Will subsidies for developers trickle down to provide more affordable housing for high-income people? Monday@City Council | A Pragmatist's Take | Douglas Moran | Palo Alto Online |

Local Blogs

A Pragmatist's Take

By Douglas Moran

E-mail Douglas Moran

About this blog: Real power doesn't reside with those who make the final decision, but with those who decide what qualifies as the viable choices. I stumbled across this insight as a teenager (in the 1960s). As a grad student, I belonged to an org...  (More)

View all posts from Douglas Moran

Will subsidies for developers trickle down to provide more affordable housing for high-income people? Monday@City Council

Uploaded: Dec 2, 2018
At this Monday's City Council meeting, the current pro-developer majority is expected to give a big early-Christmas gift to developers and large property owners. This is being promoted under the guise of encouraging "affordable housing", but when you look at the details, it is anything but. I recommend that you read the critique "^Trickle-Down Housing Proposal May Make Parking Far Worse^" by Jeff Levinsky, Co-Chair Palo Alto Neighborhoods (PAN) Zoning Committee, 2018-11-19.

The ^76-page Staff Report^ is available online.
You can email your comments to City Council at City.Council@CityofPaloAlto.org and have as your subject line "Dec 3 Meeting: #12: Amending Title 18, Housing Ordinance" to help be seen in time.
At the meeting itself, there will be no opportunity for public comments -- that was done last week and closed. However, showing up in person to listen to Council considerations can have an influence. It is estimated to start at 6:15 PM and allotted 3.75 hours (^Agenda^).

Whenever you hear the term "Affordable Housing", ask "Affordable for whom?" Surprisingly often, it means young professionals, such as engineers at high-paying companies (Google, Facebook ...), lawyers ... What most people think of as Affordable Housing is technically Below Market Rate (BMR) Housing.

Although the proposed ordinance has some mentions of facilitating BMR housing, it expect that the rest of the ordinance will make it harder to build BMR housing. It will further drive up the cost of properties, making it even more difficult to get enough funding for BMR projects. In discussions of the housing crisis, one economic fact that is religiously ignored is that when you allow more to be built on a property, you are enabling higher revenues. The property owners will raise the price of their properties to capture most of its increased value, leaving whomever is redeveloping it to get roughly the same Return on Investment (ROI). However, to maintain the same ROI -- a percentage -- on the higher investment, the new owner needs to get more in rents. Increasing the supply of housing can increase its price because the crucial supply-demand interaction is not the number of housing units but rather the land for building.(foot#1)

So how did this inconvenient truth fail to be part of the Staff Report? The Staff held one perfunctory meeting with the general public, allowing that box to be checked off. And they held a multitude of meeting with the large property owners and developers where they told Staff that they needed a wide range of concessions if they were to build more housing. Note: "concession" is a minor euphemism for transferring costs from the developers to the general public. I see no evidence that Staff did anything except credulously accepting these self-interested claims.

The proffered justification for developers needing these public subsidies, aka corporate welfare? The cost of building is so high. And why is that? Because of the local and regional policies that developers and the government bureaucrats have pushed for over 3 decades despite warnings are readily visible evidence that those policies were making the situation worse (and making many developers rich). As I see it, the proposed ordinance would have residents indirectly pay to make the Housing Crisis worse.

----False accusations that Palo Alto isn't building housing----

Development typically occurs in spurts. In the 1990s and early 2000s a lot of housing was built in Palo Alto, far above the targets assigned by regional authorities (ABAG and MTC). How was this acknowledged? First, by raising the targets for the next round, while cities that hadn't met their targets had them lowered. Second, because most of the new housing units were Market-Rate or in the top tier of BMR, we were attacked for the shortage in the lower tiers. Did the regional authorities care about why developers were doing this? No. The regional bureaucracies are prime examples of what happens when granted power without responsibility (or accountability).

When Palo Alto focuses on catching up in the lower tiers of BMRs, the attacks switch to not providing enough housing for young professionals. Whichever way we turn, the pro-developer forces will insatiably demand more and more.

