The Claim
A shortage of housing is due to public policies that make it too difficult and too costly to build to meet demand. If we remove regulations, housing will become affordable and developers will be happy to begin building again.

The Strategy
Convince the public that concern about things like environmental review, design standards, open space, historic preservation, shadowing, and creating wind tunnels and urban heat islands in our neighborhoods add too much cost for developers, thus keeping housing costs too high. If these things are eliminated, developers will begin building market rate housing, which will cause high income earners to move into the newer places and leave their old housing for lower income earners. As a result of this “trickle down”’ strategy, housing will become affordable for gardeners and care givers and immigrants and minimum wage earners again.

The Facts
There is what is technically called Affordable Housing and there is housing that people can actually afford. Technically, if you earn between 80%-120% of the Area Median Income (AMI), you’re classified as medium income. In Alameda County, that’s between $84,600 and $134,250. So, if you are a barista earning $30/hr. with tips, working full time (annual gross income $62,400), you are low income.

The general rule of thumb for affordability is no more than 30% of one’s gross income should be spent on housing. For our young barista, no more than $18,720 (30%) should go toward housing, allowing for a rent of $1560/mo. According to apartments.com, even a 426 sq. ft. studio in Berkeley averages $2085/mo. That’s not family housing; it’s student housing. And the “trickle down” housing those high wage earners will be trading in for newer digs? It’s really not likely to rent for $1560/mo. It’s more likely to be single family homes that will be purchased by other high income earners at even higher prices, because so much of the single-family housing stock will have been torn down by developers to build even more high-rise market rate apartments.

The Bottom Line
Developers build housing to make money for themselves and for their investors. That’s how capitalism works. When there is a shortage of housing, they look at the costs of building, which are influenced by the cost of funds, labor, land, materials, and yes, the cost of government regulations. Regardless of all those costs, if the prevailing rental rates are high enough to earn the necessary return on investment, they will build. If doing so will bring down rents, the rate of return vanishes and they won’t build. Period. They’re not in this out of the goodness of their hearts.

The provision of below market rate housing has always required a public component to keep costs at bay. At times, the public helped finance the construction; at other times, it helped subsidize the rents. But thinking that the investors in hedge funds will solve issues of affordability in housing is a fantasy.

For More Information

“Rich Family Zoning Plan passes 7-4”, Tim Redmond, 48 Hills. — Discusses how this same argument has played out in San Francisco, with Supervisors using affordable housing as a smokescreen to allow for building bigger and higher. Be sure to make it to the end.

“Does Upzoning Boost the Housing Supply and Lower Prices? Maybe Not.”, Bloomberg.com. Rezoning for high density market rate housing, referred to as ‘Trickle-down housing policy’, is pushed by the real estate industry, big tech, and politicians. It has been a colossal failure. This article reflects research findings showing mixed or limited results: while upzoning can enable more housing, studies in places like Chicago found it could increase local prices, not lower them, due to speculation and market forces. “The notion that increasing housing supply will magically fix our problems is one of those things that is simply too good to be true.”