Part 2 Affordable Housing Myth

Here is a repost from Next Door Burlingame that can't go without some real-life response.  I have added my comments in line in bold italics

I am urging renters and homeowners who are concerned about the lack of affordable housing in Burlingame to attend the City Council meeting on Monday night, August 18th, at 7:00 p.m. The City Council is scheduled to review and authorize approval (um, no.  Not "authorize" unless she knows how the vote will go) of the Housing Element to the Master Plan for submission to the State of California, in effect mapping out the possible future of housing in the City. 

Renters comprise the majority of residents in the City, and need protections like those enjoyed by homeowners (and exactly what "protections" are those?). Neighbors who have established lives in our community are facing increased impoverishment and displacement because of egregious (define "egregious" or is she just being inflammatory?  Are our rents any higher than the rest of the Peninsula?) rent increases. 

We need to unify now to make a difference. If you are not a registered voter, let me know and I'll make sure to get a registration form to you. (I look forward to this vote by the people if it ever comes about.  And I will be watching the Council vote with that future vote in mind).

Cynthia Cornell

It can be complicated to explain to someone with very little economic understanding that there are consequences to every sort of "government control" and that those consequences often hurt the exact constituency that the control was meant to help.  The absolute WORST THING that could happen to current and future renters in B'game is to have rent control.  Just look at EssEff or New York City.

Comments

[Joe]

By the way, I am just an objective, interested bystander in this discussion--I do not rent nor am I a landlord so my opinion is based simply on a observing how injurious rent control has been every where I have seen it enacted.

[Andrew]

You don't need to treat any fellow resident with such disdain. If it's worth posing about at all, educate others as to your reasons rather than belittling if you expect to change anyone's opinion.

[Joe]

"Posing"? Who's doing the posing here?

[Anne]

I would not say Andrew is posing. It is more like a classic redirect. If he is who I think he is, he is too knowledgeable about the real estate market to say you are wrong (because you are not) and he is too proud or ornery to say you are right. So he redirects to who or how or when something was said rather than debate the actual issue.

[[email protected]]

Exactly what damages/hardship are being experienced by Land Lords who own property in Rent Controlled Cities?
No one really has been able to answer that question.
Or wants to.
There is no way to compare San Francisco to Burlingame. Or East Palo Alto, or Berkeley to Burlingame.
So those are Non-Starters.

[[email protected]]

New York City?
Are you serious?

[The 51% of Burlingame that rents their long term home.]

Rent control in a socialist SF style would simply reduce any availability of rental housing in Burlingame.

However, I'd recommend rent increase caps instead.

My rent was increased 30%, and so we moved out of town.

Burlingame might consider a Landlord Tenant Ordinance, similar to what Chicago offers (and no Chicago is definitely not just all Dems).

The ordinance offers additional rights for both landlords and tenants to clarify what other laws miss. It does not currently have a rent increase cap, but 10-15% per year increase should be more than fair for landlords and prevent drastic increases that force long time Burlingame residents to spend thousands to move and uproot the community, especially when 51% of the community rents.

[hillsider]

We will miss you Alex.

How many new city employees will it take to record all of these new, beneficial laws?

[Joe]

Geez, Fred. Do you mean this post?

It's the best place to put your link, but I'll do it for you:

http://www.smdailyjournal.com/articles/lnews/2014-08-20/faulty-population-numbers-may-influence-housing-burlingame-officials-concerned-numbers-could-give-false-look-at-citys-needs/1776425128711.html

[fred]

It would be better on it's own thread not in the debate over rent control. But whatever, this website has become tedious anyways.

[Douglas Radtke]

Setting aside the fact there is near universal consensus among leading economists that rent control is a destructive and harmful policy...

Consider the real hypothetical case of individuals in San Francisco earning upwards of $150,000+, but being locked into 2009 rent prices from now to eternity.

Rent control has been a major influence in the limit of supply in San Francisco and is having a "spillover" effect into the Peninsula as rental units are not experiencing the necessary turnover to have a true competitive rental market place.

