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48 Hills

New housing laws shift private developer risk onto the public

Posted by: Zelda Bronstein - November 12, 2023 - 12:15 PM PST

Why should cities and counties guarantee profits for builders and push the costs of growth onto local taxpayers?

Yimbyism famously blames the housing affordability crisis on onerous local land use regulations—above all, zoning for single-family homes.

To be clear, I'm using “Yimbyism” as shorthand for the supply-side dogma embraced by card-carrying Yimbys as well as the Biden administration, California and numerous other states, market-friendly think tanks, most academics, the planning profession, and virtually the entire media.

Citing the “laws” of supply and demand, Yimby doctrine holds that permitting taller and denser residential buildings, aka upzoning, will result in lower prices. Hence the slogan “End Apartment Bans.” The assumption is that, absent zoning restrictions, developers will build, build, build, and housing prices will fall.

Berkeley-Mayor-Jess-Arrequin-48-Hills.jpg

Berkeley Mayor Jesse Arreguin want to help labor—but in exchange, cut fees for developers.

California is the epicenter of Yimbyism in the U.S. In recent years, it’s passed more than 200 housing laws—the most of any state. Yet when the Legislature’s housing staff surveyed 65 major housing laws enacted between 2016 and 2022, they counted only 26 that mandated upzoning. Seven other statutes reduced barriers to housing access. Even more notably, 39 of the new laws:

Upzoning’s secondary status was even more pronounced in the “housing package” of 56 bills that Governor Newsom signed on October 11, where it was mandated by just seven of the newest laws. That’s not counting Wicks’ I-love-noise-and-UC bill, AB 1307, signed into law by the governor on September 7.

Moreover, the numbers are misleading, because some laws have far greater impact than others. The upzoning fetishists can point to the expanded Density Bonus Law and the Builders’ Remedy provision of the Housing Accountability Act.

But those legal bulldozers are outnumbered by other kinds of major housing statutes. A few of many examples:

AB 101, Newsom’s 2019-2020 budget bill, authorized multiple “state oversight and increased [local] accountability” mandates.

AB 72, authored by Santiago in 2017, significantly empowered the Department of Housing and Community Development and the state Attorney General vis-à-vis local jurisdictions.

AB 2584, authored by Daly in 2016, authorized “housing organizations” such as Yimby Law to sue under the Housing Accountability Act.

A 2023 bill, AB 1485, authored by Haney and Wiener and co-sponsored by the AG and the Housing Action Coalition, gave the AG the right to intervene without court permission in any suit brought to enforce specified housing laws. Wiener’s SB 35, also passed in 2017, and just expanded into the coastal zone by SB 423, drastically curbed local governments’ land use discretion. Ting’s SB 1633, another bill just signed into law by Newsom, effectively makes CEQA action the preserve of the rich.

What developers really want

The subordination of upzoning in recent California housing laws reflects a truth that the supply side crowd seldom acknowledges: Private developers’ top priority isn’t building as many taller, denser homes as possible. It’s getting an anticipated return on their investments.

Cyrus Sanandaji, a partner in Presidio Bay Ventures, told San Francisco Chronicle reporter J.K. Dineen that the banks and union pension funds that finance housing “typically won’t invest unless they think they can get a 20% return.”

Getting that return is fraught with risk. Most private developers work with borrowed money. Anything that delays the completion of a project or adds costs—Sanandaji cited San Francisco’s 6% transfer tax—increases their debt and decreases the ROI.

What developers seek, then, is certainty that the development process from application to certification of occupancy will move forward with minimum expense and delay. Most of California’s new housing legislation aims to maximize that certainty by de-risking private developers’ investments.

To be sure, the state can’t guarantee that de-risking will generate new housing. There are barriers to development beyond the control of any state or local government. Thanks to soaring interest rates and construction costs, 47,000 approved housing units are going unbuilt in San Francisco. In San Jose, developers are using Builder’s Remedy to shrink their projects.

The de-risking state only seeks to “escort” financial capital—I borrow the phrase from British economist Daniela Gabor—as far as possible. That means minimizing local land use discretion as much as possible. At bottom, Yimbyism is a political project that seeks to restrict local action and centralize state power in behalf of financial and property capital.

HCD touts de-risking to San Francisco

De-risking’s crucial role was underscored by the California Department of Housing and Community Development (HCD) in a letter the agency sent to the San Francisco Planning Commission on June 16. The letter urged the commission to support the “Constraints Reduction Ordinance” (CRO) that Mayor London Breed had released to the public the day before. HCD argued that provisions in the mayor’s proposal “would fully or partially satisfy some of the commitments…set forth as Actions” in the city’s HCD-approved Housing Element.

Only one of those “commitments,” Action 7.2.6, targets upzoning, and even that target is paired with a streamlining mandate: “Permit group housing broadly throughout the City and streamlining approvals for group housing projects.” Nine of the other Actions roll back public planning processes:

The remaining Action cuts development impact fees:

“Increase financial feasibility for affordable housing projects (Actions 1.3.9 and 8.6.1), including [e]xpanding the Impact Fee exemption to a housing project with units affordable up to 120 percent of the Area Median Income” and “[a]llowing 100 percent affordable housing projects utilizing State Density Bonus Law to be eligible for Impact Fee waivers.”

