moeder is a director of London Moeder Advisors and a lecturer at UC San Diego in urban studies and planning. He lives in Encinitas.
A review of density bonus programs is needed so that policy makers can get it right.
Much has been made of the progress of housing construction under San Diego’s density bonus programs. The city’s affordable home bonus program — a way for developers to build more units if they include affordable housing — has resulted in 6,481 units being built since 2016. At least 44% of all new units built were eligible for the program. Other metro areas have noted this rise and hold San Diego up as a model for successfully encouraging infill construction.
While these policies proved popular and particularly important for future growth, closer examination suggests that the San Diego model actually encouraged building the wrong types of units. The current policy is already a decade old and responds to yesterday’s demographic increase, essentially linked to the self-manufacturing of housing costs.
The root of the problem is that the policy incorrectly focuses on income levels. These policies begin at the state level with regional housing needs assessments, in which the state assigns housing units to be built to different cities and counties in California. Regional housing needs assessments allocate units based on household income. Developers receive density bonuses if they build affordable units at certain income levels.
While affordability is a huge housing issue, there is an emerging issue: the biggest housing shortage is for homes for families. Surprisingly, the state and local level does not track the “type” of housing being built. The government considers all units to be equal. In other words, a unit is a unit. Unfortunately, families cannot live in a studio or a room.
Between 1999 and 2008, before the Great Recession, San Diego County issued 130,883 building permits, 89% for multi-bedroom units and 11% for small units, either one bedroom or studio.
However, home building changed after the Great Recession when the county issued 94,170 building permits between 2011 and 2021. The proportion of small units built more than doubled from 11% to 28%, or 26,531 small units. It was 15,925 more than needed. Our regional housing needs would have been much better served and balanced if this number had included multiple bedrooms.
Due to the overbuilding of small units since 2011, the housing shortage has increased from 49,000 to 79,000. All of this is a demand for multi-bedroom units.
How this happened is a function of economics. Land prices in “infill” areas are more expensive and construction costs continue to rise. In programs such as the City of San Diego’s Complete Communities, a project must build a greater number of affordable units to receive the density bonus.
This is where current housing policy is misaligned.
Market rate units are needed to subsidize affordable units. Developers solve this problem, as well as the problem of higher costs, by reducing the size of units and building a greater proportion of one-bedroom, studio or micro-units to make the project feasible. It is not uncommon for an urban project to consist of 60-70% small units in downtown San Diego. And some developers who build three-bedroom units are renting to individuals per room rather than families.
Affordable developers, however, are more successful in building family housing. With government support through tax credit programs and other grants, these projects can grow to 50% multi-bedroom units to accommodate families. The policy should support the construction of affordable units through these types of developers.
The San Diego area has now transformed the housing supply by halting the development of single-family homes. Building permits for single-family homes have fallen by nearly 7,000 units annually compared to the number issued in the 2000s, an annual deficit that will increase. But national and local politics have yet to identify a surrogate who will house the families. Instead, current housing policy wrongly encourages the construction of small units.
The region is unlikely to be able to bridge the gap between demand and supply. But we can at least plan our remaining growth capacity in a balanced way. For starters, state and local policies need to move away from current density bonus programs based on income levels to create policy that will encourage larger units with multiple bedrooms.
Here are some suggestions:
Assign additional density based on inclusion of multi-bedroom units. Not based solely on income levels.
Consider a hybrid approach where developers include less than 10% affordable units based on income, then allocate additional density after that across multiple bedrooms (which are not rented as cohabitation).
Waive replacement fees if a certain percentage of units have multiple bedrooms, even if it is market price.
We need housing policy reform. We also need to keep track of what is actually built. [fine as is] It is not viable to eliminate single-family homes and replace them with small units. These are not the homes we are looking for.