California Housing Crisis: Part 2

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Editor’s Note: This is Part 2 of a three-part article. Part 1 appeared in the May Apartment Journal and Part 3 will appear in the July issue.

III. Attracting Big Business Without Accounting for Big Housing Demand Is a Big Problem.

For years, local governments have been luring big businesses to their cities and counties through tax breaks and incentives, without equally investing in housing to meet demand. In San Francisco, for example, city leaders have successfully lured big tech companies like Twitter, Dropbox, Salesforce, Zendesk, Airbnb, Lyft, Uber, Pinterest, Yelp, and even Google to set up shop right in the heart of the City through tax breaks and other development incentives.15 Before that, in the early 2000’s, it was biotech companies. But while politicians have been successful in luring well-paying jobs in droves, they have failed, and miserably at that, to account for population growth and in creating or facilitating the development of housing to accommodate the city’s housing needs. By the numbers, the Bay Area has added half a million more jobs than housing units since 2011.16

Statewide tax break incentives pose similar problems. The State recently approved $91 million in tax breaks as part of the California Competes initiative, which provides incentives for 114 companies to bring jobs to various parts of California.17 Sounds great until the statewide job growth exacerbates California’s housing problems.

Then there’s government’s incessant fawning over Amazon. Almost every major city in America is competing for Amazon’s new headquarters (including, of all places, the San Francisco Bay Area). The bids that are being discussed are jaw-dropping.

Chula Vista, California, for example, has offered $100 million worth of property and 30 years of property tax breaks, with no plan to develop more housing to accommodate the influx of 50,000 new jobs.18

Fresno, California, however, might be on to something with its controversial yet novel Amazon proposal. It proposed no tax breaks, but promised to funnel 85 percent of all taxes and fees generated by Amazon into a special fund for housing and other infrastructure.19 The catch was that Amazon got a say in how the taxes were to be spent.

Regardless, Fresno’s “build to play”20 proposal was a reasonable one because it required the development of housing to be more or less commensurate with job and population growth.

Although Fresno’s proposal was ultimately rejected, the approach was noteworthy because it approached job recruitment and growth with housing in mind.

IV. “Local Control” Is Why Sacramento Will Be the Location of the Next Big Housing Crisis.

Local governments argue that repealing Costa Hawkins will give them back “local control” to address their own housing needs. It is these same governments that blame rental housing owners for housing affordability problems, which they argue justifies why they should have the power to rent control all rental property. In fact, “local control” means local governments can choose to neglect their housing responsibilities while taking actions that create housing affordability problems, and then blame property owners when affordability problems and housing short ages actually occur.

Take what’s happening in Sacramento as an example. Sacramento is the fastest growing city in California.21 It also has one of the hottest housing markets not just in California, but also in the country.22 On top of that, rents are rising faster in Sacramento than any other part of California;23 some say it’s the fastest in the nation.24 Housing supply is low, while demand is high, and the population keeps growing.

But how did Sacramento go from “cow town” to “wow” town.25 More importantly, what are city leaders doing about meeting Sacramento’s housing demands?

It is no secret that a mass exodus from the Bay Area to Sacramento is in full throttle.26 But Sacramento leaders have also been working overtime to offer tax breaks and incentives to attract new businesses to the region. Just recently, Sacramento agreed to give Centene, a health insurance company, $13.5 million to establish headquarters in Sacramento. Ironically, the money they are offering to Centene to produce jobs in the area comes directly from old redevelopment funds—funds that used to be reserved for affordable housing production! 5,000 jobs are expected to be generated from the deal.

Sacramento was also one of several hundred cities to offer incentives to Amazon to build a new headquarters and bring in 50,000 new jobs. In fact, local governments in the Sacramento area offered Amazon more than $500 million in job grants, land donations, and infrastructure financing to lure the online behemoth to the region. None of the proposals were tied to the development of new housing.

Blaming property owners for high rents, therefore, is misguided and misplaced, when city leaders are making decisions every day that exacerbate the housing shortage problem, while neglecting to to offer incentives to Amazon to build a new headquarters and bring in 50,000 new jobs. In fact, local governments in the Sacramento area offered Amazon more than $500 million in job grants, land donations, and infrastructure financing to lure the online behemoth to the region. None of the proposals were tied to the development of new housing.

The city has made numerous other recent decisions to grow the area without considering its housing needs. The city just built a new NBA arena for the Sacramento Kings. “[I]n the 26 months the complex was under development, $530 million in real estate transactions took place in a 10-block radius around the arena, more than 80 new businesses moved downtown, and neighborhood employment jumped 40 percent.”27 A rail yards project is in development,28 as well as discussions about a riverfront district project on both sides of the Sacramento River.29

Sacramento is also hoping to be the home of a new Major League Soccer team. Subsidies for hotels, a science museum, an aquarium, and a new convention center are also either in the works or being discussed.30

Mayor Darryl Steinberg has vowed to make Sacramento a center for jobs, and is unabashed in his bid to attract high-tech startups.31 City leaders have even changed Sacramento policy to allow staff members to offer financial incentives to large companies interested in relocating to the Sacramento area.32

This kind of city growth should be commensurate with big investments in housing development. But Sacramento is barely lifting a finger to require new housing development.33 It’s making the same mistakes the Bay Area made.

Blaming property owners for high rents, therefore, is misguided and misplaced, when city leaders are making decisions every day that exacerbate the housing shortage problem, while neglecting to contribute toward the development of new or affordable housing.