“By implementing the above programs,” wrote HCD, “as well as other Planning Code changes put forward in the Ordinance, the City can increase certainty of approval for a wider range of housing projects, thus reducing the risk associated with building housing in San Francisco.” The agency added: “The City’s adopted housing element acknowledges that this risk translates to higher housing costs.” So it does, stating that “the cumulative effect of complex entitlement and post-entitlement permitting is making the process uncertain and even more expensive” (Program 8, p. 133).

What neither HCD nor San Francisco’s housing element say is that when the state de-risks private investment, it shifts the risk and expense of housing development onto the local public. That maneuver takes ingenious forms, as illustrated by Breed’s Constraints Reduction Ordinance and Berkeley Mayor Jesse Arreguín’s Hard Hats Ordinance.

The affordable housing/tenant protection hustle: Breed’s Constraints Reduction Ordinance

Tim Redmond has followed the pushback against Breed’s proposed law (in chronological order: here, here, here, here, and here). My account draws largely on his coverage.

San Francisco’s mayor would have us believe that reducing, if not simply eliminating community, staff, and planning commission input into planning decisions and giving developers the right to demolish existing homes will generate more affordable housing and greater protection for tenants.

Those assurances have sparked massive protest. Every tenants group in the city plus the dozens of community organizations who formed the Race and Equity in All Planning Coalition have argued that by giving developers a free hand, Breed’s proposed law would place tenants in greater danger of eviction. And by encouraging more market-rate construction, the CRO would worsen the city’s affordable housing crisis.

The Tenants Union pointed out that the measure would allow the demolition of “sound, rent-controlled units,” with “no requirements that the new units actually become rental units.” Indeed, the ordinance has no affordability requirements for new housing of any sort.

And, Redmond observes, there are “no provisions in the law that would require the city to make sure that evictions are legal, not fake, and that tenants actually get the right to return.” Even if there were such provisions, they would be impossible to implement, given that San Francisco has no database of rent-controlled housing units.

The CRO lacks an enforcement mechanism that could prevent a scenario laid out by Supervisor Dean Preston: a speculator buys rental property, uses the Ellis Act or the threat of the Ellis Act to evict the tenants, and uses Breed’s proposed law “to demolish the building and replace it with high-end housing or a monster home.”

The CRO takes its cues from San Francisco’s 2022 Housing Element and that document’s reiteration of the city’s latest Regional Housing Needs Allocation. According to its Executive Summary, the Housing Element is “San Francisco’s first housing plan that is centered on racial and social equity….The 2022 Update articulates [the city’s] commitment to…increasing housing affordability for low-income households and communities of color.” The Housing Element commits San Francisco to planning for 82,000 new homes by January 31, 2031, of which 46,000 are to be “affordable.”

The likelihood of all those units getting built is low. As Breed’s representative, Lisa Gluckstein, told the Legislature’s housing committees in February, the city’s “RHNA requires an average of 10,000 units per year, or roughly three times historical production.”

In another absurdity, like the Housing Element, the CRO defines affordable housing to include homes affordable to households earning up to 120 percent of the Area Median Income as defined by HUD. In San Francisco, 120 percent AMI for a four-person household is $172,900.

Both the CRO and the Housing Element propose the elimination of development impact fees for “affordable” housing. Development impact fees pay for transit, open space, child care, infrastructure and other services required for the residents of new housing. Either the public will have to make up the shortfall, or these services will not be funded.

In short, “Constraints Reductions Ordinance” is a misnomer. The proposal only reduces local constraints on private capital; it increases restrictions on local efforts to discipline capital.

Consistent with the CRO’s proposed rollback of government accountability to the public, at the September 18 nobody from the mayor’s office showed up. Redmond reported that the two supervisors who co-sponsored the measure, Matt Dorsey and Joel Engardio, were not there for the start of the hearing, sent no staff to the meeting, and “then left for another appointment.” Nor did Breed brief the Board of Supervisors beforehand on her proposal, thereby breaching the city’s customary protocol for the introduction of legislation that has broad community opposition.

Chafing against Breed’s highhandedness and alert to the CRO’s dodginess, the Board of Supes opted for a process that allowed its members to ask hard questions about the sweeping measure and to run changes to the San Francisco’s housing laws by the City Attorney in a timely manner. As of early November, four and a half months after its release, Breed’s ordinance had yet to be passed in any form.

The construction labor standards ploy: Berkeley Mayor Jesse Arreguín’s Hard Hats Ordinance

Breed’s CRO takes an in-your-face approach to de-risking. By contrast, Arreguín’s Hard Hats Ordinance (HHO), adopted by the Berkeley Council on May 2, 2023, charts a devious route.

Formally known as the Helping Achieve Responsible Development with Healthcare and Apprentice Training Standard Ordinance, the HHO requires developers of construction projects (not just housing) measuring 50,000 sf or more to provide their construction workers with health care coverage and to contribute to the state-run California Apprenticeship Council —effectively a path to union membership.

In introducing the item at the Council meeting, Arreguín said:

“…even in Berkeley,….a proud union town,…workers are being exploited. We need to make sure that as we are building up our city and building up our region, that we are lifting up people as well, and that we’re not doing it on the backs of the people who are building our community.”

His sentiments were echoed by every Councilmember at the meeting (Wengraf was absent).

