“By-Right Approvals” Will Have No Real Effect on Housing Supply in SF

27 06 2016

Our latest op-ed in The Examiner (read the original article here).


Housing construction in SF always lags behind Planning Permit approvals. On average, even taking into account dips following cyclical housing "busts," the backlog of approved units has grown by about 700 units per year. Source: SF Planning Department Housing Inventory data.

Housing construction in SF always lags behind Planning Permit approvals. On average, even taking into account dips following cyclical housing “busts,” the backlog of approved units has grown by about 700 units per year. Source: SF Planning Department Housing Inventory data.

Developers and their lobbying organizations are currently working hard to spread a false, but profitable argument: that the way to get more housing faster is by further deregulating development approvals. The assertion underlies the governor’s latest “by-right” approvals bill, which gives the automatic stamp of approval to any private development providing the minimum amount of affordable housing.

This argument often devolves into a never-ending ideological debate on social media. The debate between market-rate development advocates and affordable housing advocates is centered on whether a marginal increase in luxury units in San Francisco will lower prices by any noticeable amount for middle-income people in The City or lessen the pressure on existing rental housing. Both sides base their arguments on economic models, such as the recent State Legislative Analyst report supporting theoretical market solutions to the housing crisis, or, by contrast, the response by UC Berkeley researchers who basically debunk the supply-side argument that market-rate housing will quickly “filter” down. But aside from these statistical models, it is instructive to look at the reality of housing approvals and actual construction over the last two decades.

Between 1996 and 2015, the city of San Francisco approved 51,000 units for construction. In the same time period, developers actually constructed 37,000 units. That’s 14,000 more units approved for construction than have actually been built, and, on average, that backlog has increased by almost 700 units every year. The City’s latest pipeline report, through the first quarter of 2016, puts that figure even higher, at almost 19,000 entitled units! That’s not even counting the approved housing from the massive Park Merced, Hunters Point/Candlestick, and Treasure Island developments.

So what’s going on? Why are the developers and their front groups, the governor, and now some big tech leaders who’ve signed onto the governor’s bill, so dead-set on trying to convince us that increasing market rate housing approvals by making them “by right” will somehow help solve our housing crisis?

First, we absolutely have to look at this city by city. There are many places that have put up road blocks to all new housing approvals, whether market-rate or affordable, and a certain amount of streamlining may have a positive impact on housing affordability in those communities.

But despite what market-rate development advocates say, San Francisco, with a backlog of 19,000 approved units, is hardly one of those jurisdictions. Even if we double the rate of project approvals, that would simply add to the long pipeline of already-entitled development projects — instead of 19,000 units waiting in the wings, we could have 40,000 units waiting for… what? That’s the mystery—what are they waiting for, why is the pipeline of approved projects growing every year, and why aren’t more approved projects being constructed more quickly? It’s clearly not the approvals process that is holding builders back from building more.

The real reason is financing. Financing is what controls whether or not approved units actually get built. And the amount of financing capital is limited — by investors who are risk-averse and want to ensure high returns on investments. At the first sign of a downturn or a drop in market prices, they are likely to flee to other safer investments. In fact, during the lows of the Great Recession in 2010, it was primarily publicly-financed affordable housing development that was responsible for more than 50 percent of the units (and of construction jobs) built in San Francisco during those years.

Why, then, if speeding up the approvals process doesn’t put more units on the ground, are some special interests pushing so hard the idea that “by right” is the solution to our housing crisis? We could speculate: for politicians, they get to look like they are working on “solutions” without having to spend public money, and it distracts from the real issues of reining in powerful real estate market forces and stopping speculation on existing housing. And for individual developers, it helps their ability to profit on the entitlement itself: the gamble is to get your approvals done before the market slows down, and then either lock in your financing or sell your “entitlements” to another investor. The actual immediate construction of units is not necessarily the primary factor in this calculation.

Why should we care about this kind of deregulation? The approvals process is long and complicated, and the bureaucracy could certainly move a lot faster. But the reason we have been able to win meaningful community benefits over the past 40 years (as opposed to the steamrolling of communities in urban renewal) is precisely because of our growing understanding that it’s necessary for developers to dialogue with communities, and that we need safeguards to guarantee a voice for regular people and a meaningful role for a city Planning Commission and located electeds in land use matters.

Here’s an alternative approach — the politicians, developers, and their advocates who really care about increasing the number of units on the ground in S.F., whether affordable or market-rate, should focus attention on the real problem of financing, working to ensure that investment continues year-in and year-out to finance the construction of a minimum number of units — whether “the market” is up or down. And, beyond our limited ability to influence global investment, really hone in on what we can influence: increasing investments in affordable housing.