More comprehensive review of Berkeley housing crisis needed

letter to the editor
Willow Yang/File

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In their op-ed, Igor Tregub and Marian Wolfe, members of Berkeley’s Housing Advisory Commission, assert that “developers of market-rate housing use these higher rents so that their projects ‘pencil out,’ making the probability of more affordable rents unlikely, at least in the near-term.”

The authors falsely suggest that future rents are determined by past lending decisions, implying that the rent on a unit will not be lowered because the unit has been leveraged with the assumption of a high rent.

First, that assertion puts the cart before the horse. The finance decision is not the cause of high rents it is the consequence. Financiers are reacting to their risk-adjusted expectations of what the future market will bear. When prices do crash for exogenous reasons and leave some properties over-leveraged, it is true that landlords will tend to cut back on maintenance and otherwise disinvest before allowing rents to fall, but this is a self-limiting process that can not continue for very long. If the authors wish to be serious about housing policy, they need a better explanation of rent prices than “developers need to make their projects ‘pencil out.’ “

Similarly, the authors offer that “additional explanations for the lack of affordable student housing … owners purposely leave units vacant.”

Well, not quite. It is true that the size of housing unit supply varies over time because units may go unused, or used for some purpose other than housing services (such other purposes as, for example, short-term lodging). Each landlord’s optimal vacancy rate, however, is determined by the complex interplay of how long it takes to fill an expensive unit, compared to how quickly it would be filled if market rate asking rents were lower. For this reason, it is not uncommon to see vacancy rates increase when asking rents are steadily rising overall, the landlords are still getting a larger net income even though the vacancy rate is larger.

I will leave it to students to decide if they believe the authors that the Regents of the University of California and the UC Berkeley administration are really on their side and will be persuaded by students’ lobbying. If the past decades of worsening housing conditions for students aren’t evidence enough against that idea, nothing I say could change that.

Have students considered militant rent strikes? Socially owned housing?

Thomas Lord is a commissioner of the Housing Advisory Commission of the city of Berkeley.

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  • Dirty Burrito

    Big problem with the author’s social housing strategy: land use policy. The cost of land is extremely high, but zoning dictates low density, which results in high per-unit land costs. Additionally, zoning generally mandates large units which further exacerbates the problem. Cutting out speculators can create modest savings, but it won’t change the fundamentals that are keeping housing costs high.

    Land prices in Berkeley are now as high as some parts of central Tokyo (edogawa), our land use policy should reflect that.

  • Joe

    There are two aspects of affordability to consider.

    The first is the barrier to entry. It is too complex, too costly, and moves to slow. Projects get caught in the pipeline for years. This impacts the supply side players in the game.

    The second is to look as the 4 supply side players in residential real estate.

    The first is the owner builder project. This player builds at cost.

    The second is the owner/ contracted project. This player builds at cost plus labor.

    The third is the developers project. This player builds at cost, labor, and sells to the market at a premium.

    The forth player is .gov backed project. This player builds at cost, labor, politically mandated costs, and a little bit of pork.

    The system caters to large developers and .gov backed development due to its complexity. I do not understand why so many NIMBY’s rail against developers when they are what protects large developers hold on the market. Small contractors cannot afford the legal costs, battles, and delays. Large developers usually have multiple projects in multiple states. They can stomach delays, and have the pockets to pay lawyers to handle the legal challenges presented.

    The barrier of entry largely eliminates the first two players in California metros.

    What you are left with is the developer who by design pushes the market rate, and .gov who is to overweight to push costs lower.

    When housing was affordable, and in areas where housing remains affordable a large percentage of homes are built by the first two supply side players.

    Look at the historical percentages, how they shifted and you might just begin to understand the problem.

    Add Prop 13, massive population growth without proper zoning changes for the population increase, a lack of infrastructure development, and you have modern day California.

  • Man with Axe

    I don’t know the conditions in Berkeley. So, a question: Are there any good reasons why no one is building new housing units? Is the government making it hard to create new residential units to rent?

    • Watson Ladd

      Yes. See past coverage including the great line “I will never build in Berkeley again”

  • diogenes

    The number one cause of Berkeley’s affordable housing problem that UC Berkeley and the Daily Cal need to address is UC Berkeley’s continuing increases in enrollment totalling on the order of 20,000 students over the last 40 years, and its failure — to the benefit of investors in predatory rentals, a fair number of them UC Berkeley employees and the rest absentee vampires — its failure to do anything except dump this disaster in the city’s lap. This huge deliberately engineered surge in demand is what enables these predators and their bloodsucking rents, as Thomas Lord points out, in more polite terms. When the Daily Cal collaborates in the coverup of this deliberate disaster, it compounds the problem.

    • Watson Ladd

      What about the 35 years of no building, or the Neighborhood Price Increasing Ordinance that mandated expensive process for every single project?