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Eminently Logical 

Don't be too concerned with the originators of Proposition 98. instead, look at what they might deliver.

Wednesday, May 28 2008

If you're an environmentalist, an antipoverty activist, or a member of any other well-meaning civic group, your fellow travelers have told you to vote no on Proposition 98, the so-called anti-eminent-domain initiative.

And well they might, given the devious and greedy intent of its property-rights-zealot backers. But just as I don't buy tasty sausages because of my belief in the philosophies of meatpackers, voters on June 3 might ponder possible outcomes rather than ideological inputs when considering Proposition 98.

A cool-headed analysis of the measure's potential real-life San Francisco consequences — effects that are separate and different from its backers' misguided intent — point toward a potential cascade of unintended events that might help the environment and uplift the poor.

A measure conceived as a right-winger's wet dream, in other words, could instead advance the goals of liberals.

First, the devious stuff. Proposition 98 is ostensibly about preventing governments' use of eminent domain to unfairly seize property. But there's no crisis of eminent-domain abuse in California. The measure's truly meaningful effect lies in 20 vague words, out of a largely irrelevant 2,000-word total, that may undermine rent control, zoning, and other regulation of real estate.

Governments will pay compensation for actions "limiting the price a private owner may charge another person to purchase, occupy, or use his or her real property," the measure says.

If Proposition 98 passes, for every rule that limits rent, stifles lucrative development, or inhibits profitable change of use on a property, governments might have to pay landowners the difference between what they could have otherwise collected.

This would make such rules prohibitively expensive to enforce, effectively banishing zoning, environmental restraints on development, and rent control. (To soften this last blow, the measure specifies that rents can't be hiked until apartments are vacated. Incoming tenants would then see rents rise with market demand.)

Thanks to that 20-word sweet spot, the California Farm Bureau backs the measure, apparently so its members can cash out to developers at top dollar. Developers stand to benefit by paving wetlands and orchards. Landlords — the measure's main financial sponsors — support it so they can jack up rents.

Prop. 98's authors, meanwhile, hope to manifest their extremist philosophy of property rights at all costs. They'd have us believe that land once stolen from Native Americans by Spain, seized from Mexico by the United States, and subsequently made valuable through extralegal water wars should now be imbued with an inalienable right to a high resale price. Logically speaking, that's piffle.

If Proposition 98 were to pass, its backers would be wise to delay counting their profits.

A market such as the one that has formed around California's half-century of real-estate regulation is like water: It looks for the path of least resistance. Suddenly removing such a regulatory regime is like plowing up a riverbed; it's difficult to know how the market will redirect itself.

Depending upon how courts interpret the aforementioned 20 words — and, if nothing else, this expansive and vaguely worded measure is a full-employment measure for attorneys and judges — a comprehensive nullification of controls upon development and rent could actually have the opposite effect from the one its backers desire.

Let's start with the desire of greedy landlords to charge sky-high rents. While rent control is an untouchable third rail in San Francisco politics, and thus immune from local cost-benefit analysis, it has been thoroughly examined in academic studies, government reports, and in the SF Weekly feature "The Case for Ending Rent Control" [8/9/2000]. After reviewing piles of research and interviewing dozens of experts on both sides, reporter Peter Byrne summarized the situation: "San Francisco's housing shortage, and the high residential rates it has created, are the result of two major factors: political impediments to housing construction and rent control itself."

Proposition 98's relevant words are phrased in a way that could erase both of these factors. As a result of rent control, landlords have withdrawn thousands of homes from the market by keeping them empty, occupying them, finding other uses for them, or selling them as condominiums and as tenancies in common. Tens of thousands of other apartments are kept off the market through "hoarding," as individual tenants remain in cheap and cavernous three-bedrooms, hang on to their old $200-a-month apartments long after they've moved in with a spouse, or are otherwise motivated to cling to their leases.

Studies also show that rent control discourages construction of new rental apartments. New housing construction fell by one third in the seven years after San Francisco's rent control law passed in 1979. During the 1990s, meanwhile, the number of rental units actually decreased by 7,500.

This squeezed supply, combined with the city's steady recovery from the 2000 dot-com bust, has escalated current rents. Two-bedroom apartments that rented for $1,500 per month in my neighborhood five years ago now go for $2,500 to $4,000. Self-described S.F. housing activists have long insisted that this price hike is unrelated to the principles of supply and demand. The number of people wishing to live in San Francisco is infinite, they say, without citing evidence.

The fact is, though, that San Francisco apartments are not immune from the relationship between scarcity and price. And far from being a panacea for landlords, Proposition 98 could cause rents to slide back down by dramatically increasing the supply of apartments in cities.

An even more significant factor in Proposition 98's potential to depress rents is the way the proposition could eliminate Byrne's "political impediments to housing construction."

After World War II, San Francisco imagined itself to be one of the world's great cities. It was zoned to be a grand social, economic, and political metropolis, with tightly packed apartment housing in the Panhandle and the Richmond, around Golden Gate Park, on Potrero Hill, and along Ocean Beach. A half-century ago, in other words, San Franciscans envisioned an urban environmentalist's dream where growth meant denser cities rather than paved-over fields and forests. But over time, the city reversed direction, with downzonings, building moratoria, and reams of largely forgotten ordinances that nonetheless succeeded in restraining infill construction. The effect has been dramatic. After growing vigorously during its first century, San Francisco's total population decreased from 830,000 during the years following World War II to 765,000 in 2007, according to the U.S. Census Bureau.

