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Yuppies In My Backyard: SB-827 and Deconstructing Community – PART IV

“We’re fighting for crumbs falling from the table of a banquet to which we have not been invited.”

Ray Dalio, manager of the world’s largest hedge fund, recently commented that the next economic downturn (which is inevitable) could leave Americans at “each other’s throats.” By his estimate, at least 60% of our population has been left out of the government’s financial stimulus measures since 2008. I would put that number higher when you factor in that the Federal Reserve’s actions to artificially keep interest rates on savings at zero return has almost bankrupted generations of savers and depleted our collective capital in a way that will take decades to recover.

Could it be that this disproportionate distribution of wealth and opportunity is what’s really driving the animosity many people feel?

On average, real wages (inflation adjusted) have stagnated since the 1980’s, and wages as a percentage of GDP also continue to fall. New business formation has been falling since the 1990’s. Healthcare costs have become the #1 cause of bankruptcy. We have the largest wealth gap between rich and poor in our history. In the 1950’s the average CEO made about 15 times the wage of their average employee. Today, the average CEO makes more than 400 times that.

As a result, on average, Americans have steadily become more impoverished and our general well-being (health, education, incarceration rates, equality of opportunity, overall quality of life, etc.) measured against other nations in the world, continues to fall. But, that’s not the half of it.

Consider the following:

At the same time there are more millionaires and billionaires of all ages than ever, major tech corporations have more cash reserves than most countries, and the world’s financial markets are literally awash in capital.

What gives?

Wouldn’t it be better for all of us to focus on these issues? Could anyone argue that all this isn’t contributing to the dearth of housing affordability?

As we face growing social unrest and environmental catastrophes in the making, yet Americans seem increasingly obsessed with the minutiae of their daily lives instead of the big picture: vilifying every micro-aggression, no matter how trivial or inconsequential. I'm not unsympathetic to anyone who is wronged for any reason. But, it's gotten so it’s as if everyone is screaming at the top of their lungs to prove that they are the biggest victim. Even many people who are very wealthy say they feel they don’t have enough.

Clearly, human nature has its flaws.

Meanwhile, there are serious systemic flaws. And, nothing pleases the powers that be more than watching the peasants blame each other for their collective circumstances.

Standing on the Shoulders of Our Forebearers, Believing We Walk on Water

Nobody likes paying taxes, particularly, if we feel our government is not spending our money wisely or efficiently. Today, both of those are true. However, from end of World War II through the early 1970’s the marginal tax rate on earnings over $1 million was above 90%. In the Eisenhower Era, there were no overnight billionaires and $100 million CEO salaries, because Uncle Sam made certain of it.

These enormous federal tax revenues built our roads and highways, our utilities and public infrastructure, our public schools and libraries, and our parks and public transportation systems. It sent millions of G.I.’s to college, subsidized mortgages for homebuyers and build hundreds of thousands of units of low income housing.

Paradoxically, those high progressive tax rates created America’s robust middle class.

Today, tax rates continue to trend down, particularly for the wealthiest, and our national, state, local and personal indebtedness continues to rise. Today, someone earning $100 million a year can pay less tax as a percentage of income than someone earning $75,000 a year, who has a $400,000 mortgage and pays California state income taxes. All political beliefs aside, this dynamic and the lack tax receipts is forcing municipalities to increase all types of local taxes and fees, and exerts significant negative pressure on housing affordability.

Everything Has a Cost

Housing legislation has significant direct and indirect financial impacts on municipal governments. Those governments are funded by the taxes and fees they collect from their residents and those who frequent their businesses (sales taxes, hotel occupancy taxes, etc.). If the impacts of legislation are too costly, small cities have few financial reserves to fall back on.

Housing development, as opposed to commercial and retail, is typically a net financial loss for cities. The costs of providing public services (fire, police, administrative, public health, etc.), maintaining infrastructure (roads, water, sewers, power, etc.), and costs of schools far outweigh the taxes generated by housing. In the past decade, as federal and state agencies consume higher percentages of local tax receipts, it has reached a point where our local government must increasingly rely on extra sales taxes, special fees, and bond measures to do just about anything. Add unfunded public pension liabilities to the mix and you can see that poorly conceived legislation that produces unsustainable housing development could easily put the very solvency of many municipalities at risk.

