Related California’s Bill Witte on the Impact of the 2024 Election on West Coast Housing Markets

Bill, it’s great to connect again as it’s been some time since your last TPR interview. Given that we’re having this conversation shortly after the November 2024 election, what are your immediate thoughts on the election's impact on the West Coast housing markets that Related is developing?

Well, I will focus my comments on California since that’s where we’re involved. I haven’t spoken to our partners in New York about their situation. As they often say in politics—all politics is local. To some degree, that’s true of real estate as well. I think the single most important thing affecting real estate now, and generally, is interest rates. That is a macro phenomenon, not a micro phenomenon. The answer is, we don’t know where they’re going.

On the one hand, a lot of the investment community, I think, has welcomed the election, assuming less regulation, and that it will spur growth.  We don’t know what policies the new administration might propose concerning tariffs or other things that could increase costs, which could increase inflation, which would counteract interest rates being reduced. So, we just don’t know what impact that will have.

Questions have been raised, even before the election, about the significance of the election for housing in California. Other than interest rates, which is the single most significant thing, costs have been prohibitively expensive, which has made a lot of market-rate housing infeasible and added significantly to the cost of affordable housing. Depending on what happens with immigration—this is a very California-specific comment—that could also be a problem. There’s already a labor shortage, in California and maybe beyond, in service industries and construction. If extreme immigration policies are implemented, it could exacerbate that, which would also increase costs, as the cost of labor would increase.

With respect to the affordable housing that Related is so deeply involved in on the West Coast, do you expect, with a change of administrations in Washington, a change of federal housing policy or a change in the way affordable housing in the United States will be funded?

I honestly don’t think the change of administration at the federal level- in terms of the ability to fund affordable housing - will make that much difference, because the feds have long been out of that business, other than the Low-Income Housing Tax Credit Program, which is by formula. 

The only comment I would make is that the program generally had bipartisan support, and there were bipartisan proposals in the last Congress to increase the size of the Low-Income Housing Tax Credit Program. They didn’t go anywhere, not because of huge opposition, but because it was tied to tax bills, and those tax bills didn’t come to fruition. There’s probably marginally less chance that this administration would initiate such proposals. I don’t know that, but that’s possible versus a Democratic administration, let alone a Republican-controlled Congress. 

It’s not necessarily that it would make things worse, I just don’t know that there would be an initiative to make things better. Then the other thing that gets talked about a lot, particularly from this kind of administration, is over-regulation. But that’s a state and local initiative, not a federal initiative. 

Bill, if, as you note, ‘all politics is local,’ assess the impacts of the statewide and local elections in the West on housing policies and future funding.  

 In general, for California, there’s Prop 33’s loss—had it passed, I think the state would have been consumed, city by city, by various attempts to tighten rent control measures. That would have taken the oxygen out of the room in the housing policy, but it lost—and it lost by more than it had lost the last two times. So, for development, that’s a positive sign.

The first thing that comes up with local policy is ‘do no harm.’ You can’t control interest rates or immigration policy, but you can control what cities do. For example, the City of Los Angeles has taken steps to expedite the processing of permits, particularly for affordable housing, which is good and necessary, but it doesn’t move the needle on costs. 

There has been a tendency in our urban centers to apply more and more requirements and regulations to development. Some of those deal with labor, but not all of them. Can cities step back from imposing more regulations that add to the cost and timing of development? Again, there’s no magic bullet here – cities can’t control macro issues.

Another challenge—perhaps more on the affordable housing side—is that cities and the state have budget challenges. We’ve seen the impact of that in the statewide elections. Voters, despite the passage of Measure A in LA, are becoming a little wary of throwing more money at the problem.

In LA, civic leaders did a very savvy thing—and I give Miguel Santana, Sarah Dusseault, and others credit, along with the mayor, and county supervisors, for running the ballot measure as a  citizen-sponsored initiative—it thus only required a 50% approval, not a two-thirds vote. It’s always hard to get a two-thirds vote, and this one didn’t, but it did pass comfortably. Still, voters will be looking to see how efficient and effective these Measure A funds can be in addressing not just homelessness, but affordable housing problems. 