So how do such false claims come about? Cherry-picking. There has been little housing completed in the last few years.
To see for yourself: A compilation of housing starts since 1997 -- ^Intro^ and ^spreadsheet^ -- has been created and maintained by Elaine Meyer, a leader of the University South neighborhood.

----Data? We ain't got no data. We don't need no data. I don't have to show you any stinkin' data!----

The housing development on the former VTA parking lot at the corner of El Camino and Page Mill was approved as "car-lite", that is, reduced parking on the assumption that many of the residents wouldn't have cars. This was pitched as a test or experiment of how this concept might play out in Palo Alto. But it is too early to see results.

On the other hand, TMA (Traffic Management Associations), TDM (Traffic Demand Management) and a bushel of other acronyms cited as ways that traffic and parking can be reduced. These have been going on long enough that we should have data. But we don't. Or at least it isn't a factor in the Staff Report and recommendation.

----Example absurdities----

1. The proposed ordinance would grant parking exemption to 1500 sqft of ground floor retail in buildings on University Avenue and California Avenue. While some retail might have very low number of customers + employees present, for any one restaurant, the shortfall of parking would likely be significant and the cumulative effect substantial. Recognize that University Avenue has restaurants that are regional destinations. I didn't find any explanation in the Staff Report why this was warranted and why it wouldn't cause problems.

2. The proposed ordinance would allow developers to count rooftop decks against the requirements that they provide open space commensurate with the tenants (^page 22 of Updated Staff Report^). Palo Alto is already below the standards for park space per resident, and this provides the developer with a cheap way out of an increasingly expensive burden on the rest of the community. Oh, we should expect such a deck to be available for very long, given City Hall's long history of refusing to enforce such provisions (see the PA Weekly's "^Editorial: A broken code enforcement system^").

----To implement the Comprehensive Plan, we had to violate the Comprehensive Plan----

The proposed ordinance would weaken Ground-floor Retail protection in primary business districts. There is a slogan "Retail loves retail" that is a reminder that retail success is crucial dependent on its concentration. I was surprise to learn that the presence of just one or two empty store fronts -- or of businesses other than retail and services -- could significantly reduce the sales in the nearby stores. The Comprehensive Plan stress the importance of protecting retail as part of having walkable communities. The ordinance says "Forget all this" in order to facilitate BMR ("affordable") housing in those business districts. Why couldn't such a project have ground-floor retail? Because BMR projects are dependent on grants from the County, the State and the US government, and mixed-use buildings don't qualify for those grants. However, this is likely irrelevant: Palo Alto has had great difficult winning such grants, and the price of properties in the business districts could be effectively disqualifying.

----^Trickle-down economics^----

This term was created by the comedian Will Rodgers in 1932 (during the Great Depression): "The money was all appropriated for the top in the hopes that it would trickle down to the needy.Mr. Hoover was an engineer. He knew that water trickled down.Put it uphill and let it go and it will reach the dryest little spot. But he didn't know that money trickled up. Give it to the people at the bottom and the people at the top will have it before night anyhow.But it will at least have passed through the poor fellow’s hands.They saved the big banks but the little ones went up the flue." It is best known as the tax policy of Reagan administration (1980-1988) and commonly referred to as "Voodoo Economics". It also describes part of Trump's "Tax Cuts and Jobs Act" (although some companies did pass money through to their employees). The basic analogy is that if you throw a big banquet for the very rich, they, in their drunken gluttony, will cause enough food to wind up on the floor to benefit everyone else. Another common analogy is "A rising tide lifts all boat." Let's do a quick calculation: In a harbor of a quarter square mile (half mile square), it takes over 52 million gallons to raise the boats one foot.

Despite Tickle-down being a long discredited approach, it appears to be the basis of the proposed ordinance. Give the big property owners and developers enough "concessions" to juice up their profits and they might, just might, not have rents as high.

