In late January, Gov. Jerry Brown announced that he'd appointed Susan Riggs to the position of deputy secretary of housing policy at the state's Business, Consumer Services and Housing Agency. It was good and bad news for left-leaning San Diegans-good news to have a San Diegan working on housing policy at the state level, bad news because Riggs, who'd been the executive director of the San Diego Housing Federation since 2010, had been a charismatic champion not just for affordable housing but also a larger progressive vision for the city.
I sat down with her a couple weeks ago for an informal chat before she left for Sacramento (her last day with the Housing Federation was March 7). At that point, the City Council hadn't yet voted to rescind an increase in the workforce-housing offset (also known as the linkage fee), an impact fee that commercial-building developers pay into the city's affordable-housing fund. The council, with its Democratic majority, passed the fee increase in December. Soon after, a coalition of developers and business groups, led by the Chamber of Commerce, launched a petition to overturn it. Riggs was hopeful the fee increase would go to the ballot-specifically the November ballot, which would give affordable-housing advocates time to develop a campaign strategy. She acknowledged that countering the housing-offset opponents' "jobs tax" soundbite would be tricky, and she talked about misconceptions about the fee, an idea for boosting housing production and one of her proudest accomplishments at the Housing Federation. ---
Me: What will be the soundbite for linkage fee proponents?
Susan Riggs: That's been the problem with affordable housing generally. We always struggle to come up with a one-size-fits all message for affordable housing and the reality is that it impacts everyone in a variety of different ways. One part of me thinks the best thing to do is take their messaging and turn it on its head-that this is about the economy, that affordable homes means a good economy and that's where we need to be, but it's hard for folks to understand that. When you say it's a tax, people have a visceral reaction to that. When you say it's anti-jobs, people have a visceral reaction. The inverse is a little bit harder to explain and for people to understand. I think that's the work we have to do-to better understand what's going to resonate around this issue.
What would you say to folks who say the amount of units [the workforce-housing offset] would create is just a drop in the bucket? That it doesn't solve the problem and we need a more comprehensive solution?
I would say we do need a comprehensive solution, absolutely, and this was never intended to be the entire solution. I mean, nobody ever asserted that that was the case. But this is a local contribution. We get federal funds, we get state funds to help support affordable housing and we've done nothing locally.... And, so, this is our contribution and it's not intended to be the solution. I mean, there is no one silver bullet. We've done a lot to make housing more expensive over time and certainly the wage issues that we experience here in San Diego don't help either. This is the cost of doing business. We do a lot to subsidize the tourism industry and low-wage jobs in San Diego and this is the flip side-we have to make sure that the workers are supported as well.
What about the argument that if the offset stands, businesses will leave San Diego, or they won't expand?
Absolutely not. Especially in a market like right now. The idea is, just in really basic terms, if you think about how market cycles work, there are up cycles and there are down cycles. When you have an up cycle, which is what we're experiencing right now, all you have to do is look around Downtown and see the cranes and see the amount of construction, you know that the real estate markets are healthy. You open up the Business Journal or the Daily Transcript and every article is about how great commercial development is right now. And the reality is, when you have rents that are going up, developers are going to push rents to the market no matter what. When you're imposing a new cost on the development, that's just being absorbed as the market increases. Generally the way any cost is distributed in a land-use / economic context, it's going to be distributed between landowners, end-users and the developers, and depending on what's going on with the market at any given time, it'll distribute differently. The ideal would be that we are able to in some way create a program that would absorb into the cost of the land because the land, itself, is really one of the biggest contributors to the cost of development and the cost of housing. Our land in San Diego, because of scarce supply, is really, really expensive.
What do you mean by a program that would absorb into the cost of the land?
To give you an example, one of the programs we've been talking about is this idea of land-value capture. It basically would provide increased density in exchange for community benefits. And so, basically, instead of giving away density, which is what we do now-we just re-zone and that creates value for the property owner-we place some reciprocal requirements on the valuation of that increased density. And so instead of just saying OK, we're going to change your density from one dwelling unit to 30 dwelling units per acre... which also means increased value, if you're going to realize that density, you're going to have some obligation there, too. That's the ideal type of program because the reality is that landowners just by virtue of holding property, they realize value through public action all the time, but we don't ask anything in return for the value that we, as the public, and government are creating in private-property interests.
