Laying Reagan’s Ghost to Rest

In a recent 48 Hills post, housing activist Peter Cohen aimed a couple rounds of return fire at SPUR’s Gabriel Metcalf. The post comes in response to Mr. Metcalf’s own article critiquing progressive housing policy. Mr. Cohen bounces around a bit, but he does repeat some frequently used talking points worth addressing.

Trickle-down economics

Mr. Cohen calls the argument for market-rate construction ‘trickle down economics’.  Trickle down economics actually refers to certain macro theories popularized during the Reagan years. These models assumed a higher marginal propensity to save among wealthier individuals. And given this assumption, some economists concluded that reducing top marginal tax rates would result in higher savings. This would then mean higher levels of investment which would, in turn, have a positive effect on aggregate output. And from there we get the idea of a rising tide lifting all ships.

Note that none of that has anything to do with housing policy.

Labeling something ‘trickle down’ is a way to delegitimize certain policy proposals by associating them with Ronald Reagan. It’s somewhere between rhetorically dishonest and intellectually lazy. Though to be fair, it’s probably pretty effective in San Francisco.

The concept Mr. Cohen is trying to critique is actually called filtering.

In many instances, markets do not produce new housing at every income level. But they do produce housing across different income levels over time. Today’s luxury development is tomorrow’s middle income housing. The catch, however, is that supply has to continually expand. If not, prices for even dilapidated housing can go through the roof. For a more thorough explanation, see SFBARF’s agent based housing model.


San Francisco, where only Reganites want to build more housing

If you build it, they’ll just come

But even accurately defined, Mr. Cohen still objects to the concept of filtering. He cites an article by urban planning authority William Fulton to make his point. He quotes Fulton:

The folks taking the cool jobs may not be uber-rich, but they have tons more money than everybody else, and so they drive prices out of sight. Build more market-rate housing, and you’ll just accelerate the cycle – more smart kids will show up wanting to work for tech start-ups, and that means you’ll have more tech start-ups, and pretty soon demand will rise faster than supply – in large part because you increased the supply. To a local community activist, it feels like a no-win.

Mr. Cohen–via Mr. Fulton–is trying to argue that supply will create its own demand. This misunderstands the nature of the regional economy.

It’s not far fetched the think that there are plenty of people ready to move to San Francisco. And that if prices were lower and housing more available, they would. But that doesn’t explain why so many want to come here in the first place. That has to do with tech and the knowledge economy. New workers, entrepreneurs, and investors all come here because of all the workers, entrepreneurs, and investors that are already here. And thanks to the logic of industry clusters, it’s a self reinforcing cycle unlikely to change anytime soon. For tech worldwide, there’s the Bay Area and everywhere else. For tech already in the Bay, there’s the Peninsula/San Francisco and everywhere else. Even if you don’t build it, they’ll still have every reason to come. And despite some of the highest housing prices in the country, they continue to do so. 

Setting the record straight

Increasing supply will put downward pressure on prices. But it’s important to keep a few things in mind.

First, increasing supply may never actually lower prices. Prices will be lower than what they’d otherwise have been. That, however, doesn’t mean they’ll necessarily be lower in real terms.

Second, this process takes a long time. There’s lots of high end housing that didn’t get built over the last several decades. Consequently, the pipeline of aging high-quality housing isn’t there to provide supply at lower price points. This is a housing shortage decades in the making. Under the most supply friendly of conditions it’ll take decades more to bring prices back in line with national averages.

And third, there is no San Francisco housing shortage. San Francisco is only one part of the larger Bay Area housing market. The shortage is region wide. When increasing supply is talked about as a way to combat rising prices, that’s referring to the housing market in its–regional–entirety. Specific neighborhoods or even cities might still only get more expensive. Even in a world where massive development tempers prices across the entire Bay.

And here’s the real heart of the disagreement. Market-rate development won’t privilege incumbents. It won’t reserve specific neighborhoods for specific income levels. And it won’t guarantee that specific communities remain the majority residents in any specific areas. And for some, these are the challenges that we’re facing, not high housing prices per se. And that’s fine. But let’s stop talking past each other and taking potshots at straw men. And lets start being clear about what we think the actual problem is and what our policy goals should be.

Seamless Transit: Thoughts on the new report from SPUR


Seamless Transit is the new transportation policy report from SPUR. Main author Ratna Amin proposes integrating the Bay Area’s balkanized transit systems to improve lackluster ridership. Given that the region has 23 separate transit providers–more than any other metropolitan area in the country–she may have a point.

