On Aug. 1, the San Diego City Council approved the Morena Corridor Specific Plan, which will allow for a dramatic increase in housing height and density around the Mid-Coast Trolley extension new Tecolote Station and the existing Morena/Linda Vista Station.
While the job of City Council members is to serve the public rather than private interests, at that meeting elected officials chose to base their decision about the economic impacts of affordable housing requirements on information provided by the developers who obviously have their own interests in mind.
When the Morena Plan returns to the City Council on Tuesday for additional discussion, officials should consider changes to ensure that more affordable housing be provided to those who need it most.
The economics of land use planning is undeniably complex, and the land available for development is now very expensive. Land costs are, in fact, a major reason for the skyrocketing increases in the cost of housing. The price of land is rising because of increasing demand and limited supply, resulting in a windfall for landowners.
But the value of land goes up not only for market reasons but also as a result of actions taken by the government. Public investments in infrastructure projects or changes in zoning can also send land values skyrocketing.
In fact, the area surrounding the proposed Tecolote Trolley Station is benefiting from both the $2 billion Mid-Coast Trolley extension and the significant height and density increases proposed by the Morena Plan at to the two stations.
The $2 billion in public investment is tax money that comes straight out of our pockets. And who will reap major benefits? It is actually a gift to current landowners of big-box retailers like Jerome’s Furniture Store and Toys ‘R Us, even though they have done nothing to change the value of their land.
No wonder one of the classical economists, John Stuart Mill, referred to these value increases as “unearned increments in land value” that should be taxed. It is only fair that the public should “recapture” some of those increases in land value by requiring additional community benefits, including more affordable housing.
How much of the increased value should be captured? And how? An economic analysis should be performed to compare the value of land before and after the public actions. How much of the increase should be captured depends on many factors but it is, ultimately, a political decision. For instance, in Vancouver, Canada, where land value capture has been perfected, about 80 percent of the increased value is captured for community benefits.
City officials are beginning to make the connection between the windfalls for landowners that they engender, and the poverty of the city in terms of its ability to provide the sorely needed affordable housing and public amenities.
In fact, at the Aug. 1 meeting, City Council President Georgette Gómez noted the connection between upzoning and land value increases, and suggested the city recapture some of those increases for community benefits. She also pushed for an economic analysis that would calculate the increases in land value resulting from plan changes.
Such an analysis was not available for the Morena Plan, which led to messy, confusing and counterproductive deliberations when an attempt was made to gain inclusionary housing requirements from the landowners and developers.
It all could have been avoided had the city conducted the analysis upfront. Instead, elected officials had to rely on testimony from the landowners’ representative to establish if the project would be financially feasible with 15 percent affordable units on site at two levels of affordability: 80 or 100 percent of the area median income.
The area median income for a family of four in San Diego County is $86,300. The spokesperson for the landowners declared that using the lower benchmark to determine future rents on site would be too onerous for the developer to provide affordable housing. And that was it! The claim went unchallenged.
Additionally, the 15 percent at 100 percent of the area median income is not “more” in terms of benefits for the public — the lower the median, the greater the public benefits — and is probably not more onerous for the developer than existing inclusionary housing requirements, and certainly not more than the recently approved changes to the inclusionary housing ordinance.
The City Council chose to rely on the landowners’ representative. But given the windfall that the landowners are about to receive, they should at least require that the 15 percent be at 80 percent of area median income.
If the city is not prepared to use a lower income standard to determine future rents, then what was the point of the changes to the inclusionary housing requirements? To keep very low-income people from living in the Morena/Linda Vista and Tecolote Villages?
Nico Calavita is professor emeritus in the School of Public Affairs at SDSU. He is coauthor of the book “Inclusionary Housing in International Perspective: Affordable Housing, Social Inclusion, and Land Value Recapture.”