V. Rent Control Removes Units from the Market and Drives Up Costs.

According to a recent Stanford University study on the effects of rent control, there are 30 percent fewer rent controlled units in San Francisco than there were when rent control went into effect in 1995.34 "Rent control exacerbates the housing shortage by pushing landlords to remove supply of rental housing," Rebecca Diamond, author of the Stanford study, stated recently.35 The study goes on to show that for every six percent decrease in housing supply, rent prices increased by seven percent.36 The study is in line with previous reports, including by the American Community Survey in 2012, showing that San Francisco has a staggering 30,000 vacant units at any given time.37 Some owners keep units off the market while others convert their properties to ownership housing.38

Rent control proponents argue that these studies show that owners should be prevented from converting their properties to ownership housing and should be heavily taxed for keeping units vacant.39 But more regulation and burdensome controls over rental housing will only serve to squeeze more rental units out of the market while chilling development. The Stanford economists suggest government subsidies, tax credits, and building more affordable housing as workable solutions.40

Editor’s Note: This is the end of Part 2 of 3. Part 3 will appear in the July issue of the Apartment Journal.

Ron Kingston can be contacted at This e-mail address is being protected from spambots. You need JavaScript enabled to view it

No portion of this article may be reproduced or copied without the permission of the author (Copyright © 2018 CALPCG).

 



15 Marissa Lang. “Companies avoid $34M in city taxes thanks to ‘Twitter tax break.’” SFGate. Oct. 19, 2015. Web January 2018.
16 Liam Dillon. “California lawmakers have tried for 50 years to fix the state's housing crisis. Here's why they've failed.” Los Angeles Times. June 17, 2017. Web January 2018; see also Dillon. “What you want to know about California's failed housing affordability law.” LA Times. July 5, 2017. Web January 2018 (“Bay Area is adding hundreds of thousands more jobs than homes, which is driving up the demand for housing beyond what the targets had anticipated”).
17 Riley McDermid. “Here's what California paid to lure General Motors jobs to downtown San Francisco.” San Francisco Business Times. April 14, 2017. Web January
2018; see also Scott Olson. “Salesforce poised to receive city tax break on tower expansion.” Indianapolis Business Journal. August 2, 2016. Web January 2018.
18 Anna Hensel. “How 12 cities are trying to woo Amazon’s $5 billion.” Venture Beat. Heartland Tech Analysis. November 24, 2017. Web January 2018.
19 Id.
20 “Build to play” is hereby coined.
21 Randol White. “Sacramento Is Fastest-Growing Big City In California.” Capitol Public Radio. May 1, 2017. Web January 2018.
22 Linda Gonzalez. “Sacramento makes Zillow’s list of hottest housing markets for 2017.” The Sacramento Bee. Real Estate News. January 16, 2017. Web January 2018.
23 Angela Hart. “Rents are rising faster in Sacramento than any other part of California.” The Sac Bee. Capitol Alert. July 26, 2017. Web January 2018.
24 Josh Lyle. “Sacramento rents fastest rising in nation.” abc10. June 29, 2017. Web January 2018.
25 Patrick Sisson. “Sacramento, emerging from Bay Area’s shadow, becoming booming urban alternative.” Curbed. Property Lines, Real Estate. July 11, 2017. Web January 2018.
26 Erica D. Smith. “The Legislature did its part to fix Sacramento’s housing crisis. Now it’s your turn, Bay Area refugees.” The Sac Bee. September 19, 2017. Web January 2018; Katy Murphy. “Amid Bay Area exodus to Sacramento, low-income families at risk of being pushed out, study finds.” The Mercury News. November 22, 2017. Web January 2018.
27 Supra note 27.
28 Id.
29 Richard Chang. “Sacramento is either ‘unknown or misunderstood.’ Will that change in 2017?” The Sac Bee. Business & Real Estate. December 29, 2016. Web January 2018.
30 Ryan Lillis. “Big public subsidy coming for Sacramento riverfront museum.” The Sac Bee. City Beat. September 13, 2017. Web January 2018; Anita Chabria.
“Sacramento leaders OK convention center rehab – and want another tourist destination.” The Sac Bee. Local. May 30, 2017. Web January 2018; Foon Rhee. “Why Mayor Steinberg now owns Convention Center decision, for good or bad.” The Sac Bee. Opinion. January 30, 2017. Web January 2018.
31 Supra note 31.
32 Ryan Lillis. “Hey Amazon, Sacramento is ready to offer you financial incentives.” The Sac Bee. City Beat. October 24, 2017. Web January 2018.
33 Hudson Sangree. “Will Sacramento avoid another housing boom and bust?” The Sac Bee. Real Estate News. July 17, 2017. Web January 2018.
34 Katy Murphy. “Rent-control policy `likely fueled the gentrification of San Francisco,’ study finds.” The Mercury News. Business, Real Estate. November 2, 2017. Web January 2018.
35 Michelle Robertson. “Rent-control policies likely 'fueled' SF gentrification, Stanford economists say.” SFGate. November 3, 2017. Web January 2018.
36 Adam Brinklow. “Stanford paper says rent control is driving up cost of housing in San Francisco.” Curbed San Francisco. San Francisco Rent Control. November 3, 2017. Web January 2018.
37 Sarah Karlinsky and Kristy Wang. “Non-Primary Residences and San Francisco’s Housing Market.” SPUR. SPUR White Paper. October 21, 2014. Web January 2018.
38 Supra note 38.
39 Joshua Sabatini. “SF to explore taxing property owners who keep buildings, units vacant.” San Francisco Examiner. July 11, 2017. Web January 2018.
40 Supra Note 38.

 

 

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