"Transit oriented" communities and the auspices of the ilk of Plan Bay Area are nothing more than thinly veiled attempts to reward property developers with extremely lucrative condominium projects, which are later completely unaffordable to the people these developments intend to serve.

Construction of these condominiums all over San Mateo County along BART/CalTrain will serve displaced San Francisco residents who will in turn, contribute very little to the community they live in. They will consume our school resources, water, and city resources (law enforcement) and increase costs. The buck will eventually be passed to the individual homeowner, perhaps in the form of a parcel tax for schools or even sales tax increase (See Half Moon Bay Measure O this year).

So what is the Peninsula to do? Stop the gentrification in key areas.

I've written an argument against the "Plan San Bruno" measure on this year's November ballot.

What affects San Bruno, Millbrae, will spillover in to Burlingame. The neighborhoods in San Bruno, South San Francisco, and certain other areas are still barely affordable to working class. Essentially, you're just forcing them out.

What to do about Burlingame renters? I don't have a policy answer because many of the solutions are further destructive to the economy, and will do more harm than good.

I'm afraid the tidal wave and damage has been done. Reversing the situation would mean reversing 10+ years of poorly planned destructive economic policies by the various Bay Area governments (and even state).

[Tedious is as tedious does]

First Fred thinks Bruce Dickenson is tedious and now he thinks the whole website is tedious. I think Fred is projected the tedium he feels in his own life onto others.

I also think I am voting for Douglas Radtke just based on what he has written here. That is far from tedious for me.

Tedium pour toute!

[fred]

*yawn*

[Leave the Communism for San Francisco and San Jose]

Leave the Communism for San Francisco and San Jose (8% rent cap), as they crumble under the weight of their freeloaders and corruption and violations of individual rights.

Don't forget that rents pay property tax via their rent payments, which the landlord then turns around and pays to the city/county/state.

Most new apartments require 15-20% of the units to be below market. And, the government staff believe that the TOD is helping the environment to concentrate the new housing new Caltrain/Bart/etc. It probably is to the degree that people use the trains.

Now, can someone tell the Caltrain/Freight Train operators to quit honking their horns unnecessarily? I think they must enjoy it as they pass by Burlingame, etc.

Hillsider, I've moved off El Camino finally to a nice house and yard a few miles away. I don't mind the plentiful hummingbirds and deer one bit.

[Douglas Radtke]

You are correct that a portion of rent goes to paying property tax, however apartment complexes are always assessed pro-rata lower than single family homes or even duplexes.

I haven't ever got a very straight answer why this is; even from my friend who is an assessor for LA County.

Most apartment complexes are 15-20% below market because of the Plan Bay Area (city housing element) mandates. A lot of the low income mandates are due to ABAG and the plans they force city staff to coerce city councils to agree on. One individual I strongly admire is Matt Grocott in San Carlos who is against the transit village they are trying to build there.

Developers love the low income mandates because it qualifies their building projets for LITHC (Low-Income Housing Tax Credit).

For a short time, I worked for Novogradac & Company LLC in San Francisco, a leading firm in the nation for these tax credits. The details get murky for a non-accountant, but essentially these tax credits are generated and purchased below face value - the limited partners that invest in these developments will get $1 of tax credit for say, every 90 cents paid. A 10% savings on tax is considerable, and thus that's why the sudden explosive growth of Novogradac and other boutique CPA firms that assist in HUD audits and LIHTC preparation.

The primary growth of HUD and LIHTC has been under the years of the Obama administration. Novogradac has grown from a small regional, to arguably a top 25 firm by revenues. You can thank the federal government for that.

On a related note: Currently, REITs (Real Estate Investment Trusts) do not act as "pass-through" vehicles for tax credits. REITs are a special "real estate" investment entity that does not pay corporate tax - instead the shareholders pay capital gains on dividends. Retained earnings in a REIT are not taxed.

The White House has weighed in a proposal to allow REITs to generate LIHTC and then utilize these tax credits to pass "tax-free" dividends to shareholders.

In other words for an investment of 90 cents on the dollar, if the bill is proposed and passes - investors in "transit oriented developments" that possess the below market rate component will also get tax-free dividends.

