As discussed in Part I and in Part II, it is counter-productive if not fool-hearty to address our affordable housing needs using the model proposed by CASA, because today the factors affecting “affordability” are neither local, regional nor state-based, and because the economics have fundamentally changed.
We just have to find another way.
Under our present economic system and in our new 21st century economy, unless we find ways to attract private capital to produce public good, we will not develop significant amounts of affordable housing.
But before we dive into how we might actually address affordable housing development, we have to dispel some powerful myths that are wildly distorting the conversation and hindering our ability to move forward, productively.
Myth #1: There are no affordable housing options in the SF Bay Area.
Actually, this is not even a myth but more of an agreed upon marketing lie being advanced by housing advocates, developers, and entitled, educated, mostly white, middle class YIMBYs. But contrary to that myth, you don’t have to move to Kansas to buy something more affordable in the San Francisco Bay Area, just like you don’t have to move to Vermont to buy something more affordable in the New York Metropolitan Area.
Let’s consider some hard facts.
The median price of a single-family home in San Francisco in 2018, according to a report released by Paragon Real Estate economist Patrick Carlisle, was $1.61 million. At the same time the median priced home in Hayward was $676,700 (less than 1/2 or 42% of the SF price) and the median priced home in Richmond was $518,900 (1/3 or 32.5% of the SF price). Both of these are close-in cities, and Hayward is even closer to the booming Silicon Valley jobs market than San Francisco. They are analogous to living in Brooklyn, Queens, Staten Island or the Bronx and having a job in Manhattan.
Of course, living in Hayward or Richmond doesn’t offer the variety of shopping or dining options, but residents somehow survive. And actually, your home appreciation over the next ten years is almost guaranteed to be greater than that of a home in San Francisco, as more and more people inevitably cross the Bay and invest and attract the amenities that are currently missing.
So, let’s please stop all the politically and financially motivated whining and get down to solving the bigger problem of how we can incentivize affordable housing throughout all of our communities.
Myth #2: Suburban communities do not have enough multifamily zoning where affordable apartments and other types of higher density housing can be built.
In 2007, in response to something that was called The Miller Avenue Precise Plan, which argued for increasing high density zoning, a group of us undertook an analysis of the development capacity of the existing zoning in the area that was going to be impacted by the “Plan.” Remarkably, what we found was that the existing zoning already provided for an additional 319 units of multi-family housing. This result, which only studied one mile of one major street, was more than the entire ABAG RHNA quota for the entire city, twice over.
Then in 2015 the City of Mill Valley rezoned that same section of Miller Avenue and significant portions of other parts of the City to allow commercial and residential, multifamily mixed-use development as a conditional use. Using the same analytical techniques in the 2007 study, this essentially tripled the zoned capacity for multifamily housing in the City.
So how much of this available zoning has been utilized in Mill Valley for affordable housing development?
The answer is that 95 percent of all the mixed-use multifamily housing sites identified in the 2007 analysis and rezoned for mixed-use in 2015, remain undeveloped. And no new housing projects are currently being proposed. If lack of zoning is the problem, how is this outcome possible?
Myth #3: There’s not enough money to build affordable housing, so we have to raise taxes and fees and create government agencies that control pools of taxpayer's money to fund affordable housing development.
While it is unquestionably true that not enough money is being invested in affordable housing development, what we need to ask ourselves is why private capital is not interested even when adequate zoning exists. Is this somehow due to a lack of investment capital in the system?
In reality, the world is awash in capital, so much so that it’s being invested every day in some of the most non-essential (tourist flights to the Moon) and often nonsensical things imaginable - Do we really need an “app” for everything?
No, it’s not that capital is lacking in the system.
As we all know, it is sufficient profits and incentives for private capital to invest in affordable housing that are lacking. So if there are a lack of incentives, why would housing advocates and pro-growth politicians think that adding taxes, fees and penalties and increasing the cost of doing business will help?
You can’t find the right answers unless you ask the right questions
Those myths dispelled, the question is how to provide profits and incentives for private capital in a way that best ensures the desired outcomes - affordable housing?