But that seems to be the reasoning that appeals to the current Council majority: Liz Kniss, Adrian Fine, Greg Tanaka, Greg Scharff and Cory Wolbach (the last two won't return to Council next year).

----Footnotes----
1. Increasing supply can increase prices:
Note: I have cited these essays in earlier blogs on Housing.
"^Housing Costs and Density^" by Michael Goldman, blog of 2017-01-03.Goldman is a member of the Sunnyvale City Council.
"^Is There a Housing Crisis?^" by Michael Goldman, blog of 2017-02-12.
Introduction: "In previous posts we looked at the Supply side of Housing's Demand-Supply equation and found increased supply would not lower costs, or even keep costs from rising. //Now we will look at the Demand side of the equation.We will find that the current high demand that is driving up prices is only temporary and will subside (in fact, is subsiding now) in the SF Bay Area.Job retraining, additional local public/private transit,and tax incentives for corporations to expand where skilled people and affordable housing already exist (i.e., not the SF Bay Area)are progressive policies that will alleviate the 'housing shortage' ."


----
An ^abbreviated index by topic and chronologically^ is available.


----Boilerplate on Commenting----
The ^Guidelines^ for comments on this blog are different from those on Town Square Forums. I am attempting to foster more civility and substantive comments by deleting violations of the guidelines.

I am particularly strict about misrepresenting what others have said (me or other commenters). If I judge your comment as likely to provoke a response of "That is not what was said", do not be surprised to have it deleted. My primary goal is to avoid unnecessary and undesirable back-and-forth, but such misrepresentations also indicate that the author is unwilling/unable to participate in a meaningful, respectful conversation on the topic.
A slur is not an argument. Neither are other forms of vilification of other participants.

If you behave like a ^Troll^, do not waste your time protesting when you get treated like one.

Comments

 +   5 people like this
Posted by Every Human Needs Housing, a resident of University South,
on Dec 2, 2018 at 12:03 pm

Every Human Needs Housing is a registered user.

Housing for whom? Everyone! Housing is a basic human need for people of all incomes. Increasing production of market-rate housing with inclusionary zoning requirements will increase the overall supply of housing units, including those for lower incomes. We also need to allow more 100% affordable units and exempting retail enables this, as non-profit housing developers cannot get financing for retail. The narrative presented here is unfortunate, as market-rate rental units do not enrich the wealthiest residents (who can afford to purchase expensive single family homes). By invoking "trickle down economics," Jeff Levinsky unfairly pits renters of differing income levels against one another, demonizing much needed rental housing supply as inequitable. In reality, maintaining our status quo means that the rich landowners get richer, without making any investments to actually improve the lives of renters.


 +   20 people like this
Posted by mauricio, a resident of Embarcadero Oaks/Leland,
on Dec 2, 2018 at 1:07 pm

mauricio is a registered user.

The poster above is wrong. It's been proven beyond any shadow of doubt that increasing density in desirable areas actually create more demand for housing and puts great upward pressure on home prices and rents. It's impossible to build into affordability. In desirable towns like Palo Alto, the ore housing you build, the more expensive they become. Some relief can come only from companies relocating elsewhere and from freezing commercial development.

The notion that high salaried tech workers need the public to subsidize housing for them and give up their quality of life is also highly skewed.


 +   20 people like this
Posted by Douglas Moran, a Palo Alto Online blogger,
on Dec 2, 2018 at 3:28 pm

Douglas Moran is a registered user.

The first comment is an example of what is too common in today's politics: A simplistic, and irrelevant, slogan is used to avoid addressing a very complex problem. By making it a moral issue, the commenter rejects considerations of the rights of others, costs, tradeoffs, ... When phrased as a moral right, the advocate is freed to demand unlimited sacrifices from others.

The issue here is not a right to housing. The commenter is advocating a right of people to live wherever they want and have others -- the public -- subsidize their choice. If the commenter was willing to go beyond the simplistic slogan, s/he would see that they are implicitly advocating that employers have a right to expand in an area with housing shortages and have the public pay large subsidies for the consequent movement of more people to that area.

