Dogpatch homes, by Peter Merholz via flickr, CC BY-SA 2.0
“SB 827 provides potentially huge additional value to property owners throughout the state without concurrent value capture.” — SF Planning Department, Feb. 15, 2018
“This is not the right way to build housing,” Kim said. “This is a giveaway to landlords and developers without asking anything in return for a city and community.” — SF Examiner, April 3, 2018
Scott Wiener’s failed SB 827 has provoked a huge debate over housing policy. The bill, which in many cases would have raised height limits along transit corridors, was attacked for undermining local control over land use. It had also been accused of fostering gentrification, though the San Francisco Planning Department’s Feb. 15 memo (cited above) found that SB 827 would increase affordable housing in the city overall.
Many critics of SB 827 also saw it as a developer “giveaway,” and providing a windfall to property owners without the public receiving any “value recaptured” from owners whose property values would increase from being able to construct a taller building.
The widespread critique of SB 827 got me thinking about why nobody talks about those who are really profiting from land use decisions that inflate their property values: homeowners. Specifically, those homeowners whose neighborhood zoning prohibits new apartments. And who fight to keep it that way.
Cities believe developers must contribute a public benefit in exchange for the right to build housing—which many see as a public good. In contrast, homeowners who prevent housing in their neighborhoods make huge profits by artificially restricting supply—and cities require them to provide no public benefits at all.
There’s clearly a double standard at play here as to how we assess the beneficiaries of urban land use policies.
Consider San Francisco’s Central Subway project. This roughly $2 billion project vastly increases property values along Chinatown and the other stations where residents are currently underserved by public transit. Yet I recall no public demands that these property owners provide any public benefits for this massive public expenditure, which will greatly increase their property values.
San Francisco’s extension of the Third Street light rail played a key role in the rapid gentrification of Dogpatch. I don’t recall anyone calling for property owners in the Dogpatch neighborhood to share their increased property values.
San Francisco also routinely passes park bonds. This makes homes and apartments near the improved parks more valuable, yet the cost of these improvements are borne by owners citywide. Tenderloin property owners have gotten no increase in their property values from park bonds.
Big Homeowner Profits From Stopping Housing
But the real question about value recapture is why it is not applied to the downzoning of residential neighborhoods. I am referring to the single-family zoned neighborhoods in San Francisco and those whose zoning prohibits housing above three or four stories.
A developer who builds market rate housing adds to the city’s housing supply. And if the city has an inclusionary requirement, they are giving working and middle-class people the ability to live in a neighborhood and likely a city they otherwise could not afford.
In contrast, what public benefit do homeowners fighting to stop new housing confer? Nobody benefits from stopping housing but the current group of owners and their families.
And they’ve been making out like bandits.
Single family home prices in San Francisco went up 24 percent in the past year alone. The median single family home price is now $1.6 million. The average sales price of a Noe Valley single family home sold this February was $3.5 million. Noe Valley residents are particularly militant in stopping new housing—and they have reaped the profits to show it.
A new report released this week found San Francisco homes earned $60 per hour in equity. That’s four times more than the city’s minimum wage. And the home doesn’t even have to show up to work.
San Francisco and other cities could go a long way to building lots of affordable housing by attaching a surcharge to homeowner profits akin to those it applies to developers. The surcharge would only apply to neighborhoods where new apartments are banned. This would likely create an incentive for those now faced with paying public benefits to support allowing multi-unit buildings in their neighborhood.
This tax on homeowner profits would likely add more below market rent units than the city has produced through other means. Just consider that over the past six years the average single family homeowner in San Francisco has seen their equity increase by $1 million. That’s $13,125 a month, every month for 6 straight years. Multiply that by the city’s 124,000 single family homes and that is a potentially staggering infusion of public subsidies for affordable units.
When you consider that Prop 13 allows longtime homeowners to pay property taxes at a fraction of their home’s current value, the policy rationale for taxing profits on sale makes even more sense.
I realize that no politician who has to face voters will even suggest taxing homeowner profits reaped from stopping housing. After all, high voter turnout by homeowners underlies exclusionary zoning restrictions.
But if proposals to shift some of the huge public subsidies homeowners get from the mortgage interest deduction have become politically tenable, so should taxes on homeowner profits reaped from restricting housing supply in their neighborhoods.
We need to stop making believe that only developers are profiting from the urban housing shortage. Land use policies that restrict new apartments generate huge profits for existing homeowners. It’s bad policy to ask one group of property owners to return “value” to the public from land use changes while exempting others.
That’s a land use double standard. And it makes the urban housing crisis worse.
A version of this article originally appeared on BeyondChron.org
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Reading Randy Shaw’s piece, you might get the impression that SB 827 was only opposed by owners of single-family homes. In fact, some of the bill’s most vehement critics were tenants advocates and people of color. See Damien Goodmon’s broadside “SB 827 is a declaration of war on south LA,” the letter from the ACT-LA (the Alliance for Community Transit), and the letter from the Black Community Clergy and Labor Alliance.
In other words, many members of historically disadvantaged communities regard local control over land use—zoning—as a vehicle of power.
Shaw also implies that the only factor in the soaring property values in San Francisco and the Bay Area are onerous local growth controls that reflect homeowner opposition to new housing construction and constrain housing supply. That’s the dominant narrative, pushed by the growth machine in California and beyond.
