Birth of a YIMBY Folk Hero

Plus: The White House's rent controls, San Francisco's bad-to-worse turn on housing, and the latest unintended consequence of eviction moratoriums

Happy Tuesday, and welcome to another edition of Rent Free. This week's stories include:

• The White House imposes rent controls at federally subsidized affordable housing developments.
• San Francisco undoes reform that had the unintentional consequence of allowing too much housing.
• A new National Bureau of Economic Research study finds that eviction moratoriums led to increased racial discrimination in the rental housing market.

But first, our lead story on a former government employee in California being criminally charged for bringing in a housing project on time and under budget.

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Birth of a YIMBY Folk Hero

A former California government agency employee has become a YIMBY folk hero of sorts for building an apartment unit for himself within an existing train station.

This past week, the San Mateo County District Attorney's Office charged former Caltrain Deputy Director of Operations Joe Navarro and contractor Seth Worden for allegedly misappropriating $50,000 in government funds to convert two closed train station offices into small, private apartments.

According to prosecutors, Navarro built the apartment for himself at the Caltrain station in Burlingame, California, including a shower, kitchenette, and bedroom, for $42,000 in 2019. An anonymous tipster alerted authorities to the apartment in 2022.

The low sticker price of the apartment—publicly funded apartments in California can cost close to $1 million to build—had "build, build, build" corners of X praising Navarro for his economy and thrift.

I'm sorry, they built a dwelling unit for $42,000? I don't care if the money was stolen, they should be put in charge of California's affordable housing development, not sent to prison. https://t.co/5Z9a6VRfJf

— Josh Barro (@jbarro) March 29, 2024

knowing literally nothing else about this… go off king https://t.co/0fXsdXM3iC

— Jerusalem (@JerusalemDemsas) March 29, 2024

Caltrain should list these on Airbnb or VRBO or whatever because I NEED to spend a night in the illegal train station apartment. https://t.co/buEexQpzX6

— Max Dubler ????️‍???? (@maxdubler) March 29, 2024

Much of the unit's low cost likely comes from the fact that Navarro and Worden did not have to buy any land or build the actual structure in which the illegal apartments went.

Nevertheless, the two have shown how cheaply housing can be delivered if one can route around the cost-increasing red tape that developers normally do—impact fees, zoning approvals, environmental review, building department inspections, and more—when trying to build housing in transit-accessible locations.

To be sure, stealing government funds is hardly commendable. On the other hand, all government funds are stolen from the taxpayer already. By expanding housing supply, Navarro's black-market apartment also marginally reduced overall housing costs.

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The White House's Rent Control Plan

President Joe Biden's administration plans to release new rules limiting annual rent increases to 10 percent at federally subsidized affordable apartments.

According to reporting from The Washington Post, the rent cap will apply to roughly a million apartments that benefited from the Low-Income Housing Tax Credit (LIHTC) program.

The new regulations received a predictably poor reception from trade associations representing the real estate industry, who criticized the rules for their potential to limit new housing construction.

"Price controls prevent the market from efficiently allocating scarce resources and discourage the investments needed to expand affordable housing," wrote Harvard University's Jeffrey Miron and Pedro Aldighieri in a post published by the Cato Institute.

The administration and other housing experts dismissed the idea that the new rule would impact new supply, telling the Post that even annual rent caps of well under 10 percent don't deter construction.

That's a debatable clapback. To the extent that the new rent cap limits rent increases, it will almost certainly limit new supply.

Still, it is worth noting that the properties affected by the rent caps are already price-controlled.

The LIHTC program's affordability requirements limit rents to 30 percent of a tenant's income. To be eligible for one of these apartments, tenants typically can't make more than 80 percent of area median income.

These rules don't limit annual rent increases per se, but they do place a ceiling on maximum allowable rents. LIHTC owners' ability to increase rents is already constrained.

In this regard, the administration's rent cap plan seems largely performative and political.

Biden has been talking a lot more about housing costs as part of his reelection campaign. The White House's new rent cap plan allows the president to say that he's doing something to address housing cost increases.

Affordable housing advocates have pressured the administration to go much further by imposing rent controls at all rental properties with a federally backed mortgage. In this respect, the Biden administration appears to be taking the same tack toward rent control that it is with zoning reform: saying the things activists want to hear while adopting modest policies.