There are tools that we could be employing that pushes the obligation away from the development community and onto the property owners when there is a benefit being achieved, a windfall given to a private property owner. That would certainly be a more equitable way to design programs. The reality is that we've created in California-this is a statewide issue-this paradigm after Prop. 13 where the easiest place to place the burden is on the development, through development-impact fees, because that's the paradigm that we've created in terms of whose obligation is it to mitigate. At the end of the day, though, the mitigation of issues that are associated with development-whether it's the need for schools or sidewalks or affordable housing, whatever it happens to be, that mitigation also serves to increase the value of the very development that's being assessed. And this mitigation, if it's in the form of a broad program, like workforce housing offsets, it's being taken into a count as a developer considers their pro-forma. They're looking at this as a cost of doing business and determining at the end of the day, we can either develop this or we can't. And if they're getting financing on it, it means it's profitable-some bank is willing to lend them money on the prospect that they're going to be able to turn a profit and pay off their debt on the property.
So, will there be banks going, Oh you're in San Diego, you have that workforce-housing offset?
Absolutely not. That's crazy. So that really gets to the question of whether businesses are going to move or not. This is a development fee. It's a development-impact fee that's placed on the developer, so the question is, how does that get passed on to an end-user and how big of an impact is it on an end-user? And the reality is, a developer is going to charge as much as they possibly can at any given time, regardless of what fees are being assessed... as long as they're able to get a profit, they're going to develop the property and they're going to charge as much as they can. Tomorrow, if we took the linkage fee away, if we just said we're not going to do this anymore, ever, we're not going to assess anything, my guess is there aren't going to be a whole lot of developers who are going to say, OK, we're going to reduce the cost of rents. The reality it, it's all a bunch of rhetoric. Developers are building because there's profit involved and they're going to charge as much in rent as they possibly can. At the end of the day, if the market is bad, maybe they have to absorb some of that cost instead of passing it on to the end-user, but right now, rents are just going up and up and up, so all it's doing is just getting absorbed into the increasing rents.... If there's any reason that an end-user is going to leave it's because the market forces are making it too expensive, not because this little piddly fee on development that equates to a couple pennies on lease rate.
This is not novel, this is not undocumented. This is always a question on every development regulation, every development-impact fee. Time and time again, it's demonstrated this is the way the markets work, so anybody who tells you any different is crazy. And I'll be honest, too, that's not the cut-and-dry rule. It really just depends on what's going on in the market. But by imposing it on the market right now in an up cycle, it will get absorbed and then over time, it's just a cost of doing business. And it's understood and to the extent that development doesn't become viable anymore because market forces have changed, then, at that time, a landowner is going to reconsider the price its charging if it's motivated to sell and the costs get absorbed into the cost of the land instead.
Were there any discussions about a compromise?
There was early on when the referendum was announced, when the signature gathering was announced. There was some discussion and it didn't feel like it was going to be very fruitful because the sides were just too far apart. We were willing to consider some sort of compromise if the council president and the members of the City Council were going in that direction but, number one, there wasn't a huge political appetite on the part of the council that had voted in favor of the workforce housing offset and the opponents were still very unrealistic.
If [former City Councilmember] Tony Young hadn't been the swing vote, and a lower linkage fee had passed in 2011, would there have been a referendum then? Was there any chatter about it at the time?
There wasn't any chatter at that point that I heard. I think because they knew [Tony Young would oppose the linkage-fee increase.
What would you say has been your biggest accomplishment at the Housing Federation?
We've really developed a strong platform for resident organizing in our affordable-housing communities. We've been doing it for about a year now, and have developed a really good model and a really strong platform, and so I think the foundation is in place and the results are going to grow.
So how does that work?
We've supported capacity building within certain affordable housing developments within the community to basically provide education and information to affordable housing residents to help them understand how important their voice is in civic issues and are really working to build a network within the communities to kind of get folks engaged in civic conversations.
Some might assume that you'd be pushing folks toward progressive issues?
Obviously affordable housing issues are very important to us and certainly affordable housing residents are stakeholders not just from the perspective of making sure that the properties they're living in stay viable, but also from the perspective, of course, of their friends and family who haven't been as lucky to secure affordable housing. So, yeah, we talk to them a lot about how affordable housing works and how it gets funded and the issues surrounding it and certainly encouraging them to be involved in the workforce-housing offset and our statewide campaign on the Homes and Jobs Act and those types of things . We've been able to raise money to provide them some capacity to have staffing dedicated to this purpose. It's just really fledgling right now, but I'm optimistic that this is something that could be really instrumental at positioning affordable housing in public-policy priorities differently because we haven't had a very strong voice in the past.... To finally get this off the ground after many years, it's really exciting and gives me some optimism that at least we can be a significant part of the conversation going forward, that we have our own constituents we can look to when the Jobs Coalition is opposing affordable housing.