How A Rent Freeze Solves The Housing Crisis

Interview With Bob Herman, Architect Of Over 4,000 Affordable Housing Units

Dyan Ruiz, Joseph Smooke | 11/15/2018

TRANSCRIPTS

Dyan Ruiz, Reporter, [people. power. media]

We're here with Bob Herman who has developed many affordable housing developments throughout San Francisco, the Bay Area, and California through his architecture firm which we are here today. Thank you so much for joining us.

Bob Herman, Principal, Herman Coliver Locus Architecture

It's a pleasure.

Ruiz

Tell us a little bit about all of the affordable housing developments that you've been able to do over the years.

Herman

It dates back maybe 40 years to the beginning of the affordable housing movement. Which followed public housing so lots of it was done by community-based clients who wind up owning the buildings and treat everybody as if it's not public housing. It's just good housing. And over those years, I'd say we designed somewhere between 4 and 5,000 units of affordable housing. And then there was about 20 years of teaching affordable housing at UC Berkeley. 

Ruiz

It's my understanding that developing affordable housing and developing market rate housing is really quite similar as far as the steps that you take even though the source and the timing of when the finances come in might be different. Maybe you can expand on that as far as development and your experience in development?

Herman

A building permit is a building permit. As it should be. So, if there's a permit for affordable housing, it employs all of the regulations all of the endless steps it takes to be approved for construction. It includes meetings with the Planning Commission. It includes meetings with the Mayor's Office of Housing and the Mayor's Office of Disability, with bankers, with the nonprofit community based clients who are very savvy about business and economics because it has to be real. As far as space planning is concerned, when laying out site plans, I would say it is the same as a market rate developer. 

Ruiz

You know about the market, but you're saying the market is just not going to fix itself. Can you elaborate more on that?

Herman

We've given the market a good chance over the last 15 years or so to build baby build. And we've seen dozens and dozens of construction cranes growing up over the city. We've seen buildings rising overnight it feels. And so the opportunity for the free marketplace and the supply-demand balance to work has not worked, because affordability has become reduced. Even though so many new units are being built. So, it was a nice idea, but it didn't work. So, when the free market doesn't work well, as well as it should, or as well as it can, it comes time for the community to step in and say "wait a minute, there must be something else we can do." And the development community often says "let's reduce the cost of housing by prefabrication. That'll solve the whole thing." It won't.

We're doing a massive prefabrication development now for affordable housing. It shortens the time of construction, but it's not the answer. It still costs a tremendous amount of money to build a roof over people's heads. 

So, you have to contemplate what else can we do? Well, we could increase the number of inclusionary housing units in the private realm. That's a nice idea but it's not going to happen. The pressure's been put on to do that and in fact it has improved, but it's not enough in itself to do it and the development community I can't believe is willing to create a higher percentage of inclusionary housing.

Ruiz

Inclusionary being within a market rate development. Let's say it's a range of I think 12% to 20% of the units in a building are allocated for below market rent which in San Francisco is problematic also because market rent is so high that below market a lot of the times doesn't translate into something that's affordable for a working class person. That's what you're talking about with inclusionary and there was sort of like...

Herman

And there's some nice features of inclusionary because it mixes classes, it encourages more diversity and so on. But, I have the sense we've reached the limit of the percentage of affordable apartments that would be included in a market rate housing development.

Ruiz

Still even if you're going on the higher end of 20%, 30%, you're still talking about a majority of that building being luxury. 

Herman

That's right. The other is to build more affordable housing; to raise taxes or find sources of money with which you build 100% affordable and I'm not sure that that increase is available. If it is, fine. But that's led me to believe in the possibility of discussing a rent freeze. I don't know how long, but it's got to be long enough for people's wages to begin to catch up to the cost of housing.


I'm concerned that the knee-jerk reaction to a housing freeze will be so strong that I don't know whether it's possible. On the other hand, if stepping in to throw the monkey wrench into the spiral were considered seriously, it might reduce the speculation on the part of the development community because they could not count on ever increasing rents. So they can't justify "oh I'll overpay for the land. I'll overpay for the building." Because I will never get my money back.

Ruiz

So, that brings us to one of the concerns that people bring up is that if you do have a rent freeze, or any kind of cap on the free market for housing then that means developers will stop building. And, you'll end up in a situation that's worse than now, because there isn't enough on the supply side. Even though you've talked about it's demand that's really driving the crisis, the imbalance, can you address what about that argument about development all of a sudden stopping?

Herman

I don't think that will happen. I think it will slow down. That's what you want. Slow down so that the shortage of contractors and the shortage of land, do not play such a key role. As soon as the escalation cycle of ever-rising rents can be tempered that means that the economy will slow down and people will have to pay less for land, less for construction, and be able to charge
less for rent.

Ruiz

You talk a lot about the demand coming from the huge influx of high wage earners mostly from the tech industry but other associated industries as well. So, you have this huge market now of newcomers who have average salaries like at Facebook for example are over $200,000 and there's thousands of employees at Facebook so you have all those people that make tons of money that can theoretically afford a lot of the new luxury housing that's coming.