Bill, you’ve been quoted in the past saying that San Francisco and LA—two West Coast cities that Related is building in—are “going in different directions.” Could you elaborate?

That’s a bit of an overstatement but let me say it this way: Number One, San Francisco is 48 square miles—the size of one council district in LA, practically. Number two: the City of LA has a larger low-income population than San Francisco. That’s not right or wrong—it’s just a fact. I think you see that reflected in recent elections at the local level. In San Francisco, the recent election moved strongly rightward—not across the board, but in several ways. 

In LA, where you have a much larger low-income population, I think that’s reflected in many recent council races. The needs of that population have arguably been a difference-maker in some of these elections. Again, these are not value judgments—just observations.

The questions we don’t know the answers to yet—which are a challenge for any mayor, certainly for Mayor Bass, as they were for Mayor Breed in San Francisco—are budget-related. If there’s a challenge to the budget but greater demands on it, how do you reconcile those?

In San Francisco, fairly or not, perhaps the biggest criticism of the Breed administration was not about the policies themselves but about inefficiencies in administering the city. In LA, it’s an even bigger challenge because it’s not quite as strong a mayoral form of government, and the city is so big and sprawling, with so many different places and components. How do you manage all these expectations with a challenged budget?

This isn’t the first time a mayor has faced these issues. Cities have to, in theory, have a balanced budget—they can’t just go into debt like the federal government. So how do you manage that?

San Francisco and LA are very different cities— LA has a more diverse economy than San Francisco, which has been and continues to be, tech-dominant. San Francisco has become the center of AI, which I’ll loosely lump in with tech. That doesn’t mean LA doesn’t have the same kinds of challenges, but they’re coming from different places.

Following up—if you/Related were in discussion with the Mayors of Seattle, Portland, San Jose, Los Angeles, or San Diego, would their housing and homelessness challenges differ? 

Well, as it happens, we’re very active in Portland regarding affordable housing with 12 projects in and around Portland and in part of Washington state. Affordable housing has faced immense challenges with homelessness and related issues.

I think the discussions wouldn’t be that different. What are the lessons learned from the past four or five years? What can we do differently? Portland is changing its entire structure of government by ballot measure. It was very different from California cities—each council member was responsible for a different city department. That always baffled me, but they’re changing it now. I’m less familiar with Seattle, but in both Portland and Seattle, politics have shifted somewhat right. Not “red-state rightward,” but both cities have faced huge challenges—at least in the eyes of voters—on crime, homelessness, and related issues.

Note—Seattle just this November passed one of its largest transportation infrastructure bond measures, with over 66% of the vote. What does that say about Seattle voters priorities?

I think it’s a good thing. I don’t know how it compares to California, where things are going a bit differently. For example, we’ve developed affordable housing throughout the state and traditionally focused our market-rate projects in urban cores. Now, we’re doing major urban-style projects in suburban locations, driven by population movements, post-COVID dynamics, and perceptions of urban conditions.

We’re not abandoning urban cores, but some of our biggest projects now are suburban. This shift seems to have moderated the public focus on mass transit in and out of cities. That’s not to say transit isn’t still important, but compared to Seattle, the Bay Area, for example, is struggling. Post-COVID issues like crime and reduced ridership on BART have created huge financial problems for transit agencies. Voters haven’t necessarily supported raising taxes to address these issues. These dynamics are still unfolding, and the Seattle dynamic sounds a bit different.

You have not mentioned San Diego. How is that City compare with the other cities we’ve discussed?

San Diego has been a much easier environment to get high-density housing approved compared to other cities in California. There’s less regulation and broader support across the board, both from the public and local government. For example, the city council has overridden voter objections to implement zoning changes that increase density, even in areas near single-family neighborhoods.

This willingness to align local policies with state mandates for higher-density housing sets San Diego apart. The city has carried forward policies in line with what the state of California would like cities to adopt. That said, approving housing is a step in the right direction, but it doesn’t automatically mean housing gets built. The broader economic challenges—construction costs and high interest rates—still apply here, as they do everywhere else.

