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"Skin in the Game"
To understand California's affordability challenges, it's important to connect the dots between things that may not appear to be linked to the casual observer. As it is, we're being done a great disservice by the reductive, black and white treatment these issues receive in the traditional press and on social media.
In Sacramento and to a large extent even locally, housing discussions have unfolded against a backdrop of widely accepted, politically correct-sounding, but hopelessly outdated methods of framing affordability questions, producing failed solutions and negative environmental consequences, mostly because those in control of the public dialog seem intent on protecting the kind of top-down power that is the fundamental cause of the systemic imbalances producing the unaffordability they claim to be trying to rectify.
The Triumvirate of Bureaucracy, Politics, and Money
“Bureaucracy is a construction by which a person is conveniently separated from the consequences of his or her actions.” ~ Nassim Nicholas Taleb
In a book entitled “Skin in the Game,” the author, Nassim Nicholas Taleb, the author of “The Black Swan,” shares observations that bear on California’s dysfunctional governance. And though I don’t share the author’s uber-Libertarian political views (their dualistic approach seems as capricious as the political systems he criticizes), some of his comments about the nature of how things work and don’t work are worth considering.
Taleb tells an anecdote about a savvy international banker who once offered him advice about surviving in the money game. “I only make long-term loans,” he said, “When they mature, I want to be long gone and only reachable long distance.” This pretty much sums up the strategy of many of our ambitious local and state politicians.
The current political strategy appears to consist of
(1) Being politically correct (or incorrect, depending on what audience they’re pitching to),
(2) Coming across as a “big picture” thinker (to get elected or re-elected), then,
(3) When (not if) one’s latest, hair-brained, quick-fix scheme fails in the future--because it takes time to see the real economic and social impacts--be long gone or quick to say, ‘It was a great idea but so much has changed since then, no one could have foreseen its failure,’ even though so many people actually did and said so at the time.
We seem to be surrounded by government officials, advocacy groups, and expert consultants who are great at simplistic proclamations and appearing to “take action” but terrible at understanding the interactions (and unintended consequences) of complex systems. And there’s nothing more complex than affordability challenges. The same holds true for academia and the studies it produces.
Or as Taleb puts it,
“In academia, there is no difference between academia and the real world; in the real world there is.”
Benjamin Graham, the father of value investing, once said,
“In the short run, the market is like a voting machine--tallying up which firms are popular and unpopular. But in the long run, the market is like a weighing machine.”
In other words, as the savvy international banker knew very well, the truth comes out in the long run. This is as true for the housing market as it is for the stock market. But much like high-frequency, Wall Street, algorithm-driven, hedge fund traders, California politicians are only playing the short game; having mastered the art of proposing solutions that are essentially win-wins only on paper.
But in our 24/7 interconnected world, the truth is being exposed faster than in the past. So, what’s a glad-handing politician to do? Listening to the public appears to be the last resort.
In the movie, Gladiator, Lucilla warns her brother, Emperor Commodus, that “The mob is fickle.” To which, Commodus shrewdly replies that he will win them over by giving them games, the likes of which they have never seen. This is analogous to the ever-brighter, ideologically-driven planning and affordable housing theories about densification and trickle-down benefits that are pouring out of Sacramento--without any evidence of success or methods of real-world outcome measurement.
This incessant “storytelling” about the need to get rid of local control, backed by a Greek Chorus of housing advocates and academia, is little more than the self-interested wishes of organized labor, real estate development and investment banking lobbyists, well-funded public policy think tanks, and private foundations backed by tech billionaires or major corporations, all of whom directly benefit from the policies they proselytize.
Is anyone listening?
The undeniable truth is that localism in growth and planning has value far beyond the obvious need for cities to be able to provide viable infrastructure and public services. Localism can be a valuable filter against nonsensical ideologies, unchallenged politicization of government decision-making, and the corruptive influences of big money. Again, as Taleb notes in his book, regarding the importance of localism,
“Decentralization [local decision-making power] is based on the simple notion that it is easier to macro-bullshit than to micro-bullshit.”
Or put another way, it’s harder to bullshit locally to your neighbors than to bullshit off in some unaccountable committee room or agency in Sacramento.
As such, it is amazing to me that in the 13 years since the passage of SB 375, the bill that kick-started California’s affordable housing development legislation landslide and commenced the equally powerful grassroots push-back against one-size-fits-all top-down planning control, state legislators and state agencies have never made any real attempt to ask underprivileged, marginalized, under-served, poor and lower-middle-class residents in our state (i.e., those who are most in need) what they want to see done to address affordability. In fact, affordability is no longer even included in the discussion of growth and housing in Sacramento.