Lower income people are among those paying the larger "tax" to support these subsidies: Increasing housing costs force them to move further and further from their jobs and that increased commute can be a substantial tax on them ("time is money").


 +   15 people like this
Posted by mauricio, a resident of Embarcadero Oaks/Leland,
on Dec 2, 2018 at 3:57 pm

mauricio is a registered user.

I actually agree that the right to housing(and healthcare) is a basic human right, but that does not mean that people have a right to live anywhere they choose. I could have used that meme, when I was much younger and had little money to demand subsidized housing that would fit my income to live in:Malibu, Bel Air, Woodside, the Upper East Side, etc. You get my drift. There are many areas in our country with low density, inexpensive, relatively available housing and desperately in need of economic development which the relocation of SC tech companies could provide. The fact that zero pressure is applied on local companies to relocate and expand there is truly scandalous.


 +   4 people like this
Posted by Every Human Needs Housing, a resident of University South,
on Dec 2, 2018 at 4:19 pm

Every Human Needs Housing is a registered user.

Mauricio, you demonstrate a poor understanding of what the evidence shows. Housing does not exhibit induced demand. More housing works to get more people housed. Palo Alto has the worst jobs/housing imbalance and has a duty to house the citizens who serve this community. There is considerable evidence that decades of limiting housing have resulted in growing homelessness and poverty. Much focus has been paid to limiting office, but not building offices doesn't house human beings.


Doug, you mischaracterize my argument. I don't want/shouldn't need to live in subsidized housing. Additionally, I will also note that homeowners enjoy massive government subsidies via prop 13. I, a market-rate renter, enjoy no government subsidies and am subject to rent increase or eviction that may force me back onto a market with very limited housing choices.


 +   13 people like this
Posted by Douglas Moran, a Palo Alto Online blogger,
on Dec 2, 2018 at 5:52 pm

Douglas Moran is a registered user.

RE: Every Human Needs Housing:

> "Housing does not exhibit induced demand."

Actually, it does. There are a multitude of examples from cities in the US and around the world. One component of this is that when high-tech or similar job is added to the area, it creates a cascading need for many other services: public safety, public works, medical, retail, ... And each of these increases its own need for supporting jobs. While each of these increases is small to minuscule, the cumulative total is about 4 additional housing units (many economic studies).

Even if the housing unit is to get a homeless person off the street or out of their car, there are these cascading effects, although of a potentially different magnitude.

> "you mischaracterize my argument. I don't want/shouldn't need to live in subsidized housing."

I didn't say that you wanted to live in subsidized housing, but rather that the policies you seem to be advocating would involve substantial subsidies (to developers) to create that housing.

> "Additionally, I will also note that homeowners enjoy massive government subsidies via prop 13."

Under Prop 13, the property tax burden has shifted from businesses to homeowners. It used to be about 2/3's coming from business and is now only about 1/3. The reason is that private homes turn over much more frequently and thus get adjusted up to the market rate. Rental housing is among the business that tends to turn over slowly, if at all since Prop 13. Aside: The sponsors of Prop 13 were apartment owners.

Consequently, many renters do live in housing subsidized by Prop 13 but that subsidy goes to the owner of the rental property who decides how much of that will "trickle down" to the renters.


 +   1 person likes this
Posted by Every Human Needs Housing, a resident of University South,
on Dec 2, 2018 at 8:42 pm

Every Human Needs Housing is a registered user.

While you there has been documented induced demand when development transforms low-income neighborhoods into desirable places to live (e.g., Mission District in San Francisco), the literature doesn't support the idea that building housing causes housing prices to go up on a macro level and certainly not within very high cost places with lots of housing regulations like Palo Alto.

Yes, new housing does certainly induce demand for services. The community should be working together to create solutions for either reducing demand for services (parking/driving) or by increasing available services (new parks, schools). Retail is struggling to survive already. I think retailers would benefit from an increased customer base.

