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Boulder, Brown, and Private Capital Weigh In We live in a housing paradox. We have near-consensus that we are in the midst of a paralyzing housing crisis. But we hold tenaciously to rules, processes, and “rights” that make every housing project an expensive, high-risk crap-shoot, limiting supply and increasing rents and house prices. Is this just an “I want my cake and to eat it too” moment? Or, is this one of those agonizingly complex problems for which we can’t yet muster the policy clarity and political will to hammer out a viable solution? This, of course, isn’t just a local problem. Recent articles about Housing in Boulder, Colorado, Governor Brown’s housing initiative, and risks of the next housing bubble are among the many describing our values conundrum. An article in last Monday’s New York Times uses Boulder, Colorado – the site of the Chamber 2013 Community Leadership Visit – as an example of a community constrained by anti-growth sentiment and bitterly-high housing costs. (Notably, their median housing prices is on average about 18% less than Santa Cruz’s.) A recent effort to increase hurdles to housing growth in Boulder in a local referendum was fought off by local governments, businesses, and residents. But in Boulder, like Santa Cruz, every housing development must battle through complex government rules, a phalanx of public hearings, waves of negative public media, and lawsuits. The Times article emphasizes the impact housing costs have on “equity” issues in the community, from the obvious burdens on working class families laboring under ever-escalating housing costs to deepening class disparities and racial segregation. While both Boulder’s and Santa Cruz’s electeds and a substantial majority of their electorates are mortified at being on the wrong side of such equity issues, their concerns have not been sufficient to supersede their desire to protect their own quality of life vision. Governor Brown’s Proposal. The state of California has labored to address the housing crisis with an array of studies, legislative proposals, and ballot initiatives. Governor Brown’s proposal, widely praised by both academics and housing advocates – was a relatively modest effort to limit the rights of the public to challenge zoning-compliant housing projects. While not a guaranty of the allocation of more land to housing or granting new permission to make housing denser, Brown’s notion would expedite projects and reduce risks for developers willing to build within already-adopted zoning rules. Carol Galante, a professor of affordable housing and urban policy at UC Berkeley, called Brown’s effort “forward-thinking” because it attempts to address bottlenecks in the development process. Unfortunately, the legislature has not thought so; the proposal has not yet seen the light of day in Sacramento. Legislature’s Efforts. Notwithstanding the obvious failure of existing legislative frameworks to build sufficient housing for any class of residents, especially including workforce housing, the Legislature has continued to advocate for an array of government subsidies and inclusionary housing requirements as mechanisms to increase low-income housing. Some recent initiatives include a real estate transaction fee to support affordable housing development (which was not adopted) or a public initiative to borrow $2 billion to fund housing for the homeless (which is expected to appear on the fall ballot.). The Chamber February 12 eNews described the California Legislatures own analysts office (LAO) report that argued for both a redirection of all public housing money to special needs groups (homeless, disabled, etc.) and just the sort of effort proposed by Governor Brown to accelerate the development of all housing. In fact, the LAO Report found many affordable housing requirements such as inclusionary housing requirements were actually counter-productive, reducing the supply and increasing the cost of housing at all levels. The legislature has repeatedly declined to ease provisions of the California Environmental Quality Act (CEQA) – especially those providing for the right to sue regarding technical noncompliance in preparation of environmental impact reports. They have instead followed the lead of key opponents to Governor Brown’s plan: environmental and labor interests who want to use local zoning restrictions to limit population and to increase labor’s leverage over construction projects. Next Housing Bubble? Business commentators have begun to warn of the risk of another housing bubble. While the banking industry seems to have moderated much of the risk-taking that led to the 2007-8 financial meltdown, articles from Fortune magazine to National Public Radio are talking about the risks of another housing bubble, this time driven by private capital investment guaranteed by the federal government. While we haven’t yet returned to the days of “negative” down payments or “liars loans,” residents’ needs to find housing are driving them to risky mortgages offered by largely-unregulated private capital funds with little margin – as little as 3.5% down. This is both a symptom of a nation-wide housing shortage, especially in attractive high-wage areas, and a risk that we might soon be “solving” our housing cost problem with another housing meltdown, mass foreclosures, and job losses. While so far there seems to be consensus that this would not by itself have the same economically catastrophic results of the Great Recession, it does encourage immediate action on housing fronts to improve affordability by increasing supply. But what action? And, implementing what values? Values Drive Housing Decisions. It is relatively easy to see the values conflicts on a local level. Residents are acutely aware of the cramdown effects of an increasing