How did our regional housing supply get so out of balance and how does that impact our cities?
Biotech (high-tech, and AI) are quickly replacing more traditional industries which have historically supported lower-income jobs in the region’s cities.
Many of the new biotech, high-tech and AI employees earn higher incomes. This puts upward pressure on home prices and rents by increasing the supply vs. demand imbalance. This enables regional housing developers and owners to increase the prices they charge to either buy or rent housing because housing demand exceeds housing supply. It also increases competitive bidding for housing which allows higher-income families to outbid lower-income families.
This creates a mismatch with jobs/housing fit (where the majority of employees have high enough income to afford the housing available in their community). This leads to an exodus of lower-income residents because they are either losing their jobs in traditional industry or can’t afford higher rents.
But (here’s the quandary) many of those higher-paying jobs are supported by lower-income workers such as teachers, health care workers, janitors, bus drivers, restaurant workers, gardeners, etc. who should be able to live in the community they serve. Yet they are being pushed out of their communities and forced to commute in from more distant, more affordable areas.
In fact it may be even more critical for lower-income workers to live in the community where they work because they must show up for work every day while higher-income employees may be able to work from home two or three days a week. This is especially important for emergency response workers such as firefighters, police and utility workers such as city public works and PG&E crews.
Also, many of these new high-tech employees (both lower and higher income) are not looking for homes within the city where they work because the local supply is not adequate to meet their need. Instead, they are commuting in from outside adding to traffic woes and increasing air pollution.
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This puts pressure on surrounding cities to meet the housing demands of their neighbors without getting the tax benefits from the companies producing the housing demand in the first place. In short, they are outsourcing their regional housing responsibility onto other cities.
Approving more high-tech, biotech, AI industries in a city may increase revenue to the city from commercial property taxes and businesses taxes, but it drives up housing cost and worsens a city’s ability to provide a balance of housing choices for both higher-income and lower-income local employees.
The most effective way to regain a regional jobs/housing balance is for all the region’s cities to limit the number of new commercial projects they are approving (which bring in new jobs) while simultaneously providing incentives for, and reducing city impediments to the development of new housing to meet the shelter needs of those new employees.
The state has passed many recent laws that are intended to encourage the approval of new housing statewide to offset what is now calculated to be close to a need for up to 3 million new housing units statewide in the next 10 years just to catch up with the ever expanding addition of new jobs in the state.
One of the most effective ways to accomplish this is to have the state revise the tax code to eliminate the tax incentives for commercial over housing development in our cities, but Sacramento seems unable to act on this issue, and as long as the tax incentives are there, the cities will continue to approve new commercial development over housing and only grudgingly approve new housing when forced to by the state. It’s a shame our cities seem to have lost the understanding that a sustainable community can only exist if there is a viable jobs/housing fit (where the majority of employees have high enough income to afford the housing available in their city).
The closer the region can come to a true jobs/housing fit, the huge income disparity that currently exists in the Bay Area will become less of an issue as all income levels will be able to access a choice of places to live which will then allow them to work, shop and contribute to the social fabric of the community where they live.
David Crabbe is an architect who lives and works in San Carlos.
(10) comments
Thanks for your letter, Mr. Crabbe, but the costs of developing and building housing are much more onerous than building office, biotech, and commercial developments. How can builders make the numbers work out when builders must adhere to installing mandatory all electric appliances, mandatory electric chargers for folks who don’t own electric cars, low-water or no-water toilets, etc.? Builders aren’t going to throw in those “features” for free and will pass on the cost to homebuyers. If you’re not familiar with them, I’d recommend a look at the Terner Center for Housing Innovation, UC Berkeley website, where you’ll see a number of research papers. Of note, and written several years ago, are papers on the cost of housing development in seven CA cities and residential impact fees in CA, among many other housing articles. It's safe to assume fees have gone up since then.
Folks can complain about affordable housing until the cows come home (and I think you have for several years, with a perspective written almost a year ago). We need to reduce development costs and reduce or eliminate impact fees. We need to reduce or eliminate nanny regulations and guidelines. If additional building mandates and fees continue to increase, nothing will change and it’ll only get worse. Keep your letter on hand and submit it for reprint next year, and the next… Rinse and repeat.
The added costs you cite are red herrings. For new buildings, low-flow toilets, electric ranges and high-capacity wiring do not add significantly to costs. It is true that impact fees are onerous, and this is because cities don't receive adequate tax revenue from housing to build and maintain the infrastructure (roads, sewers, parks, schools, etc.) needed for the added population. I don't hear Terrance Y proposing any alternative funding source for infrastructure.
"don't receive adequate tax revenue from housing to build and maintain the infrastructure (roads, sewers, parks, schools, etc.) needed for the added population" Impact fees were rendered illegal by the Supreme Court last year. What are we paying property taxes for? That funding is wasted on superfluous bureaucracy, pointless litigation, subpar education and shindigs for County Executives. Our spending needs to be reprioritized. Based on the current slate of 'more of the same' supervisors we will have a long way to go.
Terence, You make a valid point. The cost of construction is ridiculously high in California and development impact fees are high, but I don't think it is because of electric appliances and low-water toilets. In fact, building an all-electric building is less expensive than including a gas connection to said building and low-flow faucets do not cost more than the old-fashioned water guzzlers of the past. It's more a result of the many impact fees that have been instituted in the past years in response to Proposition 13 which dramatically reduced property tax income to the cities so they chose to increase fees to make up the income they need to run their cities. Some of this could be remedied by requiring businesses to pay increased taxes whenever they change hands just a housing does to even out the overall tax contribution. But there are here in California many requirements a developer must meet to get a permit which add time and cost to his investment and many of these requirements should be revisited and deleted if not essential to insure health and safety of a building. Clearly, there are many items that contribute to the overall cost and we all need to work together to figure out how to reduce them.
