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The Failure of Senate Bill 50 – A Tale of Ignorance and Arrogance

SB 50, a so-called “housing” bill authored and sponsored by Senators Wiener (D-San Francisco), McGuire (D-Marin/Sonoma), Skinner (D-Berkeley), and Senate President Pro Tem Atkins (D-San Diego), went down in defeat yesterday after two days that included three consecutive votes on the California Senate floor.

The pro-SB50 Sacramento Bee called proposed law that aimed to end single family zoning in the state, an “ambitious” bill that would “spur California’s cities to build more housing, increasing affordability by increasing supply.”

Notwithstanding the fact that the vast majority of cities in California do not build housing (private developers do), or finance housing (private lenders do), and that the bill contained no substantive provisions or viable solutions to address housing affordability -- or even any evidence that its supply and demand thesis was valid -- the mainstream media has been quick to inundate us with vociferous blame and shame, calling the SB 50 "no" vote a failure of vision, a lack of courage, and worse.

But they are wrong. SB 50 failed because its fundamental premise is incorrect.

Affordable housing in California and the rest of the country for that matter is not a “zoning” problem.[1] It is an income and wealth inequality problem and a lack of financial tools to tap private capital for public good. And that is in great part the direct result of national and state income tax and corporate subsidy policies.

Period.

One hour at $217 million a minute

Yesterday, in one hour of trading on the NASDAQ Exchange, following Amazon’s announcement of its quarterly earnings, Jeff Bezos “earned” $13 billion. That one hour sum is 433 times the annual salary of the person working at Amazon, who is packing and shipping your purchases: 30% of whom need government assistance (e.g., food stamps) to make ends meet.

Now add to that that Mr. Bezos already makes hundreds of times what his employees make on any given day.

As noted in an article in Business Insider,

"An Amazon worker earning the $15 minimum wage would need to work about 597,412 hours, or 24 hours a day for about 68 years, just to earn what Bezos makes in one hour.”

$13 billion is 203 times the average annual salary of the average employed person in California ($63,783), and 277 times the average (median) annual salary of an employed adult in the United States ($47,060).

Then consider that the average U.S. wage earner will pay a much, much higher percentage of their overall earnings toward taxes of all kinds (income, sales, property, and fees), than either Mr. Bezos or his corporation (which last year paid nothing).

At some level all the rationalizations about hard work, having smarts, and a get-up-and-go attitude fall by the wayside. It is not hard to argue that there is something very wrong with a system that allows this level of disparity.

This is a reflection of a system of taxation and public subsidy, favoring corporations over individuals, that is not working. Government tax subsidy should be reserved for things that are really needed like clean energy, green building technologies, environmental protection, food safety, education, healthcare, and home ownership, not trillion dollar companies.

With regard to housing affordability, consider this. $13 billion is 31% more than the entire U.S. federal budget allocation for Low Income Housing Tax Credits, to fund affordable housing development in the entire country, for an entire year.

If you want affordable housing, it helps to use real data

Senators McGuire, Wiener, Atkins, and Skinner are trading on hysteria, heavily funded by major financial interests who are more than happy to fund ego-driven, dim politicians, and self-serving advocacy groups to carry water for them.

But the facts show that their entire argument about housing affordability being so uniquely acute in California's major jobs centers is simply false.

Real housing affordability is not based on housing prices or anecdotal impressions of what is or is not expensive. It is based on what percentage of a person’s or a household’s earnings are required to go toward housing. And there is no better gauge than rental rates, because rental rates can be tracked in real time and data is plentiful and reliable, unlike housing “sales” prices (e.g., Zillow is notoriously bad at such data).

So, how does the San Francisco Bay Area, Senator Wiener’s own city, stack up nationally in terms of affordability?

The counter-intuitive answer is, it is far down on the list when compared to other cities that one ordinarily thinks of as inexpensive: places like San Bernardino, El Cajon, Pomona, Stockton, Modesto, and Bakersfield. In fact, based on current statistics and maps published by the U.S. Federal Reserve, and a study by Harvard University, based on U.S. Census data, done in 2012, San Francisco is only 271 on the list (see attachment).

