Wednesday, July 30, 2014

Are San Francisco's land use rules the culprit for skyrocketing rents? (Hint: No.)

The last few weeks have seen a barrage of criticism regarding San Francisco’s land use rules; among the critiques was a Washington Post op-ed quoting luminaries like Enrico Moretti, descrying the land use rules for restricting housing starts in the city. Having lived in the city for 11 years, and having practiced as a land use lawyer representing most of the major developers in the city for five of those years, I can tell you categorically that the city needs more housing, and also categorically that the critics are crazy if they think the answer to San Francisco’s housing problems is more housing starts. Let me explain.

San Francisco, as a jurisdiction, is 7 miles square, and it was built out years ago. Any effort to change that fundamental infrastructure, which already provides for one of the most densely settled cities in the country, would be foolish. San Francisco can contribute to the regional housing stock growth needed, but it will not be able to meet the region’s needs or even provide the lion’s share of new housing stock. The suburbs will have to do that.  A cursory look at the region's fair share housing allocation makes this clear. 

Moreoever, San Francisco is one of the great cities of the world. You do not want to ruin that. For a brief history lesson, google “Justin Herman” and “Western Addition II.”  See City For Sale for a history of the city’s racist and classist redevelopment practices of the Sixties and Seventies, and the ugly scourge the city's first wave of high-rise housing left on the central parts of the city.  It's not all about dwelling units; how it's done matters, too.  See the 5 D's and the one P of city design (it seems there is a new "D" every year now; maybe there are six or seven D's by now).

Dont' get me wrong:  I am not against highrises in the city where appropriate. They make perfect sense along the BART transit corridor. Build high in the sky around all the BART stops. By the way, most of the western part of the city is sandy soil subject to liquefaction in earthquakes; you will never build high there.  Same with the Marina.  That leaves SOMA, much of which is presently already entitled for new residential units.  (See Rincon Hill with multiple entitlements for high-rise residential not yet built.)  So...where are all these housing starts in San Francisco going to come from?

The skyrocketing rental rates are contained, primarily, to several neighborhoods that are hyper-fashionable. If San Francisco really wanted to assist the rental market, it would facilitate making some of its down-and-out neighborhoods along its southern border more accessible to the Google throngs, and it would make those neighborhoods more accessible to downtown. The market price of real estate in San Francisco is governed by two things: how fast can you get to Silicon Valley and how fast can you get downtown. The southern neighborhoods of the city all have fast access to 280. Most are under-built given their access to 280 and also their closeness to BART.  Oh, these neighborhoods also happen to be the most diverse in the city, too. Is it a problem to lose that diversity? Something to consider for the housing starts boosters.

One certain problem in the city’s rental market is rent control. Let me illustrate by using myself as an example. For nine years, I lived in the first-floor of a three story rent-stabilized apartment that was absurdly cheap by the time I left for the outer, outer East Bay suburb of Idaho.  (That’s a joke.) I went to an Ivy League. The guy on the second floor, who, when I left, had lived in a rent-stabilized apartment for 15 years, had gone to Harvard. The guy on the third floor, who, when I left, had lived in a rent-stabilized apartment for 23 years, had gone to Princeton. All of us had very good jobs, and all of us had ridiculously below-market rents. No doubt, I loved the cheap rent, but the idea that rent control is helping the poor in the city is problematic. It helps the rich just as much, maybe more. In addition, landlords also incorporate the loss from rent control over the average stay—3 or 4 years—into the up-front price of the rent.  What's a better option?  Transferable housing vouchers for the poor (e.g., Section 8, which the Republicans are slowly strangling nationally, but maybe the city could create something similar locally for those, say, below x% of area median income).

Which leads to my final point, which is the same as my first: San Francisco is a tiny part of the Bay Area. The city is just 1 million people in an area of over 7 million people. The biggest problem, though, is that outside of San Francisco, and a very few other locations, the rest of the Bay Area housing stock is bleh. I mean really bleh, as in more bleh than the strip-mall Ohio town where I grew up. Most Bay Area suburbs are really, really boring.  (Sorry, Antioch.)

That is why there has been a concerted effort to build a plan to create nice neighborhood development throughout the region that would emulate the kinds of urban experiences available in San Francisco. Required by SB375, that plan was called One Bay Area, and it was sued by the Sierra Club, another environmental justice group, developers, and an “anti-sustainability” group. If you want to solve the problem of San Francisco rents, you will never be able to solve it by tearing down San Francisco and building it back up again as high rises. Instead, you will need to build more San Francisco-style development in the adjacent suburban communities. The problem is, absolutely everyone—environmentalists, property rights advocates, real estate developers—hate that idea but for different reasons. That, my friends, is why San Francisco, an iconic city in the midst of boring suburbs, is stuck with the problem it has.

Now, I am not against a good rail against the San Francisco land use regime. If you want to really put it to task, let me give you some examples of the rust gunking up the system that could use assistance that has nothing to do with housing starts:

1. Building permit issuance in most cities is considered ministerial. In San Francisco, building permit issuance is considered discretionary. The end result is that projects are subject to far more review, and can be more easily stopped, in San Francisco, than in any other major city in the country.

2. The city has adopted environmental review procedures under the California Environmental Quality Act that are byzantine and defy the purpose of the act. Particularly arbitrary are the city’s rules governing categorical exemptions, which are supposed to make small projects easy to permit but, in San Francisco, require a written evaluation and can even require reports. Nowhere else in California does this. This is time-consuming, tedious, and yields almost no substantial benefit in the quality of life of the city. Large developers consider it a cost of doing business; the onus of the regulation falls on small property owners who want to do simple things like build a room on the back of their homes or add on a deck.

3. The Planning Code is gunked up with several provisions that were intended to stymie development in the Seventies and make no sense. The most obvious is the “eliminate no sunshine on parks” rule. Any sensible investigation of how this is implemented would be troublesome.

4. District elections have encouraged territorial thinking on the Board of Supervisors. The city needs a new way; a mixed system of some district elections and some city-wide elections could be a way forward.

I come back to one thing when I hear people lament the prices of San Francisco: people love San Francisco like nowhere else in America. People don’t love Phoenix or Houston, for all the housing starts they offer. San Francisco is also undergoing a colossal change. Although San Francisco has long been a well-off city, it has not had the kind of wealth of Los Angeles or New York since the Gold Rush days. San Francisco now has that wealth in spades. That wealth is what is changing the city.  But if you can get away from the madding crowd of the Google bus queue, there are still excellent Singapore-style dumplings to be found in the Richmond and, for those whose ego can take the hit, some great places to live just over the border in South San Francisco or, dare I even mention it, Sunnyvale.  

Stephen R. Miller

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Interesting post Stephen! As a former Bay Area denizen, I'm fascinated by the recent Googlesque gentrification of SF. Did you see this recent piece in The New Yorker?

Posted by: Jamie Baker Roskie | Jul 31, 2014 5:24:01 AM

Thanks, Jamie. The New Yorker article is a good read. It actually quotes a lot of the right people, but ultimately fell into the trap of following plot over informing the public. Google bus drama ain't the problem. Oh well. Not bad for an east coast effort to understand the west.

Posted by: Stephen Miller | Jul 31, 2014 8:38:31 PM