The Whopper of the Week is back!
Nothing seems to bring out whoppers like city discussions about land and housing. Recent debates over the conversion of land from commercial to residential use and over renter protection policies (like rent control) vividly demonstrate this correlation.
Let’s start off with Scott Herhold’s column in opposition to a General Plan change that would allow some land currently in retail use to be converted to apartments. Herhold’s opposition is based on the argument that retail generates sales taxes and housing produces demand for services, so conversions are bad for the city’s inadequate general fund. While this point is true in general, it, of course, isn’t necessarily true in all concrete cases. A specific retail outlet may generate minimal sales tax revenues, and a luxury housing project may produce substantial property taxes and possibly even provide market demand that brings in larger retail vendors. But Herhold’s simplistic economic analysis – while unimpressive – is not a whopper.
The whopper appears when he writes, “You can trace a decline in the city’s finances – and hence, its ability to provide cops – to decisions made to convert land from industrial to residential purposes. “ That comment is pure steer manure. In fact, for decades, San Jose experienced severe fiscal stress and had massive amounts of land available for commercial and industrial uses. It even had Redevelopment Agency funds available to pay for infrastructure on those vacant parcels– such as those in the Edenvale Project Area. One can seriously debate the reasons why major firms failed to select San Jose as a site for growth during this period, but the lack of land was certainly not the fundamental cause. Herhold was a reporter during these years. He knows the about the substantial availability of land that the city enjoyed.
Herhold’s whopper is small potatoes compared to the statement by Joshua Howard, Executive Director of the California Apartment Association in opposition to suggestions that San Jose’s rent control ordinance should be strengthened. Howard is quoted in the Business Journal as saying, “What we need to recognize is to lower the price of housing, we need to thoughtfully increase the supply.”
Howard’s comments deserves a special designation – the chutzpah whopper – a statement that reveals extraordinary hypocrisy. You see – the reason San Jose is reluctant to increase its housing supply is primarily because of fiscal considerations. The city’s leaders accept Herhold’s general premise – that when we consider the impact on the city budget, housing doesn’t pay for itself. But why is that the case? Why, we should ask, does housing fail to generate tax revenues to pay for basic city services? The answer is Proposition 13. Property taxes are supposed to pay for the essential city services that residents require: police, fire, street maintenance, libraries, parks, etc. Thanks to Proposition 13, all of the property taxes received by San Jose barely pay for 75% of the police department. What industry financed the campaign to pass Proposition 13? The answer is – the California apartment industry.
Moreover, San Jose recently just had a mayoral election. One candidate, Liccardo, was strongly committed to the city’s current General Plan that constrains housing growth. The other candidate, Cortese, was more open to re-examining the housing limits in that Plan. Who did the California Apartment Association support with massive campaign expenditures? The candidate who campaigned to defer housing growth – Liccardo .
So – having made it fiscally and politically unrealistic to expand the housing supply, what does the apartment industry propose as an alternative to rent control? More housing. This is chutzpah on a truly galactic scale.
But there’s more. When Howard says we should lower prices by “thoughtfully” increasing the housing supply, he creates the impression that a little careful tinkering with the supply will solve our problem.
Hmmm. How much new housing would it actually take to bring down our sky high rent levels? The short answer is we don’t know, and the question isn’t easy to answer. That’s because the supply of housing, the demand for housing, and the price of housing are all interconnected. A change in one causes changes in the others. For example, a significant increase in the supply of housing would initially lower prices. But lower prices increases the demand for housing (people want to move back from Modesto or your 30 year old kid wants a place of his own). That rising demand pushes prices back up. Similarly, if supply increases and prices fall, those falling prices discourage further increases in supply. Investors are less likely to put money into a market where prices are going down.
Fortunately, we have at least some idea regarding the order of magnitude of housing supply increases that would be needed to bring down prices. In March, the Legislative Analyst’s Office released a report on the High Cost of Housing in California. The LAO makes a rough estimate of how much housing would have been needed to be built in California between 1980 and 2010 to have the cost of housing increase by the same amount as in the rest of the USA, instead of the much higher amount that actually occurred. The estimate for Santa Clara County is an additional 450,000 housing units. But that doesn’t mean 450,000 more units will bring down rents because the analysis stops at 2010. San Jose’s General Plan says we’ll need another 100,000 units by 2025 to provide housing for the additional 100,000 jobs we expect. So assuming San Jose needs half of the 450,000 units projected for the county plus the 100,000 estimated in the General Plan, we come up with a total of 325,000 units.
For comparison, the city currently has about 300,000 households – so we would have to double the housing stock.
I suggest Mr. Howard and the city’s leaders perform a simple test to determine public support for the apartment owner’s strategy. Call for a neighborhood meeting in each council district. At the meeting, Mr. Howard and the City Council member from the district can ask the residents how they feel about adding 32,000 units (a tenth of 325,000) to the district’s housing stock. I’m confident the assembled citizenry will have some expressive comments to make about Mr. Howard’s “thoughtful” proposal.
Bob Brownstein is Policy Director for Working Partnerships USA
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