Making San Diego affordable

I am going to share with you a presentation report that the Housing Commission commissioned last year. We are the entity in the city that takes the funds from the city through inclusionary funding, in lieu fees, community development grants. We funnel all the monies and then turn it out to the private sector to build affordable housing.

We also administer the Section 8 Voucher Program in the city. And the real estate division, which I oversee, we operate about 3,300 apartment units. And we have a clientele who earn approximately 80 percent of the area median income. So that's a family of four earning approximately $68,000 a year. So those are our clients. Of note, the voucher program that we administer has 15,000 families, who receive this voucher — very, very valuable and we get it from the federal government. And we have a wait list of 75,000. We're turning vouchers at about 20 a month. So this wait list is extensive if you do the math.

There is just not enough housing for the lower-income wager earners in San Diego. In Alan's (Gin) presentation, he mentioned that the median income in the United States was $56,000. And here in San Diego it's $73,500. And these families still are constrained with housing burden. The federal government says that families shouldn't really pay more than 30 percent of their income on rent. Yet, more than half of San Diegans do. So the big issues for us — supply. We have been asked by our board, why we are not building enough housing and why housing is so expensive to build? We are asking for upward of $300,000 a unit to build an apartment. That's the total development cost. Sometimes it goes into the 400s and 500s. That's unique because the gap that the developers who are building affordable housing need, between what a commercial bank will lend and what we supply, keeps going up and up. So our money doesn't go as far. And we're building fewer units. So our board said what can we do about this? Why is this the way it is? Because we always say affordable housing is tough to build. It's expensive. And they say why?

Well, there's so many reasons. As a matter of fact, we came up with over 60 of them. And when we looked at these reasons they weren't because developers of affordable housing pay more for sticks and bricks then developers of market rate housing. That's the same. The issues are the funding sources where developers get their money, have constraints. Tina (Bartel) mentioned that federal regulations dictate how you spend your money, same for us. Often times when a developer wants to build affordable housing, the rules for a funding stream, say well, we want it to be solar — it's got to be energy efficient. Or we want it to be close to an elementary school or a freeway on-ramp. Or we want it to look really good, this comes from the neighborhoods, the NIMBYs, the not in my backyard. We want it to be so beautiful that you can't tell. Well that's more architecture. Then there's the time constraint which why this takes so long, and that's process. So on this list of 60, we divided into who is responsible for changing it? And it turned out to be three categories: local government, state government and federal government. A brilliant economist not on this level but also fantastic, Lynn Reaser at the Fermanian Institute at Point Loma Nazarene University, attributed costs of housing to be about 40 percent related to governmental regulations.

So that's bureaucracy, that's time, time is money, so what can we do about it? So we worked with a framework from the McKinsey Institute, they issued a report, a study called Tackling the World's Affordable Housing Challenge. They said that housing impacts GDP, bottom line. We read through the report, loved the framework so much, that we said we want to take this and apply it to San Diego specifically on housing. Waht's important here is that even though the Housing Commission focuses on low-income housing, this isn't just about low-income housing. This is about housing affordability. It's housing for everybody. We then were honored by the McKinsey Global Institute, who came back to us and said we love what you did, now we want to do it in and apply it to California. So these three reports are available and definitely worth reading.

Our analysis showed that the GDP gap equates to approximately $2.4 billion. So this means that if a family is spending more money on rent or a mortgage, that's less money that goes into buying groceries or entertainment or anything. And that if that were created, if that were addressed, we would save $2 billion. We also then looked at what we can do here locally to change that. We came up with eight local action items. So of the 60, we narrowed it down to 11. The first eight were all within San Diego's purview to change. We worked very, very closely with the city, the Independent Budget Analyst's Office, the Development Services Division, the mayor's office. We said if these things were addressed, we could make some inroads into providing more housing.

