Ms. Elizabeth Morris
San Diego Housing Commission
1625 Newton Avenue
San Diego, California 92113
Dear Betsy: RE: Letters to Mayor
& City Council
What a joy to hear from you. You defend the indefensible with such panache!
This is why I tell people you are
my favorite bureaucrat of all time. You spent a lot of time addressing the
concerns I expressed to the Mayor and Council, which I genuinely appreciate. Sot
it's only fair that I thoughtfully respond to your points.
To begin with, I wasn't aware that the Housing Commission was charged with the
responsibility of neighborhood revitalization in addition to helping people find
decent housing. I take your word for it that Metro Villas are more than just
housing and that's why they are more expensive than 99% of the privately built,
non-subsidized, for-profit rental units in San Diego. You also say that Metro
Villas are an example of smart growth. Thank you for confirming that smart
growth is far more expensive than traditional development, just as critics have
claimed. I agree with what you have made obvious--smart growth makes new housing
much more expensive, not less.
In paragraph 4 of your response, you state my, "cost comparisons of Metro Villas
(a new construction project) to apartments of various ages, bedroom sizes,
locations, etc. are not comparing like properties. Also, complexes like Metro
Villas will cost more per unit ($199,278) because "this development provides
three and four bedroom apartments and housing types the market is unable to
serve". It appears that you are saying that the housing in which 99% of
non-subsidized renters now live isn't good enough for poor people.
I refer you, however, to the sale of four apartment projects that were built in
2001 and 2002 (the newest I could find) for a closer comparison. I believe they
qualify as new construction for our purposes. The 284 unit project at 4705
Frazee, Oceanside, sold for $117,000 per unit, consisting of 78 one-bedrooms,
166 two-bedrooms, and 40 three-bedrooms. The 183 unit project at 7077 Navajo
Rd., San Diego sold for $185,000 per unit, consisting of 98 one-bedroom units,
and 85 two-bedroom/two bath units. The 251-unit project at 8465 Regents
Rd., San Diego,
sold for $197,211 per unit, consisting of 149 one-bedrooms, 98 two-bedroom /two
baths, and 4
three-bedroom/three bath units. The most expensive new apartments, 139
units at 10902 Evening
Creek Dr., Sabre Springs/RB, sold for $199,280 per unit, consisting of 97
two-bedroom/two baths,
and 42 three-bedroom/two baths. The land cost is substantially higher at all
the above locations
compared to 39th and Polk. I stress that all of these new apartment buildings
are among the most
expensive apartments in San Diego, Luxury Apartments for the most
affluent renters. (As you
know, one-bedroom and two-bedroom units are more expensive per square foot than
three and
four bedroom units because the kitchens and baths are the most expensive part
of the construction
and larger units afford more square footage over which to amortize these costs.)
It is irrelevant that the parties you listed, who are each making money off the
project, found the cost of Metro
Villas acceptable. What else would they say, "You're paying me too much?"
You mention Knox Glen, a previous record price setting Housing Commission
project, one of several government projects over the past 25 years for which I
requested a GAO investigation. Your recollection is partially correct. The GAO
said Knox Glen construction costs were reasonable compared to other similarly
funded Tax Credit projects and that a $781,000 developer fee (on 54 units) "was
allowed". However, I remind you that the new larger 3
and 4 bedroom
homes across the street were advertised for up to $20,000 less per unit. The GAO
agreed with
my allegation that Glen Knox was more expensive than brand new condos just
completed at the
same time next to Hazard Center in Mission Valley and in Scripps Ranch on
Scripps Creek Dr.
-- both upscale locations by comparison. The GAO found no evidence of any
illegal acts or
violations of HUD regulations. The GAO said I was unaware of any commission of
fraud,
which I stipulated from the outset in requesting the investigation; and I have
never contended
there was any fraud on the part of the Housing Commission. Fraud or possible
fraud is the
major concern of the Inspector General. My concern is the astronomical cost
of public housing,
however the responsible politicians may rationalize it.
I have not been alone in my concerns over the years. In 1994 the U.S. House of
Representatives' Committee on Government Operations published a report on
Section 8 Housing. It found that in some HUD projects,
"the rent for a two-bedroom apartment was more than $800,
compared to
similar private sector apartments available nearby for just a little more than
$400." In another
example, it reported, "Section 8 two-bedroom apartments renting for $1,100,
while rents for a
two-bedroom unit in a well-maintained unsubsidized property in the same general
area ranged
between $600 and $750 a month." Furthermore, the Inspector General found in a
project that
was part of the investigation that "Section 8 rents were 170% of the Fair Market
Rents."