Pivoting, let’s carry on a conversation we’ve had with you off and on for years regarding California’s recent legislation incentivizing housing production by usurping local land use controls over density. Is there any city or metro area in the West where upzoning has materially resulted in producing lower-cost, “affordable”  housing?

I would have to say the answer is no because the drivers of increased cost have been interest rates and the cost of construction.

Two things have happened, though, in the positive direction. One, many cities I’m familiar with in Southern California, for example, even Laguna Beach and Newport Beach, have focused on trying to zone for more housing—much more than they ever would have in the past. To see that in many places, not all, but many places, that’s a positive. There’s certainly been a raft of state legislation to make it easier. We are working on what I believe is the first project resulting from Senate Bill 4, which mandates any site owned by a religious institution or educational institution that’s 100% affordable is effectively subject to basic zoning, a ministerial approval. 

Could you share an example?

Our new project is two blocks from the ocean with a church in downtown Laguna Beach. That wouldn’t have happened before – that’s a positive. Several cities—San Francisco, LA, and others—have tried to expedite permit processing. This is something cities control, but it won’t move the needle significantly on cost. 

Talking about lower-cost housing again, I want to be careful how I say this: Every form of state legislation, for the most part, except perhaps ADUs, carries with it requirements on labor, and there’s a reason for that. I’m not suggesting that’s bad, but it doesn’t decrease costs.

Is it not true that the avowed purpose of the California State government’s intervening in local control of land use and zoning was/is that doing so would result in lowering the cost of housing by simply increasing supply? You’re here suggesting these efforts have little or no effect on housing affordability?

A very good question. 

Most mainstream and even other economists will conclude that California’s problem is a supply-demand problem. There is simply not enough housing at a high level – that is true. The reason is that there hasn’t been a discernible difference in the cost or affordability of housing. What’s happened has been baby steps toward increasing supply. Some of that is that it’s still not easy to get things done, but some are macro issues of, unusually high, relative to how they had been, interest rates and high costs. As people are fond of saying, you can zone for more housing, but you can’t make people build.

Bill, is there any evidence that upzoning, including in residential or transit corridors, doesn’t result in the lower cost—lower-cost building ratios—because the property value goes up significantly, and at least in the California state legislation, there’s no value capture provision?

I think you have to look at that two ways. San Francisco, up until COVID, had done some very significant rezoning in the city, and we and others built a lot of housing until COVID and rent growth slowed—or, in the case of San Francisco, because of return-to-work, actually dropped.

Now, does that make San Francisco an inexpensive place to live? No, it never will be, but compared to other cities, like New York, where rents continued to go up, they didn’t go up in San Francisco. Now, that may sound like I’m damning with faint praise, but I am stating a fact. This comes up a lot, but it’s a good question. The YIMBY types will say, ‘we’ve got to build more, we’ve got to build more, we’ve got to build more.’ The NIMBY types—and I’m using these terms loosely—will say, ‘what difference does it make? You say we’ve got to build more, and it’s still expensive.’

I think you have to look at it this way: Let’s look at the state. There are policies to encourage you to build more, but have those policies made that much difference? We’re not building a lot more. There’s simply no data to support that. The homeownership market, of course, has been even more challenged, and the percentage of people, both nationally and in California, who own a home continues to drop. Not sure that’s healthy and again, a lot of this comes back to changes in interest rates. Existing homeowners don’t want to sell because they have a low-cost mortgage, but also, it’s so expensive to build.

Another thing that affects all of this—the loss of people in the state. I just read an interesting and slightly disturbing article about what the out-migration of people means to congressional representation in various states. By 2032, if migration patterns within the U.S. continue, it will be X% more for a blue state to remain blue because Florida, Texas, and Arizona will have gained congressional seats. California and New York will have lost congressional seats.

Now, who’s leaving? Because this gets to the affordability. Much is made of when Elon Musk leaves, but that’s not where the main out-migration is. It’s the working and middle class leaving, partly because of affordability problems. Unless you can find a way to change that cycle, there’s reason to believe that phenomenon will continue. That’s not good for the state, the workforce, public schools, or the budget.

