Can We Solve the Housing Crisis?

Oakland’s core is on the verge of a makeover, heightening fears about rising housing costs and gentrification in a city celebrated for its racial and ethnic diversity. Where will the new workers live in an area so short on housing?


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However, activists’ trust in city government was shaken last year by the city’s attempt to sell a piece of publicly owned land near Lake Merritt for a 300-unit luxury condo tower without provisions for affordable housing, as state law requires. That deal was only tabled after demonstrators occupied the city council chambers in protest.

Lane called the affair a “misstep” by city officials that marred an otherwise impressive effort to alleviate the housing shortage. Schaaf has said she wants to clarify the city’s legal obligations to avoid future problems.

Ghielmetti praised Schaff and other Oakland housing officials for taking the housing conundrum “so seriously” and attempting to listen to all interest groups. “It’s the first time in my career that I’ve ever seen housing as such a prominent policy issue among decision makers,” he said.

Still, Ghielmetti contends that most of the solutions currently being discussed in Oakland are “low-hanging fruit” and ultimately will just set the stage for a much deeper public discussion about how to enable rapid, widespread, privately funded building throughout the region and state. He believes that developers need clear, broadly applicable rules that do not require torturous project-by-project reviews, something he said is still prevalent in Oakland.

“We have got to create a mindset amongst people that it is a public good to create new housing, and it’s for our children and grandchildren,” he said.

That argument got unusual support last March when the nonpartisan state Legislative Analyst Office released a blistering report that said a chronic housing supply problem is plaguing the state of California, exacerbating poverty, and hurting the state’s economy.

Underdevelopment over a period of decades has produced average home costs of $440,000, about two and a half times the average national average, the report said. Strikingly, the LAO opined that affordable housing projects “even if greatly increased—could not meet the magnitude of new housing required that we identify in this report.”

In the case of Oakland, the city produced or rehabbed 4,382 affordable housing units from 1999 to 2009 at a cost of $256 million of local public money. The state’s elimination of redevelopment agencies in 2011, however, cut the city’s annual affordable-housing funds from $30 million a year to $5 million. Federal funding also has been slashed in recent years. The story is similar in all other East Bay cities.

The Legislative Analyst’s report estimated that California needs to construct 100,000 more housing units a year beyond the 100,000 to 140,000 it is expected to build—almost exclusively in its coastal communities—to seriously mitigate its problems with housing affordability.

With current development costs what they are, that translates into something like $50 billion per year of investment, said Larry Mayers, an Oakland-based architect who specializes in affordable housing projects.

To enable that kind of activity, the LAO said, California’s citizens and government will have to re-evaluate “fundamental tenets of California government” including land use rules and environmental review law, and overhaul a local government finance structure that typically gives cities and counties greater fiscal incentives to approve nonresidential development or lower density housing development.

Current regional planning efforts by agencies that seek to prod local governments to cooperate on housing plans are unlikely to have much impact because they lack teeth, Mayers said.

“Each jurisdiction does what it sees as most favorable,” Mayers observed. “What is most favorable is to add office and retail development rather than housing: It returns more tax dollars to the jurisdiction. Therein is the problem.”

Adherents of that argument include experts like celebrity economist Christopher Thornberg of Los Angeles-based Beacon Economics, who argues that Proposition 13, the property tax initiative passed by voters in 1978, has warped local government land use priorities because new housing construction produces less tax revenue than commercial development. Prop. 13 supporters reject this notion and they have been remarkably effective at blocking attempts to alter the iconic tax measure, despite periodic reform efforts.

Ghielmetti remains optimistic, and sees signs that public sentiment is moving in the right direction. Voters in the city of Mountain View, for example, elected a pro-housing council majority that last year rewrote a specific plan for a business district in order to include as many as 9,100 units of housing, most of it on land owned by Google.

Like Ghielmetti, Mayers believes the private sector will be key to any solution. He particularly wants big office developers and employers—such as Google—brought more into the housing conversation, with them helping to build housing through financing deals or partnerships, or paying greater fees to support affordable housing. He sees a win-win scenario: Companies investing in Bay Area real estate are likely to do fine, employers would be better able to attract employees, traffic and pollution would be reduced.

It’s crazy, in Mayers’ eyes, for a city like Cupertino to approve a massive new corporate campus like the one Apple is now building without doing more to plan for new housing at the same time.

“Nobody thinks about this,” Mayers said. “It should be obvious, but evidently it’s not.”

Ghielmetti similarly pointed to the new Apple campus as symbolic of a planning approach that has dominated in the Bay Area for more than three decades.

“That’s exactly why we find ourselves in such a crisis today,” he said.

The impacts of increasing housing costs and worsening traffic arising from workers seeking affordable housing far from their jobs, meanwhile, are felt on a regional basis, Mayers said.

The issue has not gone totally unnoticed in Silicon Valley. In 2014, Mountain View increased its affordable housing fee on new office space from about $10 to as high as $25 per square foot.

Oakland also is one of the minority of Bay Area cities that imposes a fee on new commercial development to support affordable housing. Oakland charges $5.44 per square foot after the first 25,000 square feet, so that Uber, for example, will pay a one-time fee of about $1.4 million for affordable housing in connection with the Sears project. Yet that is a “feeble” amount considering that new housing units cost in the neighborhood of $500,000 each to build, Mayers said.

Berkeley similarly levies a $4.50 per square foot fee on new office and retail development, but it has generated only a couple of a million dollars since it was adopted in 1993. Alameda charges $4.52 per square foot of office and $2.30 per square foot of retail.

None of those fees go very far.

“There’s not enough money that can be raised publicly to take care of the problem,” Mayers said. “Who’s got that money? The private sector.”

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