But there's also many other ways that the condos can be used that aren't necessarily even associated with people living in them. Which is helping to also drive speculation. Can you talk about those other factors?

Herman

There's a tremendous influx of people who park money in real estate in San Francisco.
Because it's a reliable asset. As I understand it, there are thousands of empty apartments, expensive empty apartments here in San Francisco because the owners simply have parked, like putting it into a bank account. But the fact that they are building apartments and have lots of money to do it only aggravates the spiraling, or increases the spiral effect. So it's not just the techies.

There may be many population categories who are investing or willing to pay the price and as long as that continues, if I were an investor and wanted to make a nice profit, I'd be tempted to come to come to San Francisco and get into the development business and pay whatever it costs to buy a piece of land or to build a building because I'm quite assured that I'm going to recover my investment and more.

So, the market's not working and having some sort of cap on the market would be one way to go about it, but of course you have been working towards getting affordable housing built for folks, and just starting with 100% affordable. How might we accomplish that on a larger scale than has been accomplished so far?

The idea behind the rent freeze is that if it's frozen, for I'll just arbitrarily say 10 years, and people who now or developers or people who are renting or buying have mortgages and presumably they continue paying their mortgage while a rent freeze is in place, so they're stable, as the price of land and the price of construction levels off, the cost of building affordable housing during that period goes down because the contractors are fewer are less busy and more willing to do their work for less money.

And so it opens up an opportunity to build affordable housing at a better price because right now, the price we pay, we the affordable housing people, for construction, is darn close to the same price basically as market rate. And so it's very difficult for us to put affordable housing in place as long as this spiral continues going up. So, it cools the cost of housing down which benefits the affordable housing needs.

After the 10 years, I don't know what happens. Let's say you managed to bring down the temperature of the patient to normal, then you take off the freeze, what happens? I don't know. Maybe the same old thing happens all over again, but I think that's better than saying build baby build build, build, build forever and ever and ever. And forever and ever the problem doesn't go away.

I'm afraid the problem won't go away even if the minimum wage were doubled or greatly increased. This is a crisis. And some wild solution has to be tried in order to make it possible for this city to live with diversity and to live with the pride that it used to have when I came here 40 years ago and paid $120 a month for an apartment. 15 years ago, you were able to reasonably afford an apartment here, but obviously it's not happening now with somebody in your similar wage bracket and other folks that are working minimum wage or just being city workers or teachers. 

So, what happens if we just continue with the current system as far as allowing the existing regulations or lack thereof to keep building and building and building in San Francisco? It'll become an elitist city. It'll become a city of gated communities. It'll become a city where community benefit districts will be very popular because everybody living in the district will have enough discretionary money to pay their private taxes to clean the streets. They'll be parking their own private ambulances in each quadrant. They'll have their own fire dept. The whole thing will become privatized.

The sense of community will disappear. And San Francisco as a beacon of progressive thought
will disappear because the people who spend their time thinking up terrific ideas that are progressive won't be able to live here. So they'll go someplace else.

Ruiz

That's interesting because that's basically why people want to move here. We just saw this promo video for this advocacy group called "Yes In My Backyard" and it's interesting because they have painted themselves as people that are pro-diversity, want more neighbors and are flocking to San Francisco presumably because of all the things that other people have basically built, this environment of innovation, of community, of diversity. So, you're saying that basically it'll come to a point where it'll look a lot more like the Silicon Valley communities that they are shying away from living in right now.

Herman

I admire their openness of Yes In My Backyard very much. But it's one thing to say yes, it's another thing to pay for it. Somehow we're sitting here talking about… Great let's say that there's no community objection to a new affordable housing development. Then what? How do you pay for the new affordable housing development? Do the Yes In My Backyard neighbors pitch in a couple million dollars apiece to pay for the building? No. Will people approve tax increases to subsidize housing? Probably not. We'll all feel it's enough. 

Will the political administration in Washington get HUD back on its feet to provide money some other way? Not in the immediate future. Will there be Robin Hood schemes of tax credits increased so that people with lots of discretionary money can invest in tax credit funding for affordable housing? I hope so. But it's not enough just to say yes. But it's very important to say yes.

One other thing that strikes me about the pro-development argument is a lot of the time, people say that tenant advocacy groups or people that advocate for rent control just don't know what they're talking about or they're advocating for things that will actually in the long run or even in the short term make things more difficult for working class people to be able to live in and afford this city. Can you talk about how they manipulate the...?

Yeah. They don't like regulations. They don't like anything but a free, free, free, free market. As if anything in the whole universe is all free, doesn't have a flip side. If it's all free, it doesn't work, because it ignores in this case, the needs of an enormous proportion of the population. That's why we have income inequality to such a God-awful, weird degree. It's outrageous. 

It's because the marketplace needs counterbalancing. And the folks who are seeking rent control or rent freeze or putting a damper on this escalation are providing a counterbalance. The people who don't abide by their goals just want complete freedom. They don't want to be restrained. At all. And they don't see a benefit in restraint. That's what's missing.

*This interview has been shortened for brevity & clarity.