Will subsidies for developers trickle down to provide more affordable housing for high-income people? Monday@City Council | A Pragmatist's Take | Douglas Moran | Palo Alto Online |


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By Douglas Moran

Will subsidies for developers trickle down to provide more affordable housing for high-income people? Monday@City Council

Uploaded: Dec 2, 2018

At this Monday's City Council meeting, the current pro-developer majority is expected to give a big early-Christmas gift to developers and large property owners. This is being promoted under the guise of encouraging "affordable housing", but when you look at the details, it is anything but. I recommend that you read the critique "^Trickle-Down Housing Proposal May Make Parking Far Worse^" by Jeff Levinsky, Co-Chair Palo Alto Neighborhoods (PAN) Zoning Committee, 2018-11-19.

The ^76-page Staff Report^ is available online.
You can email your comments to City Council at City.Council@CityofPaloAlto.org and have as your subject line "Dec 3 Meeting: #12: Amending Title 18, Housing Ordinance" to help be seen in time.
At the meeting itself, there will be no opportunity for public comments -- that was done last week and closed. However, showing up in person to listen to Council considerations can have an influence. It is estimated to start at 6:15 PM and allotted 3.75 hours (^Agenda^).

Whenever you hear the term "Affordable Housing", ask "Affordable for whom?" Surprisingly often, it means young professionals, such as engineers at high-paying companies (Google, Facebook ...), lawyers ... What most people think of as Affordable Housing is technically Below Market Rate (BMR) Housing.

Although the proposed ordinance has some mentions of facilitating BMR housing, it expect that the rest of the ordinance will make it harder to build BMR housing. It will further drive up the cost of properties, making it even more difficult to get enough funding for BMR projects. In discussions of the housing crisis, one economic fact that is religiously ignored is that when you allow more to be built on a property, you are enabling higher revenues. The property owners will raise the price of their properties to capture most of its increased value, leaving whomever is redeveloping it to get roughly the same Return on Investment (ROI). However, to maintain the same ROI -- a percentage -- on the higher investment, the new owner needs to get more in rents. Increasing the supply of housing can increase its price because the crucial supply-demand interaction is not the number of housing units but rather the land for building.(foot#1)

So how did this inconvenient truth fail to be part of the Staff Report? The Staff held one perfunctory meeting with the general public, allowing that box to be checked off. And they held a multitude of meeting with the large property owners and developers where they told Staff that they needed a wide range of concessions if they were to build more housing. Note: "concession" is a minor euphemism for transferring costs from the developers to the general public. I see no evidence that Staff did anything except credulously accepting these self-interested claims.

The proffered justification for developers needing these public subsidies, aka corporate welfare? The cost of building is so high. And why is that? Because of the local and regional policies that developers and the government bureaucrats have pushed for over 3 decades despite warnings are readily visible evidence that those policies were making the situation worse (and making many developers rich). As I see it, the proposed ordinance would have residents indirectly pay to make the Housing Crisis worse.

----False accusations that Palo Alto isn't building housing----

Development typically occurs in spurts. In the 1990s and early 2000s a lot of housing was built in Palo Alto, far above the targets assigned by regional authorities (ABAG and MTC). How was this acknowledged? First, by raising the targets for the next round, while cities that hadn't met their targets had them lowered. Second, because most of the new housing units were Market-Rate or in the top tier of BMR, we were attacked for the shortage in the lower tiers. Did the regional authorities care about why developers were doing this? No. The regional bureaucracies are prime examples of what happens when granted power without responsibility (or accountability).

When Palo Alto focuses on catching up in the lower tiers of BMRs, the attacks switch to not providing enough housing for young professionals. Whichever way we turn, the pro-developer forces will insatiably demand more and more.

So how do such false claims come about? Cherry-picking. There has been little housing completed in the last few years.
To see for yourself: A compilation of housing starts since 1997 -- ^Intro^ and ^spreadsheet^ -- has been created and maintained by Elaine Meyer, a leader of the University South neighborhood.

----Data? We ain't got no data. We don't need no data. I don't have to show you any stinkin' data!----

The housing development on the former VTA parking lot at the corner of El Camino and Page Mill was approved as "car-lite", that is, reduced parking on the assumption that many of the residents wouldn't have cars. This was pitched as a test or experiment of how this concept might play out in Palo Alto. But it is too early to see results.