An additional challenge to those desired outcomes is that the private capital we do see invested in affordable housing (because of how government policies are crafted) is not being invested in the locations where the needs are the greatest. This is particularly true in high-priced areas, where we end up seeing a very minimum percentage of units being created for low-income residents, and the rest for luxury units.
So to frame the real problem clearly: capital is not being invested in the things we want it to be invested in (truly affordable housing) or in the places we’d like it to be invested (in all types of communities).
CASA’s answer to all this is to demand land set-asides and add layers of fees and taxes and penalties on property owners, businesses, jobs, local governments and more. Then they want to insert a capital wasting, unaccountable quasi-governmental mega-agency into the mix as a middleman, to pick winners and losers and a skim large percentage of the funds raised, for staff and operational costs (employees, studies, consultants, headquarters, etc.).
This is the least cost effective approach and it provides no assurances of tangible results. In truth, this is just another version of what we’ve been doing for decades with housing quotas, low cost loans and grants, and burdensome, punitive regulations without any proof that it works.
All the plans and programs being proposed by CASA -- bigger government agencies, more politics and insider influence, and more shop-worn tax and spend thinking -- has been failing to produce affordable housing since the 1990s.
What CASA and other deeply misguided ideas, such as Senator Mike McGuire’s SB5 proposal -- which wants to once again resurrect the notoriously corrupt “redevelopment agency” schemes of the past  -- fail to understand is that the more government agencies insert themselves in the process, the greater the problems achieving the goals.
That is the lesson we supposedly learned as a nation by the 1970s, when we started tearing down public housing “projects” across the country. And it amazes me that I have to point out to the CASA crowd that adding taxes, fees and penalties and having to deal with yet another government agency and list of requirements is not generally considered an “incentive” by private capital.
Our government's inability to properly frame questions is a major problem. Because of that we are wasting uncounted millions of dollars of tax money on nonsensical and ultimately extremely destructive ideas, penalizing cities and businesses in an attempt to force them to do as top-down thinking commands, while simultaneously sucking all the creative oxygen out of the room and eliminating innovative solutions in the process.
The CASA Housing Compact will be an obstacle to affordable housing
The more government agencies get directly involved building housing, the more inefficient the use of the limited capital available. They don’t "invest" taxpayer funds. They spend them. They don’t create new businesses or productive jobs. They tax them. And they don’t innovate with it or increase productivity.
All government agencies seem capable of doing is holding meetings, writing plans, hiring consultants to do studies, and concluding that they need more money from taxpayers. They do not deliver sufficient value for the money “invested” (our tax dollars).
As I noted in Part II, a big mistake government made in the 1980s and 90s, was that once we figured out that government itself was part of the housing problem, we failed to create or sustain workable alternatives. That is the challenge we are still wrestling with today. Experts thought that markets would solve everything (as YIMBYs currently do), but that has failed miserably.
So, we have only one problem to solve, or I should say, one problem that we might be capable of helping solve on the local, regional and state level without changes in Washington DC.
We have to find a way to address problem #1 - the lack of private capital being invested in affordable housing - without exacerbating problem #2 - adding more and more government agencies and taxes and fees and other costs, which add zero value to the economic equation and damage the essential engine that is creating that capital in the first place.
The ever-expanding black hole of more government agencies decreases the “productivity of the capital,” which we desperately need to address the challenges to provide affordable housing.
Failing to understand these underlying dynamics is why the CASA Housing Compact approach and other top-down, “symptom relief,” tax and spend and penalize and remove-local-control approaches won’t work – can’t work.
Funding for public benefit is the result of the efficient use of private capital for private benefit
To have a reasonable conversation about the efficient use of private capital, we need to find common ground about the relationship between private capital and public wealth.
Fundamentally, all public capital is the result of the productivity of private capital (the tax base). Therefore, how efficiently that capital is utilized has a direct impact on the development of affordable housing or any other public benefit goal. If you disagree with this statement, then there’s no point talking any further. But if you agree, then read on.