Heaven forbid, someone should ask those who have real “skin in the game” what kind of housing solutions they want. That would risk getting results that contradict Sacramento's conventional wisdom. Those results might also provide evidence about the importance of local control, on-the-ground data, and why some of the most disadvantaged single-family neighborhoods in the state are among the most vocal opponents of densifying, gentrifying housing legislation.
I’m not talking about dog-and-pony-show “community workshops” where slick consultants lead “participants” in highly structured activities and politicians and government staff pretend to listen. Nor am I talking about sitting in endless public hearings at inconvenient times of the day or night, waiting for hours to make a 2-minute comment on extraordinarily complicated decisions. I’m talking about addressing the fact that different communities have different affordable housing needs.
Who are we trying to build housing for, anyway?
As it is, local housing allocation quotas handed down by the Department of Housing and Community Development (HCD) in Sacramento through Metropolitan Planning Organizations (MPOs) like ABAG/MTC in the San Francisco Bay Area. These require an inexplicable mix of types of housing units that address a perceived need, based on questionable statistics. They include quotas for various income groups and various unit types; one-bedroom, two-bedroom, etc. However, “household” statistics are changing rapidly and many historical statistics do not necessarily reflect the newest trends.
Government statistics typically separate households as either being for single occupants or families. (2 adults and 2.4 children) Yet, the percentage of single renters and homeowners has changed dramatically over the past decade and is now close to 30 percent, while single-parent households and hybrid families (home sharing) are over 30 percent and also growing rapidly. So, the typical owner/renter profiles are changing faster than historical averages may indicate.
Within this, two other demographic sub-groups are growing even faster than the ones noted above; groups that HCD doesn’t accurately acknowledge. They are what I call the “barbell” demographics: the active-elderly who are nowhere near ready to “retire” but no longer in need of a large home: resulting in a decrease in housing available for families to buy) and young, highly mobile, singles and couples (particularly in our new “work from home/anywhere” economy).
Outside of urban centers, except for the high-end luxury market, developers are not building affordable fee-simple or rental housing active-elderly singles or couples or housing-sharing individuals want: generally single story (or with an elevator), open plan for entertaining, state-of-the-art technology, kitchens, and appliances, a home office, a guest room, and some private outdoor/green space.
Similarly, in Marin County, for example, it is very difficult for young singles or couples to find somewhere to rent or purchase that suits their affordable, "starter" needs: generally smaller units (think innovative “micro-units”), flexible floor plans, great design features, state-of-the-art communications technology and appliances, a work-from-home space, and located close to a town’s walkable, commercial/retail area. Their goal is to just get a foothold somewhere: to be closer to a job or amenities, schools, and services a community provides.
This type of housing is common (even overdone) in urban centers but scarce in the suburbs and exurbs. This is particularly true in smaller, infill locations, because developers aren't interested in projects that don't include hundreds of units--the land for which doesn't exist.
Far too many active-elderly homeowners are “trapped” in their large homes because there is nowhere for them to move but stay in their community. Similarly, the younger demographic is by and large forced to live in generic, characterless, high density, urban wastelands, like Mission Bay in San Francisco.
To add insult to injury, California state housing law does not count senior assisted living units or co-housing units that don't have full kitchens in each residence toward a city's Regional Housing Needs Assessment (RHNA) quota.
The fact that there are no targeted, state programs or incentives to build affordable housing in suburban and exurban infill locations for these two fast-growing demographics is restricting market liquidity and affordable housing goals. This is the direct result of the failure of dysfunctional government decision-making that is failing to address Californian’s day to day, affordability challenges. Without incentives, private developers will not build the housing that’s needed.
Who’s minding the store?
There has never been a greater need for common sense and articulate leadership. We seem to live in a world where the loudest (or best funded) group wins, regardless of how small a demographic they represent. Meanwhile, too many politicians just keep their heads down and play it safe so as not to offend any higher-ups and potential donors and endorsers who they might need in the future.
As a result, instead of getting more clarity and simpler solutions with more measurable outcomes--such as funding cities and counties directly so they can build the kind of affordable housing they need--we get endless pontification, ideology, and increasingly complex and multi-layered, counter-productive rules and regulations.
Or as Taleb puts it,
“There is absolutely no benefit [incentive] for someone… to propose something simple, when they are rewarded for perception, not results. Anyone who has submitted a scholarly paper [in academia or as a paid consultant] knows that you usually raise the odds of acceptance by making it more complicated than necessary.”
And while government officials and employees cruise along on automatic, annual salary raises and increased retirement benefits, regardless of their performance or improvements in serving the public or innovative contributions, those of us with skin in the game are left with the consequences.
Bob Silvestri is a Marin County resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded by individuals and nonprofit donors. Please consider DONATING TO CVP to enable us to continue to work on behalf of California residents.