VOICES-Last week, SB 50, a controversial bill proposed by State Senator Scott Wiener, was stopped by the Senate Appropriations Committee.
The bill would allow residential projects up to a half mile away from a major transit stop to receive waivers from limits on density and height and would also allow them to be approved through a streamlined process, i.e., no environmental review and no public hearings. Since it was first introduced, SB 50 has been hotly debated. Its proponents insist that it's necessary to override local zoning so that developers can build badly needed housing. Its detractors claim that the bill is a giveaway to developers and an assault on communities.
The bill isn't dead, and will certainly come back next year, but its supporters argue that SB 50 would provide desperately needed housing reform and that the California legislature can't wait until next year to take action. The LA Times apparently agrees. After it was announced that the bill had been halted, the paper ran an editorial lamenting the delay (“California Puts Off Dealing with Its Housing Crisis for Another Year,” Times Editorial Board, May 17, 2019).
Housing costs are really high in California, as they are in major cities throughout the nation, and Wiener attributes this to lack of housing production. He claims that if we unleash the free market by removing controls on height and density, developers will solve our housing problem for us. He also argues that by incentivizing housing construction near transit, SB 50 will be good for the environment by encouraging transit ridership.
If you take these arguments at face value, they seem to make perfect sense. The problem is, when you start digging deeper, they fall apart pretty quickly. It’s not surprising that many people, on hearing Wiener’s promises regarding SB 50, are ready to jump on board immediately. What is surprising is that a lot of people who should know better are swallowing his claims hook, line, and sinker. The Times should know better. It's depressing that a major media outlet has chosen to ignore the flaws in Wiener's thinking and throw its support behind the bill without first carefully examining the facts.
First and foremost, the Times, like so many of SB 50's supporters, fails to mention a crucial fact: passage of the bill would immediately raise the value of all affected parcels. In urban areas, the value of land is determined by what you can build on it. By up-zoning thousands of parcels throughout the State, SB 50 would drive real estate costs even higher than they already are, which would inevitably be reflected in the cost of housing built on those parcels. This is a basic fact that's fundamental to understanding the bill.
If SB 50 were signed into law, it would immediately put billions of dollars into the pockets of real estate investors. And if it looks like the bill is heading for passage next year, you can bet that speculators will be rushing to snap up affected parcels before the legislature actually approves it. The profit potential is huge. The fact that the Times completely fails to mention this crucial point seems to indicate that their Editorial Board doesn't understand the bill at all. And there's another issue that needs to be addressed here. Apparently, the paper's owner, billionaire Patrick Soon-Shiong, (depicted above) has a good deal of money invested in real estate. It would be interesting to know if the passage of SB 50 would increase the value of his portfolio.
In accepting Wiener's simplistic supply/demand vision of the housing market, the Times Editorial Board shows that they're as out of touch as he is. Do we need to build housing? Yes, absolutely. But anybody who thinks California's high housing prices are just due to lack of supply is at least twenty years behind the times. They don't realize that the entrance of corporate players and a flood of global investment capital has changed the market radically, turning it into a complex speculative game.
You could use the supply/demand model to talk about housing back in the 20th century, when mom and pop landlords were hands-on owners who worked hard to offer decent apartments at competitive rents. But those days are gone. In the 21st century, investors see housing as nothing more than an asset that's manipulated to produce the greatest possible profit in the shortest period of time.
Let's look at a couple of examples. In 2016 the apartment building at 4330 City Terrace was purchased by an investor group using the name Manhattan Manor, LLC. They immediately raised rents by over 50%, which was way beyond what most of the occupants could afford. Tenant Carolina Rodriguez saw her rent go from $1,250 to $2,000. She could have left, but instead she took Manhattan Manor to court. Not only did the jury overturn the rent increase, but they came to the conclusion that she should only be charged $1,050 a month because the owners had failed to address basic habitability issues. This may sound like a victory, but it was short lived. Manhattan Manor fixed the most pressing problems and then jacked the rent up again. While court costs will cut into their profits, investor groups are usually prepared for some setbacks and can afford to keep pushing until they win.
Or there's the shocking story of the Westwood seniors who were served with eviction notices after their building changed hands. Vintage Westwood Horizons, home to over a hundred elderly tenants, was bought by Watermark Retirement Communities in partnership with investment firm Kayne Anderson. Watermark has made a bundle by purchasing senior housing, shutting the buildings down, and reopening them as luxury assisted-living facilities, which are hugely profitable. In this case the City of LA stepped in and halted the evictions, but again, it wasn't really a victory. By the time the City took action most of the tenants had already left. Investment pros like Watermark and Kayne Anderson have deep pockets and can ride out the rough spells. They got a lot of bad press over the evictions, but they don't care. The money they'll make on the deal will more than compensate for a few embarrassing media moments.
There are many more such stories. The point is that those who claim housing prices are high simply because we haven’t built enough new units are ignoring the rapid growth of predatory real estate investment. Of course, Scott Wiener will argue that if we ramp up construction and build a lot of new housing, prices will inevitably fall as supply increases. Again, the Senator’s thinking is stuck in the 20th century. Back in the post WWII era, yes, that’s the way things worked when land and labor were cheap and developers built housing for the entire income spectrum. But times have changed. In the 21stt century developers are only interested in getting the highest possible return in the shortest period of time. Aside from the relatively few units built by affordable housing developers, almost all new residential construction in California's urban areas is geared toward the high end of the market. Why should investors put their money into low-income or even middle-income housing when they can earn a lot more money by targeting renters who earn six figures?
