Capitol One

Michael Theriault headshot

In May, Governor Brown proposed to alter radically the process of approving construction of urban multifamily housing.

His proposal for “by-right” or “as-of-right” approvals would exempt such housing from almost all public review if it meets general plan and zoning requirements and includes a proportion of “affordable” housing – deed-restricted only to residents earning 80% or in some cases 50% or less of area median income – that will in San Francisco generally be lower than currently required and than both experience and formal studies have demonstrated possible.

The governor hopes this exemption increases housing production and thereby addresses the state’s housing crisis.

The California legislature must approve the proposal for it to take effect. Many community and environmental organizations and the California State Building and Construction Trades oppose the bill; our Council has assisted their opposition.

Community organizations note the exemption could facilitate demolition of existing affordable and rent-controlled housing in exchange only for relocation payments and eventual one-to-one unit replacement. This could gut communities.

For the Trades, not only does the governor propose no labor protections, he leaves unresolved our usual conundrum: We can rarely afford urban market-rate housing but earn too much to qualify for “affordable” housing.

His exemption’s real shortcoming, however, is that it will likely do harm without even achieving his aims.

It will not address the challenge of land costs, but may even increase them. Any for-profit housing developer will say land costs are a major component of its expenses. Any nonprofit affordable housing developer will confirm land costs are a major barrier to its work. San Francisco has seen that when zoning changes allow new development, current owners ask higher prices for their properties. The prospect of new development through the governor’s exemption will do the same.

For-profit developers will then need higher rents to make projects feasible. Nonprofit affordable housing developers will find obtaining sites even harder. Such current affordable housing efforts as San Francisco’s small sites acquisition program, in which the City buys existing rent-controlled housing to preserve its affordability, may be harmed if current owners see better prices to be had from developers intent on demolition.

Nor does the proposal address the need for a skilled construction workforce, but may even contribute to shortages. By including no requirements for wages and benefits that can sustain families and by shielding projects from public scrutiny, the exemption will convince many developers to use low-paying contractors. This tactic will work for some developers, even if for many it means projects more slowly and poorly built and more legal liability for construction defects. Just as now, the resulting failures, even those as severe as the 2015 Berkeley balcony collapse, will not dissuade developers from thinking that their non-union contractors’ somewhat lower prices are worth the risk.

Given lowered odds of successful bids, union contractors will less often seek multi-family residential work and so will offer fewer opportunities there for new workers. Non-union contractors, for their part, already bemoan difficulties in finding skilled workers; signs on many a non-union jobsite beg them to apply. Young workers will judge the low wages of construction not enough to support a family and not worth the toil and hazard; the best will seek other careers.

Wages will eventually have to rise even in the non-union sector to ensure a supply of workers, but in the meantime, in the midst of the crisis, precious years of opportunity to create a workforce that can answer it will have been lost. The governor needs instead a strategy that grows a skilled workforce, and in this union apprenticeships are essential. Then there is a simple corollary of the law of supply and demand: As demand at a certain price drops, the price follows, and at some point businesses deem the price as low as they will take and cut production. Even though City rents are high, as our recent work has introduced new supply they have begun to drop, while land and construction prices have not. Seeing this, many developers have indicated they may delay building.

Even if the governor’s proposal gives an initial kick to multi-family residential construction, then, it can produce only so much before construction slows or halts.

We can be disappointed that a governor who has long prided himself on innovative thinking has resorted now to a shallow neoliberalism, a simplistic free-market snake oil. The world does not lack for successful government housing policies he might adapt to California. He might consider postwar Germany, which balanced market and public solutions to replenish devastated housing, or even the Republic of [South] Korea, which more than two decades ago responded to a housing shortage because of a booming and modernizing economy with its own balance between market and public solutions. The German example, with its recognition of tenant and labor rights, might be especially pertinent.

Although these countries may have different financial, legal, and social traditions, California is now diverse enough not to be chained to an Anglo past, but can make its own traditions. A truly innovative governor would see this as the real path to a legacy and not accede to the weariest saws of free marketeer developers.

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