Happy Tuesday and welcome to another edition of Free rental. This week’s stories include:
- The White House imposes rent controls in federally subsidized affordable housing developments.
- San Francisco reverses reform that had the unintended consequence of allowing too much housing.
- A new study from the National Bureau of Economic Research finds that eviction moratoriums have led to an increase in racial discrimination in the rental housing market.
But first, our top story about a former California government employee criminally charged with completing a housing project on time and under budget.
Birth of a folk hero
A former employee of a California government agency has become something of a YIMBY folk hero for building an apartment for himself inside an existing train station.
Last week, the San Mateo County District Attorney’s Office indicted former Caltrain Deputy Director of Operations Joe Navarro and contractor Seth Worden for allegedly misappropriating $50,000 in government funds to convert two shuttered station offices railway in small private apartments.
According to prosecutors, Navarro built the apartment at the Caltrain station in Burlingame, California, with a shower, kitchenette and bedroom, for $42,000 in 2019. An anonymous tipster alerted authorities to the apartment in 2022.
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The apartment’s low list price (publicly financed apartments in California can cost nearly $1 million to build) caused X to praise Navarro for his economy and thrift.
Excuse me, they built a unit for $42,000? I don’t care if the money was stolen, they should be put in charge of California affordable housing development, not sent to prison. https://t.co/5Z9a6VRfJf
— Josh Barro (@jbarro) March 29, 2024
knowing literally nothing else about it… go away, king https://t.co/0fXsdXM3iC
— Jerusalem (@JerusalemDemsas) March 29, 2024
Caltrain should list them on Airbnb or VRBO or whatever because I NEED to spend a night in the illegal train station apartment. https://t.co/buEexQpzX6
— Max Dubler ??????️???? (@maxdubler) March 29, 2024
Much of the unit’s low cost likely comes from the fact that Navarro and Worden didn’t have to purchase any land or build the actual structure where the illegal apartments were placed.
However, the two demonstrated just how possible it is to provide affordable housing if you can get around the cost-increasing bureaucracy that developers typically face — impact fees, zoning approvals, environmental review, building department inspections and more – when trying to build housing in places accessible to transit.
To be sure, stealing public funds is hardly commendable. On the other hand, all public funds have already been stolen from taxpayers. By expanding the housing supply, Navarro’s black market apartment also marginally reduced overall housing costs.
The White House rent control plan
President Joe Biden’s administration plans to issue new rules capping annual rent increases at 10% for federally subsidized affordable apartments.
According to reports from THE Washington Postthe cap will apply to approximately one million apartments that benefited from the Low Income Housing Tax Credit (LIHTC) program.
The new rules have predictably received a negative reception from trade associations representing the real estate industry, who have criticized the rules for their potential to limit the construction of new homes.
“Price controls prevent the market from efficiently allocating scarce resources and discourage the investments needed to expand affordable housing,” wrote Jeffrey Miron and Pedro Aldighieri of Harvard University in a blog post published by the Cato Institute .
The administration and other real estate experts have rejected the idea that the new rule would impact new supply, saying al Send that even annual rent caps well below 10% do not discourage construction.
It’s a questionable applause. To the extent that the new rent cap limits rent increases, it will almost certainly limit new supply.
However, it is worth noting that properties affected by rent caps are already price controlled.
The LIHTC program’s affordability requirements limit rents to 30% of a tenant’s income. To qualify for one of these apartments, tenants typically cannot earn more than 80% of the area’s median income.
These rules do not themselves limit annual rent increases, but they do set a cap on allowable rents. The ability of LIHTC landlords to raise rents is already limited.
In this regard, the administration’s rent cap plan seems largely performative and political.
Biden has talked a lot more about housing costs as part of his reelection campaign. The White House’s new rent cap plan allows the president to say he is doing something to address rising real estate costs.
Affordable housing advocates have pressured the administration to go much further by imposing rent controls on all rental properties with a federally backed mortgage. In this regard, the Biden administration appears to be taking the same line on rent control as it did on zoning reform: saying the things activists want to hear while adopting modest policies.
