Denny Zane on the Tech Industry's Misplaced Support for State-Mandated Upzoning

We interview you on the last day of the 2019 California State Legislative session, and nearly a week after the inauguration of the newest member of the LA City Council who campaigned vigorously against new transit, SB 50, and its promise of by-right residential upzoning along transit corridors. What is the political calculus of linking urban transit investment to state housing bills that upzone neighborhoods and restrict community input on development?

Denny Zane: My first reaction when an earlier version of SB 50 (SB 827) came out was that if it had been law, it would have been very difficult to get enough voter support for Measure R or Measure M, especially since they require two-thirds vote. R1 neighborhoods in particular would be likely to oppose transit near their neighborhood and oppose transit funding measures if the state’s going to force them to upzone their neighborhood. That seems like a likely reaction from many people living in those neighborhoods.

I shared with a few people my conviction that if state-mandated TOD upzoning legislation were to pass, it would be—in the future—very difficult for these ballot measures that require a two-thirds vote to succeed. That’s still my conviction. It would alarm or arouse so much opposition in single-family neighborhoods, which we have to acknowledge is a very large part of the electorate, that it would be very hard to win a two-thirds vote.  

Your concerns seemed to have been realized in the latest special election for a Los Angeles city council seat in the west San Fernando Valley, District 12. New Councilmember John Lee campaigned against a proposed Bus Rapid Transit line, linking it to the language of state housing bills such as SB50. Is the result of this election worthy of policy maker reflection & and re-assessment? 

If you’re trying to create transit-oriented development, you’ve got to be able to create transit. LA County may have adopted a couple of funding measures, but many other parts of the state, hopefully, would do so in the future—parts of the state that need more transit. I think it would be a heavy lift to win two-thirds vote with the likely imposition of state density standards.

I don’t think it’s just R1 neighborhoods that would have that concern. I think there would be multi-family neighborhoods concerned as well. Although I personally don’t think the development standards in SB 50 are in themselves unreasonable, but unless you think we’ve already got plenty of transit and all we need now is development, it’s a pretty risky proposition.

Another thing with respect to that legislation, if it is passed at all, is that cities ought to be given “an out” rather like what Senator Wiener did in SB 35. 

If cities find other ways to achieve similar goals like providing affordable housing, then the legislation ought not apply. For example, SB 35 required cities that don’t meet their RHNA (Regional Housing Heeds Assessment allotments to have a streamlined infill development approval process. If cities reach their RHNA allotments, then the bill doesn’t apply. If cities were given that kind of option, whereby the upzoning only applies to cities that don’t meet their affordable housing targets—that’s a much more reasonable approach. It gives cities a way to communicate to their constituents that they can avoid state mandates by meeting a fair allocation of affordable housing in their community where they think it works. I think that would be much smarter. 

Twitter critics of your comments might assert that by having been in local government as former mayor of Santa Monica—you have a bias towards local government. Elaborate on why you would favor an “opt-out”—or a local government solution—over having the state wrest control over zoning from local government.  

Frankly, I think it’d work better to achieve the desired effect of building affordable housing. The way it is now, there would be lots of resistance and efforts by local constituents and governments to subvert the bill’s purposes. But, if there were a performance target that cities could meet and avoid that imposition, I think cities would be motivated to do so. Now, in the case of my city, of Santa Monica, yes, I was a local government official. I knew that there were development projects that neighborhoods were sensitive about, but what we found was a way to make it work.

Santa Monica is one of the very few cities in Southern California that has met all of its state RHNA targets in each of the last periods, including all of its affordable housing targets. In fact, about 38 percent of the development in Santa Monica was affordable, and we had—in the last cycle—four times our RHNA allocation built. We’ve knocked it out of the park when it comes to both market-rate development and affordable housing. You won’t see any city in the state that has as effective of a housing development program.

My point here is that cities can make housing development work. There are strategies for being sensitive about neighborhood issues and still get your housing development. In particular, we pioneered mixed-use development on boulevards with multifamily housing back in the late 1980’s.  We did that because we did not want developers Ellising [invoking the Ellis Act on] rent controlled apartments and tearing them down to build condos. So we created a more attractive option with moderate density on the boulevards or in our downtown. We got 3000 units built in our downtown, about one-third deed-restricted affordable.  Neighbors have never opposed these projects.   

The state should try to learn from those strategies. Leave the R1 alone; there are better opportunities on the boulevards and in downtowns, especially as brick and mortar retail contracts from online shopping—And it’s closer to transit and less likely to risk displacement of existing renters. 

Look at the cities that have been effective, that have done it well, and try to encourage those strategies rather than a one-size-fits-all imposition that just makes everybody angry and resistant.