In a Report to Congress, The Comptroller General stated: "The cost of much of
the housing the program provides is equal to or exceeds the income of many of
the families being served. For a family receiving housing assistance equal to
its income, a quadrupling of income would be required before the family could
pay its rent with no more than 25% of its income. "We are
concerned about this captivating effect of the program." (Pg 13) Although gross
rents are not
supposed to exceed fair market rents, they were found to be higher in 68% of the
projects
GAO sampled." (Pg 32)
It was the Comptroller General, not me, who first said, "Many Section 8
projects were so
expensive that only the poor could afford to live in them." (Pg 76)
When he was Secretary of HUD, James T. Lynn testified before the U. S. Court of
Appeals
that "the construction costs of Section 236 units are on average 20% higher than
those of
comparable unsubsidized units, and that rents are at least 10% higher." (Federal
Reporter, Pg 866)
When George Romney was Secretary of HUD, he said, "It appears Government will
never be
able to provide housing without it costing 20% to 40% more than the private
market."
While the above did not specifically point to San Diego, I am suggesting the
Housing Commission
is simply following a long tradition of inefficiently providing extremely
expensive housing under
the auspices of the government. The same money invested by the private
sector would produce
20% to 40% more housing. I admit it's virtually impossible for the
government to provide any
housing at the same, much less a lower cost, than private developers. This is
because at the
minimum you have all the costs of a private developer plus the Housing
Commission's oversight,
the City Council's oversight, state and federal government overhead costs, and
the inherent
inefficiencies of government. These are only a few of the reasons why even
non-profit housing
is also more expensive than private development. The Housing Commission
simply cannot build
affordable housing anymore than can private developers.
On page 2, paragraph 1 of your letter concerning City owned homes in high
priced areas (La Jolla),
you asseverate that I do not take into account the limited number of such units
and you refer to the
City's Balanced Communities Policy. This is what I love about you Betsy.
Whereas I, and nearly
100% of the people in the U.S. believe that even one poor family living in a
million-dollar-home at
taxpayer expense is one too many, you boldly and forthrightly justify the
absurdity as not wanting
to segregate lower-income from upper-income families. Statements like this
bring a chuckle from
my cheeks and a smile to my lips.
In paragraph 3, you state, "this flexible inclusionary housing program would
have a modest impact,
if any, on (all other) housing costs...." Furthermore, "Any cost impact would be
absorbed by land
sellers, developers and, to some extent, by homebuyers." You've got to be
kidding. However, if
you truly believe this then please explain why the tens of thousands of dollars
in fees assessed by
the city have been added to the cost of each new home rather than being
deducted from land prices
and the profits of developers and their subcontractors? Under your premise
there should have been
a wash, and land prices should be falling.
By the way, it was the Federal Home Loan Bank of San Francisco that
brought to my attention the
impact of government adding to the cost of new housing, a cost that then
percolates throughout the
entire inventory of housing in a region. A survey by the bank found an almost
dollar for dollar
increase, after a lag time, between new and used housing. You can confirm this
by looking at how
the average price of resale homes and apartments rise in tandem each year with
the rise in costs
of new homes and apartments. Why do prices keep increasing beyond the CPI?
When the
opportunity cost of new housing is beyond reach, buyers go to the nearest
substitute and bid up the
price to the point where, in their subjective opinion, they get the most for
their money. This is why
homes in North Park have risen from $18,000 when I started in real estate to
$400,000 today. Rising
in tandem each year with the price of new housing. Inflation accounts for less
than $100,000 of the
increase. Before "Growth Controls" were implemented, the median priced home in
San Diego was
less than the national median. Now, San Diego far exceeds the national median of
$163,100, and isranked among the least affordable markets in the U.S.
In paragraph 4 you say, "All three of your letters decry housing subsidies for
lower income families.
Yet, we could find no record of any protests by you against the largest housing
subsidy in the United
States -- the $90 billion income tax deduction for mortgage interest that
benefits homeowners."
First of all, Betsy, a subsidy is a grant of money from the government to someone
else. When this
occurs, money is usually taken from people who earned it and then given to
people who did not.
"All political power derives from what you can do to, or for someone."
Second, unless you're
prepared to argue that 100% of all money earned belongs to the government,
allowing people to
keep their own money (even through an income tax deduction) is not a subsidy,
but what we call freedom.
The people of the United States are citizens, not serfs. (I know it is silly and
condescending to remind
you of this, but it sounds so good.)
In paragraph 5 you say that the City needs to act in order to supply housing at
varying price points that
families of different incomes can afford. Betsy, no one "needs" a brand new
condo, home or apartment
any more than they need a brand new car. Brand new housing is a luxury not
a necessity. People who
can only afford used cars can also live in used housing. And please, don't even
think about making car
manufacturers sell 10% of their "new" vehicles to the poor.
We agree, as always, on the advantages of living and working in a city where
ordinary people can
afford to rent or own a home of their own, and the benefits to business and the
local economy. You
seem, however, to believe that the very government that's causing the problems
can correct them
by continuing to do the same things that created the problems in the
first place. Respectfully, I disagree.
I recognize that the current situation is not of your doing. Politicians,
trapped between their environmental
rhetoric and their professed social concerns, try to reconcile the shortage of
land (MSCP, down zonings)
and higher home prices they've created -- with inclusionary zoning. Builders
are their scapegoats and
they pray to you for their salvation.
Affectionately,
Fred
Fred Schnaubelt
2728 Adams Avenue
San Diego, CA. 92116