The report proposes standardizing service maps, fare structures, and payment systems; eliminating inter-system coverage gaps as well as redundant coverage; and reforming transit governance so that the different agencies actually make plans together instead of working at cross-purposes or not at all.

The recommendations are sound and the report includes historical footnotes for context. These are helpful for understanding region’s complicated institutional arrangements. Seamless Transit is a fine piece of work and well worth the read for anyone interested in Bay Area transportation.

But while organizational efficiency is important, it’s not the only thing to discuss. If we want to improve the region’s mass transit systems, we have to consider the physical environment in which those systems are embedded. To get transit right, the region needs to embrace density.

Denser development around transit nodes would increase ridership substantially. When people live, work, and play in smaller geographic areas, more people travel between a fewer number of points. Mass transit, especially fixed rail transit, becomes more effective the denser development becomes.

Hong Kong’s Metro Transit Railway (MTR) might be the quintessential example of urban density begetting mass transit success. The city is home to over 7 million inhabitants. It has a population density of over 18,000 residents per square mile. And of this population, 41% live within a half mile of an MTR station. The result? The MTR has a farebox recovery ratio of 186%–the highest in the world.

Because of legal as well as political differences between Hong Kong and the Bay Area, copy/pasting the MTR’s Integrated Rail-Property Development approach probably isn’t  feasible. But the general lesson remains the same. Increasing ridership means accepting density. And accepting density means reforming the region’s anti-growth, anti-urban land use policies.

None of this is a critique of Ms. Amin or her co-authors. They set out to address a specific set of issues and they did it well. But in the wider conversation about regional transportation, we’d do well to remember the importance of land use. And we’d do well to recognize the necessity of reform. Ultimately, getting mass transit right may have as much to do with embracing urban levels of density as it does with making sure the trains show up on time.




Why Money for Schools Means No Permits For Housing

Housing has a lot going against it in the California. But amidst all the legal, political, and regulatory roadblocks, there’s one law that sneaks by largely unnoticed: Prop 98.

Prop 98 guarantees a minimum level of state spending on education each year. Sacramento pools most city, county, and special district property taxes into special education funds to meet this commitment. The localities only get to keep a small part of the property tax revenues for their own general budgets.

This system creates a disincentive for cities to permit housing. New housing brings in new residents who need city services. But it doesn’t bring in a commensurate increase in property taxes since most of that revenue gets scooped up by Sacramento.

Commercial development, though, brings in taxes a city gets to keep. Sales and hotel taxes are significant revenue streams. And they don’t cause the kinds of strain on city services that new residential does.

Reforming Prop 98 might be low hanging fruit. Changing the formula to appropriate a broader stream of city revenues might help ease the bias against housing. And it might even be possible to amend the law without having to fight the California Teachers Association. As long as there’s no net decrease in education funding, of course.


For those not acquainted with California politics, the California Teacher’s Association (CTA) is the most potent lobby in Sacramento. If the CTA doesn’t like a bill, it doesn’t become a law.


It’s tough to say exactly how much new housing Prop 98 actually prevents. Different cities get to keep different amounts of their property taxes, so the disincentive differs case to case. And there are plenty of other things like CEQA and Prop 13 which put a drag on new construction as well. But where CEQA and Prop 13 make it easier for residents who are already NIMBYs to gum up the works, Prop 98 is a reason in itself for a city to avoid residential development. So while we can’t do much to change the aesthetic preferences of our neighbors, we can do something to change the law. And if tweaking one law makes cities see new housing as a financial boon instead of a burden, it might be worth the effort.


Travel Update: Recent Articles On Housing

I wrote a housing-related article this week for Forbes, and in the process of research, came across several other interesting recent ones. Here’s the roundup:

1. My article discussed the connection between rent control and high housing prices. To my surprise, only 6 of America’s 50 largest cities still have rent control, as numerous others ended what they saw as a counterproductive policy. But those six remain among the nation’s most expensive, and I argue that rent control is a big reason why.

2. This didn’t prevent Seattle from trying to revive the policy this week, led by Socialist Party councilor Kshama Sawant.