As noted above, the larger and the more complex government agencies become, the less productively private capital, consumed in the form of taxes, fees and penalties, tends to be spent.
Government agencies that provide direct assistance openly and equally to anyone who applies or qualifies (e.g., food stamps, Medicare, Social Security, school lunch and jobs training programs, etc.), tend to be more cost effective at addressing the needs of the recipients, stimulating the economy and increasing the overall public good. Larger agencies that create ever-expanding bureaucracies and convoluted regulatory delivery systems are not. These more successful examples also provide their benefits from bottom up not the top down, and that is key.
This is particularly important when it comes to creating affordable housing.
Sucking private capital into government coffers, then taking a hefty percentage of that capital for agency expenses and processing costs, before dispensing what’s left in the form of loans or grants in the hope of some kind of “in lieu,” or trickle-down effect is a failed strategy.
It should be obvious that leaving private capital in the private realm, but implementing policies to ensure it is efficiently invested where and in what is desired for public benefit, is the more sensible path to success.
The Crash of 2008 and our affordable housing dilemma
To more fully understand the relationship between affordable housing, the efficient use of capital for public good, and the differences between applying top-down versus bottom-up methods to stimulate development, it is again helpful to look at recent history.
The efficient use of private capital is, of course, directly connected to tax law and government economic policy. For example, with regard to housing costs in particular, a fatal flaw committed in order to resolve the financial crisis of 2008, which has hampered our economy ever since, was the decision to take a top-down stimulus approach.
In 2008 instead of bailing out those at the bottom of the financial ladder, as we did in the 1930s through the 1950s, we chose to bail out the very top: a slew of dysfunctional corporations and bankrupt business practices.
The reasons for this are the subject of great debate, but the basic policy error was in doing whatever was necessary to keep the “game” going at the top – prop-up those who orchestrated the mess at the expense of everyone else, for fear that the stock market and the entire, corrupt, global securities' Ponzi scheme would be exposed, resulting in cascading failures of insurance companies, pension funds and a slew of public agencies and private enterprises, which were and still are fully invested in it and dependent upon it.
This “solution” left working class homeowners and generations of savers out in the cold.
However, in the long run, this approach has only exacerbated the very thing it was trying to avoid. With the costs off-loaded onto the backs of the poor and the middle class, and with corrupt business practices still intact, the problems of too much leverage in the system have just grown larger.
What was really needed in 2008 was to send all the stimulus directly to the bottom, not the top. Instead of bailing out big banks and lenders and driving so many to lose their homes to forced foreclosures, the same trillions in stimulus could have gone to cutting the overall debt burden and interest rates for all home mortgage holders, across the board.
Instead of fabricating an economic and housing recovery based on artificially low (even negative) interest rates, the government could have allowed interest rates to react as needed, enriching savers and penalizing the most illiquid and overly-leverage corporate “players.”
Instead of being the bank of last resort and giving away taxpayer funded bailouts to the perpetrators, the government could have been the “investment banker” of last resort, as it was with General Motors, and the public could have ultimately benefited from the inevitable recovery and sales of shares, rather than benefiting only those in the 1%, who caused the problems in the first place.
If a percentage of everyone's mortgage debt had been forgiven and their mortgage rates were equalized at a lower level, yes, the stocks of major banks and other institutions would have suffered, but the repricing would have been a known commodity and therefore faster, with uncertainty having been removed. But more importantly, the wealth effect on the vast majority of people would have unleashed a torrent of consumer spending and likely commensurate capital investment (not debt) unseen in modern times.
Ironically, capitalism could have saved capitalism from itself. Instead, we chose corporate socialism and now we're stuck with the consequences.
So why am I telling you all this? Because the CASA Housing Compact plan is about to make the exact same mistake.
To stimulate the development of affordable housing, we now need to send all the incentives to the bottom – to local governments and for incentives to private capital, not to the top and new mega-agencies and wholesale political influence.
It’s really that simple.