I don't consider it a "subsidy" to a developer to allow them to build units that are naturally less expensive. The developer doesn't eat the cost for the parking spots/larger units, the future tenants pay for those things. I don't think developers are the good guys but treating them like them like the enemy isn't helpful either because ultimately, we need them to build homes for people so people have places to live. I'm guessing you probably live in a house that was built by a developer at some point. Housing is a community benefit.

I agree that prop 13 disproportionately advantages businesses (and I'm guessing we can agree on a split roll repeal). Also agree that landlords get their costs controlled by the government in the form of a property tax break but benefit from the revenue of of the market rate, paid by renters who receive no such relief (I certainly have yet to receive any generosity).

I probably won't reply again to this chat, but thank you for trying to foster civil dialogue and attempting to understand my perspective in good faith.


 +   6 people like this
Posted by CommercialProperty tax loopholes, a resident of College Terrace,
on Dec 3, 2018 at 2:57 pm

When commercial property changes hands there are legal ways this transactions can structured so that the original property tax is carried forward without a new property tax assessment. Loopholes in Prop 13 written for commercial property owners. That's what real estate lawyers who specialize in commercial real estate transactions,such as council member Greg Scharf, are expert at. I understand one of the ways is to have commercial property owned by an LLC, so that when the principals of the LLC change property held within the LLC is not considered a sale. Also, also I understand that as long as no one person owns more than 49.5% of the company this also does not trigger a property tax assessment.

Which is why residents pay approximately 75% of the property taxes.

And thank you Doug for once again presenting us with such excellent information.


 +  Like this comment
Posted by Loopholes above, a resident of College Terrace,
on Dec 3, 2018 at 2:59 pm

Apologies to Doug and readers for not rereading and editing my email before sending.


 +   2 people like this
Posted by Housing Advocate, a resident of Palo Alto High School,
on Dec 6, 2018 at 4:25 pm

Doug, I flagged your 3:28 pm post because it appears to violate the rules of your blog, to wit: "I am particularly strict about misrepresenting what others have said (me or other commenters). If I judge your comment as likely to provoke a response of "That is not what was said", do not be surprised to have it deleted."

I agree with Mauricio that you mischaracterized what he said. He did not say, as you wrote, that "The commenter is advocating a right of people to live wherever they want and have others -- the public -- subsidize their choice."

Please delete your 3:28 pm post.

Thanks.


 +  Like this comment
Posted by Douglas Moran, a Palo Alto Online blogger,
on Dec 6, 2018 at 4:52 pm

Douglas Moran is a registered user.

RE: Housing Advocate

My post that you cite was not responding to the post by Mauricio but to "The first comment...", which was written by "Every Human Needs Housing".
The comment of mine that you cited was roughly aligned with the points made by Mauricio, although I didn't cite him.


 +   2 people like this
Posted by Housing Advocate, a resident of Palo Alto High School,
on Dec 6, 2018 at 6:23 pm

Doug, thanks for the correction. I agree, I intended to refer to the post by Every Human Needs Housing, not the one by Mauricio. Regardless, you mischaracterized what the poster said. Please delete your 3:28 pm post.

Thanks.


 +   2 people like this
Posted by Douglas Moran, a Palo Alto Online blogger,
on Dec 6, 2018 at 9:56 pm

Douglas Moran is a registered user.

RE: Housing Advocate

I don't see how my post mischaracterized that of "Every Human Needs Housing". That post started with "Housing for whom? Everyone! Housing is a basic human need for people of all incomes." The consequences of this position has been widely discussed, including in the blog post, and unless s/he argued against that background knowledge and context, s/he was accepting it and thus it was legitimate to criticize it. Analogy: If one smashes a fragile object, it is not a mischaracterization to say that they broke it.

Aside: "EHNH" seriously mischaracterized Jeff Levinsky's position, both in the article linked to and what I know of him from elsewhere.