One of the primary purposes of a local government's ability to control of growth and zoning and enforce the tenets of its General Plan is to prevent that from happening.

Adding unsustainable development leaves small cities and agencies no choice but to dramatically increase development fees to compensate, thereby raising the overall cost of housing to a new, higher parity of unaffordability.

There is no economic magic.

Rapid development in small Bay Area cities creates other financial challenges as well. Unlike larger cities such as San Francisco, Oakland and San Jose, smaller cities and counties have a smaller commercial business tax base. This further constrains their ability to economically support and serve more and more housing development. And since suburban communities have fewer jobs and even less public transportation, massive increases in housing result in more commuters driving to urban job markets.

Finally, larger cities have advantages of scale that help them address their regional housing quotas and absorb speculative development. Larger cities have greater access to financial resources, such as grants funding, debt underwriting, corporate partnerships and federal funding, all of which allows them to more directly influence and participate in commercial and housing development.

Just consider for a moment that the cost of a new middle school in California is about $80 million. The cost of a new high school is well over $120 million. One bicycle bridge at Larkspur Landing cost Marin County more than $15 million. If 85 foot tall buildings were constructed in small Bay Area cities, none would have a ladder fire truck of sufficient size in the event of a catastrophic fire. A new truck costs well over $1 million.

So, someone please explain to me, how small cities can possibly afford to build and maintain the infrastructure, public services, schools and public safety agencies needed to serve large-scale housing development? How, for example, can a city like Mill Valley, with approximately 10,000 adult taxpayers, almost one third of whom are close to retirement age or older, support the cost of development to satisfy the goals of SB-827?

The answer is they cannot. However, none of this or considerations about impacts related to traffic, parking, emergency preparedness, and environmental protection appear to be part of the Wiener / YIMBY equation.

Why is that?

The YIMBY response to this seems to be “Everyone who lives in a suburban, single family home is a super-rich racist, so they should just shut up and pay for it.”

Who are these guys? – Part II

Frankly, SB-827 and SB-828 read as if they were written by a child, who is completely free to dream, un-tethered by knowledge about how governments work, how housing is financed and built, what public utilities are, or anything else. These bills fail to understand some of the most basic of facts, such as that Bay Area municipal governments do not build housing – the private sector builds housing – so there’s nothing any city or county can do to “build” housing other than providing incentives and waiting for takers. Penalizing those municipalities for not actually building housing to meet housing quotas is nonsensical.

It's actually hard to take ideas as weak-minded and badly written as SB-827 and SB-828, seriously, which is what makes them really scary. Reading them, it’s hard to imagine Senator Wiener passing a high school economics class.

Does the YIMBY leadership have a grasp of the costs and consequences of large-scaled development on local municipalities? Do they even care? There’s no indication they do.

Does this mean we shouldn’t take Wiener and the YIMBY movement seriously? On the contrary, it is all the more reason to take both very seriously, because history has shown that emotions can override all common sense.

Crisis Mentality

This brings me back to my first question: Why have YIMBYs chosen to take a scorched earth approach to promoting their agenda without first considering working with local community groups throughout the Bay Area that are trying to address housing affordability and inequity issues? Instead of just taking money from tech interests to bully, sue and malign the communities they profess to want to live in, why not use that money to help local organizations and agencies actually build the housing they want to see? If they did, they would find that the opportunities to do that are far more numerous than they might imagine.

Make no mistake about it, YIMBYs are highly educated, organized, extremely media savvy, and seem willing to do whatever it takes and say whatever it takes to achieve their goals, which includes playing to the angers, fears and frustrations of anyone who will listen. In a time of crisis, this is important.

To paraphrase economist Milton Friedman,

When crisis occurs, the actions that are taken depend on the ideas that are lying around.

It is important for us all to address the YIMBY’s concerns head on and for each city, each town, to create and incentivize its own affordable housing solutions in its own way.

It’s our job to ensure that those ideas that are “lying around” are socially, economically and environmentally sustainable ones.

And, yes, as fair as possible to all concerned.

Read Part I

Read Part II

Read Part III