It is often convenient to blame city planners for the affordable housing crisis. After all, those affected have no other public forum to vent their concerns, least of all toward those who are profiting off the crisis on a project-by-project basis. Sadly, this blame is often misguided because planners do not produce housing.
A case study of the profit-maximizing, decision-making that is driving the affordability crisis is downtown San Diego. Construction cranes are up all over, and a $6.4 billion development juggernaut is rolling through. Nearly 10,000 new units have been permitted by the downtown planning board over the last four years, and the fast and generous permit approval process is cited as a model by developers for other regions. Underlying this process is a programmatic master plan that eliminates the need for project-level environmental review, lax standards on deviations from the zoning code, and a public hearing process that is limited to design review, often bypassing complex questions about density and community impacts. The process is overlaid with myriad incentives in the form of density bonuses for affordable housing and green building.
This kind of permit streamlining that supply-siders clamor for in state and local legislation for land-use planning and zoning reform is a developers’ dream come true. Yet, this same socially blind approach to planning has led to more affordable housing units being demolished than being built, and a 60 percent spike in unsheltered homeless downtown in the last two years. This is compounded by the fact that with the dissolution of redevelopment in California, there is no requirement that 15 percent of the housing stock within downtown be set aside for affordable housing, and no requirement that 20 percent of the tax increment generated in that area fund affordable housing.
Some believe that the affordable housing crisis is caused by a supply shortage that will be solved by allowing any housing to be built with fewer restrictions. That is simply not happening in downtown San Diego.
Here are some key findings from my analysis of 36 projects approved by the board from 2013 to 2016, totaling almost 9,300 housing units in downtown San Diego:
- Over 90 percent of the housing units permitted were not affordable. Without affordability restrictions, developers and landlords can charge any rent/price they want, even for smaller units. For example, a recently built condo project has a starting price of $1.1 million with units at about 1,300 square feet at the lower range.
- 13 projects had affordable units, of which 8 had inclusionary housing units within them. Of these projects, three were under redevelopment agency agreements and at least another two utilized redevelopment funds.
- Six projects utilized the affordable housing density bonus.
I’ve had a front seat to the permitting process by serving on downtown San Diego’s planning board for almost three years. Here are three personal observations that may shed light on the mystery of why—despite creating every incentive that planners can conceive—we are failing to produce affordable housing at the level we need.
1. First, developers preferred to pay an “in lieu fee” rather than build inclusionary onsite. This may have to do with a lower pricing of the fee, so that it was cheaper to pay the fee than to build the units. One exception is that when redevelopment (or some other public) funds were used, this raises the importance of revenue sources to subsidize production of affordable housing. However, absent a requirement that the units actually be produced, downtown is going to continue to generate a fewer share of affordable units as land becomes more expensive.
2. Affordable housing units were mostly included in projects that could not utilize the standard streamlined process of approval. This is because they either involved a redevelopment agreement, a public right-of-way easement, a historical resource demolition, or some similar issue that needed additional review by a public body (such as the City Council) that would possibly consider the community impacts of a project. It is noteworthy that most affordable housing projects actually go through a more discretionary review process, oftentimes because they utilize public funds. Thus, streamlining the market-rate projects in comparison may do little to benefit the production of affordable housing.
3. Contrary to the misconception that more density begets more affordable units, this did not occur on a project-specific level. Developers would utilize the floor-area ratio only to the extent that the construction type and unit mix would maximize their returns—and would stop there. Out of the 36 projects approved, 30 did not utilize their maximum allowable floor-area ratio. That is roughly 45 percent density left on the table, for all the projects combined. Only one in six projects utilized the density bonus incentive by providing affordable housing onsite, and only to the extent that they were meeting the city’s inclusionary housing requirement, not a single unit more. With some exceptions, for example, a project within the airport’s flight path that could not be fully built out, the rational explanation that developers were not building to capacity is that there is an over-abundance of development rights in downtown, which makes development incentives for building affordable housing less attractive.
The net result is that downtown San Diego has been failing to generate 15 percent affordable housing stock in the last few years.
In a past post, I wrote that the real reason affordable housing isn’t being built in high-demand areas in California is that urban land values are too high. Downtown San Diego’s experience shows that laissez-faire streamlining cannot substitute for performance under regulatory requirements and public funds. Developers’ interests are to increase rents and prices, and they do not necessarily align with the public policy interest in lowering housing costs at levels that are commensurate with family incomes.