NanLibn - the same old complaint about Prop 13. The real reason for funding issues in cities is that Prop 13 provided for the State to collect all property taxes and then came up with some goofy allocation methods to reimburse cities and localities. Were that provision be cancelled, we would starve the money grabbers in Sacramento and return to local tax revenue distribution, instead of having to cow tow to remote politicians. Imagine what the richest county in the US, San Mateo County, could accomplish with that landfall!
Two for one…
Thanks, KDM, for your reply. I’m not proposing alternative or any funding sources for infrastructure because the money is already there – it is just the money is being allowed to be stolen by criminals, the money is being used to support criminals, and the money is being squandered to support union labor. To recap, $50 billion was stolen in EDD fraud. $23 billion was wasted to allow criminals crossing our border to access Medi-Cal, among other “rewards” for illegally crossing our border. $24 billion was wasted on homeless programs which resulted in more homeless. $billions have been and are continuing to be wasted on the union labor giveaway known as the train-to-nowhere. $billions have been and are continuing to be wasted on the union transportation giveaway known as 100% operation of mass transit systems even though ridership is at 50% or less. $billions have been and are continuing to be wasted on public education administrators and teachers who continue their race to the bottom. And that’s just off the top of my head. Imagine if all those billions were applied to infrastructure instead of being wasted in quid-pro-quo agreements and outright incompetence from our so-called California officials.
Thanks, NanLibn, for your response. I’d like to see your estimate of how much these mandatory add-ons will cost but others have estimated conservatively between $20k and $50k. Which means each property tax assessment adds $200-500 to your property tax bill, year after year after year. It adds up. And who wants low flow toilets or shower heads? Imagine if you begin following the new MAHA dietary guidelines, will you need to activate three or more flushes because the first one doesn’t do the job and the following courtesy flush doesn’t do the job? No saving water there. Imagine if you have long hair standing under a low-flow showerhead. How long will it take you to now shampoo and rinse your hair. No saving water there. Most folks I know want a throne with power and a showerhead strong enough to get the job done with no more tears.
As for reduced property tax income, reduced from what? If you check property tax revenue, you’ll see that revenue has increased considerably throughout the years. Revenue is not the issue. You say we need to work together to figure out how to reduce taxes but you seem to forget we’re in uniparty California who, at every instance, always sides with higher taxes. And speaking of higher taxes, did you know California will not parallel the One Big Beautiful Bill’s no tax on tips and overtime savings? Woe to Californians and other blue states who want a piece of your federal tax refund. While, of course, only talking the talk about housing but not doing anything to walk the walk. Why should they? They want the money to use on another pet project to waste money, or allow criminals to steal more money. Let’s hope the feds give California the Minnesota treatment.
David - as Terence is mentioning, just getting the permits lined up for any construction whatever is a nightmare. A member of my family works in conjunction with other parties to construct housing in your very backyard. The number of obstacles thrown at them by the City, then PG&E, then changing or ambiguous regulations, and certain plan reviewers, you name it, should discourage anyone from even trying. The permit costs, the delays, evolving material costs and uncertain market conditions, all contribute to a LOL mentality at the local authority level. This is not a joke and until we overhaul this construction SNAFU, you will be resubmitting your LTE on a periodic basis and not see any changes. Terence hit the nail on the head. It does not seem that anyone in authority is even in the least interested in finding a viable solution.
It's worth restating David's key point:
"Approving more high-tech, biotech, AI industries in a city may increase revenue to the city from commercial property taxes and businesses taxes, but it drives up housing cost and worsens a city’s ability to provide a balance of housing choices for both higher-income and lower-income local employees.
The most effective way to regain a regional jobs/housing balance is for all the region’s cities to limit the number of new commercial projects they are approving (which bring in new jobs) while simultaneously providing incentives for, and reducing city impediments to the development of new housing to meet the shelter needs of those new employees. "
San Mateo County is wasting billions of precious tax dollars to accommodate people that want to work in San Francisco and Santa Clara county. And they provide "Freeway" and "free parking" everywhere for these commuters.
Why? That's not the county's job.
This county needs to accommodate first and foremost the people that live AND work in this county.
So first you provide an adequate amount of local jobs, local housing and most importantly LOCAL TRANSPORTATION to make sure people earn and spend their tax dollars locally as well.
Then you focus on local public transportation and local active transportation to reduce air pollution, noise, congestion, etc. So why is SamTrans such a mess? Why do they have so few bus shelters, hardly any useful local service, and almost no school routes anymore? They are 100% covered by our local sales taxes but don't provide local service.
Then we need more bike lanes from the neighborhoods to the business and downtown areas. People that take a bicycle stay and spend local. Commuters in cars try to get out of town quickly.
Anyone who wants to commute and get out of town, can still do that, but it's not the county's job to make car traffic better than public or active transportation. That's just having your priorities all wrong.
Thanks, Mr. Crabbe, for offering a professional's viewpoint on an important topic. The jobs/housing imbalance is is a big driver of the housing shortage. It would be god, though, if we could also got your opinion as to what drives the surge in material costs.
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