number of local residents occupying nearly the same number of housing units. Astoundingly, countywide population increased between 2010 and 2015 by roughly 12,000, approximately the population of the City of Capitola. To say the least, we have added many fewer than the 2010 average of 2.3 residents per housing unit that that increase in population would require. Transportation, recreation, public safety, and other public amenities have not kept pace. The impacts in most neighborhoods are readily visible from parking constraints to useable internet bandwidth. And, while homeowners can revel in the value of their property, few have the courage or the economic capacity to move-up to a next level of housing. And residents who leave are often replaced with residents who don’t share the needs and values of those who left. The conversion of small older homes to larger, more expensive ones or of larger older homes into apartments or the student rooming houses, or residences into vacation rentals or second homes cannot help but change the character of neighborhoods. Few residents think about the longer-term changes in the character of our economic community, but these implicit values choices impose significant impacts on the character of our communities. For instance few newly-arrived workers can afford either the price of a house or local rents. As is apparent from the local Google/Apple/Highway 17 bus phenomena, the out-commute of about 23% of our workforce reflects the much-higher wages in Silicon Valley and, presumably, a shortage of local, economically-sustainable jobs. Like Boulder, Santa Cruz suffers from wages that don’t match workers expected standard of living. Unlike Boulder, which has a net in-commute of workers to local jobs, Santa Cruz County must sustain and grow its local business base over the next decade. Failure to create tens of thousands of local tech and professional level jobs over the next generation will result in very significant changes in who lives here. Though more difficult to perceive because of the more gradual rate of change, how this evolution plays out – with more local jobs and locally employed workers for fewer – it will necessarily come with real values changes, whether they are intentional or accidental, planned or incidental. National and state housing policies also come with economic and social values consequences. The NY Times article about Boulder cites a 2015 academic article by Harvard economists describing the impacts of housing costs on “convergence” – a measure of the equity of opportunity. The economics concept of “convergence” is the notion that in an open economic system less affluent communities’ per capita incomes will naturally catch-up with that of more successful areas. This has proven to be the case whether the areas studied are countries, state, regions, or cities. And, in the U.S. this was so with remarkable consistency for more than a century. In significant part this effect has been demonstrated to be the result of lower-paid workers moving to more productive areas. The article describes how the cost of housing has changed this convergence effect over the past thirty years. By the middle of the last decade there was virtually no convergence at all. The authors found that this related directly to the unwillingness – or, perhaps, the inability – of lower-income workers to move because of the cost of living. The authors go further to find that land use regulation was the principal characteristic that separated these areas, one from the other. Their conclusion is that because only high-skill workers (and their employers) can afford to reside in highly regulated (and, therefore, low housing supply) areas, there has been a resulting “sorting” of the population by labor skills and, ultimately, by income level. Of course no city council much less the average resident is going to make a decision about whether to approve a new housing project based upon economic convergence. These are issues that must be resolved at a state and national level. But the failure of convergence and the negative economic implications of economic stagnation and loss of competitiveness is the sort of question that has very serious values consequences on a large scale. To the point, we cannot assume that “neighborhood issues” are the only forces that should be factored into the equation that determines housing questions such as how much, what kind, at what cost, and, especially, where. Nor should we assume that local decision makers should have exclusive control over what can prove to be a national economic impact. Of course, at a local level city councils and residents make decisions about the mundane forces that affect the everyday lives of ourselves and our children… traffic, parking, schools, employment, prosperity, the character of our community. Or do we? Having added approximately 12,000 people to the local population without a comparable increase in housing stock is hardly likely to improve local quality of life. Nor is failure to build housing that would be affordable for our children and grandchildren. We know from the experience of other communities that there are architectural, social, and employment solutions to many of the impacts we most fear. While there are some possible “nightmare scenarios”… especially a declining tax base and constraints on the vitality of local employers as a result of workforce costs and shortages… there are also real solutions available. Our first steps are already in place. We only need to demonstrate our willingness through adoption of needed capital improvement measures, the implementation of proposed housing and commercial development projects, and an aggressive effort to match future housing development to the economic and social environment in which we live to take advantage of our still-great opportunities.