San Diego Housing Initiative: Some First Thoughts

Over the past few weeks, and in reality much longer than that, there has been chatter about a citizen's initiative in San Diego on the topic of housing.  The idea would be that instead of wasting public funds on things like a stadium, we should be solving our housing crisis.  The need for such an initiative encompasses a wide range of topics: we need more housing for the homeless and low-income people, we need to increase housing supply across the board to moderate prices for everyone, we need housing near transit to further our Climate Action Plan goals, and we need increased density to drive the desire for more transit and pedestrian/bicycle infrastructure.  

I've been toying with potential methods to make a dent in these problems. I by no means have a solution yet, and I wonder if this would even be politically feasible.  But I've been thinking about a possible framework that I wanted to share to help drive some conversation.  

Given that we are discussing an initiative, I believe that a source of money will be needed to develop a large capital fund.  No doubt, the City could take great strides towards improving the affordability issue by removing regulations and other impediments to development without spending a dime.  But even if the housing supply increased drastically in a freer market, the new units would largely be luxury units that would take awhile to filter down to the rest of the market.  We need both housing reform and government-funded housing now.

So how should we do this?  Here is my idea.  First, we need the source of funds.  This could be an additional property tax, it could be a sales tax, or it could be a transient occupancy tax, like the Chargers' Measure C or Measure D.  This is open to debate.  Regardless of the source, we should raise a large sum of capital.  Amount:  to be determined.

And what would we do with the money?  The City should form a public agency tasked with building housing.  This would not be the "projects" of the past, or even solely affordable housing.  Instead, the agency, let's call it the San Diego Social Housing Works (SHW), would be tasked with three first-level goals: (1) building basic housing for our homeless population; (2) building affordable housing for low-income residents, and (3) increasing the overall housing supply.  SHW would operate like a non-profit, with a goal of sustaining development on the proceeds from the tax increase such that all development has a net goal of being revenue neutral.  SHW wouldn't earn a profit, but it also wouldn't waste the money. 

In effect, the goal would be for the market-rate housing to subsidize the affordable and homeless housing.  Now, you might say that this would be impossible: any market-rate rent would be insufficient to cover the money-losing units.  But here's the trick to achieve this goal: given our zoning restrictions, much of our urban area property is artificially undervalued.  This may seem nonsensical.  We have high housing costs!  But the expense of our housing is largely the result on the restricted number of housing units, not the price of the land, which has limited use under our planning scheme.  Sure, a 1,000 square-foot bungalow may cost $700,000 in Hillcrest or North Park, but if you could put seven units on that same property, all of a sudden you can build seven 1,000 square-foot townhomes for $400,000 each.  Because our zoning often prohibits this, the value of the underlying land is suppressed.  

This fact creates an "arbitrage" opportunity that the city can exploit: the housing initiative should exempt property owned by SHW from as many zoning and land use restrictions as politically possible.  Of course, the initiative should include appropriate safeguards to make sure this is not abused and should require community input.  Perhaps instead of a blanket exemption, SHW gets a certain number of exemptions from requirements like the density bonus program.  However it is structured, if done right, it creates another source of value for SHW.  In effect, SHW could buy "undervalued" property and the effect of that change in ownership would be an immediate increase in value by upping the number of units that could be built on the lot and lowering the time it would take to build them.  SHW would buy run-down single family homes and Huffman six-packs and redevelop in a way to increase the density.  If SHW can build more units at lower property costs per unit, it could use this difference to fund the homeless and affordable units.  I don't know if this would pencil out, but I see potential.

So what would this housing look like? First, all of the housing should be built in our transit areas to further the goals of the Climate Action Plan and avoid further sprawl.  As for the actual design, I imagine something along the lines of Vienna's social housing.  Read this article for an in-depth description, but the result is well-built, beautiful rental units with integrated public facilities, like schools and libraries.  The units are largely income-limited to start, but the tenants never have to leave if they don't want to.  For example, even if a family gains additional income, they can remain in their home with the same limited rent (adjusted for inflation).  In effect, it's a form of mild rent control.  The end result is a pleasant diversity of ages, incomes, and lifestyles all living together.  But read the article, there are a variety of methods, include selling land to developers and giving favorable loans to build the desired units.  All options should be explored.  We should build a wide variety of housing, from studio units for students and artists to three and four bedroom units for families and multigenerational living.  

Another avenue to explore is SHW could facilitate the building of granny flats.  Recent changes to state law have made it easier to build granny flats, but the burden is still high for individual homeowners: finding the money to build the unit, hiring an architect and/or general contractor, and navigating the permitting process.  SHW could do all of this for homeowners by creating pre-approved designs, providing low-interest loans, and handling permitting and construction.  This would empower local homeowners while at the same time increasing the housing supply, all without costing money to the City in the long term.

If we can pull this off (and the details definitely need to be explored) we could build a robust portfolio of desirable housing owned by SHW.  This would generate constant rental income that will only increase with time.  In effect, SHW would use the initiative proceeds to first build a diverse set of housing, but then recoup the money from rent and/or property sales.  This would give SHW a second bite at the money: now what should we do with it?

All too often, urbanists and housing advocates ignore the downsides of density, or at least the downsides subjectively felt by a large portion of our population.  The rental proceeds, therefore, should be targeted towards alleviating these downsides: build parks for residents near the new housing, improving pedestrian and bike infrastructure to avoid excess traffic from the new residents, building new libraries and fire stations, or even funding free shuttles to supplement public transit.

So that's the idea: pass an initiative to create and fund the San Diego Social Housing Works, a semi-autonomous agency that could buy land and build housing freed from many of our land-use restrictions with the goal of housing the full spectrum of our population, including the homeless.  Social Housing Works could then reinvest its revenue in the communities where it is building to improve the quality of life for everyone and counteract the effects of the new housing.  It may not radically change the world, but it could have a real effect over time.  It needs some work, but I would be curious to hear your thoughts.