3. While rent control is seen today as antiquated, this hasn’t stopped the rise of its close cousin, “inclusionary zoning.” Steven Greenhut writes for Reason about a California state court case that could determine the policy’s constitutionality. The case, he says, is “about whether cities have unlimited power to extract concessions from homebuilders for things that are not ‘impacts’ from the project. In other words, it’s legitimate for government to require new developments to pay to mitigate the effect of the new residents on local infrastructure (roads, sewers, fire service), but is it OK for cities to require affordable housing just because officials want to see more of it built?”

4. Michael Lewyn challenges the notion that Airbnb hurts housing affordability by taking units off the market.

5. Recently the New York Times published a short time-lapse video of lower Manhattan’s various developmental stages over 500 years. Daniel Bier at Newsweek points out something strange about the video’s last few decades: “The pace of change slows dramatically toward the end…because the city government has deliberately calcified New York City, encasing the city’s structures in a legal state of suspended animation.”

6. Emily Badger writes on Wonkblog about the rise of urban adult singles, and the way that cities’ housing stocks have failed to adapt–thanks to government regulation. Her piece is worth quoting at length.

Our housing stock wasn’t built for a society full of singles. Our communities instead are full of homes meant for the traditional nuclear family — two-bedroom starter homes, three-bedroom houses, apartments with more bathrooms than a singleton needs, full-service kitchens when 25-year-old bachelors now primarily dine by microwave….In New York, Austin and Denver, nearly 57 percent of adults were single in 2010 (although not necessarily living alone). In Washington, D.C., that figure is a whopping 71 percent. But none of these cities have anywhere near enough small-sized housing to accommodate them. That means that a lot of people are probably living with unrelated adult roommates who’d prefer to live alone (half you people in D.C. group homes?). And it means that some people who do live alone are likely paying more for space they don’t want in a large one-bedroom because there aren’t enough alternatives in studios and efficiencies.

Changes in demographics and social norms invariably occur faster than changes in the built world around us…[But] a lot of cities are also actively making it hard for the housing supply to adjust. The rise of singles calls in particular for more micro housing: apartments the size of studios or even smaller, and “accessory dwelling units” (think in-law cottages or garage apartments) that might be built in the back yard of existing homes. It also calls for a different model of housing where, for instance, four singles might share a communal living space adjacent to their separate units instead of each having their own living room. Neighborhood opposition and existing regulation make this kind of housing hard to build in most cities, though. Parking requirements, for example, often mandate that new housing come with new off-street parking spots, too. But that rule is impractical for someone who wants to rent a cottage in her backyard. And it makes projects financially unworkable for a developer who wants to build an apartment full of micro units next to a train stop for residents who don’t own cars. Other laws set minimum standards for how small a housing unit can be — in much of New York, it’s 400 square feet — making micro units effectively illegal.


What I learned today about SNCF and California HSR

If you’ve been following me on Twitter, you’ll know that I spent this afternoon on the phone with folks in California, looking into the recent SNCF-CHSRA bombshell. To summarize: SNCF, the highly experienced French national high-speed rail operator, apparently had a plan for California’s HSR network, but was turned off by the highly politicized routing. Namely, they wanted to make a straight shot from LA to San Francisco by running along the flat, government-owned I-5 corridor with spurs out to the eastern Central Valley, whereas the California High Speed Rail Authority (CHSRA) and state politicians wanted the main line to go through every little town in the Central Valley, directly. Now, all of this wouldn’t be a scandal, except for the fact that nobody at SNCF ever mentioned it to the public or the media.

That’s what the LA Times reported, but David Schonbrunn, a pro-HSR, anti-CHSRA activist, says there’s more to the story – SNCF not only advocated I-5, but they actually had private investors lined up! Here’s his letter to the LAT:

Your otherwise excellent story “High-speed rail officials rebuffed proposal from French railway” was far too kind to California High-Speed Rail Authority officials. At the time of its proposal, SNCF had the investment backing to actually build the LA-SF line, in a deal that sheltered the State from the risk of subsidizing an unprofitable project.

The Authority’s 2012 Business Plan covered up this offer, instead insisting that no private capital would be willing to invest until the first high-speed line showed a profit. The $6 billion Central Valley project approved last week by the Legislature thus exposes the State to unlimited operating losses. Worse yet, before that line can be completed, it will need an additional $27 billion from the federal government–quite unlikely in today’s political climate.

I’d sure like to understand the thinking behind the rejection of the French offer.

It’s unfortunate the story didn’t run earlier. It would have informed the Legislature’s debate.