Arreguín emphasized that the HHO’s intended beneficiaries aren’t workers per se, but “qualified local construction workers.” The idea is to “mak[e] sure that people in our community have entry-level workforce opportunities in the construction trades.”

Accordingly, many of the twenty-odd tradespeople, some of them apprentices or former apprentices, others members of union locals, who applauded the measure at public comment noted that they were Berkeley or Bay Area residents or natives, and told how their training and union membership had changed their lives for the better.

The de-risking provisions briefly appear in the recommendations that headed up the memo from the mayor that conveyed the HHO to the Council:

"2. Refer the City Manager and Planning Commission to:

"a) Include an analysis of these new healthcare and apprenticeship requirements on private development as part of the Housing Feasibility Study currently underway and direct the City Manager expedite completion of this analysis;

"b) Based on the findings of the feasibility study, recommend adjustments to impact fees if needed to offset the cost of these new requirements to maintain economic feasibility of projects;

"c) Bring back to the City Council proposed changes to enabling legislation to enable fee reductions if needed;

"d) Explore zoning modifications to allow for additional density as a way to offset the cost of these new labor standards if needed."

The passage is an exercise in obfuscation. Start with the mystifying reference to “the Housing Feasibility Study currently underway.” Exactly what does it mean for a housing project to be feasible? The memo provides no link to the study.

Some strenuous Googling revealed that the Housing Feasibility Study is an ongoing inquiry that’s been conducted for Berkeley since 2020 by the Street Level Advisors consultancy. The most recent component I could find online is an attachment to Item 21, “Citywide Affordable Housing Requirements,” on the Council’s January 17, 2023 agenda.

The staff report says that the city retained Street Level Advisors, “a firm that assists cities across the nation to develop programs and policies to facilitate equitable development,….to evaluate existing regulations and potential changes in order to comprehensively update the City’s affordable housing requirements. Dated February 2022, the firm’s report came in response to Council referrals and new state laws. The HHO applies to all construction, not just affordable housing. But the analysis provides a good idea of the consultancy’s approach.

As shown by the following passage from the 2022 report, Street Level Advisors toes an orthodox supply side line. And as in San Francisco, an absurd Regional Housing Needs Allocation is a driving force in the de-risking strategy:

“The Bay Area and the Berkeley community need more housing. Rapidly rising housing costs and growing displacement pressure are the result of a systemic shortage of housing. While building more housing alone would not be sufficient to address the current inequities, we overcome our housing challenges without building significantly more housing. The Regional Housing Needs Allocation (RHNA) requires Berkeley to permit nearly 9,000 new homes at all income levels during the period from 2023 to 2031. (p. 9)”

In fact, the RHNA requires Berkeley to plan for, not permit, nearly 9,000 new homes at all income levels from 2023 to 2031. As journalist Michael Barnes has pointed out, that number is unattainable.

Street Level Advisors continues:

"To meet this historic challenge, Berkeley’s affordable housing policies must balance two critical but competing goals:

  1. "We must set affordable housing requirements high enough to produce meaningful levels of affordable housing."
  2. "We must ensure that they are not too high for developers to accommodate."

“Accommodate” is code for facilitating the profit margins that developers claim they need to obtain financing for their projects. In “Appendix A: Financial Feasibility Analysis,” Street Level Advisors does a “static pro forma analysis to estimate the return on investment that can be generated by typical residential developments in Berkeley.”

A 2016 report from the Terner Center, “The Effect of Local Government Policies on Housing Supply,” states that when contemplating zoning changes, most planning departments in the Bay Area “put together a static pro forma,” which “models the costs and returns to a single development on a plot of land in a single point of time. The pro forma provides the expected profit the developer might receive and the amount she can afford to pay for the land.” (p. 11)

Street Level Advisors goes on to explain its method of estimating a project’s financial feasibility as follows:

“For the rental prototype, we used a common measure of return known as yield on cost (YOC) or a project’s net operating income divided by the total development cost. Based on a review of current market conditions in Berkeley and the East Bay, we concluded that projects earning a yield of at least 5.0% would be “feasible,” meaning that they would likely be able to secure investment….

“For ownership projects, the Yield on Cost cannot be calculated, so we used a different measure of profitability: Profit as a percent of development cost, also called Return on Cost. Because of the lack of recent condo projects in Berkeley, we were unable to objectively determine the minimum necessary profit as a percent of cost for local ownership projects. As a point of reference, a common rule of thumb used in other studies considers project “feasible” when profit exceeds 10-15% of development cost. (p. 34 of the report)”

The main body of the report considers how changes to Berkeley’s affordable housing requirements such as on-site unit income targets, condo conversion rules, and maximum unit size would satisfy the “critical but competing goals” of producing affordable housing and “accommodating” developer finances.

The feasibility analysis for the Hard Hats Ordinance is likely to take the same approach as the one in the Street Level Advisors’ 2022 report. The latter document was prepared with the assistance of another consultancy, Strategic Economics, with which Street Level frequently works. In July, the city signed a contract with Strategic Economics to do the next component of Berkeley’s Affordable Housing Economic Feasibility Analysis, which will address among other things the HHO recommendations. The proposal that Strategic Economics submitted to the city said that it would be assisted by Street Level Advisors.

