The Trouble with California’s Constitution Article 34

We Californians added a state constitutional requirement in 1950 for voter approval before the building of any public housing. Article 34 was passed then because the real estate industry argued that public housing is publicly funded infrastructure similar to schools or roads, and that taxpayers should have a right to vote on low-income housing projects. At that time, the campaign also stoked racist fears about integrating neighborhoods along with the McCarthy-era rhetoric about the need to combat socialism (sounds terribly familiar to our health care and higher education dialog today).

The Supreme Court of the United States upheld Article 34 in the early 1970s. And today, State Senator Ben Allen (D-Santa Monica) has introduced legislation to repeal the Article on the 2020 statewide ballot. San Diego is experiencing an acute housing crisis. The State is instructing cities to lower regulatory barriers to building Affordable Housing (AH), and San Diego has complied with some parking reductions, an AH incentive program, and other tools to assist private and non-profit developers to build more AH housing. However, all are encumbered by high land and labor costs with the majority of the savings on the cost of newly constructed buildings found in permitting and processing, which is a low percentage of the cost of housing.

Public housing built on public land is provides the cheapest delivery mechanism to build cheaper housing for people who cannot afford market rate housing. Bottom line, the land is the cheapest, the labor is well-negotiated, the outcomes are more predictable than using subsidies, waivers, and other regulatory tools to subsidize new construction. The City of San Diego needs to build 12,000 new units annually to keep up with demand (we might build half that on a good year), and we’re trying to double our production with one hand tied behind our back by only relying on private development transactions. We’re in a crisis and it’s time to untie the other hand.

The following are my recommendations for how our region’s cities, and City and County of San Diego can begin to build public housing:

• Build local state governance representative support for Senator Allen’s bill to repeal Article 34 via Honorable Toni Atkins and Hon. Lorena Gonzalez. Because this will need political will from the Democratic/Labor left, public housing offers the incentive of more construction and management jobs and housing opportunities for trade workers.
• Take the lead in proposing a statewide ballot proposition to repeal Article 34 by obtaining signatures from 8% of the registered voters who voted (12,464,235 total votes) in the most recent election for governor. This is impossible as we’d need 997,139 of signatures @ $6.20 per signature = $6,182,260.00!
• Lead a local ballot measure to ask for a majority public vote on allowing the county and cities to build Low-Income (Subsidized) housing on City, County, Agency, and State lands. Initiated by either a petition signed by registered voters or via State Legislature such as Ms Gonzalez or Ms. Atkins, which again needs political will from the Democratic/Labor left, offering more trade jobs and housing opportunities for trade workers is the incentive for their support.
• Build Middle Income, non-subsidized “Essential Workers” housing that is above the subsidized state-defined Moderate-Income Affordable Housing program, which is >120% AMI. Average Median Income (AMI) for all counties established by HUD is $64,800 for 2019, which is $77,760. San Diego’s annual median income is $76,662. Start building Median Income Housing for rent on City and County lands today betting that Article 34 will be repealed and you’ll have future AH housing stock available – This could be done in conjunction with a non-profit education platform to help local citizens strengthen their neighborhoods through small-scale real estate projects. The Incremental Development Workshop trains small-scaled developers to build capacity and value for locals to be education on how to use San Diego’s inherent land values (as owner/developers or trades/labor) to invest in their own neighborhoods, retain their stake in a neighborhoods, and raise values lot-by-lot without displacement. Importantly, this could be financed by allowing local municipalities to borrow against their assets and rental income in the same way as registered providers and the private sector.

A common fear over this method of delivering AH is the possibility of skewing the housing construction market’s ability to fill any new market demands/needs. Our construction costs today are going through the roof (and has historically) as the ability to attract and retain construction workers in an expensive housing market makes workers scarce. So, the concern about the potential pressure on the existing skilled labor force is very real and illustrates the need for cheaper housing in our region.

In other places with skill shortages, such as the UK and middle-America, they are turning to establishing factories to create homes using modern modular methods of construction.
The rise and fall of our housing market influences the amount of Inclusionary Housing fees collected, which exacerbates the one-hand-tied-behind-our-back conundrum. And to build a significant amount of AH, we need new housing starts funded by developers’ contributions and any reduction in these contributions has a considerable effect on the  availability of AH. As a capitalist society there are always uncertainties in the market related to finance, labor force to construct housing, professional skills and shifts in the proportions of dwellings in each of the 10 housing market types.

