How to solve a middle-class housing shortage? San Diego bets on reforms and incentives

The city of San Diego plans to expand its efforts to spur construction of housing for middle-income residents with a new wave of reforms — including softer rules for removing historic structures, complying with water pollution mandates and using cheaper building materials.

The reforms, recommended by a panel of industry experts and housing advocates created by Mayor Todd Gloria, also may include a vacancy tax, developer fee reductions and additional density bonus programs for middle-income housing.

City Councilman Joe LaCava said having a mayor and council focused sharply on housing issues will make the proposals more effective.

“I think what is really different is not necessarily the ideas but that we have a mayor and — I believe — a council that is committed to actually turning these into actions,” LaCava said.

San Diego became the first city in the county to approve a middle-income density bonus in 2020, but the results thus far have not met expectations. The program allows developers to build more units than a property’s zoning allows if they reserve a certain percentage of the units for middle-income residents.

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Housing advocates and city officials say it’s crucial to spur more construction of such housing, emphasizing that nearly all construction in recent years has been either low-income housing because of government subsidies or high-income housing because of larger profit margins.

The city’s Regional Housing Needs Assessment for 2010 to 2019 called for 15,462 new middle-income units to be built, but only 37 were constructed. The new RHNA for 2020 to 2029 calls for 19,319 new middle-income units, but only three were built in 2020 and only 19 last year.

The city defines middle income as between 80 percent and 150 percent of the region’s median income. For a family of four in 2022, that range is $97,000 to $142,650.

The 23-member experts panel, which met several times between September and February, recommended six actions the city can take immediately, three over the next two years and nine for the long-term future.

“There is no silver bullet,” said panelist Stephen Russell, executive director of the San Diego Housing Federation. “But there’s a multitude of ways we can work together to bring down the cost of housing. In aggregate, they add up to a significant effort.”

Among the actions the panel said the city should take immediately is hiring a consultant to create a list of all land owned by the public or public institutions that could be used for middle-income housing. Building on top of existing public facilities, such as fire stations and libraries, also should be a priority, the panel said.

Another immediate action is streamlining the city’s historical review process, which panelist Marcela Escobar-Eck called the No. 1 obstacle to building new middle-income housing projects.

Councilwoman Vivian Moreno praised that proposal during a July 14 meeting of the City Council’s Land Use and Housing Committee.

“I think it’s important we protect historical resources throughout the city, but we need to approach it in a common-sense way,” said Moreno, who contended that long historical reviews can raise the cost of a project by hundreds of thousands of dollars. “The current process is long and expensive and is probably discouraging some projects from coming forward.”

The panel also recommended immediately streamlining compliance with the city’s rules for stormwater, which require developers to help fight water pollution and flooding.

City officials say they plan to unveil an alternative, less costly way to comply with stormwater rules early next year. The city’s first attempt at alternate compliance, unveiled in 2016, has already helped get some projects approved, they said.

The panel also suggested the city immediately change its municipal code to let developers use new construction materials and technology such as panelization, mass timber and full pre-fabrication.

Allowing the use of those cheaper materials and methods could spur more homebuilding, including units for middle-income residents, the panel said. So, too, could reducing developer fees and revamping them in some areas, it added. Gloria already has adjusted developer fees in an effort to make them more focused on equity.

Among the recommendations the panel wants implemented over the next two years is a vacancy tax, which would tax the owners of undeveloped lots as well as landlords who have empty units.

The goal would be expanding the supply of rental units by creating an incentive for landlords to push those units onto the market and encouraging property owners either to build housing on their vacant lots or sell to developers who will.

Two-thirds of voters would have to support a ballot measure for such a tax, which also is being considered in Los Angeles, Long Beach and other cities struggling with housing affordability.

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Among the panel’s long-term proposals are a construction loan guarantee program, property tax reductions for middle-income housing, community land trusts and philanthropic funds to acquire middle-income homes. ◆