The contract with Strategic Advisors has a deadline of July 12, 2024. The only future date specified in Arreguín’s Recommendations is the effective date of the HHO ordinance: January 1, 2024.

The mayor left the “new requirements to maintain economic feasibility of projects” to be determined at an unspecified point in the future. In other words, as Planning Director Jordan Klein confirmed to me, the HHO could go into effect before the Council has considered, much less approved, lower impact fees and greater densification, i.e., upzoning.

Arreguín’s rush job has to be viewed in the context of his current bid for office: he’s running to succeed termed-out Nancy Skinner in the District 9 State Senate seat. Shortly after the Council approved the Hard Hats Ordinance, endorsements from the building trades unions began pouring into his campaign.

That his half-baked scheme was approved attests to the inanity of the Berkeley Council, most fully voiced by District 8 (Elmwood and Claremont) Councilmember Mark Humbert. “In an ideal world,” said Humbert, "I would really like that this ordinance doesn’t go into effect until we’ve had adequate time to assess its costs and their feasibility on new construction….If the feasibility study shows there are other fees and requirements that have to give a bit, that we have to reduce, so we can continue building housing while also making sure that construction workers are justly compensated, then I’m a hundred percent in favor of that.”

But “without any actual data here, let alone example pro formas, I think we’re flying blind.” And then, without hesitation: “I will vote yes for this, and will vote yes for this enthusiastically.”

Councilmember Kesarwani demurs

As did all his colleagues but District 1 (northwest Berkeley) Councilmember Rashi Kesarwani. She peppered Arreguín and staff about the details of the HHO—a “line of questioning” that the San Francisco-based Housing Action Coalition, one of the most aggressive Yimby groups in the state, would attribute to issues raised by itself and its “friends” at the San Francisco consultancy Progress Public Affairs.

“I just got this ordinance on Friday at 5:10 pm,” Kesarwani said. Arreguín told her that it had been unanimously approved in September.

That’s untrue. What the Council approved in September was the referral of a September 20, 2022 proposal from Arreguín and Councilmembers Bartlett, Hahn, and Taplin that directed the City Manager and City Attorney to draft a Hard Hats Ordinance. What the Council and the public received on the afternoon of Friday, April 28, did include the drafted ordinance, as well as what turned out to be a first draft of the de-risking Recommendations.

However, the Recommendations in the item that was before the Council on May 2 had been amended by Arreguín under Berkeley’s Orwellian “good of the city” rule. Berkeley Municipal Charter Section 2.06.070 states that the Council may consider a last-minute “supplemental/revision” to an already submitted agenda item, if, as the mayor wrote, “[t]he analysis [in the supplemental/revision]…demonstrate[s] how accepting [it] is for the ‘good of the City’ and outweighs the lack of time for citizen review or evaluation by the Council.”

The Recommendations in the April 28 version of the HMO read: “Refer [to] the City Manager and Planning Commission if necessary…” Arreguín’s “good of the City” version deletes “if necessary.”

The May 28 version also specified the Downtown Mixed-Use District as the area where an increasing the number of taller buildings “at or above 180 feet in height” would be considered. The “good of the City” version eliminates that specification and qualified the upzoning prospect with the phrase “if needed.” In other words, the upzoning could apply anywhere in town.

At the May 2 meeting District 4 (Central Berkeley) Councilmember Kate Harrison said Arreguin had made the change at her behest. Pointing out that in 2010 Berkeley voters had approved upzoning in Downtown (Measure R), Harrison said “supports more density throughout the entire city,” especially in North Berkeley and on College and San Pablo Avenues.

At the May 2 meeting, the first order of business was for the Council to accept the mayor’s just-revised material under the “good of the City” rule. It did so unanimously, without the slightest discussion of how the analysis in the revised material had made the requisite demonstration.

Kesarwani also asked how the 50k sf threshold had been arrived at. Arreguín said that “projects at this scale would be more likely to absorb the [prospective new] requirements” because there would be enough units onsite to amortize the costs. The intent, he added, was to capture not just the tallest buildings but 25- and 30-unit projects as wells. “Missing middle” projects would not be affected.

The Councilmember’s most insistent questions concerned the lack of a financial analysis of the HHO’s effects. Had the city issued an RFP? What was the timeline? Would a contractor be “in the role by January 1, the effective date [of the ordinance] that we’re contemplating?”

To this last query, Assistant City Manager LaTanya Bellow replied: “We do not know.”

“When,” Kesarwani asked, “is the soonest date that the housing feasibility study could be completed and presented to the Council?”

Housing, Health and Community Services Director Dr. Lisa Warhaus said that the city had received and was evaluating “two qualified proposals,” and that it hoped to bring the selected “vendor to the Council before the recess.” As for the delivery of the analysis itself: Spring 2024 “would be pushing it.”

Kesarwani then said that, to her surprise, HCD had emailed the city about the Hard Hats Ordinance in December 2022 and February 2023, “even before it was before this Council,” and that Planning Director Jordan Klein had responded to the agency’s queries in December. “It’s very hard to predict selectively what HCD will ignore or not ignore,” she said. Does staff have “any sense of how HCD is going to be looking at our implementation of our Housing Element and related programs in terms of determining our substantial progress toward meeting out [RHNA] unit count?”