Here are the ten (10) types of housing markets in San Diego (and who is responsible for building each type):

1. Low/Mid-Rise New Construction Housing for Sale (National, Regional, Local developers/builders);
2. Low/Mid-Rise New Construction Housing for Rent (National, Regional, Local developers/builders);
3. High-Rise New Construction Housing for Sale (National, Regional, Local developers/builders, Trades);
4. High-Rise New Construction Housing for Rent (National, Regional, Local developers/builders, Trades);
5. New Affordable Housing for Rent (Housing Commissions + Non-Profit AH Developers, Trades);
6. New Special Needs/Workforce Housing (Housing Commissions + AH Non-Profit developers, Trades)
7. Existing Special Needs/Workforce housing (Housing Commissions + AH Non-Profit developers, Trades)
8. Existing Housing Stock for Sale (Investors/Homeowners);
9. Existing Housing Stock for Rent (Investors/Homeowners)
10. New Custom and Self-Built Housing (Investors/Homeowners).

There are two (2) additional types of housing missing in San Diego that are available to other human beings in other parts of the world:

1. Social Housing for Sale (Agencies, Housing Commissions + Trades);
2. Social Housing for Rent (Agencies, Housing Commissions + Trades).

A hard truth is that our well-trained construction trades limit worker availability capacity (scarcity) that drives up construction costs. Another hard truth is that cheaper labor doesn’t offer the same level of quality . Affordable Housing built in private low to mid-rise development mostly excludes Trades Labor. And, Trades are used for all high-rise development, for rent or for sale, because of the expert skills needed to construction tall buildings. And, the trades-only construction scenario for AH/Special needs housing is detrimental to the cost of construction but imperative to the political will to build it. In my opinion, this illustrated clearly the failure of capitalism.

The need for more construction workers is real. The need for housing to house new construction workers to live in is a chicken/egg conundrum San Diego has had to deal with for a century. And, it is a common insistence from the development industry that the nation is suffering from a labor shortage.

So, the best solution is to cultivate a local construction trade industry, rather than hope to poach workers from other cities. San Diego City College has a trade apprenticeship program that a national developer is working with to building their own General Contracting company to build a new project in San Diego. This is the future of construction.

These are my recommendations to deal with the labor market via private corporate leadership (Chamber, Trades, Economic Development Corporation’s role):

• Build up skills to support housing delivery including labor trades, capital program accountants, legal and structural engineers as well planners and surveyors;
• Assume that some housing will need to be provided with direct involvement of local municipality;
• Recognize that corporate leadership is central to success in housing delivery;
• Recognize the role of local industrial strategies in supporting local housing needs for a full range of dwelling types that can house people who can support the local and regional economy.

These are my recommendations to enable social housing in local municipalities:

• Understand the Cities, County, and Agencies have different buckets of money to access and land taxation rules than neighboring cities;
• Recognize in housing finance policy that the number and mix of homes required in San Diego over the next forty years cannot be provided entirely by private sector funding;
• Consider the role of the municipality as a patient investor in its area;
• Consider providing all 12 types of housing that might be required for local needs if this is not being met by other providers;
• Establish a housing and planning delivery team to manage the implementation of all housing plans regardless of public or private proponent;
• Establish a housing delivery board to monitor progress and delivery;
• Establish a housing delivery forum of all providers in the area to meet regularly to discuss progress and problems;
• Establish a housing intervention fund to help overcome issues on individual sites (funding can be made as a grant, a loan or in return for development equity);
• Promote how housing supports the local economic objectives (e.g. retention of younger professionals and graduates living in and moving to the area);
• Assess all sites in municipality ownership for housing suitability;
• Include more detailed housing delivery outcomes in SANDAG’s annual monitoring report;
• Consider purchasing land for housing as an investment for the longer term;
• Work in conjunction with non-profit education platforms, such as local Labor/Trades Unions, LISC, and NeighborWorks, to trains locals construction trades and how to be small-scaled developers to build capacity and value for locals to be education on how to use San Diego’s inherent land values (as owner/developers or trades/labor) to invest in their own neighborhood through small-scale real estate projects. The Incremental Development Workshops encourages locals to retain their stake in a neighborhoods, and raise values lot-by-lot without displacement or outside forced gentrification, and;
• Establish a funding subsidy program through grants for local authority direct delivery of housing and other mechanisms such as by bonding or the general fund.

I have in my hand a list of 135 known socialized housing projects throughout Vienna that prove this is a viable tool to addressing San Diego’s housing crisis. Thanks to Voice of San Diego and Unsplash for the graphics, and political consultant Andy Kopp for the inspiration.