On the other hand, TMA (Traffic Management Associations), TDM (Traffic Demand Management) and a bushel of other acronyms cited as ways that traffic and parking can be reduced. These have been going on long enough that we should have data. But we don't. Or at least it isn't a factor in the Staff Report and recommendation.

----Example absurdities----

1. The proposed ordinance would grant parking exemption to 1500 sqft of ground floor retail in buildings on University Avenue and California Avenue. While some retail might have very low number of customers + employees present, for any one restaurant, the shortfall of parking would likely be significant and the cumulative effect substantial. Recognize that University Avenue has restaurants that are regional destinations. I didn't find any explanation in the Staff Report why this was warranted and why it wouldn't cause problems.

2. The proposed ordinance would allow developers to count rooftop decks against the requirements that they provide open space commensurate with the tenants (^page 22 of Updated Staff Report^). Palo Alto is already below the standards for park space per resident, and this provides the developer with a cheap way out of an increasingly expensive burden on the rest of the community. Oh, we should expect such a deck to be available for very long, given City Hall's long history of refusing to enforce such provisions (see the PA Weekly's "^Editorial: A broken code enforcement system^").

----To implement the Comprehensive Plan, we had to violate the Comprehensive Plan----

The proposed ordinance would weaken Ground-floor Retail protection in primary business districts. There is a slogan "Retail loves retail" that is a reminder that retail success is crucial dependent on its concentration. I was surprise to learn that the presence of just one or two empty store fronts -- or of businesses other than retail and services -- could significantly reduce the sales in the nearby stores. The Comprehensive Plan stress the importance of protecting retail as part of having walkable communities. The ordinance says "Forget all this" in order to facilitate BMR ("affordable") housing in those business districts. Why couldn't such a project have ground-floor retail? Because BMR projects are dependent on grants from the County, the State and the US government, and mixed-use buildings don't qualify for those grants. However, this is likely irrelevant: Palo Alto has had great difficult winning such grants, and the price of properties in the business districts could be effectively disqualifying.

----^Trickle-down economics^----

This term was created by the comedian Will Rodgers in 1932 (during the Great Depression): "The money was all appropriated for the top in the hopes that it would trickle down to the needy.Mr. Hoover was an engineer. He knew that water trickled down.Put it uphill and let it go and it will reach the dryest little spot. But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow.But it will at least have passed through the poor fellow’s hands.They saved the big banks but the little ones went up the flue." It is best known as the tax policy of Reagan administration (1980-1988) and commonly referred to as "Voodoo Economics". It also describes part of Trump's "Tax Cuts and Jobs Act" (although some companies did pass money through to their employees). The basic analogy is that if you throw a big banquet for the very rich, they, in their drunken gluttony, will cause enough food to wind up on the floor to benefit everyone else. Another common analogy is "A rising tide lifts all boat." Let's do a quick calculation: In a harbor of a quarter square mile (half mile square), it takes over 52 million gallons to raise the boats one foot.

Despite Tickle-down being a long discredited approach, it appears to be the basis of the proposed ordinance. Give the big property owners and developers enough "concessions" to juice up their profits and they might, just might, not have rents as high.

But that seems to be the reasoning that appeals to the current Council majority: Liz Kniss, Adrian Fine, Greg Tanaka, Greg Scharff and Cory Wolbach (the last two won't return to Council next year).

1. Increasing supply can increase prices:
Note: I have cited these essays in earlier blogs on Housing.
"^Housing Costs and Density^" by Michael Goldman, blog of 2017-01-03.Goldman is a member of the Sunnyvale City Council.
"^Is There a Housing Crisis?^" by Michael Goldman, blog of 2017-02-12.
Introduction: "In previous posts we looked at the Supply side of Housing's Demand-Supply equation and found increased supply would not lower costs, or even keep costs from rising. //Now we will look at the Demand side of the equation.We will find that the current high demand that is driving up prices is only temporary and will subside (in fact, is subsiding now) in the SF Bay Area.Job retraining, additional local public/private transit,and tax incentives for corporations to expand where skilled people and affordable housing already exist (i.e., not the SF Bay Area)are progressive policies that will alleviate the 'housing shortage' ."

An ^abbreviated index by topic and chronologically^ is available.

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