In reply, Deputy Director of the Planning Department Alene Pearson said that HCD “wanted to make sure that we hadn’t adopted the [HHO] before the Housing Element had been certified” by the agency. If it had, the HE would have to have included an analysis of the new ordinance. In December Klein told HCD that the ordinance hadn’t been adopted. HCD certified the City’s Housing Element on February 28, 2023.

Yimby cadres attack the HHO

I was curious to see the email exchange between HCD and Klein. A Public Records Act request to Berkeley’s excellent City Clerk’s office yielded the documents.

It turns out that HCD did more than inquire about the status of the Hard Hats Ordinance. In the initial, December email, HCD Housing Policy Specialist Jose Ayala said he was writing to the Berkeley Council in response to “public comment regarding the attached ordinance and its potential effects on costs of housing development.”

HCD encourages individuals and groups to inform the agency about potential violations of state housing law. A PRA request to HCD asking to see Ayala’s email and the referenced public comment revealed that the source of the comment was Paul Campos, Senior Vice President of Governmental Affairs and General Counsel for the Building Industry Association of the Bay Area.

On November 11, 2022, Campos sent HCD Housing Policy Manager Paul McDougall an email with a link to the Council’s September 22 referral asking staff to draft the HHO and the following comments:

"Estimated cost increased [sic] for real world housing project in pipeline right now is an increase of 18-20% (would be higher, but some work was already going to be done by union labor); for this project that works out to an increased cost of approximately $19 million which would render the project infeasible."

"Clearly would be a major constraint since would apply to every housing project of over 50,000 square feet. It is NOT limited to public works projects; every housing project."

Campos wasn't the only supply-sider who contacted HCD’s Paul McDougall about problems with the Hard Hats Ordinance. On February 16 Housing Action Coalition Executive Director Corey Smith cc’d McDougall on an email to the Berkeley Council, a three-and-a-half page attack on the HHO. On February 17 McDougall emailed Planning Director Klein asking: “Any updates on the ordinance since December or is it still in its early formation?”

In 2021 HAC honored the entire Berkeley Council in the group’s annual Housing Action Heroes program “for paving the way to end exclusionary zoning and allow for multi-family homes to be built across the city.” Nancy Skinner presented the award.

HAC’s February email said nothing about Berkeley’s recent housing heroics. Instead, it warned that

“[w]hile the aims of the HARD HATS Ordinance are laudable, housing production is suffering death by a thousand cuts. Each new mandate adds to costs, reduces feasibility, and results in lower production.”

To be precise, HAC was not commenting on the ordinance proper, which had yet to be released, but on the September 22 referral asking staff to draft the law. There, outlining “the City’s interests in taking action to redress the inadequate status quo condition of construction workforce development,” Arreguín, Bartlett, Hahn, and Taplin noted among other things the need to “[a]ddress inequality as residential developer profit margins continue to increase, while labor wages and benefits have remained stagnant.”

"According to the State of California’s 2014 Affordable Housing Cost Study and Economic Census data specific to California’s construction industry, construction labor wages and benefits account for only 15% of total project costs. Meanwhile, since 1992 the industry’s basis for profitability has increased 50% more than either construction labor or materials. Despite this increase in profitability, there is still a disconnect between construction workers and apprenticeship and health insurance plans, resulting in a shrinking supply of labor. This has constrained the construction industry’s ability to expand in response to the rising construction needs of California and its many cities."

The September 2022 referral further stated:

“California residential contractors offer fringe benefits at low rates to building trades workers. Only one third of construction workers are policyholders for employment-based health insurance, compared to over half of all other employed male civilian workers, according to data from the Annual Social and Economic Supplement of the U.S. Bureau of Labor Statistics’ Current Population Survey (CPS). California construction workers’ rate of coverage under any employer- or union-provided insurance ranks 35th among the states, proximate in rank to Alabama, Colorado, Louisiana, Nevada, and Virginia.”

HAC’s Smith did not address the Berkeley electeds’ foregoing claims. Instead, he questioned the effects of the apprenticeship fee and health care coverage for construction workers on the financial feasibility of new housing:

“A proposal that solely increases costs will stifle housing and is inconsistent with the goals and objectives of [Berkeley’s] Housing Element. It also means that the benefits of the HARD HATS ordinance would not be achieved if it contributes to the financial infeasibility of new housing. If any ordinance is to pass that would increase the cost of construction without sufficient offsets, then we must acknowledge that we’re planning for rents to increase. Ultimately, this is simple math where revenues need to exceed expenses.”

Citing Berkeley’s then-still-to-be-certified-by-HCD Housing Element, Smith wrote:

“It [says] that construction costs for apartment buildings in the Bay Area are the highest in the state, that they have increased more dramatically than costs statewide, and that construction costs for affordable housing are higher than costs for mixed affordability and market rate projects “likely due to prevailing wage, local hire, and other requirements.” The HARD HATS Ordinance would add similar constraints on mixed affordability and market rate projects without providing any offsets or incentives.”

Smith suggested ways that additional costs could be offset:

These are exactly the “offsets” that Arreguín included in the April 28 de-risking Recommendations. In its May 5 newsletter, HAC claimed that its “joint advocacy” with Progress Public Affairs “in the 24 hours leading up to the bill’s adoption” had led to these “important concessions,” for which it thanked Arreguín. (HAC also took a dig at Arreguín: “We believe the mayor’s campaign for State Senate was the elephant in the room that prevented [the Council from completing the financial feasibility the study before implementing the HHO], and [that] electoral politics can most certainly make for sloppy policy.”)