The other part is the SCAG process. When they were presenting the methodologies underlying their initial RHNA recommendations—they said that the region, in fact, had actually met all of its targets for market-rate housing. It had met what they now call “above-moderate,” but what we had not met, as a region, were the targets for affordable housing. That’s why in the RHNA allocations and the methodology, when it talks about so-called “existing need,” that really is heavily weighted towards affordable housing. 

Now, something was working there, and something wasn’t. Neighbors were not opposing all housing; market-rate housing was in fact getting built. What was not getting built was affordable housing, and we know the big reason for this is because affordable housing requires public investment, and neither the state nor cities were investing resources. 

Frankly, losing redevelopment authority made it worse. If the state wants to solve the real problem that we have, it would be making sure that cities had sufficient resources and motivation to build affordable housing and not force them to build higher density market-rate housing on an imagined principle that if you increase the supply of market rate-housing that somehow affordable housing shows up somewhere – yea, 25 years from now, 75 miles away something affordable might occur.  In the meantime, gentrification has displaced most of the neighborhood and left an army of people homeless.  That’s not smart and not fair to the people in those neighborhoods.

If, as you suggest in your analysis, there are proven local, housing production strategies that do work, could you explain how—since the introduction of Senator Weiner’s SB 827 and SB 50—the well-funded YIMBY/WIMBY campaign has been able to reduce a serious housing policy conversation into a simplistic pro-housing/anti-housing YIMBY/NIMBY debate? 

The YIMBY constituency, which is a legitimate constituency with legitimate concerns, consists mostly of young, professional, and generally well-paid folks who hope that there will be affordable homeownership opportunities that they can buy and build equity from. In my own community here, one of the most staunch advocates for the ‘build, build, build’ strategy was a young man who had grown up here and didn’t envision himself being able to buy a home in Santa Monica. He hoped and imagined that if the city permitted a lot of housing be built—Presto Change-o! Something affordable might appear that he could afford to buy.  But that’s not the way the market works.

It’s very clear that when you let market-rate development in, it gentrifies the local area; it drives rents up, not down. Downtown Los Angeles is a beautiful example where there’s probably 35,000 new units built in the last two decades, many more if you count the loft conversions, and there’s no rent going down in Downtown LA, it’s all going up—existing buildings and new buildings.   Big new market rate supply generates big new demand – and higher rents, not lower rents, are the result

The same has been true in Santa Monica, which I described to you as having had a successful housing development program. We built 3,000 units in our small downtown, around the Third St Promenade, and—except for rent-controlled and deed restricted affordable housing stock there—everything new is very expensive. That new supply does not bring prices down. 

The theory of expanding supply to get affordability is not a theory that applies to a specific community. It may apply in the long-run, in a larger regional context; 25 years from now, 75 miles away something might be affordable, but that means that everyone who’s low income now has to move to Inland Empire or somewhere else out of the LA county region. That’s not good housing strategy, you’ve displaced the people who should be the beneficiaries on the theory that you’re meeting the market. 

Besides, the whole theory about why housing prices have gone up—a failure of supply—is just wrong.   What’s really driving the market in LA County has not been a failure of supply, it’s been a dramatic spike in demand, in a very short period, in a decade. 

Check the data! It started back in 2005 when Yahoo! first bought a one million square foot property in Santa Monica, Google soon followed, then the tech wave from Silicon Valley—coming to LA to marry Hollywood—begat Silicon Beach. Since that time, we’ve added to the county population about 300,000 new high-income households making over $100,000 per year, which is about a 50 percent increase in that cohort. When that happens, it drives housing prices through the roof, and the result is that low-income people can’t afford it, so they move. 

Since 2005, we’ve had more than 200,000 low-income households move out of LA County, and we’ve had a catastrophe of homelessness, most of whom become homeless because they can’t afford their rent. That’s the localized impact of that kind of development program where a highly paid industry workforce swarms a largely moderate-income marketplace. 

We do have to produce market-rate housing. It’s true that these new high-income workers can help our economy, but they also put pressure on the marketplace. We have to respond at the low end with significant public resources to build housing for those who are adversely affected.

It’s not rocket science. I think what the industry did was get way out in front of everybody else with their ‘supply-demand’ mantra, like it’s some sort of scientific prescription even in a local community when in fact it’s not. It’s an approximation for a regional dynamic that only occurs if the supply continues to grow, and only if you accept the creative destruction of displacement in between. 

Given there were approximately 200 housing related bills introduced this session of the legislature, why do so few put forward the kind of policy and funding solutions that you’re hinting at in your analysis of what would lead to the production of more affordable housing?