 +   3 people like this
Posted by Housing Advocate, a resident of Palo Alto High School,
on Dec 7, 2018 at 2:09 pm

Doug, I'm disappointed by your hypocrisy. The rules of your blog state: "I am particularly strict about misrepresenting what others have said (me or other commenters). If I judge your comment as likely to provoke a response of "That is not what was said", do not be surprised to have it deleted."

Your 3:28 PM post states, "The commenter is advocating a right of people to live wherever they want and have others -- the public -- subsidize their choice."

At no point in his/her post, however, did Every Human Needs Housing assert that people have the right to live "wherever they want," nor did he/she assert that people have a right to have "the public" subsidize where they choose to live. And I think it's noteworthy that Every Human Needs Housing disputed your characterization of his post, which indicates to me that your post was "likely to provoke a response of 'That is not what was said.'"

In addition to misrepresenting Every Human Needs Housing's post, I think your response to Every Human Needs Housing was hyperbolic and inflammatory and unfortunately set the type of tone that I thought you were trying to avoid.

By the way, I can't help but notice your classic Whataboutism --- President Trump would be so proud of you! Whether Every Human Needs Housing mischaractized Jeff Levinsky's position is irrelevant to whether you mischaracterized Every Human Needs Housing's post.

I hope you will have the intellectual maturity and integrity to evaluate your own posts objectively in light of the rules you set for your blog.

Thanks.


 +   1 person likes this
Posted by Douglas Moran, a Palo Alto Online blogger,
on Dec 7, 2018 at 6:01 pm

Douglas Moran is a registered user.

RE: Housing Advocate

> At no point in his/her post, however, did Every Human Needs Housing assert that people have the right to live "wherever they want,"

If one speaks against having limits, one is advocating no limits. The claim of "no limits" has been common for years among housing advocates and elected officials. In a candidate forum in response to a question about State housing mandates (Q1), Assemby member Marc Berman stated that we needed to build enough housing for everyone who wants to live here (see my blog of 2016-05-13). Council member Adrian Fine has been almost as explicit, but waffles when pressed (example report in my blog Council Candidate Forums of 2016-10-18).

> nor did he/she assert that people have a right to have "the public" subsidize where they choose to live.=

The proposed ordinance and this blog -- starting with its title -- was about subsidies ("incentives" and "concessions" are euphemisms dating back at least to the 1970s). If EHNH choses to speak outside the clearly established context, EHNH had the obligation to explicitly state that.

> And I think it's noteworthy that Every Human Needs Housing disputed your characterization of his post,..."

And that comment was blatantly FALSE. I didn't claim that EHNH wanted subsidies for him/herself.

> "...Trump..."

Ad hominem attack. Well over the line into trolling.



Don't miss out on the discussion!
Sign up to be notified of new comments on this topic.

Email:

Follow this blogger (Receive an email when blogger makes a new post)

SUBMIT

Post a comment

Posting an item on Town Square is simple and requires no registration. Just complete this form and hit "submit" and your topic will appear online. Please be respectful and truthful in your postings so Town Square will continue to be a thoughtful gathering place for sharing community information and opinion. All postings are subject to our TERMS OF USE, and may be deleted if deemed inappropriate by our staff.

We prefer that you use your real name, but you may use any "member" name you wish.

Name: *

Select your neighborhood or school community: * Not sure?

Comment: *

Verification code: *
Enter the verification code exactly as shown, using capital and lowercase letters, in the multi-colored box.

*Required Fields

Camper opens for lunch in Menlo Park
By Elena Kadvany | 12 comments | 3,897 views

Local Flavor - Holiday Hotspots
By Laura Stec | 9 comments | 2,289 views

Gobbledygook goings on in Palo Alto
By Diana Diamond | 1 comment | 1,378 views

Couples: Child Loss, "No U-Turn at Mercy Street"
By Chandrama Anderson | 0 comments | 898 views