HAC further claimed that its lobbying had resulted in a third concession:

In response to my query, Planning Director Klein said that he was not aware of any decision by the Council that gave staff the latitude to push back the HHO’s implementation date.

It’s also notable that the de-risking Recommendations that the Council did approve are not what HAC’s newsletter termed, “the right path forward for Berkeley.” The “blueprint” for that route, wrote Smith, was laid out in state law:

“Assembly Bill 2011 (2022, Assembly member Wicks) has established the blueprint for pro-labor and pro-housing legislation. AB 2011 allows by-right approval [no public hearing] for projects over a certain size if they 1) pay prevailing wages, 2) provide healthcare and 3) provide apprenticeship opportunities.“

Smith continued:

“This same language is also in two pieces of pro-housing legislation recently introduced by Senator Wiener, Senate Bill 4 and Senate Bill 423. Allowing by-right approvals for projects that provide certain benefits to workers should be the status quo across the entire state. The Housing Action Coalition strongly believes that a similar ordinance is the right path forward for Berkeley and would welcome the opportunity to help pass a local ordinance.”

To date, the Berkeley Council has not afforded HAC such an opportunity.

During public comment at the May 2 meeting, Smith, like every other speaker, said he favored expanding health care for construction workers and investing in apprenticeship programs. But he also warned that from the developer standpoint, the HHO was now “all stick and no carrot.”

Another supply side critic of the HHO was Louis Mirante, the former California Yimby staffer who’s now V.P. for Public Policy at the Bay Area Council, the lobby shop for the region’s biggest employers. The HHO’s provisions for workers are “really important for improving people’s lives,” Mirante told the Council, “but projects that are not feasible at the end of the day are not helping anyone but developers in the Central Valley, where people are going to be driving from their new homes….Almost every developer that I’ve talked to says that post-ordinance, they’re planning to not do business in Berkeley, where previously they had been.”

A letter that Mirante, writing in behalf of BAC, sent the Council on May 1 struck a tone at once more conciliatory and more threatening than the one taken by the Housing Action Coalition. “This,” Mirante stated, “is not a letter of opposition to the HARD HATs [sic]ordinance or its goals. But in a development environment of high and rising costs, any law that adds more costs, as this one will, should come with a commensurate reduction in costs elsewhere.”

He congratulated “the City of Berkeley and each of you in making truly remarkable progress on housing.” It was “impressive” that Berkeley was “one of the few cities in the Bay Area with an [HCD]-approved housing element.” The Council also deserved congratulations for having increased its approvals of housing projects from 342 in 2018 to nearly 1,000 in 2022.

Then came BAC’s objections.

“Requirements like the HARD HATs ordinance should offset their costs by reducing costs elsewhere either through an incentive-based structure or through reduced fees and exactions, through reduced affordable housing requirements, or through other measures.”

Contrary to the claim that Arreguín would make the next evening, Mirante wrote that the 50K threshold for covered projects, amounting to about 25-units, included “smaller missing middle projects….Berkeley would likely end the production of these projects altogether by adopting this ordinance.” He urged the Council to “consider a “higher threshold for these projects, or at the very least [to] study the impact of the ordinance” on their feasibility.

Strangely, for a letter that purportedly did not oppose the HHO, Mirante ended with a threat that invoked the RHNA goals and, implicitly, the prospect of HCD discipline:

“This ordinance could represent a major challenge to the success of the [city’s] housing element and to the City’s in compliance with housing element law because it makes changes with major consequences to the housing element outside that process and without reducing costs. For that reason, this ordinance may not be lawful because it presents such potentially high new costs for a large portion of the projects that the City will need to meet its Regional Housing Needs Allocation goals. If the City’s policies fail to create an environment that encourages housing, it may lose access to the ability to deny certain project under its zoning code and several sources of infrastructure funding, and it could be subject to monthly financial penalties, all consequences for [sic] violating housing element law.”

Also speaking at public comment was Amir Massih, the developer who heads 4Terra and is, he said, a 25-year Berkeley resident. “We’re getting other people’s money to build these projects,” Massih told the Council, “and if people are going to take their money and put it into something that’s going to give them a higher return, there won’t be any of these projects built to create the jobs you wanted created.”

Massih was among eleven self-described “developers and property owners in the Bay Area” who sent the Council a letter dated May 1 that expressed “urgent concerns” about the HHO. The other signers included Berkeleyans Denise Pinkston (TMG Partners) and Mark Rhoades (Rhoades Development Group).

Their criticism of the HHO diverged in a notable way from the objections raised by their fellow supply siders: they argued that upzoning would not pay for the added costs that the HHO would impose on their contractors. “Adding density itself drives up construction costs as buildings become more complex and code requirements more rigorous.”

“If Berkeley is willing to eliminate its inclusionary and impact fee requirements to equal the added cost of the Hard Hats ordinance, housing production in Berkeley could continue. If not, the result will be evident and swift as deals in the pipeline go on hold, and new housing production moves out of Berkeley….We urge you to hold any ordinance adoption until you have adopted the cost offset regime to prevent deals in the pipeline being cancelled by funders, and to keep Berkeley as a place where new housing development remain viable.”

