land prices will probably keep rising. We’re discussing expansion of the multifamily tax exemption but only for affordable units. Permitting might be streamlined a little.
A lot of truths in this debate seem to be ignored, unknown, or mistrusted because the most knowledgeable people might benefit from lower costs (developers, contractors) or higher costs (landlords, homeowners). People are therefore acting against their own interests, their city’s, and their constituent demographics’. But here goes.
Land prices won’t come down due to linkage fees. Some councilmembers have actually said the huge fees would be offset by cheaper land. But what landowner would see values plummet and decide to sell? Values will recover as rents go up and few properties are on the market, so owners will just need to wait, and not long.
Land is already scarce in areas that allow density and have demand. Prices reflect this. Theoretically we have room for many more years of growth, but many “buildable” sites aren’t on the market. Broader upzones would help address this – some combination of height, accessory units, and moderate additions to areas that allow multifamily. More than the small upzones in the plan.
Bonuses have to be compelling to be used. City leaders like to decide what a benefit is worth (for example alley vacations or bonus FAR), then charge an equivalent in fees, amenities, etc. At the political level, this allows them to be seen sticking it to developers. But they might not grasp the cost/effort/risk of pursuing the benefit. So we get debacles like the Hedreen hotel, where the City threw away 150 units of affordable housing for political reasons and by overvaluing its alley. And we get woodframes in highrise zones unless the market is truly booming.
Development costs affect the volume of construction – it’s obvious to most DJC readers but apparently debatable to others! Some people believe that any added cost or hurdle will have no affect on the amount of housing built, because profits are huge they say. Let’s break that into subsections:
Profits aren’t necessarily huge, or profits. Some developers get rich, but some lose their whole investments too (yeah but 2010 was so long ago!). It takes a huge investment to even consider building something, let alone pull the trigger. Some people will always begrudge developers for making money (or for giving people a place to live?), but it’s understandable why they’d only build if the potential profit was enough to risk a loss.
Financing goes where the money is. Developers need equity and loan partners. This money goes where the fundamentals look best. You might want big corporations to accept lower profitability and higher risk of loss, but that’s not going to happen, even if you stomp your feet. A big chunk of development backing comes from cuddly sectors like like pension funds; can we agree that those should stay solvent?
We’re piling on those costs. Linkage fees, height fees, parking below grade, 18 months of process and holding costs, sales tax, energy code upgrades, and so on, all well meaning but math is math.
We’re going to affect the ENTIRE rental market, not just the new stuff. When demand outpaces supply, even that non-updated 1965 masterpiece will be expensive. Keep supply going and it should be much cheaper.
There’s no simple answer, a point we all seem to agree upon. But speaking generally, let’s do things that hold pricing back on market rate while also increasing production of subsidized units.
Let’s expand the subsidized elements, but do so without adding to the costs of market rate housing. A larger housing levy is a great start, and spreads cost to all of us rather than disincentivizing new housing. So does the multifamily tax exemption. But let’s also pay attention to market rates. We can add capacity for free by upzoning and not attaching penalties, reducing land cost per unit. We can let micros do their magic. Accessory units can help both the new residents and the landlords. Yes, even if some of that doesn’t look enough like “sticking it to developers!”