San Diego’s Housing Crisis: Looking Beyond ‘Build, Baby Build’

Sometimes building more housing stock really just means more investment opportunities instead of more places for people to live...

Mayoral Candidate Cory Briggs’s critique of the YIMBY (Yes In My Back Yard) movement is, as I said on Friday, not something we should dismiss as advocacy for the status quo.

This is not the status quo as a tenet of the Church of Unlimited Parking Spaces, or homeowners believing their property values are endangered by hordes of public transit riders.

The danger in the city’s rush to spur more housing construction is the probability of ‘same old, same old’ rules of the game applying, wherein the rest of us get stuck with paying for the consequences/impacts of such development.

In other words, the status quo is exactly what we should be worried about.

I have long marveled at how the power of the magic hand of the free market gets muddled when it comes to housing. Part of this can be explained by the scarcity of land in big cities.

Developers would like us to believe they’re mostly building ‘market rate’ housing --meaning it’s affordable by an increasingly small segment of the population-- because fees and regulations stand in the way.

It’s also true the current cycle of capitalism devalues labor. Real wages for the bottom 90% or so of the population haven’t kept up with increases in the cost of housing even as productivity increases.

From 2010 to 2018, median rental prices for a one-bedroom apartment in Los Angeles increased 84%, while median wages during the same period only rose 11%.

A significant portion of reported increases of income at the bottom tiers of the workforce has come from legislatively increased minimum wages, along with companies grudgingly paying more as a public relations ploy.

But I think there’s something right under our noses we might be missing. Like maybe we have more housing built than we realize.

A night time drive through the canyons of cool looking cribs in downtown San Diego (and other cities) offers some insight in what may be a root cause of our housing crisis.

Did you ever notice how many of those units in newer construction are dark at night?

Seriously. Drive by older tall buildings around town after dark and see how many units have their lights on. Now drive downtown and make the same survey of newer construction.

It suggests to me that lots of those condos have absentee owners. They’re bought as investments, not living spaces. And if you happen to be wealthy enough to pay cash, the other costs of ownership are likely less than the probable return from appreciation.

The Treasury Department’s Financial Crimes Enforcement Network is significantly expanding its investigation into whether foreign buyers are using shell companies to buy U.S. real estate in order to launder money.

Recently, the threshold for additional reporting for cash purchases (including wire transfers and cryptocurrency) in 12 cities around the country including San Diego has been lowered to $300,000. This comes after a pilot study found more than 25% of transactions involved a “beneficial owner” who is also the subject of a “suspicious activity report,” which is an indication of possible criminal activity.

Although the volume of foreign all-cash purchases for high end real estate has fallen since the recession, Chinese consumers have been the top foreign buyers in both units and dollar volume of residential housing for six years straight, according to the National Association of Realtors, and now they expanding to new, lower price tiers.

These purchases aren’t foreign syndicates looking to launder money-- overseas (especially Chinese) buyers are increasingly middle class families looking to protect their new-found wealth.

Out of town buyers, according to a recent study, can have the effect of increasing real estate prices (4.9%), rents (8.9%), and decreased local revenue (.34%).

A solution putting more housing on the local rental market and increasing revenue for localities is to place a surcharge on property taxes for non-residents.  

From a recent article in Fast Company:

When Vancouver passed a tax on homes that sit empty for more than six months out of the year–apartments that serve as pieds-à-terre or investments for the rich, for example–it made a difference: The city recently reported that the number of empty properties dropped 15% between 2017, when the law took effect, and 2018. More than half of those homes went back on the rental market, presumably to avoid the tax. The city also raised more than $38 million, most of which will go to affordable housing programs.

A new study suggests that something similar could happen in other cities–and that in expensive, dense areas where it’s difficult to build new housing, an empty house tax might be an effective way to make housing more affordable. The research focused on London, where housing has become significantly more expensive in the last couple of decades, and where property has become a popular investment for people who live overseas. In the most expensive neighborhoods, the study found, as many as 30% of the housing can be empty or “low use.”

A recent article at CityLab looks at what people in Berlin are doing to address a severe housing shortage and spiraling rents.

In one of Europe’s largest cities proposals are under consideration for limiting how many units a landlord can own, stopping rent rises for five years, and of re-nationalizing real estate.

As Berliners grow increasingly frustrated with rising rents, there’s a question making the rounds in local politics that could seriously shake things up: Should there be a limit to how much housing a landlord can own?

Following months of intense debate (and some action), the German capital is considering whether landlords with more than 3,000 units should be barred from operating in the city.

Opinion polls show a majority of Berliners favor such a move, and activists are about to start preparations for a referendum on the subject. If voted through, the plan could give citizens the power to make Berlin’s biggest landlords break up their portfolios, in the hope that this could prevent galloping rent rises and provide tenants with better service.

The proposal is just one of several moves in a city that could be on the cusp of a housing revolution. Over the past few months, the German capital has been trying out several plans to keep housing affordable. In effect, these plans would transfer large sections of the city’s rental homes from private owners to the public sector.

I realize the concept of government taking over real estate is something unlikely to happen in California, even if the GOP thinks we're trying for a socialist utopia.

However, the increasing concentration of ownership of rental housing by large corporations has to be acknowledged at a minimum.

The defeat of a ballot measure (Proposition 10) repealing the Costa Hawkins Rental Housing Act allowing cities to expand with rent control was largely financed by by some of the nation’s largest real estate investors, not the mom and pop owners appearing tv ads

None of these alternatives to build, baby build is perfect. What works elsewhere may not work here.

I’m sure it won’t take much effort to find studies contradicting those I referenced in this post. I still think these are ideas worthy of consideration.

We need more data, a sense of urgency, and politicians willing to make bold moves, in addition to rational densification.

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Lead photo by Doug Porter