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San Francisco Undoes Reforms That Allowed Too Much Housing

San Francisco has some of the nation's highest housing costs. Not coincidently, it also has one of the nation's most restrictive, unpredictable regulatory regimes for new development. This past week, the city's board of supervisors voted to make things a little worse.

On Tuesday, the board voted 8–3 to override Mayor London Breed's veto of an ordinance that would downzone neighborhoods along the city's Northern Waterfront.

The downzoning ordinance, which supervisors had initially approved in late February, was authored by Board of Supervisors President (and potential mayoral candidate) Aaron Peskin.

Peskin had ironically supported zoning changes in the Northern Waterfront area to allow for more office-to-residential conversions, reported The San Francisco Standard.

But by allowing housing in that area, the city also made residential developments there eligible for any number of density bonuses and streamlined approvals provided by state housing law. This led to a rush of developer proposals to build residential towers in place of old office buildings and garages.

"Once we realized this unintended consequence, I introduced legislation to reimpose density limits," said Peskin per the Standard. "I don't think we have to destroy the city to save it."

Breed had vetoed the ordinance when it first passed. She called the override of her veto a "setback."

Today is a setback in our work to get to yes on housing. But I will not let this be the first step in a dangerous course correction back towards being a city of no. We will not move backward.  

My statement on the Board of Supervisors downzoning vote: pic.twitter.com/lYb5JD1dJe

— London Breed (@LondonBreed) March 26, 2024

The area affected by the downzoning ordinance is small. Still, the vote is a reminder that the arc of zoning reform is long and doesn't necessarily always bend toward greater freedom to build.

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New Study Says Eviction Moratoriums Led to Increased Racial Discrimination

In a new paper published by the National Bureau of Economic Research, researchers find that pandemic-era eviction moratoriums led to more landlord discrimination. From the paper's abstract:

Using data collected from an experiment that involved more than 25,000 inquiries of landlords in the 50 largest cities in the United States in the spring and summer of 2020, our analysis shows that the implementation of an eviction moratorium significantly disadvantaged African Americans in the housing search process. A housing search model explains this result, showing that discrimination is worsened when landlords cannot evict tenants for the duration of the eviction moratorium.

This fits with past research finding that when landlords and employers are unable to use criminal background checks, eviction records, and the like to vet potential employees/tenants, they become more likely to engage in out-and-out racial discrimination.

Pandemic-era eviction moratoriums were always misguided policies. The wave of mass evictions they were supposed to prevent was always unlikely to materialize. To the extent they prevented evictions, they also left many landlords stuck with nonpaying, often abusive, or nuisance-causing tenants. Housing courts are now straining to sort through the routine eviction cases that did pile up during the months (or years) when evictions were paused.

Increased discrimination is one more unintended consequence that could plausibly be laid at their feet.

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Quick Links

• Colorado becomes the latest state to pass good-cause eviction legislation.
• Utah Gov. Spencer Cox signed a slew of housing reforms aimed at increasing housing supply, mostly by making it easier for developers to fund infrastructure improvements.
• Is the U.S. Navy the latest NIMBY boss standing in the way of new housing?
• Or is it the Fire Department?
• In a decision rejecting a challenge to a state law making it easier for local governments to zone for apartments, a California appeals court makes the case that building more expensive housing makes housing generally less expensive.

New Court of Appeal holding: "Supply & demand is real."

No, this is not an Onion headline.

It's a real case rejecting left-NIMBY argument that state housing law is unconstitutional unless narrowly tailored to promote BMR, not market-rate, housing.https://t.co/2CZTWcPOAi pic.twitter.com/pBuE7bd4k8

— Chris Elmendorf (@CSElmendorf) March 30, 2024

• A Washington state bill that would have preempted local zoning rules prohibiting small neighborhood coffee shops passed the state House of Representatives unanimously but failed in the state Senate thanks to local government lobbying, reports National Review.
• The California Supreme Court will hear oral arguments this week in a case about whether California environmental law requires the University of California, Berkeley to study the noise impacts of future student housing it plans to build on the city's People's Park. Hopefully, the lawyers don't speak too loud.