So No. 1 was setting an annual housing production goal. That sounds easy to do. But it's very, very difficult for the politicians to say I'm going to do this because a lot of times it's outside of their control. Incentivizing more 80/20 developments. That means 80 percent market, 20 percent affordable, where the two are living in one community instead of having stand-alone affordable housing.

This way developers can take advantage of more commercial banking options. Deferring development fees for the developers who come to the city if they have to pay a fee. What if as a city we said you know what? You can pay that fee at the end. It sounds small but it would make the deals much more palatable to the developers and actually help financially.

Reducing parking requirements, that's a big one. Reducing commercial space requirements. In community planning groups a lot of times the ordinance says you've got to have retail on the first floor. Well, that's great for a walkable community. But to ask an affordable housing developer to build and lease retail space is not an easy thing to do. And if you walk around our city, you see a lot of empty retail space on the ground floor. But still it's a guideline for our city. Can we change that? Can we unlock land and increase ground leases? Maybe we don't want to sell land. Maybe the city or the county or the school district has real estate that they don't want to sell. Can they ground lease it? And can we build on it and create housing?

Also: shortening the entitlement process — again time is money — and approving community plans with master EIRs. In the report that we publish, the Affordable Housing Crisis, there's a map of the community plans and they are so outdated in our city that developers just are not getting the support they need to build the housing. So we have to address this. Going to state actions, supporting SCEQA reform. And aligning state oversight are two things. Now we can't do that at the Housing Commission. But we can certainly advocate for that. And I spend a good deal of my time in Sacramento as does our president and CEO Rick Gentry. Rick also travels to D.C. quite a bit increasing state and federal resources. We need to get our fair share of the money and we need to fight for that. So that's one of the things that we spend a lot of time doing.

We also engaged our initial co-author on this — the LeSar Development Consultants Group. We worked with Kaiser Marston, another great company, and we said if we make these changes can you help us quantify the impact? Can you tell us how much money the city could save? I mentioned before that it will impact both market rate and affordable housing development if we did these changes. We estimated that we could save approximately $54 million annually for market rate, and $23 million for affordable.

I've got three kinds of success stories. Of the total of the 11, we've had movement on nine of them already. So we're going to take this 11, we're going to check off what we've been able to accomplish, and we're going to augment it with more from that list of 60. Some new ideas have come up. So we're excited about the collaboration with the city on this. And also for the first time, the Housing Commission sits down at a round table with the Building Industry Association, the Chamber of Commerce, Bio Com, NAOP, the Taxpayers Association, the Realtors Association, and we're talking about city housing, all of it. It's not just about for low-income people.

There are so many jobs in San Diego that are low income. You heard from our brilliant economists, we've got a lot of service and hospitality and administrative labor here. We need to house them. Minimum wage doesn't cut it. It takes 2½ minimum wage jobs to pay the average rent in the city of San Diego. We're finding more and more people going further and further out ,which impacts greenhouse gas emissions. It impacts our road quality. It impacts the kids who don't have mom or dad there because they're driving two extra hours. So there's a lot of reasons why it's important to bring the low-income housing into the communities near the jobs.

A few years ago we lost a major funding source in the state of California called redevelopment. It impacted us as a state in the billion-dollar range. So we're working with Civic San Diego, a component of the city. The Housing Commission is putting up $10 million, Civic is putting up $10 million, and we're going to use this fund, these monies as seed money. We think we can get $60 million to $100 million through fundraising and investment by banks, employment, philanthropy.

There's a lot of folks who understand we need housing here to keep the jobs occupied. We're trying to be as innovative as we can. We are government, we are constrained by rules and regulations and transparency. And that's all fine, but we've got to think outside the box. We've got to be as creative as we can and make our money go as far as we can. So it's a pleasure to work with the Housing Commission. It's a lot of fun as a former banker and former real estate developer to come into the public sector. We have created kind of a hybrid public sector/private sector industry here. We're trying to be as efficient and nimble as we can, so that we make our money go as far as we can.

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