Ten years ago, on Aug. 6, 2002, the mayor and City Council declared the existence of a state of emergency due to severe shortage of affordable housing in the city of San Diego. Rental vacancy rates were low, rents rising at a rate higher than wages and homeownership out of reach for a majority of San Diegans. There was need for 40,000 housing units in five years, just to meet the needs of the population growth in the city.
In a public hearing attended by over a thousand people in Golden Hall, dubbed as “Housing Day,” the city of San Diego adopted a package of policies to address the housing crisis. These were: (1) expedited review of affordable housing and infill developments; (2) affordable housing funds pooled into a citywide $55 million bond, especially using downtown redevelopment set-aside; and (3) the Inclusionary Housing Ordinance. Adoption of this package was a culmination of more than a year’s worth of effort by an unprecedented coalition of affordable housing advocates, labor and community groups.
To capture the significance of the housing crisis in the city, here is an excerpt from a memorandum by then-Councilmember Toni Atkins on April 17, 2002:
“There is no question in anyone’s mind that our region is in the midst of a housing crisis. Middle income families cannot afford to buy a home in the city of San Diego, low & middle income families are doubling up to pay the rent or mortgage, and families are moving to Temecula or further in order to find affordable housing and commuting to jobs in San Diego.”
In response to the inclusionary housing proposal, the Building Industry Association published an economic analysis that summarized thus:
“A general conclusion is that, in general, it is not economically feasible for private for-profit developers/builders to build low-income housing.”
Inclusionary Housing Ordinance
The problem of housing unaffordability is intrinsic to the environmental quality that San Diego enjoys. In a land-constrained area like San Diego, the high value of land is one of the largest components of home prices. In 2004, land value accounted for 81 percent of the market value of a home in San Diego compared to 50 percent of the market value of a home nationally. In other words, housing is not affordable because land prices keep rising. Land prices rise because supply is fixed (our city is cradled within beautiful canyons, deserts, beaches and mountains), yet demand keeps growing (population and jobs). Land prices will thus continue to rise, often aided by windfall land-use entitlements, such as increased zoning, increased heights and relaxed development standards.
According to Professor Nico Calavita, inclusionary housing recaptures land value in up-zoning; that is, government actions that increase development entitlements do not increase land-values as much as they would in the absence of inclusionary housing requirement. Simply put, inclusionary zoning slows down the rapid increase in the cost of residential land.
The Inclusionary Housing Ordinance required new residential developments to provide at least 10 percent of the homes in residential developments at affordable rates for low- to moderate-income families or pay an affordable housing fee. These fees make up part of the Affordable Housing Fund, which has collected more than $48 million to help finance 14 affordable apartment projects and assist more than 230 first-time homebuyers. Contrary to the BIA claims that the program would not produce any low-income housing, and lead to concentration of poverty, not only did the ordinance produce targeted low-income housing units, these units are dispersed throughout the north, south and center of the city. One of the largest projects in the pipeline, Civitas in Mission Valley, will house 478 affordable units. Nevertheless, the ordinance continues to face legal and political challenges, and has been significantly weakened.
Linkage Fee
The city of San Diego’s Housing Impact Fee (referred to as “linkage” fee) was initially established in 1990 to meet the demand generated by low-wage employees on the city’s affordable housing stock, which is often subsidized by taxpayers. At that time, new commercial developments were asked to mitigate 10 percent of their impact on low-income housing. These fees constituted less than 1 percent of the development costs. The funds generated about $82 million since that were invested in 7,600 units for construction and rehab, which has led to creation of more than 10,000 construction jobs. In 1996, citing a poor economy, developers pushed for halving the fees. The economic cycle turned around, and around, but the fees were never restored. In 2010, the city collected $256,000 in linkage fees, a minuscule fraction of the housing demand generated from low-wage employment growth.
After almost a decade of studying the issue, the San Diego Housing Commission recommended restoring the linkage fees to 1990 levels in five years. Low-wage employers such as retail and tourism industry would pay relatively more than higher-wage biotech and information industries. However, over a year of discussions by a taskforce, no local source of funding affordable housing has been identified by the city.
10 Years Later
The need for housing is greater than ever before. The city of San Diego has a projected need for more than 88,000 housing units by 2020, of which 38,680 units need to be affordable to low- and very low-income households. Some of the key indicators show that the shortage of affordable housing is more severe today that it was a decade ago:
1. Plummeting affordability for renters. More than half (57 percent) of renter households in the city of San Diego pay more than 30 percent of their income on rent, according to the 2010 American Community Survey. This is 14 percentage points higher than 42.9 percent of households that paid more than 30 percent of their income on rent in 2000. To make things worse, during of the recession, San Diegan renters experienced one of the largest declines in real median income in the nation. The USC Casden Forecast predicts a 3.4 percent increase in regional rents this year, as low home affordability will keep renters out of the home-buying market.
2. Regression of homeownership. All the progress in the initial part of the decade, when more than half (51.3 percent) of the city’s households were homeowners in 2005, was eliminated by the subsequent mortgage/foreclosure crisis, with a drop in more than 14,000 homeowner units in the city. In 2010, less than half (48 percent) of the households in the city were homeowners, much lower than the national average (65 percent), and even less than the 2000 homeownership rate (49.5 percent) in the city that led us to declare a state of emergency. This is compounded by the region’s lower wages in comparison to the high cost of living, resulting in one of the lowest homeownership affordability for San Diego’s workforce in the nation.
3. Low vacancy rates in apartments. If you are a renter looking for an apartment in San Diego, you are in a market that has one of the lowest rental vacancy rates in the nation. A recent REIS survey of the larger apartment complexes shows a vacancy rate of 2.9 percent, even less than the 2002 vacancy rates, and predicts that the vacancy rate is likely to remain in the 2 percent-range in the next few years. (Some readers may remember the late Councilman George Stevens in the early 2000s, who unsuccessfully proposed a rent stabilization policy (aka “rent control”) if vacancy rates fell below 5 percent.) Expect the vacancy rate to improve, as new multi-family projects rise.
According to a recent survey of San Diegans, the cost of living was the No. 1 concern impacting personal happiness. With the largest share of the increased cost of living being housing, much leadership is needed in the city to balance the income gap between home and work. So here we are today, 10 years from Housing Day, the state of emergency due to severe shortage of affordable housing in the city continues.
Murtaza Baxamusa is an adjunct lecturer with the Sol Price School of Public Policy, University of Southern California; and the Director of Planning and Development for the San Diego Building Trades Family Housing Corporation.
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