I talked to David on the phone. He stuck by the story and said there was indeed a “secret meeting” between SNCF and CHSRA where such issues were discussed, and then I spoke to someone else – someone intimately knowledgeable about the SNCF side of things, who’s been quoted in the media before, but who requested anonymity – who confirmed David’s version of events. However, he said that CHSRA was so dismissive of SNCF’s plan that no formal proposal was ever requested or made, which tells me that there unfortunately may not be any written documents to request/FOIA from the CHSRA.

As to the identity of the private backers, my source wouldn’t go into specifics, but did hint that they were major, major US banks offering to fund the venture, and that they had experience funding SNCF projects in the past. But again, no formal proposal was ever made, since the CHSRA refused to consider the only alignment – I-5 – that private backers felt was financially viable. (When I pushed him on which banks offered to finance SNCF’s California plan, he downplayed the importance of the identify of the individual would-be investor, saying that it was a plan that would have had no problem attracting private capital, given SNCF’s past expertise and proven good judgment.)

Some have been dismissive of the LAT’s SNCF story because of a PDF leaked to Yonah Freemark in 2009 in which SNCF specifically gave its approval to the CHSRA’s more circuitous route following Highway 99 through Bakersfield, Fresno, etc. In response to this, my source said that that document was very preliminary and was intended only for the FRA, and was in fact drafted before SNCF established SNCF America. In other words, it was nothing close to their ultimate proposal, and the I-5 proposal that the LAT cites was the most recent and most serious one. (Indeed, it appears that SNCF America wasn’t created until 2010, a year after that PDF leaked, lending credence to my source’s claim that it was much more preliminary than the one cited yesterday by the LAT.)

So, what does all this mean? It means that the CHSRA very well might have been offered private funding for the plan, but turned it down because it didn’t fulfill desired political objectives of going through towns in the Central Valley onto the main trunk line (again: SNCF’s I-5 proposal would have connected Bakersfield, Fresno, etc., just through spurs rather than the main line, not on every single LA-SF trip). This would be okay if the CHSRA was public about it, but they stand accused – by the LAT and by David Schonbrunn – of covering it up. (Obviously it would also have been in Parsons Brinckerhoff’s interest to ditch the SNCF plan, and of course there are many people who have been employed both at PB and CHSRA.)

I’ve reached out to SNCF America for an official comment but my call wasn’t returned today (I’ll update if I hear later). I didn’t bother to try to contact CHSRA – if they wouldn’t talk to the LA Times about a well-sourced claim, I’m sure they won’t talk to some freelance reporter about anonymously sourced accusations appearing on blogs.

But I know for a fact that there are other reporters more experienced than I am on the case, and I’m sure it’s only a matter of time before the truth comes out. But so far, it ain’t lookin’ good for the CHSRA.

If you know more about any of this, even if it’s off the record, please don’t hesitate to contact me –, or +1-484-995-8479.

“This is the dirty secret of California’s Density Bonus law…”

Inclusionary zoning – everyone wants to talk about it! Dave Alpert at GGW started the discussion with his pro-IZ piece, and hot on the heels of Emily’s post earlier today, I got an email from a California developer who wishes to remain anonymous:

This is the dirty secret of California’s Density Bonus law: it’s primarily a way to give 100% affordable projects easy land use concessions. It has barely any effect on market-rate projects, despite all the attention it gets from affordable housing advocates.

Incidentally, the number of affordable units in market-rate density bonus projects – 212 – over the total number of units produced in L.A. during the same period – 53,000 – is 0.4%. Vanishingly few. The number of units produced exclusively with the parking concession – the 6 condo conversion units – is 0.01%. Statistically the same as zero.

If people really want to get affordable housing built, they would do much better to find more direct ways to pay for it – like through property tax revenues or other sources where everybody pays. Trying to pay for affordable units by constraining market-rate development and trying to the capture value that is “created” when those constraints are released is not only a pretty ineffective way to create affordable housing, it’s an excellent way to make market rate housing more expensive.

I’ve got some thoughts of my own on inclusionary zoning and the anti-density sentiment it can engender among some affordable housing activists, which I’ll hopefully post tomorrow.

APA California hints (strongly) at opposition to parking minimum reform bill

Minimum parking requirement reform bills have been floating around the California legislature for a while – last year it was AB 710, and this year it’s AB 904, both authored by East Bay Asm. Nancy Skinner.