The success of sending benefits to the bottom was proven beyond a reasonable doubt in the 1950s. And, as explained in Part II, since the financial tables are now turned on their head and we are now a nation of debtors and a debtor nation, increasing taxes and fees and penalties runs counter to the positive impacts of those benefits.
“Tap” private capital, don’t “tax” private capital
When Adam Smith wrote The Wealth of Nations in 1776, and talked about the “invisible hand” of markets, he lived in an entirely different world. Never in his wildest dreams did he imagine a world of border-less, 24/7, algorithm-driven derivatives trading, or a world where global corporations have more wealth than all but the largest sovereign nations on the planet.
But that is the world we live in today and we cannot seriously contemplate undertaking large-scale, capital intensive endeavors such as affordable housing development, without acknowledging that things have changed and we need private capital to participate in order to accomplish our public policy goals.
To ignore that is just wishful thinking. However, to simply let private capital run wild without strategic public policies in place -- as CASA and Senator Wiener and YIMBYS want to do -- is flirting with social, economic and environmental disaster or even worse.
I’ve written extensively about ways we might stimulate the production of affordable housing and bring more private sector funding to the table. These suggestions included increasing the federal Low Income Housing Tax Credit allocation to 10 times what it is today and creating a California state bank.
In addition, there is also no question that elected government officials at all levels must come together and make their voices heard in Washington DC, to force the federal government to once again take income inequality and the need for affordable housing seriously, as they did in the 1930s, 40s and 50s.
Like it or not, we need to accept that our "affordability" crisis, our wage and wealth disparities, and affordable housing goals cannot be fully realized without major changes in federal priorities, spending, and monetary and tax policy.
But we can’t wait for the federal government to act. Particularly here in California, we have to start seeing our disadvantages as opportunities and questioning what conventional wisdom considers negatives, as potentially positives.
Yes, housing prices are high in California, but that also means there is a great deal of profit to be made from investing in housing. And, yes, taxes are sky high in California, but that also means that any incentives based on tax relief have greater value here than anywhere else.
Surprisingly, one place to start can be found in the 2018 Tax Reform Bill. Somewhat buried in that legislation are provisions for “Opportunity Zones” in cities and counties throughout the country. And although the administration of the program at the state level, and the decisions that have been made about what is or is not on the map of designated zones is a nonsensical mess, conceptually the program contains some good ideas.
At the risk of oversimplifying, opportunity zones provide a way for private investors, who have an unrealized capital gain in one type of investment, to be able to move that investment to another type of investment (real estate / new business creation) within a designated opportunity zone (shown on a federal map), and defer all taxes on gains on their original investment. In addition, if that investment in an opportunity zone is maintained for 10 years or more, the investor can potentially pay zero taxes on all gains… forever.
This is a very big deal. And it is based on the reasonable premise that business creation and capital investments in these designated areas will ultimately have a multiplier effect, the results of which will produce far more wealth than the cost of the tax forgiveness.
As written, the federal Opportunity Zone regulations are very imperfect and in many instances the maps as drawn, are awful -- designating specific locations on a map is not the right approach. But, why not offer this type of tax deferral and tax relief incentive program targeted exclusively for investment in the development of affordable housing?
In my presentations to the public, I talked about the need to loosen the 1031 tax-free exchange rules for real estate, to allow other types of investments (securities, land, etc.) to be transferred into affordable housing investments on a tax deferred basis. Opportunity zones now essentially do that in locations designated on maps published by the state. But what about allowing any kind of investment to be transferred into the development of affordable housing, and only affordable housing, tax deferred, anywhere in California?
Since California has the highest overall tax burden of any place in the country, such a regulation could turn that negative into a positive and unleash a flood of private capital to fund affordable housing… potentially in the hundreds of billions of dollars.
Tax incentives for private capital need a public policy framework to ensure public benefit
The “affordable housing opportunity investment” incentives I’m suggesting require a sound policy framework to ensure successful outcomes. Those critical requirements would include:
- Administering affordable housing opportunity tax deferral programs under local control to provide locally elected officials the financial ammunition to incentivize the development of the types of affordable housing they need the most, where they need it most.