Anyway, I hope that sheds light on why CPAs, politicians, political interest groups (ABAG) and real estate developers invest so much time, effort, and money in persuading communities to sign on to "Plan Bay Area".

"Green guilt" effectively is being used to manipulate the facts and sell a product to your community that doesn't benefit anyone that is living there. The individuals that stand to benefit the most are those with wealth and the political connections necessary to make bids on transit oriented projects.

I digress however.

Because the apartment complexes are assessed at a lower price, the cost to the communities are greater in terms of the children who must now attend local schools while their parents commute into San Francisco.

These transit oriented developments will be costly to build, and due to the speculative real estate environment only the technology class class making way above a six figure salary will be able to afford to purchase these if they are condominiums, or afford the high rent.

The problem could be alleviated if there weren't so many loopholes, tricks, politically sheisty maneuvers, and "gotchas" in the system.

Really, if real estate developers could build normal apartment complexes without the below market rate mandates -it might make a dent.

Reasons like this I have spoken out against "Plan San Bruno" which plans to gentrify downtown San Bruno and displace the entire working class community there.

We HAVE affordable housing and communities. By trying to force "progress" down the throat of the less affluent cities on the Peninsula, we are making the situation worse.

Specific to my race, the Peninsula Healthcare District is also getting into the real estate development game by exploring building residential units. What business does a healthcare district have building residential units?

I am not demonizing multi-unit housing but I am advocating for transparency, an even playing field, and projects that benefit the communities as a whole. There are better solutions and it starts with getting better information.

One element I believe that can assist proper development is to survey the largest employers in the Bay Area and find out the commutes of all the employees in a database.

We need to create incentives for employers of a certain size (think your Googles and Apples) to keep employees close to the office. We also need to even consider the possibilities of penalties. Have you heard of people commuting from as far as Manteca to work in the Bay Area? I have, and I know a number of construction workers who do.

The Google bus haws been created as a necessity due to folks living completely out of area. I work in San Jose, yet I drive from Millbrae. Many good friends of mine live in Silicon Valley but are commuting to San Francisco via the Google Bus or even driving to Millbrae to then take the BART into downtown.

Information is power, and non-governmental bully boards like ABAG who force Plan Bay Area simply don't have the data needed to make educated decisions.

We need to increase the housing supply in a method that is beneficial to the most amount of people.

I don't pretend to have all the answers, but I think I have a good grasp on the facts and some more esoteric topics the general public hasn't touched hands on. I've done HUD audits and LIHTC preparation - I've seen how profitable an industry it really is.

"The road to hell is paved in good intentions"

[Jennifer]

Thank you, Douglas, for this very interesting essay regarding the politics and nefarious manipulation driving ABAG.

[Bruce Dickinson]

11 Cowbell Rings for Mr. Radtke!! Weary-eyed and coming back from a dynamite wine tasting tour in Burgundy, France and instead of seeing the diarrhea of drivel from some conservative wing-nuts who may or may not live here, as it were, Bruce Dickinson instead hears a clarion common-sense call from heaven, as it seems.

I would love it, yes really love it, if Radtke ran for Burlingame City Council. With a CPA, you can bet that a simple rectal exam would likely turn into a full on colonoscopy and I'd place big Dickinson-sized bets with great odds, there would be all kinds of problems found in the bowels of city government. This fully explains the inexplicable love for all things high-density and HSR friendly, which is about as wanted by the community as a four year old wants constipation. Let's do some resume digging and see why the pro-density members of city council really love it so much. There is only really one green that matters, my friends, and like so many other things being pro-environmentally green merely becomes a cover for some other scam or Ponzi scheme. But instead of defrauding only the rich who choose to chase good money with bad money, in this case here everyone pays, literally everyone, including lower income renters who are unknowingly pawns on this chessboard who will end up losing in the long run.

Even worse, rather than a typical scam pitch (trust me, I used to hustle vacuum cleaners in the Bronx and sadly I know it all to well) where people have the opportunity to accept or reject it, in the case of high-density being billed as "green", everyone is forced into buying into the scam because they are made to feel guilty about not supporting it. That folks, is what I call the absolute worst kind of fraud, plain and simple!