Part of it is that it requires public money to invest in order to make housing affordable for low-income people, especially since landowners price their land in light of demand for high-income, market-rate housing; it makes it a challenge building low-income properties. The State of California has a lot of other demands for public money as well. The legislature passed SB 1, which was a terrific effort to try to address funding needs on the transportation side. We know there are very significant needs on the public education side, but I think the legislature is a little bit averse to providing additional public money. They were persuaded to let the supply-side approach have a go at it, because they were reluctant to raise taxes to fund affordable housing,  but it's an unfortunate conclusion. 

I think it’s going to be necessary for localities—cities and counties—to be the place where these resources are generated. It’s hard to do it the legislature because it requires a two-thirds vote. They got the support for SB 1, but it’s very rare. 

Local governments are going to have to step up with their own ballot measures. We ran a sales tax measure for affordable housing in Santa Monica that did very well, and that’s one of the reasons we have a well-funded affordable-housing program; the county and the City of Los Angeles need to do the same.

Recent California Supreme Court rulings make it likely that if a revenue measure is done by voter initiative it will require a majority vote instead of two-thirds.  That would create an opportunity for genuine solutions. But, it’ll take advocacy organizations with the gumption and the leadership to circulate measures and put them on the ballot locally. What will happen is that someone will succeed, others will follow, and it’ll become part of the “normal” in California’s political life as local governments become a more important part of meeting these needs.

Pivoting a bit, elaborate on the Nexus between Metro’s ridership decline, the NextGen Bus Study, and the housing displacement impacts of tech-fueled housing demand that you’ve described above. 

 Bus systems all over the county—all over the world, really—have low-income populations as their primary ridership base. The transit system becomes not just the system of choice, but a system of necessity for many of its users. Those folks are people who provide services throughout our economy; they’re essential. The bus system is essential to getting that workforce to work.

There has been a dramatic increase—over 300,000 new high-income households making over $100,000/year in LA county over the past decade and an even larger increase in households making $200,000 /year between 2005 and 2015—and the effect on affordability throughout the county has meant that low-income people just could not afford to keep living here. 

The Metro bus system is operated pretty well. It’s tough in the traffic, but it’s a well-run system.  The challenge is that almost 10 percent of their base were forced out of town by high rents, and it’s almost exactly equal to the number of riders they lost. 

Instead, the higher-income people, who came to town to take jobs in the new tech industry, were all car owners and car drivers. Their presence now is why our traffic got worse, our VMT (vehicle miles traveled) went up, and our air pollution and greenhouse gas emissions worsened. All of those things happened in that last 10 to 15 years. We shouldn’t be resentful, those are just people doing good work. We were, as a community, not ahead of the curve. We were not anticipating these effects and perhaps we should have. Although, it would take pretty smart leadership to anticipate that kind of future. 

The tech industry should be part of the solution here. It is clear that when they expand dramatically like that, with such a high-income workforce, it creates a big housing problem. So, they’re promoting measures like SB 50 to address this market-rate “need,” but they’re the beneficiaries; they’re not being part of the solution. They’re not putting up resources to help meet the need; they’re expecting our communities to accept the level of development that they want.

San Francisco, in the last election, adopted a tax for affordable housing and homelessness on businesses with the highest gross receipts in the county. That’s a smart thing to do. That’s the sort of thing that needs to be done if there’s going to be an equitable solution, because those firms are the beneficiaries of the pressures in the marketplace. Frankly, so are the office-building owners who provide them a place to do business. 

Instead of just putting it all on the community to increase density for them, they should be coming up with revenue sources to help offset the impact on the low-income population. 

Lastly, this interview will be coincidently published alongside a report by Congressman Earl Blumenauer on a renewed effort to reengage the federal government in infrastructure and housing policy for affordability. What should be the role played by the federal government re both infrastructure spending and affordable housing – given that both, not that long ago, were accepted federal responsibilities – but are no longer?

That’s exactly the right characterization, they were once dominant. During the Reagan era and after, the federal government backed out of both roles. All those people my age remember when David Stockman, the budget director for President Reagan, was slashing budgets right and left. Federal revenue sharing used to be a major source of funding for local communities to meet both housing and social service needs. That program ended and they slashed Community Development Block Grant funding. Over time, they have slashed the federal government’s role in affordable housing, and left states, cities, and counties holding the bag.

California was especially crippled by that, because Prop 13 had not only cut property taxes so greatly—especially for commercial properties—they made it very difficult by requiring a two-thirds vote for local governments to raise money to make up the difference. Meanwhile, our job base shifted from manufacturing to the service sector, from higher-paid wage to a lower-paid wage earners, and therefore the need for both transit infrastructure and affordable housing— and help from the federal government—is greater. 

At that very time of greatest need, the federal government under Reagan Republican leadership, was slashing everything. It was exactly the wrong prescription. If you think that affordable housing and decent wages and livelihoods are important part of a community’s prosperity, then those strategies were exactly the wrong thing at the wrong time.