Incentives Work When There is Leadership and Vision

By John LaRaia, H.G. Fenton Company, BIA Board Member
Can you imagine making a product – any product – cheaper and more available by artificially layering on more burdensome and expensive requirements? And, is it conscionable to artificially make a product as critical to who we are as humans (food, water, and shelter) more burdensome and expensive to produce? I can’t – and, yet, that is exactly what we are doing during our current housing crisis.
The only solution to this crisis is more housing….period. Creating obstacles instead of incentives to production moves us further away from solving the problem. Incentives, not obstacles, will get us more varied housing across all price point spectrums. Home builders build homes. More homes are needed. What should we do? Let’s rely on vision and leadership – it has worked in crisis before. We need it now.

Home builders today are challenged in many ways.  At the most basic level, they are challenged with finding a willing land owner to sell at a price that allows a builder to build.  And the more burdensome and expensive producing housing becomes, the more difficult it is for the builder to buy land.  Want proof, here are some stats:

Victor Krebs recently presented some compelling data that analyzed all the land sales that occurred in Downtown and Uptown since January 2018 to July 2019 to determine how many of those sales ended up in the hands of builders.  His conclusions found:

  1. 125 properties were sold during that timeframe and in a geographic area that is in the “wheelhouse” for future urban redevelopment and mixed-use housing near transit.
  2. The vast majority (82%) of those sales were sold to investors, not builders, which means they are likely not to be redeveloped for additional housing anytime soon. These sites are now tied up for years to come.
  3. The remaining (18%) of those sales were sold as potential development sites.

When only 18% of sales are going to builders today, is it conscionable to adopt policies that increase the cost of providing new homes.  If we add cost (or limit revenue), we can expect that 18% to drop to 15%, 12%, 10%, unless someone with vision and the willingness to lead stands up and says – wait, we need more incentives, not obstacles to reverse this trend.

An example of leadership and vision is in the success of the Grantville Focus Plan.  The credit can be shared among many including:  City of San Diego planners, elected officials (and their staff) that represented this District, and the brave community planning group members that were willing to accept density.

In just four years, since the adoption of Grantville’s Plan more than 4,000 units have been or are in process with more than 25% of them affordable with restricted rents.  This was achieved with incentives, not obstacles.

Grantville is working for primarily for three reasons:

  1. The Community Plan was updated which provided for by-right residential development.
  2. Many of the existing uses for the acquired development land were underused and underdeveloped, allowing residential developers to successfully compete for the land.
  3. Much of the affordable housing is being provided on government-owned land that is being transferred through an RFP process. When owned by a government entity, there is an argument that affordable housing should be provided on site.

Look at one more example.  How about East Village – even during a housing crisis, we have home builders offering free months of rent – why? Because in that micro market a lot of supply came on line quickly.  An influx of supply occurred, primarily because the rules for approval are less complicated.

Less complicated and burdensome = more supply = less expensive.

Where is the vision and leadership that finds ways to protect and enhance existing programs that incentivize – for example, density bonus that include waivers from development standards and density bonus that promotes naturally affordable small units, while looking for new ways to incentivize – why not density bonus for green projects, why not accelerate SDGE rate-payer funds to cover the cost of undergrounding on infill projects, why not more full (not partial) fee waivers, why not housing production goals that are benchmarked and analyzed for each policy decision, why not more ministerial approvals to get us there quickly?

Where is that vision and leadership?