The supply-siders insist that if we just keep building new units then supply will outstrip demand and rents will fall. Once again, that model belongs to the last century. In the modern real estate market, cutting rents is cutting your own throat. The value of the building is determined by the revenue that the units produce. That's why in Downtown LA you see lots of new buildings offering a month or two of free rent, complimentary parking, all sorts of other perks, but you don't see landlords making significant cuts to prices. A landlord who lowered prices by 10% to fill up their building would effectively be lowering the value of the building by 10%, and the investors who put their money into the project wouldn't like that.
So what about filtering, the process where the creation of new units results in lower rents for existing older units? Twentieth century research did find that filtering produced real benefits for low-income households, but some recent studies say the landscape has changed. A 2016 brief from the Institute of Governmental Studies at UC Berkeley states that in strong housing markets like California the rate of filtering is much slower than elsewhere and that it could take decades before low-income households see any relief. A 2006 paper by Andrejs Skaburskis of Queen's University, Ontario, found that the filtering process in Canada's cities had reversed direction beginning in the 1980s, and that rents for older units were rising faster than rents for newer units.
But Wiener also claims that SB 50 would have a positive impact on the environment by promoting transit-oriented development (TOD), and the Times apparently buys this argument completely. It is widely accepted among planners and policymakers these days that we need to focus new development in urban centers instead of building more suburbs, and there are good reasons to embrace that view. We should be building communities that are less car dependent so we can reduce carbon emissions. We should also avoid extending the reach of the suburbs in the Western U.S. because we simply don't have the water to support that kind of development. So, in general, the goal of building more compact communities makes sense. But any new initiatives we undertake to build more sustainable cities should be based on sound planning and real data. In making his case for SB 50, Wiener ignores both.
It’s widely assumed that simply building high-density housing near transit hubs will encourage people to let go of their cars, but the research on the subject is a mixed bag. While some studies have found a relationship between population density and higher transit ridership, others have not. In fact, a 2010 analysis of research on the subject by Reid Ewing and Robert Cervero questions the widely held assumption that population density is a primary determinant of vehicular travel. After surveying the literature in the field, Ewing and Cervero stated that this assumption does not appear to be supported by the data once other variables are taken into account. And in 2017 Mark Stevens published another analysis of research on this subject entitled, “Does Compact Development Make People Drive Less?” Stevens' answer to that question is, “Not much less[.]”
But let’s leave the academics behind and take a look at how things are actually playing out in California. For years the Los Angeles City Council and Department of City Planning have been pushing high-density residential near transit, arguing incessantly that they’re doing what’s necessary to get Angelenos out of their cars. How has this worked out?
It’s been a disaster. In spite of the City’s repeated claims that they’re promoting TOD, transit ridership is lower than it was 30 years ago and has fallen for the past five years straight. According to the LA Department of Building and Safety, the City has issued permits for 191,000 residential units since the beginning of this century, and many thousands of those new units have been built near major transit hubs. Large new apartment buildings have risen near Red/Purple Line stops in Downtown, Koreatown, Hollywood and North Hollywood, but instead of seeing an increase in boardings, we're seeing decline. Ridership on the Red/Purple Line is down from 47,434,969 in 2010 to 43,301,200 in 2018. In Central Hollywood over 2,000 new units have been constructed over the last decade, but ridership on bus lines that serve the area is in steep decline. Boardings on lines 2/302, 212, and 780 have all gone down by large margins over the same period. Line 217, which serves Hollywood Blvd. between Fairfax and Vine, went from 4,188,555 boardings in 2007 to 2,189,235 boardings in 2017, almost a 50% drop. At the same time, a report from UCLA's Institute of Transportation Studies shows that per capita car ownership has soared since the year 2000. This makes it pretty clear that LA City Planning's claim that they've been promoting transit ridership by up-zoning near transit hubs has no basis in reality.
The numbers for San Francisco aren't as bad as they are in LA, but they don't show any evidence that dense new housing near rail and bus lines has boosted transit ridership. According to U.S. Census data, the City of San Francisco has created over 30,000 new housing units since 2000. San Francisco is already a fairly compact urban area which is well served by bus and rail. So has transit ridership surged as thousands of new units were created? Not really. While there was some growth from 2012 through 2016, since then ridership has fallen. The 2018 report from the American Public Transportation Association showed ridership declines in almost every mode over the previous year. And if we compare current ridership stats to those of the early 90s, we see that per capita ridership is down over 10%.
This does not mean that we can't build transit-oriented communities. It means that so far, in spite of all the hype from politicians and planners, California's major cities have failed miserably in their efforts to do so. Building compact cities and encouraging transit ridership are both sound policy goals, but instead of doing real planning to produce real results, city officials in LA and San Francisco have bought into the misguided idea that simply up-zoning parcels to produce lots of high-priced housing will somehow do the trick. It's astonishing that anybody who seriously wants to see reductions in greenhouse gas emissions could believe that SB 50 will accomplish this goal. It should be clear from looking at the facts that just up-zoning near transit accomplishes nothing.
The Times is a major publication that has substantial influence in Southern California. Its staff includes a number of top-notch reporters who are dedicated to producing intelligent, thoughtful journalism based on actual facts. This is why, in spite of numerous setbacks over the past couple decades, the paper is still a respected news source that many Californians trust. But the Times Editorial Board betrays that trust when it accepts the promises of a politician at face value without questioning the premises his arguments are based on. They can do better than this.
(Casey Maddren is President of United Neighborhoods for Los Angeles (UN4LA [www.un4la.com]), a community group advocating for better planning, and a CityWatch contributor.) Prepped for CityWatch by Linda Abrams.