[Joe]

Douglas, any chance you will be moving to Burlingame in the near future? I hear we may have an open council seat sometime next month!

[Joe]

This is a good tidbit from John Horgan's column:

Advocates of rent control in Burlingame got a surprise dose of community reality last week.
After they lobbied the City Council for more affordable housing and what they termed "rent stabilization" in the town, they learned, much to their remorse, that the burg's alert citizenry voted to outlaw that controversial practice a generation ago in the late 1980s.
So an unambiguous regulation putting the kibosh on rent control is already firmly on the books, making any future attempt to overturn it quite difficult.
Members of the council did express some sympathy for local renters (not just those in Burlingame, by the way) who have been experiencing significant rent increases recently as the latest Peninsula real estate boom persists.
But any move toward artificial government tinkering with market forces in Burlingame appears to be dead in the water, at least for now.

Read the rest here including a H'borouigh tidbit and drought of 1977 memories: http://www.mercurynews.com/john-horgan/ci_26414260/john-horgan#insidebayarea

[Douglas Radtke]

Thank you everyone for the kind replies and encouraging words.

In the interest of full disclosure I am not a CPA *yet*, I am currently completing my remaining exam sections this year and hope to be fully licensed and active mid-2015 (takes a little time for the Accountancy Board to process the paperwork).

The San Mateo Daily Journal is doing a piece on Measure N of San Bruno. I recommend you all to pay close attention to the signer of the Argument in Favor (and rebuttal) - Ed McGovern.

For those of you who don't recognize the time - Ed McGovern is a hired "political gun" slash assassin. He works for the highest bidder to win elections or lambaste the competition. I am under the impression from some articles I seen he was hired by some past Burlingame City Council candidates for a fee as high as $100,000 for a political campaign.

Ed McGovern got Pacbell Park approve in 1993. He got the Santa Clara Stadium approved.

He got Measure J in San Mateo shot down after no vocal public opposition (Bay Meadows 50-table card room measure). He then turns around and works lobbying for Bay 101 Casino. He worked on a particular individual's campaign, then left him to pursue a lucrative AT&T lobbying contract.

He's been the campaign manager for Jerry Hill and a number of Santa Clara County local candidates.

He's had an ethics violation slapped on his campaign in San Jose.

My point in bringing up San Bruno, San Carlos Transit Village, and even the Millbrae Specific Area Plan (near BART) is that there is an organized effort to expand on city's housing plans without consent or voice from the electorate.

And guess what went in Bay Meadows place once the horse track folded up? A TRANSIT ORIENTED HIGH-DENSITY development. Do you think there is just a little coincidence that the assassin named Ed McGovern was involved with Bay Meadows is now actively involved in consulting San Bruno?

Our cities are actively fighting against US, the residents! It's absolutely insane!

Bruce is correct, there are many pawns in this political chess game. Folks need to stay informed, form community groups, and VOTE most of all.

Thank you for reading - in the upcoming Peninsula Healthcare District race I would appreciate a vote. I do not live in Burlingame, but I realize this battle isn't just in Millbrae - the entire county is in a fight for our future quality of life.

I've compiled some links on Ed below for your reference if you're curious.:

San Jose Race gets dirty (Ed McGovern)
http://www.ktvu.com/news/news/local-govt-politics/san-jose-city-council-race-gets-dirty/nf6hn/

Ed McGovern launches political attacks against Palo Alto Mayor
http://www.mercurynews.com/peninsula/ci_15584310
http://www.redwoodcity.org/phed/planning/saltworks/news_daily_news_07-10-10.asp

Palo Alto Mayor responds to Ed McGovern
http://www.paloaltoonline.com/print/story/2010/07/23/letters

Ed McGovern charges $100k per campaign
http://www.burlingamevoice.com/2003/07/mms-brings-in-ringer.html

Ed Mcgovern campaign fined for ethics violations
http://www.bizjournals.com/sanjose/stories/2002/12/02/daily16.html