The only Councilmember who heeded this advice was Kesarawni. Declaring that

“I always have to have the data before I can say, I respectfully abstain….I need the feasibility study first.”

I attribute her colleagues’ disregard of the Yimby warnings to collective smugness. The City is in the midst of a residential building boom. “We are very fortunate in Berkeley right now that we have so many construction cranes in the sky,” said Kesarwani. “We don’t see those cranes right now in San Francisco and Oakland, because of various reasons.” Neither she nor anyone else specified those reasons.

Let me suggest the biggest reason. Unlike San Francisco, Oakland, and indeed most places, Berkeley has a built-in, ever-expanding source of demand for housing: the local University of California campus. That demand has been encouraged and legally expedited by the Berkeley Council for two decades—first by the Bates Council’s 2005 “secret sellout” of the public over UC’s Long Range Development Plan, then by the Arreguín Council’s 2021 repeat of that betrayal—despite the school’s uncompensated toll on Berkeley’s services, infrastructure, and finances. In February 2022, the Council submitted an amicus brief in opposition to capping the campus’s enrollment.

In March and again in September of this year, the Council submitted an amicus brief in support of UC in its fight against the CEQA lawsuit filed by Make UC a Good Neighbor over the population growth envisioned by the latest LRDP and in particular the construction of student housing in People’s Park. The Council majority appears to be believe that developers will not pull out in the face of the university-generated, council-enabled demand for housing.

Why should Berkeley taxpayers underwrite private developers’ profits?

Arreguín and his colleagues were even more condescending to the Berkeley public. The developers got the promise of de-risking “offsets”; the public got the prospect of greater impacts from citywide densification and of mitigating those impacts with higher taxes.

Unlike in San Francisco, in Berkeley the shift of risk to the public did not spark a massive protest. If the Council had specified the forthcoming densification and lowered impact fees, perhaps the neighborhood associations would have turned out in force.

In the event, of the thirty-five people who spoke at public comment on May 2, only three—Berkeley Daily Planet editor Becky O’Malley; Kelly Hammargren, whose indispensable Berkeley Activist’s Diary, posted on the Planet, follows the weekly antics in City Hall; and myself—objected to the burdens that the de-risking recommendations would place on the local citizenry, and each spoke as an individual.

Hammargren offered the most substantial testimony. “I agree that the costs of construction shouldn’t be on the backs of the workers,” she said.

“But you’re talking about reducing the fees for national and international investors. You said just last Thursday at the Budget Committee these new, taller buildings come with an increased cost for services, especially firefighters. So what about the increased cost to the taxpayers? Are we going to be bearing the brunt of the increased services? I believe this should be passed for the workers, but I’m very concerned about the discount for the developers.”

The Council ignored her questions.

10/23: HCD brings the de-risking hammer down on San Francisco

It was shrewd of Arreguín to delay the release and approval of the Hard Hats Ordinance until after HCD had certified Berkeley’s housing element. Decertification can result in the loss of a city’s land use authority, triggering the draconian Builder’s Remedy.

Given that the ordinance had been in the works for years—on May 2, Arreguín mentioned two years of “extensive dialogue with our labor partners and also with developers”; the September 20, 2022 referral said work had begun in May 2019 and then been stalled by Covid—it’s hard to view the timing as coincidental. What remains to be seen is if HCD will crack down on Berkeley after the HHO takes effect on January 31 without the de-risking provisions demanded by the Yimby militants.

In a sign that HCD has zero tolerance for what it regards as local insubordination on the de-risking front, on October 25 the agency released a hard-line review of San Francisco’s “Housing Policy and Practice,” the agency’s first such assessment of any city’s laws. HCD’s June 16 letter had been a warning; the review delivered an ultimatum: Comply with our demands or invite our decertification of your housing element.

To support the review, HCD had commissioned a study from UC Berkeley researchers that asked:

Led by Moira O’Neill, the research team examined San Francisco’s entitlement data for 284 projects that had resulted in five or more housing units from 2014 to 2021. They cross-referenced written law, recordings from hearings, approval documents, and analyses from their entitlement data. They also drew on confidential interviews with dozens of participants representing affordable and market-rate developers, former and current city personnel and staff that work on housing development; land use attorneys; and housing advocates.

The UCB researchers’ conclusion: the data shows that San Francisco has not fully implemented state housing law intended to promote housing production and affordability. The summary of their findings, with its denunciation of subjectivity and uncertainty and of local discretion, public hearings and “neighborhood-level politics, encapsulates the de-risking agenda:

“San Francisco’s local rules embed subjectivity and uncertainty into review processes that state law says should be objective, time constrained, and, in some cases, certain. The city’s authority to apply discretionary review to any permit, and the ease with which project opponents can appeal planning approvals and permits (including post-entitlement permits) to the Board of Supervisors or Board of Appeals fosters planning practices that limit full implementation of the Permit Streamlining Act, Housing Accountability Act, Housing Crisis Act, and in some instances, SB 35 and State Density Bonus Law.” (p. 9, Emphasis added)