- Focusing programs on appropriately-scaled infill development (accessory dwelling units, second units, duplexes, life work, co-housing, etc.) and renovation and adaptive reuse opportunities.
- In exchange for tax forgiveness, require all new, larger projects to use state-of-the-art green building and zero carbon / water use technologies.
No need for more regional and state government agencies… or even some of the agencies we already have. No need for new taxes and fees and penalties… and even rolling back some of those that already exist.
This approach could move the needle, significantly. It goes without
saying that this will work much better if it is also implemented on a
“The Green New Deal”
So what might a comprehensive effort on a national level look like? The “Green New Deal” is one such effort.
Surveys show that 92% of all Democrats -- including 93% of liberal Democrats and 90% of moderate-to-conservative Democrats -- and 64% of all Republicans ― including 75% of moderate-to-liberal Republicans and 57% of conservative Republicans – support a host of public policy programs being called the Green New Deal.
The plan has been proposed by one of the least powerful, new members of Congress, New York's 14th District congresswoman, Alexandria Ocasio-Cortez, who says she is an avowed socialist, but who ironically seems to understand more about the fundamentals of economic stimulus than most capitalists.
The Green New Deal would provide funding for a nationwide energy-efficient 'smart' grid and programs and incentives to major industries (public and private transportation, agriculture, manufacturing, construction, etc.) to move to renewable energy and state-of-the-art energy efficiency, within less than two decades. This plan recognizes that infrastructure is a vital part of being able to support environmentally neutral growth development, including affordable housing.
This plan could potentially transform our economy, create millions of jobs and entirely new industries, while educating and re-engineering our workforce to meet the challenges of the 21st century. It is, essentially, a "Marshall Plan" for the United States.
It would be a bold calculation. But in our current situation, the only real way out is through significant increases in productivity and innovation by a highly educated and healthy populace, who have the ability to shoulder the costs. At the same time government agencies will need to join the 21st century and get up to speed, technologically, very quickly and start delivering a heck of a lot more bang for the buck.
They can start with the DMV... and Marin County government.
Such a plan can only succeed if it is national in scope and, ironically, it would probably involve taking on the highest federal debt to GDP in our history. But the longer we wait, the worse it will get. It is a very good proposal and one that’s time has come. And it is the correct way to address climate change on the most fundamental and systemic basis.
The great irony in all this is that such a plan completely removes the false underpinnings of the entire regional planning mantra, which is that we need to build endless high-density development in order to fight climate change, even though that entire argument is false and lacks any scientific basis whatsoever.
If we are really going to address affordable housing, the CASA Housing Compact should be vigorously opposed for all the reasons enumerated in this series, but mostly because it will not result in an egalitarian outcome.
But will it be challenged?
What concerns me is that I don't see any durable political opposition among city and county officials to the loss of local control in the San Francisco Bay Area. Because of this, what may be ahead is the cruelest of ironies: that those most in need ending up losing the most and getting the least benefit, and we will endure a long period of re-trying very bad ideas resulting in very bad outcomes before the common sense we need will be accepted.
It is almost guaranteed that the new mega-agency that the CASA Housing Compact proposes to doll out funding and political favors, will be the subject of a major corruption scandal ten years hence. In the interim, local control and quality of life and our sense of community will be among the biggest losers.
Unfortunately, I don't believe the cities most impacted have the financial wherewithal nor do the majority of elected officials in those cities have the political will to oppose the trend that CASA represents.
In these battles, the small do not fare well. Their only hope is by presenting a united front. But these days no one seems to be able to agree on anything, except the ideologues, whose solutions are always worse than the problem.
The combination of state, regional and local “opportunity investment” legislation and a national Green New Deal could bring about great things for everyone.
But are any of our politicians in Washington DC, or in our state capital, or even locally willing to face the dislocations of power and revisions in spending priorities it would require?
 Redevelopment Agencies were dissolved by the California Supreme Court in 2013 for being cesspools of political favoritism and corruption.
Bob Silvestri is the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded only by individuals in Marin and the San Francisco Bay Area.