In general, the data is decisive. The overall “housing burden” in the poorer cities, counties, and regions is far greater than the financial burdens for residents in many of our major cities. This is true because wages and benefits are so much lower there.

So, if we wanted to help provide more affordable housing in our state, wouldn’t we prioritize those areas with the greatest financial burdens (and the least political power), first? If we did and studied how to address that, we would soon be sharply focused on one thing: income inequality.

We do not have an affordable housing problem. We have an overall affordability problem. Until we address that and the root causes, we will never successfully address housing.

The fabulous 50s and public subsidy

In the wake of the failure of SB50, many are scrambling to quickly find “the solution.” But all this is amounting to is a regression to old shop-worn and failed ideas, like resurrecting our failed redevelopment agencies, or supporting ill-conceived legislation to mimic them. A perfect example of this nonsense is Senate Bill 795, proposed and endorsed by some of the same people that brought us SB50: Senators Beall and McGuire.

The lack of knowledge and imagination in Sacramento is really astonishing. Our “representatives” apparently know little about economics, markets, or how housing gets built (and they seem to never bother to ask those who do), so they continue to advise throwing taxpayer money into top-down black holes.

SB 795 proposes to fund housing (undefined how) with an annual budget of $200 million a year. That amount won’t even cover the cost of the administration of the funds by all the new staff for public agencies and review boards the bill requires. Worst of all, it revives the ill-fated idea of project based bonds, that proved to be so disastrous in the past that they became illegal on federally funded, multifamily housing projects after the S&L crisis of the 1980s.

SB 795 is a waste of time and money. If anything, we need to reduce the number, size and complexity of state agencies and force those that exist to become much more cost effective, not increase it. But even opponents of SB 50 are falling for it in their hope to find something. Still, there's no value in going off half-cocked.

I’ve written about the nexus between economics and housing affordability and tax law before, but it’s worth repeating.

From the late 1940s through the early 1970s, the federal income tax rate on earnings over $1 million was about 90 percent. It’s pretty hard to have a lot of income and wealth disparity or become a tech billionaire in that kind of tax environment.

So, where did all that money go and who benefited from the biggest exercise in wealth redistribution ever undertaken in our country? The answer is everyone. It went to funding the “commons,” the needs that were shared by everyone: the things we are spending hardly anything on today.

Those tax revenues helped build public schools, hospitals, libraries, community colleges, and our interstate highway and aviation systems. It subsidized building bridges and tunnels and water and sewer projects, public transportation and subway systems, the telecommunications backbone and power grid, and endless other public and private infrastructure projects.

Those tax revenues sent 7.8 million World War II veterans to college and provided low cost loans and federal guarantees to tens of millions of new home buyers, and it financed the building millions of units of public housing. Contrary to myth, the 1940s, 50s and 60s in America witnessed the greatest socialist policy experiment and the greatest redistribution of wealth in the modern era anywhere in the democratic world. And it created a more egalitarian society than the country had ever known.

Wiener and his ilk will read this and say, this proves that more state and regional government, more big agencies, and more taxes are all needed to fix our housing "crisis." But they would be dead wrong about everything except more progressive taxes on the highest earnings.

Because things have changed. Our economy has changed. We can’t look to the past for ideas. We have to move forward. We need to embrace collaboration using enabling technology and empower local government with the tools it needs to address housing needs.

Today, affordable housing development has little to do with zoning and everything to do with financing it.

The question is how.


[1] This statement is supported, in part, by local studies in Marin County, such as the Miller Avenue Alternative Analysis of Future Development, 2007, which showed that ample zoning for multifamily housing already exists, but remains undeveloped. Note that since the time of this analysis, the study area has been up-zoned to further accommodate multifamily development.


CLICK HERE to read PART II

CLICK HERE to read PART III


Bob Silvestri is a Mill Valley resident and 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. Please consider DONATING TO CVP to enable us to continue to work on behalf of Marin residents.