Daily Journal Letter about Ed McGovern's activities
http://archives.smdailyjournal.com/article_preview.php?id=61227

After lobbying AGAINST Measure J in San Mateo, he lobbies FOR a casino Bay 101
http://www.sanjoseinside.com/2014/07/16/bay-101-eyes-milpitas-as-lobbyists-gear-up-for-fight/

A collection of negative Ed McGovern articles from the city of San Mateo
http://www.cityofsanmateo.org/DocumentCenter/Home/View/11918

Ed McGovern was charged with ethics violations in San Jose
http://www.metroactive.com/papers/metro/10.31.02/public-eye-0244.html

Ed McGovern was hired on to do "PR" to show the benefits of Sequoia Healthcare
District despite the fact that they do not own or operate a hospital:
http://users.cwnet.com/jackhick/PublcAffairsAssociatesSHCD.htm

Ed McGovern AT&T lobbying job
http://www.metroactive.com/papers/metro/10.07.99/public-eye-9940.html

[Bruce Dickinson]

Fellas, listen, Bruce Dickinson is all about the socio-economic diversity that Burlingame allows, however I would be remiss if I didn't point out that rent control is a terrible idea and will actually make matters worse for future renters (and homeowners).

Syllabus
Class: Economics 101
Professor: Dr. Dickinson
Lesson 1: Supply and Demand
Lesson 2: Substitution Effect
Lesson 3: Societal Costs

Guys, putting a cap on rents only serves to create what is called a price ceiling (for rents). Price ceilings limit the supply of housing, as those who have the benefit of rent control will never move out and developers will choose not to build apartments, as condos can be sold rather than rented. This crowds out potential rental supply for younger people, new families, immigrants, etc in the future. So yes, rent control will only help those who are already renting and have already found a place or plan on staying for a very long time, so long as their building doesn't get torn down and replaced with a condo. With rent control, if you thought it was tough now, for those moving into Burlingame 10 years from now, there will be no rental bargains to be had for someone moving into the area and wishing to rent.

When you put a price ceiling on a certain part of the housing rental supply and limit the supply of rental housing for new residents, this will drive future rents to astronomical levels, because as we all know, in Burlingame, land is constrained. So then if rents go even higher in the future, only certain people can afford them, and those rents will look increasingly less attractive in comparison to ownership.

Of course, there are no caps on real estate prices and if one can get a mortgage cheaper than what it costs to rent, then house prices will go up. If house prices go up, house rents go up because anyone renting out a house will have to cover the cost of financing the ownership of the real estate. Landlords of both houses and apartments understand what the market will bear and will raise rents accordingly for any new renters.

This substitution effect would result in high rents for new residents, even higher real estate prices in Burlingame, which will further increase rental costs. Its a viscous cycle and all rent-controlled cities are running into this problem, and San Francisco is the greatest examples of this, locally speaking, as it were. Effectively, rent control will only benefit current renters at the expense of all future renters and future homeowners. While it's great for those who can have cheap rent for years to come, for future renters or homeowners, it will be terrible. The future losses, in economic terms, so to speak, outweigh the benefit to current renters Rent control does not result in the greatest good for the greatest number of people, if you will.

These economic concepts are difficult to grasp, but they occur all the time in the real world, and I would be remiss if I didn't say that I saw this time and again from the pricing of concert tickets to the wages of unionized workers in the entertainment and recording industries. Those that advocate rent control, show Bruce Dickinson an example where rent control didn't cause rents and real estate prices overall to increase beyond inflation and beyond non-rent controlled areas for the subsequent years after rent control is enacted. It will be a short list, because if you are in a free market economy, no such example exists. While I love prescriptions for problems, I can say emphatically that believe it or not, rent control is no little purple pill for bay area housing.

Class dismissed.

[[email protected]]

One of my good friend just moved three doors/Apts. down the street on Cappuccino.
2 bedrooms/2 bath.
$2800.00 per month.
Rent?
I call it Hostage Negotiation.
He owns a good business in Burlingame.
I once learned that Rent/Mortgage should only be @ 1/3-1/4 of your Net.
How about a movement to place that regulation in place?