Is there a double standard at work here? The UCB researchers are fine with subjectivity and uncertainty insofar as those qualities operate to suppress democratic planning, i.e. “scrutiny from local political bodies” and “what neighborhood-level politics demand,” and to advantage private real estate investment:

“Planning staff are concerned about whether planning review will survive scrutiny from local political bodies, not the courts. Planning staff anticipate local political bodies will ignore planning recommendations and extend review processes if that is what neighborhood-level politics demand. Planning practices reflect this assumption, and local policy reinforces it. Developers interpret this planning practice as requiring more than what the law “on paper” demands through negotiation outside of public hearings to satisfy neighborhood interests. Developers perceive all planning approvals as uncertain and risky, even if the proposed development conforms to all zoning and planning standards. Eight years of approvals data confirms these perceptions.” (p. 9, Emphasis added)

Presumably HCD and the UCB researchers would argue that the last line in the above paragraph refutes the charge of a double standard. The data show that it takes housing projects take longer to go from project application to construction in San Francisco than in any other city in the state.

But that metric constitutes what HCD Director Gustavo Velasquez calls an “egregious” barrier to housing production only if you assume that protecting private housing developers’ finances is more important than safeguarding democratic land use governance and environmental protection (HCD also fingers CEQA action as a major source of delay). So much for objectivity.

The same double standard informs the HCD review. There we read that

“[p]lanners believe that project opponents abuse CEQA administrative appeals to block or delay other key project approvals” (p. 12), and that

“[p]lanners report feeling fearful and overwhelmed while processing applications for housing developments, due to both the complexities of San Francisco’s local Planning Code and the threat of public scrutiny, which is amplified during public hearings.” (p. 13)

HCD gives credence to anonymous planners’ beliefs and feelings. By contrast, it decries the “unpredictability and uncertainty” entailed by the city’s housing approval processes,” which it terms “notoriously complex and cumbersome.”

The HCD review lists eighteen “Required Actions” that, it says, would make San Francisco’s housing approval process predictable and certain, and designates a timeline for the city to accomplish each of the Actions. The Required Actions include approving within 30 days the “reforms” in Breed’s Constraints Reduction Ordinance and Housing for all Executive Directive “that will implement the various housing element programs identified in HCD’s June 16, 2023, Letter of Support and Technical Assistance.” (p. 19).

Then the hammer: “[F]ailure to implement the Required Actions will initiate HCD’s process to revoke housing element compliance and may result in additional enforcement action.” (p. 15) Such revocation could mean that the city would lose its local land use authority.

And, HCD, intimated, other cities should learn from San Francisco’s mistakes, or risk the same consequences:

“While some of the barriers imposed on housing developments in San Francisco are unique, many of the findings and Required Actions in this Review can serve as lessons learned and best practices for other jurisdictions.” (p. 26)

Behind the de-risking campaign: the devaluation of publicly funded housing

The assault on local discretion rests on another rarely voiced Yimby assumption: only the private real estate industry can supply the housing that California needs.

That assumption, or something very like it, peeped out in HCD’s June 16 letter to the San Francisco Planning Commission. “State Housing Element Law,” wrote the agency, “acknowledges that, in order for the private market to adequately address the housing needs and demand of Californians, local governments must adopt plans and regulatory systems that provide opportunities for, and do not unduly constrain, housing development.” In support of this claim, HCD footnoted a reference to California Government Code, § 65580.

Here’s the relevant passage in that section:

“65580. The Legislature finds and declares as follows:

“(b) The early attainment of this goal requires the cooperative participation of government and the private sector in an effort to expand housing opportunities and accommodate the housing needs of Californians of all economic levels.”

The section references the 2017 bill AB 1397, authored by Yimby fave Evan Low. The main thrust of AB 1397 was to introduce the notorious (if I may) “realistic capacity for development” criterion into Housing Element law.

Citing the above passage, in September I sent HCD the following query:

“Does HCD think California law stipulates that the private market can adequately address the housing needs and demand of Californians?”

A few weeks later “HCD Media” sent this reply:

“HCD’s letter was not intended to imply that the private market alone can adequately address the housing needs and demand of Californians. Rather, HCD’s Statewide Housing Plan provides an in-depth analysis about why there isn’t enough housing affordable to Californians, what the state has done, and the multi-pronged set of strategies and objectives that are needed going forward. These include a variety of strategies that 1) protect vulnerable populations and promote more inclusive communities through tenant protections, affordable housing preservation, thoughtful coordination, housing program design, and evaluation; strengthen land use policies to advance affordability, sustainability and equity; and administer public funds in affordable home development and rehabilitation, rental and home ownership assistance, and community development.”

I looked at the latest (2022) Statewide Housing Plan. It does mention public funding, as indicated above. We also hear about HCD’s support for more money under the Low Income Housing Tax Credit Program (LIHTC), which is a tax giveaway to private developers administered by the IRS.

What we don’t hear is a full-throated call for social housing—the current phrase for publicly funded housing—and for the Federal government to make such housing financially feasible, as only the Federal government can.

That silence belies Yimbyism’s primary allegiance to the private development industry. As shown by the scandal of 47,000 permitted but unbuilt homes in San Francisco, that industry’s requirement for profitability means that it cannot adequately address the housing needs of Californians.

I wonder what it will take for the Yimby crusaders to acknowledge this reality.