San Francisco reverses reforms that allowed too much housing
San Francisco has some of the highest housing costs in the nation. Not coincidentally, it also has one of the nation’s most restrictive and unpredictable regulatory regimes for new developments. Last week, the city’s Board of Supervisors voted to make things a little worse.
On Tuesday, the council voted 8-3 to override Mayor London Breed’s veto of an ordinance that would downzone neighborhoods along the city’s northern waterfront.
The downzoning ordinance, which supervisors initially approved in late February, was drafted by Board of Supervisors President (and potential mayoral candidate) Aaron Peskin.
Peskin had ironically supported zoning changes in the Northern Waterfront area to allow for more office-to-residential conversions, he reported THE San Francisco Standard.
But by allowing housing in that area, the city also made residential developments eligible for any number of density bonuses and streamlined approvals under the state’s housing law. This has led to a wave of proposals from developers to build residential towers in place of old office buildings and garages.
“Once we realized this unintended consequence, I introduced legislation to reimpose density limits,” Peskin said for the Standard. “I don’t think we have to destroy the city to save it.”
Breed had vetoed the ordinance when it was first passed. She called override of his veto a “setback”.
Today represents a setback in our work to get to the yes on housing. But I will not let this be the first step in a dangerous course correction to return to being a city of no. We won’t go back.
My statement on the Board of Supervisors’ downzoning vote: pic.twitter.com/lYb5JD1dJe
— London Breed (@LondonBreed) March 26, 2024
The area affected by the downzoning ordinance is small. However, the vote is a reminder that the arc of zoning reform is long and does not necessarily always trend towards greater freedom to build.
A new study says eviction moratoriums have led to an increase in racial discrimination
In a new paper published by the National Bureau of Economic Research, researchers find that pandemic-era eviction moratoriums have led to greater landlord discrimination. From the document abstract:
Using data collected from an experiment involving more than 25,000 landlord applications in the 50 largest U.S. cities in the spring and summer of 2020, our analysis shows that the implementation of an eviction moratorium significantly disadvantaged landlords. African Americans in the housing search process. A housing search model explains this finding, showing that discrimination is exacerbated when landlords cannot evict tenants for the duration of the eviction moratorium.
This accords with past research that has found that when landlords and employers are unable to use criminal background checks, eviction records, and the like to vet potential employees/tenants, they are more likely to engage in outright racial discrimination .
Pandemic eviction moratoriums have always been misguided policies. The wave of mass evictions they were supposed to prevent was always unlikely to materialize. To the extent that they have prevented evictions, they have also left many landlords with non-paying, often abusive or nuisance tenants. Housing courts are now busy resolving routine eviction cases that have piled up during the months (or years) that evictions have been suspended.
Increased discrimination is another unintended consequence that could conceivably be blamed on them.
Quick links
- Colorado becomes latest state to pass just-cause eviction legislation.
- Utah Gov. Spencer Cox has signed into law a series of housing reforms aimed at increasing the supply of housing, primarily by making it easier for developers to finance infrastructure improvements.
- Is the US Navy the latest NIMBY boss standing in the way of new housing?
- Or is it the firefighters?
- In a decision rejecting a challenge to a state law that makes it easier for local governments to zoning for apartments, a California appeals court makes the case that building more expensive housing makes housing generally less expensive.
New ruling from the Court of Appeal: “Supply and demand are real”.
No, this is not an Onion title.
It’s a real case that rejects the NIMBY left’s argument that state housing law is unconstitutional unless it is narrowly tailored to promote the BMR, not the market rate, of housing. https://t.co/2CZTWcPOAi pic.twitter.com/pBuE7bd4k8
— Chris Elmendorf (@CSElmendorf) March 30, 2024
- A Washington state bill that would preempt local zoning rules banning small neighborhood bars passed unanimously in the state House of Representatives but failed in the state Senate thanks to pressure from local government, reports National review.
- The California Supreme Court will hear oral arguments this week in a case questioning whether California environmental law requires the University of California, Berkeley, to study the noise impacts of future student housing it plans to build in People’s City park. Let’s hope the lawyers don’t speak too loudly.