As I explained in a piece posted on Shelterforce last December, “When Affordable Housing Meets Free-Market Fantasy,” that narrative fails on empirical grounds. What’s really sent Bay Area housing values sky-high are the highly-paid employees of the tech industry and the international investors who’ve bid up the price of the region’s residential real estate. The supply-side bunkum is similarly debunked by UC Berkeley geographer Richard Walker in his new book, Pictures of a Gone City: Tech and the Dark Side of Prosperity in the San Francisco Bay Area.
Randy Shaw’s take on “homeowner profits” is ridiculous.
A homeowner only realizes a profit by selling. If she doesn’t sell – she has made no profit. The hypothetical market value of a San Francisco house is just that – hypothetical. Homeowners can not spend their gains at the grocery store without selling the house first, so to speak. To say that sitting homeowners are “reaping profits” is simply to lie.
Moreover, when a homeowner does sell, the profits are very much taxed. The property taxes of the new owner reflect the inflated price. Furthermore, the transaction is itself taxed in San Francisco, as it is in Berkeley.
Calls to increase the tax burdens on homeowners whose house’s market price appears much higher than what they paid are nothing less than calls for the city, county, and state to systematically dispossess and evict all long-standing residents whose incomes have not skyrocketed to match current housing prices. It is a plainly, profoundly regressive proposition.
Shaw claims that developer profits are no different from those of incumbent homeowners. Seriously?
Developers engage in a production process. They buy material inputs, they hire labor to transform them, they either lease or sell the corresponding output. In that process, developers, their financiers, land owners, and the state collect a profit that arises from withholding from wages a surplus value created by the labor process itself.
Developers additionally profit when, through that labor process and its side effects, they succeed at displacing lower income and often minority persons form the site of development and its surrounds. That is — developers profit by engaging in a proactive gentrification and displacement process that raises the market price of their property and its leases.
Homeowners, meanwhile, use their house.
Can you see the difference, Randy?
Hummm… I guess Mr. Lord has never heard of equity lines of credit or reverse mortgages.
Jerry,
You wrote, for some reason: “I guess Mr. Lord has never heard of equity lines of credit or reverse mortgages.”
Debt is not profit. Debt is almost the opposite of profit.
Not only have I heard of the things you mention, apparently I understand what they are better than you.
Okay, Tom. Debt is not income, but you can spend it just the same when you’re sitting on over a million dollars in equity.
At the beginning of your rant, you said: “Homeowners can not spend their gains at the grocery store without selling the house first…”
To paraphrase you from the same paragraph, that is simply a lie! I just gave you two examples of how people can spend their profits without selling their home.
You still need to pay back the loans! Have you not ever borrowed money? Ever hear of interest?
This article, while it seems to be a well-founded argument or at least food for thought in the context of San Francisco and other localities where upzoning is a current issue, needs to have a different lede.
It implies that opposition to more housing developments is always in the benefit of the homeowners (and other groups) who are in opposition by restricting supply.
What about all of the localities where the housing developments coming in are so far beyond the price point of the existing housing – causing undue upward pressure on the prices of existing housing, negatively impacting affordability?
This report fails to explain that homeowners stood to financially gain from SB827 as their homes would be upzoned. Even despite this many opposed the preposterous over-reach of SB827 which removed local governance.
The writer takes on the same selective narrative as the YIMBYs—a group financially funded by the tech industry that conveniently overlooks that the Bay Area’s housing crisis is the result of accelerated job growth without commensurate investing in housing, in particular affordable housing.
YIMBY backers and the Bay Area Council conveniently dismiss and ignore tech’s role—which in SF has seen annual job growth skyrocket to 4.5% in 2010-2014 (and likely sustained beyond then) compared to under 1.5% in prior decades.
When adding jobs it’s vital to ensure that the region’s affordable housing keeps up, but developers have primarily been building—and YIMBYs lobbying for in SB827—market rate (meaning luxury) housing.
The SF planning department conducted a Nexus study that found that when new housing is added it must include 31.8% affordable units. Otherwise adding well-paid tech jobs and housing solely for the highly paid under-delivered the prerequisite affordable housing for support workers, thus exacerbating / worsening the region’s housing crisis.
It’s about time the YIMBYs, the Bay Area Council, and their backers took responsibility instead of trying to pin the blame on homeowners for being NIMBYs. However, these groups have found that it’s a lot cheaper to lobby Sacramento to push onerous housing laws like SB827 on homeowners rather than confront and help solve the issue. How could they help solve it? Simple—when new office units are added, require the zoning comes with impact fees to cover the cost of enough affordable housing units.
The issue remains one of funding affordable housing units, not zoning. But this doesn’t fit the convenient narrative being spread—in this article and elsewhere—by well-financed corporate interests.
The only way a homeowner ever makes money on property is if they sell it. The value of property means nothing except when you buy and sell. When you own it, it is only about how much does it cost to own month to month. So unless you are advocating forcibly removing homeowners, this argument is specious.
Nonsense article. First, homeowners do not benefit until they sell. They didn’t ask for changes to land use; that comes from envy of others who want their location and lifestyle and effectively demand they subdivide their properties or units to “share” as a “public” benefit. People who live in modest, 3-storey, 4 BR walk-ups with small backyards for kids are being told they are selfish and profiteers for wanting (and needing) a certain housing type in a (now) desirable location. They never asked for the booming property values. They just want to enjoy their home and lifestyle as is. The use of regulatory measure to force “sharing” as a public benefit is so wrongheaded and anti-democratic it will always fail. Go back and think how to preserve exactly what those owners have AND satisfy new entrants to the housing market. Quit trying to force people into these dilemmas.