Note: You wouldn't know that people in great numbers were leaving the California  if you experienced the growing congestion in the metropolitan areas of California– in LA, many report that it’s never been worse. 

Bill,  former San Diego and Los Angeles planning director Gail Goldberg often articulated and promoted a “City of Villages” concept for accommodating increased housing density in both Cities. Her thesis, in essence, was that residential neighborhoods being asked to accept more density needed a quid pro quo in the form of new infrastructure and amenities to support greater density. This win/win planning approach seems no longer to resonate with today’s YIMBY developers and city planners.  Are the planning departments in cities that Related is investing in currently offering their urban neighborhoods more amenities and infrastructure to support the proposed new housing developments?

Well, I think planning departments get that. They’ve strongly encouraged trying to get people out of their cars, more density, etc. – sometimes, they're ahead of the market. You say congestion has never been worse and some of that may be because of the dispersal of the population, where jobs and people are living in different locations. You could have one household where one member works in LA, the other member works in Orange County. 

I can't honestly explain all of that phenomenon. Some of it is a housing affordability issue. There continues to be population growth in the Inland Empire—not concerning all types of jobs, but growth. People want to buy a home, and they can’t even think about doing that in and around LA. The same thing is true in San Francisco and especially the inner ring suburbs there.

We can try to get people out of their cars, but the transit systems are strapped. There is still out-migration from cities and commuting– the population isn’t increasing. San Francisco lost 60,000 people during COVID-19 and has gotten back 10,000 of them. It's also affecting the public school systems there. In San Francisco, certainly, and perhaps LA, there are controversies about the closure of schools and, dare I say it, the quality of education. We're asked in cities by planners to build housing for families. Okay, but if you're a family and the public schools in that city are challenged and you can't afford private school, are you going to that city?

You mentioned affording homeownership. Is it not true today that buyers’ affordability challenge is that they  now compete with Blackstone and REITs when making an offer on a new home. Won’t this competition for housing significantly negate public policies designed to reduce the price of housing?

I’d go back to the '08 recession, when there were foreclosures of huge numbers of housing, particularly in the suburbs or the outer or the exurbs. What happened then? The government was in no position to step up and buy it up, so instead, private equity funds like Blackstone, if it was them, came in and bought in bulk – it was neoclassical economics at its best. It was economically efficient, and it addressed this huge financial overhang of foreclosed properties– it also put all those properties in the hands of what might be called absentee landlords. That’s when we saw that phenomenon. It addressed the market concern, but it raised social and other concerns. 

I can tell you, that no government was in any position at scale to deal with that problem. Now today, I'm not sure we have the same situation. You may have more data on that. There's been a large institutional presence in housing markets ever since the recession in the '90s. That hasn't gone away. I think of late it's been slightly less in California because a lot of institutional investors are concerned about the politics of rent control and other things in California. Maybe that, hopefully, will change. 

Before concluding this interview, we haven’t interviewed you since Senator Feinstein passed away. You personally began your real estate career with Mayor Dianne Feinstein in San Francisco City Hall. Elaborate for our readers benefit on her long and distinguished public career.

Well, I worked for her for eight years and remained friendly with her till near the end. She was always her own person. The notion, “Oh, she’s a San Francisco Democrat, so she must be uber progressive.” Progressives, of course, will tell you how it isn’t true. She was sort of the textbook centrist, but she was always results-oriented. 

When I worked for her, when anyone worked for her, when she was mayor, every Monday morning, every department head, unless excused, was in her office to go through a list of things for the city. When she was in the Senate, I think most people will tell you, she was uber-focused on getting things passed, whether it be gun control or things to help public land in California. I would say progressive on social issues, but moderate on issues affecting business, which is why I think she performed so well politically throughout California, not just in the cities. It’s an interesting model. 

What I worry about is that people like her are leaving Congress– both Republicans and Democrats. There seems to be so little room in the middle these days, but I think she had an extraordinary career and made an extraordinary difference.