[Douglas Radtke]

Bruce just described the chaos that is San Francisco rent control. Majority of world renown economists agree it is destructive policy.

Think our supply is small already? Rent control effectively reduces incentives for developers to build more supply. A housing developer wants to know there will be returns on their investment and not unreasonable restrictions.

They wouldn't have needed "Ellis Act reform" if there wasn't rent control in the first place in San Francisco.

What happens to us? As I have stated before, these high density units that ABAG is forcing on our communities are nothing more than housing for displaced San Francisco residents.

The Peninsula has been shouldering the far reaching consequences of lousy San Francisco policy for a decade already. It's only going to get worse.

[Burlingame was better in 2000 (or "in my day...")]

Rather than look into rent control, it would be interesting to see what would happen in renting houses was not allowed in Burlingame. If a family can afford 5K / month in rent, it seems there is a good chance they can (and might want to) buy the house. People who can’t compete in the buying process (due solely to competition from foreign investors, and it’s clear they are holding the housing market up right now) might end up paying roughly the same rent as they would in mortgage payments. It seems that capable buyers are being pushed out so someone else who doesn’t want to enrich the community can take their money. Free market says that’s fine, but Burlingame is a tiny family-oriented town with a very limited number of houses, where the importance of strong neighborhoods and a sense of community has always outweighed the importance of making money (perhaps until recently). Taking away so many homes for would-be owners seems contrary to developing a strong Burlingame.

Housing supply would increase, prices come down to sane levels. Neighborhoods are strengthened. Apartments and condos continue to be a source of rental space. Maybe develop some more residential rental space near downtown/train station. Burlingame avenue has already become commercialized, and there’s no sense in establishing the downtown as anything other than walking/commercial/residential rental space at this time. And please use the HUGE post office space wisely (half of it is already grass begging for a park, or maybe even a rotunda for outdoor music).

Also, Burlingame is a tiny family-oriented town, and is not a large city like San Francisco. I’m not sure it’s fair to make a direct comparison in the outcomes of rent control in a place like SF to outcomes of rent control in a tiny town with greatly different concerns and issues. It seems that just because rent control doesn’t work in a place like San Francisco doesn’t mean it wouldn’t be acceptable in a small town like Burlingame. Frankly, I think it would be nice to have a family (or anybody) renting an apartment downtown be able to live there 18 years so their kids could go to school here, play sports here, without getting kicked out when rents triple. That would build a better community, and that’s a town in which I want to live. Burlingame is not a transient place like a big city, so you can’t make a direct comparison. And who cares if developers can’t make as much money. Developers will always develop and will always find a way to make money. Don’t feel sorry for them. Besides, developers have literally destroyed parts of the country with overdevelopment – LA, DC, etc. Who wants the same thing to happen in Burlingame? Burlingame is (and hopefully will remain) a small community-oriented town and everything should be done to keep it that way.

And can someone please open up a nice, healthy/organic, fresh-ingredient, quick, cute, sandwich shop on or near Burlingame Avenue? It’s begging for one. 5 guys? Which-wich? Coffee? Seriously?

[Doug Radtke]

I was advocating for a Whole Foods at the Millbrae BART site, but the powers that be want to force the issue of a luxury hotel regardless of whether people or not. Not exactly a "mom and pop" organic store, but I think it would be a welcome business for both communities. Trader Joe's only has so much on stock and Safeway has been kind of a bust. I truthfully think based on the tiny customer amounts Millbrae Safeway might close up soon.

Burlingame should develop for what Burlingame feels is best for the residents. Other communities like San Bruno or Millbrae or San Mateo can absorb housing demand if they also so choose to do so.

I think the fallacy is really thinking that every city in the Bay Area is obligated to ABAG and the whims of developers. Again, it's a failure of one-sized fits all mandates by a non-governmental board. They're chipping away at our local control as voters by influencing city staff and councils.

Who are they going to listen to? Some NIMBYs or somebody with campaign contributions. I've seen it first hand.