Real Estate Investor

Governor’s big swing and a miss

Brown lost bid to fast track affordable housing development — what’s next?

Critics were quick to poke fun at California Gov. Jerry Brown this August when it was announced that he sold his home in Oakland in the midst of one of the greatest real estate run-ups in history — for a loss. He had paid $2.4 million for the home in 2007, but his purchaser paid only $2,375,000 — and that was also $200,000 below the asking price. It would not be his last loss in the housing market this summer. In mid-August, Sacramento legislators killed his plan to streamline the development of multifamily housing that met specific affordable housing goals. The governor still has a mansion in Sacramento to live in, but does he have any affordable housing policy after this?

The governor’s plan was controversial all along. Designed to reduce costly delays and attempts to stop housing projects altogether, the plan would, in the words of the California Department of Housing and Community Development, “remove regulatory barriers and streamline development timeframes by granting multifamily attached housing to be approved through a by-right ministerial process.” Any proposed developments that would be granted this relief would need to include affordable housing (at least 20 percent, but with exceptions), be located on appropriately zoned infill and transit-rich areas, and “must be consistent with the general plan, local zoning and any design review ordinances.”

Which, in nongovernment language, means the projects could go forward without being killed by a death of a thousand cuts of hearings and lawsuits and reviews as long as they complied with existing local planning laws and some additional requirements. The expectation of the governor is that this would quicken and increase the development of housing, in particular affordable housing, across the state. Not everyone agreed.

“I don’t think it would,” said District 3 Supervisor Aaron Peskin. “It may in communities like Palo Alto, but I don’t think in San Francisco — it would only result in more market-rate [housing].”

But San Francisco, with its infamous local delays and referenda and activist culture targeting almost any development, is so much of the poster child for the NIMBY town that it is easy to imagine that Governor Brown had the city by the bay in mind when crafting his proposal. Carson Bruno, a research fellow at the Hoover Institution who focuses on California policy and politics, said the proposal’s biggest impact would be in “San Francisco for sure and many SF BayArea peninsula communities, but also many Los Angeles coastal communities and, more generally, California’s coast. This would force many of them to increase their development permitting activity, which would help to shock their housing markets, which would temper housing affordability [problems] over time.”

In August, the plan was rejected. But its rejection might pave the way for an even more effective plan in the future.


Would Brown’s proposal have had much impact had it passed in its current form? The governor’s plan required projects to meet local planning and zoning rules. Therefore, local governments could just adapt “their land-use regulations to a degree so strict that the by-right becomes meaningless and no development plan could ever conform, thus requiring administrative and political review,” said Bruno. “And you can easily predict that some — if not many — localities would do just that, the Bay Area likely being ground zero for such changes.”

People had raised that possibility, but Peskin downplayed it, saying, “If it ain’t broke, who wants to embark on a multi-year project to thwart state law by rewriting our entire planning code?”

The governor tried to sweeten the deal for legislators by offering to dole out $400 million for affordable housing assistance, but that was an element that apparently pleased no one. Legislators had been seeking $1.3 billion. “The governor’s big promise here is, ‘if you pass this bill, I will release $400 million for affordable housing in the state of California,’” said Peskin. “That’s a drop in the bucket.”

Affordable housing is usually very difficult to build — in any region or community and at any time — because it not only has to deal with all of the same land, labor, and materials costs as market-rate housing, but it has additional challenges of layered financing from tax credits, bonds, government subsidies, and other sources, each of which comes with its own stipulations and complications. Lawyers were made for these deals. And then there’s the NIMBY aspect; as much as many places are in desperate need of more housing that is affordable (however broadly defined), it is rarely welcomed into a neighborhood.

The federal government’s role in affordable housing has decreased dramatically from the postwar years; today, it is largely minor and on the margins, offering tax credits and other incentives, but leaving the real cost and effort to the private world. Governor Brown does not see it as a state priority, either; with or without that $400 million, Brown made clear in June that it is primarily a supply-and-demand problem and that state subsidies are practically an exercise in throwing away money.


Just because the proposal died in Sacramento this year doesn’t mean that it won’t return, and it could do so in a more effective form that addresses critics on the left and the right.
In its analysis of the proposal, the Legislative Analyst’s Office suggested that the legislature continue to look for ways “to encourage more home building in California’s coastal communities.” In particular, it addressed the matter of local governments reacting to the plan by just changing their planning laws to return to the status quo ante. The LAO recommended “changes to guard against possible actions some communities may take to hinder the use of streamlined approval.”

Peskin also suggested changing the plan to prevent developers from receiving the plan’s regulatory relief for a project and then selling it on to another developer. “You … don’t want it to be a tool for entitlement speculation,” he said. “One thing the mayor of Los Angeles suggested to the governor and that [the San Francisco Board of Supervisors] suggested to the governor … [is] that these by-right entitlements would expire if not used within a certain time.”

The Legislative Analyst’s Office had recommended that “serious consideration” be given to the governor’s proposal. The proposal ultimately died, but the problems it was seeking to address are still with us, and future proposals will be needed to deal with them. (Peskin noted that San Francisco “just got rid of conditional-use authorization for 100 percent affordable housing projects.”) So the governor’s proposal might yet spur the creation of other proposals, either a version 2.0 of Brown’s recent plan or an entirely new one. If those new plans are better designed and with fewer loopholes, then the delay could be worth it.

“There should always be the fear,” said Bruno, “that either this proposal doesn’t pass and future state leaders determine, based on its failure, that any reform is a political nonstarter and just give up on the issue, or this proposal does pass, doesn’t do much to truly shock the market and alleviate the affordability pressures, and opponents use it to stop future actions to encourage development.”


Send to a Friend Print
John Zipperer is a formersenior editor of Affordable Housing Finance and Apartment Finance Today. E-mail: [email protected]