In the process, the resulting scarcity of housing saw the city transform itself into an exclusive enclave for the wealthy, pushing development out to Central Valley farmland, which had far fewer restrictions on growth. Other Bay Area communities followed suit, enacting growth controls and pushing development further toward the region's periphery.

This didn't happen by accident. San Franciscans replaced what had been a metropolitan vision of the future with one best described as suburban. Rather than being a great city, it would instead be a tranquil place to live. Voters and city officials implemented downzoning after downzoning, creating dozens of rules inhibiting the construction of apartments, offices, and hotels. Today this pile of growth restrictions presents a maze that transforms what might be a few months of the process of building, permitting, and construction in rural communities into a typical half-decade slog in San Francisco.

The owner of a gasoline station can't demolish it and build apartments or anything else on his property unless he proves "comparable automotive goods and services are available at other reasonably accessible locations," according to the civic code. New buildings can't cast shadows on parks and playgrounds, flophouses can't be converted to tourist hotels, hotels can't be built on the waterfront, and new buildings in most parts of the city require parking garages, meaning that in areas zoned for three-story buildings, this sometimes eliminates an entire story of housing. Developers must set aside and subsidize 12 percent of units for lower-income buyers. If they build the subsidized units offsite, the percentage climbs to 17 percent. Downtown office construction is capped thanks to a strict 1986 antigrowth measure designed to prevent "Manhattanization."

Even more damaging than this tangle of rules, however, is the uncertainty that has been built into the development process during recent decades. City rules require that neighbors be notified of any new construction, which they can block at the Planning Commission. If the commission approves development, yet neighbors still want to see it stopped, it can be again be blocked at the Board of Supervisors.

The city is currently considering rules that would permanently block housing and office construction in its southeastern neighborhoods, blocks from downtown, in the name of "preserving" warehousing, auto repair, and other light-industrial-type buildings. This is preposterous from an economic or urban design perspective — blocking development of downtown-accessible housing and office space to preserve room for warehouses is a recipe for recession. Yet it's in keeping with the ethos that guides present-day San Francisco.

It says: "Our best days are behind us. So don't change anything."

Even when well-meaning planners attempt to improve this condition, they fail. Along Octavia Boulevard, site of a torn-down freeway off-ramp, planners have tried to create a dense transit-friendly neighborhood by making it easier to approve apartment projects according to an area-wide plan amenable to neighbors.

Native San Franciscan Bill Lightner liked this idea, and bought two adjoined and defunct auto-body shops once belonging to S&C Ford on Dolores, near Market and Octavia. The property is surrounded by apartment buildings. Lightner planned to build 48 apartments on his site, with the expectation that the much-ballyhooed neighborhood plan would spare him nightmares of delay. The Octavia plan involved years of meetings with planners, neighbors, activist groups, and developers, in hopes of agreeing on restrictions that were, at the very least, predictable.

Not in San Francisco.

Supervisor Bevan Dufty, who ran for re-election in 2006, came up with the idea of a somewhat duplicative Upper Market Workshop Series and Urban Design Plan consisting of yet another series of community meetings that continues chugging along despite that election being long over. It's uncertain what kind of enforcement powers this additional set of directives will carry. But in San Francisco terms, it's a success just the same.

"Overall, hundreds of people have participated in the process," the plan's Web site boasts. More process. Less housing. Incrementally more expensive citywide rent. In San Francisco, that's a political bonus.

Recently, Lightner was hit with another roadblock in the form of an S.F. Planning Department environmental review report. His abandoned body shops may become part of a yet-to-be-proposed "discontiguous automobile-themed district," meaning the old S&C buildings might be subject to new historical preservation rules.

"We're going to have to spend time and money to disprove the importance of these old buildings to a historic district that doesn't exist yet," Lightner says. "It's irrational. What does it mean? Discontiguous in time? In space? Does it relate to Van Ness Avenue? To Market Street? What it does is provide another arrow in the quiver of those who don't want to see development because it offends them."

Proposition 98 would remove that entire quiver with a single swipe. The results would be largely unpredictable. It's reasonable to surmise, however, that downtown apartment construction would accelerate. Rents would stabilize or decline. Hotel and office construction would take off. Businesses would flock to San Francisco, which would have ample new office space and more, cheaper homes for their employees. The city's tax base would expand accordingly, making it possible to fortify our local public transportation, parks, and social services.

Proposition 98's backers might find they haven't sufficiently thought through their initiative's possible effects. California Farm Bureau members would, ironically, find themselves with fewer opportunities to cash out to developers. Some landlords wouldn't be able to charge as much rent. Property-rights ideologues would see cities, those fomenters of liberal thinking, expand at the expense of more conservative suburbs.

Are these benefits worth endorsing right-wing zealots' misbegotten dream?

They just might be.

About The Author

Matt Smith


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