This email blast to members from the American Planning Association’s California chapter doesn’t take an official position and does ask at the end for input, but their feelings on the bill are kind of hard to miss (all emphasis theirs, edited slightly for clarity):

AB 904 [.pdf], sponsored by the Infill Builder Association and authored again by Assembly Member Skinner, is a gut and amend that is now similar to AB 710 (Skinner). This bill requires restrictive parking standards similar to those included in AB 710, which you’ll recall died on the Senate floor at the end of last year. AB 904, in a different form, already passed the Assembly, and is now awaiting hearing in the Senate.

APA California is not opposed to the concept of lower parking requirements near transit when a community decides it is right for them – the issue is that a one-sized-fits-all statewide standard is not appropriate.

AB 904, on and after January 1, 2014, would prohibit a city or county (including charter cities) from requiring minimum parking requirements in transit-intensive areas greater than the following:

• One parking space per 1000 square feet for nonresidential projects (including commercial, industrial, institutional, or any other nonresidential projects regardless of type of use).
• One parking space per unit for non-income-restricted residential projects.
• 75/100ths parking spaces per unit for projects that include both income restricted and non-income restricted units.
• 5/10ths parking spaces per unit for units that are deed restricted at least 55 years to rents or prices affordable to persons and families making less than 60% of area median income.

The definition of “transit-intensive area” means an area that is within 1/2 mile of a major transit stop or within 1/4 mile of the center line of a high-quality transit corridor included in a regional transportation plan, including a major transit stop such as a High Speed Rail transit stop) included in a regional transportation plan but not completed.

There are a few exceptions. Units with floor ratios below 0.75, deed-restricted rent control/rental replacement units, and units where the owner withdrew the units from rental are all exempt from the parking restrictions.

Local agencies can impose higher parking standards than are included in the bill if they make written findings, based on substantial evidence and “objective criteria” that all of the following apply to the specific transit-intensive area:
1. There isn’t sufficient walkability.
2. There isn’t sufficient level of transit service or bike access to provide viable alternatives to the car.
3. The lower standards undermine “existing parking standards that create effective incentives for transit-oriented development or affordable housing production, or both”.
4. The standards conflict with a station area plan in effect as of 1/1/2013 that provides reduced off-street parking compared to standard zoning required outside the transit-intensive area.

The local agency would be required to adopt an ordinance implementing any parking standards above those included in the bill. But, if the agency does not adopt such an ordinance by January 1, 2014, projects deemed complete after January 1, 2014, but before adoption of the ordinance, would be required to meet the reduced parking requirements in this bill.

The sponsors believe that builders and the market should decide how much parking to provide, and that these reduced parking standards significantly reduce the cost of development and increase the number of transit-accessible and affordable housing units, increase density and development and use of public transit, and reduce green house gas emissions and vehicle miles traveled by removing an incentive to drive.

APA California is interested in receiving your comments on this measure, and are also interested in how you believe the bill would specifically impact your jurisdiction or community. Please send your comments to Sande George, contact info below, within the next two weeks.

In addition, if you believe that this bill would create problems for you community, we urge you to write a letter to the author, with a copy to Sande, expressing opposition.

Sande George
Lobbyist, APA California
Stefan/George Associates
925 L Street, Suite 200
Sacramento, CA 95814
916-443-3494 (fax)

Thank you everyone,
Dave Snow, APA California Vice President of Policy and Legislation
Sande George, APA California Executive Director and Lobbyist
Lauren Silva, APA California Lobbyist

(Not sure if they took a position on last year’s bill – anyone know?)

And then there’s also the issue of affordable housing groups. Last go around, some opposed the legislation because they felt it would negate a specific type of affordable housing incentive where developers are allowed to build less parking than the statutory minimums require in exchange for setting aside some units for below-market rents/sales prices.

Here’s Mott Smith, a board member of the California Infill Builders Federation (which backs the bill) and a principal at LA-based Civic Enterprise, on affordable housing groups’ positions on today’s bill:

We already have the support of the California Housing Consortium, the State’s largest big-tent affordable housing builder group, the NRDC, the Nonprofit Housing Association of Northern California and some other key groups from across the political spectrum. We are working with Housing California, who we expect to take a position on June 20th, the San Diego Housing Federation and the Southern California Association of Nonprofit Housing, who we expect to take positions in the coming several days.