Landmark Links September 19th – The Missing Link


Lead Story….  Basic economics and simple logic both dictate that if you want to make something more affordable, you do so by lowering it’s cost.  Then again, as anyone who has lived in California knows, the powers that be in this state have almost no aptitude when it comes to either simple logic or basic economics.  Consider the issue of affordable housing:  the fundamental problem is that we have a growing population and don’t build nearly enough units to keep housing costs in check.  However, rather than addressing the problem head on, lawmakers continue to push schemes to subsidize the construction of an extremely limited number of affordable units that are funded by imposing taxes and/or fees on pretty much everything else.  Take the City of Los Angeles and it’s proposed linkage fee on new construction that is nearing approval and would drive up already high construction costs substantially.  Land Use Attorney Andrew Starrels of Holland & Knight LLP did an interview with Globe Street (h/t Steve Sims) last week to explain how this latest scheme would work (emphasis mine):

The City of Los Angeles is considering imposing a significant new fee on most construction projects. These are called “linkage fees” because they attempt to connect new development to the severe need for affordable housing in the city by providing a sustainable funding source. The fees apply to virtually all new commercial and residential construction, and will be collected when a building permit is issued and deposited into the City’s Affordable Housing Trust Fund. As originally proposed, the fees would amount to $12 per square foot of new residential construction and $5 per square foot of commercial development. This will represent a significant assessment on nearly all forms of development in the hopes of creating more housing affordability. The measure is sponsored by affordable housing advocates and political leaders, including the Los Angeles Housing and Community Investment Department and nonprofit and for-profit developers of affordable housing. Los Angeles has one of the most dire shortages of affordable housing in the U.S., as very limited supply and rising land costs have combined to create a doubly burdensome situation for poor and working class families. Wage growth and the cost of living have simply not kept pace with the rising cost of real estate, especially in high-value coastal areas, even as the economy recovers.

First off take note of who is pushing this: “for-profit and non-profit developers of affordable housing” along with the usual advocate and bureaucratic folks.  At it’s core, these developers are trying to get others to fund their projects.  It’s good business for them at the expense of anyone who wants to build market-rate residential or commercial in Los Angeles.  Second, and increase of $5/sf for commercial development and $12/sf for residential development is insane given already-skyrocketing construction costs.  The sad part is that the revenue from the proposed linkage fee will likely provide little more than a drop in the bucket towards the amount of affordable housing actually needed.

Let’s face the facts: It’s really expensive to build affordable housing in California.  But don’t just take my word for it: A 2016 legislative analyst’s report estimated that building enough affordable homes for the roughly 1.7 million low-income household in CA that currently spend half or more of their salaries on housing would cost as much to finance each year as the state’s spending on Medi-Cal.  This is not a problem that is going to be solved via piecemeal subsidies.  Period.  Should this pass, it will result in a relatively small number of low income units built at best.

To understand the scale of the problem, the waiting list for Section 8 vouchers in LA is 40,000 people long – that’s an 11 year waiting list.  In an example of how slowly affordable housing units actually get built, just 329 income-restricted units were built between 2008 and 2014 as part of LA’s density bonus program that rewarded developers with additional units for making a portion of a project affordable – barely even beginning to scratch the surface of what is needed. The way that California’s cities deal with housing is roughly akin to a drunkard who has a cocktail in the morning to help ease his hangover.  Sure, he may feel better for a short while but it will ultimately make the problem worse. All the while, what he really needs is to face the problem head on and get sober – which is a lot harder to do but a far better outcome in the long run.

So, what will happen if the linkage fee passes?  A small number of affordable units will get built and will provide shelter for a number of people in need.  That’s good.  However, in doing so, construction costs will go up substantially, discouraging much-needed construction needed to keep costs under control for the middle class.  California’s housing paradigm will remain unchanged: a very limited number of lucky low income people will get subsidized housing, the middle class will continue to get priced out and only the rich will be able to afford well-located housing.  Sad.


Keeping Options Open: More Americans are delaying marriage past their 20s than ever before.

Bye Felicia: Vikram Pandit, former CEO of Citigroup thinks that 30% of bank jobs could be lost to technology in the next 5 years.

Out In Front: San Francisco edged out Washington DC to become the nations highest income large metro area. Median household income in the San Francisco metro area in 2016 was $96,667, versus $95,843 in the Washington region. However, per Zillow the median home value in San Francisco is $1.23mm versus just $547k in DC. Hmmmmm. I wonder why.


Kingmaker: Why Amazon’s 2nd headquarters doesn’t necessarily need to be in a large city and how it could create the next Austin.

Production Line: NY and California continue to dominate when it comes to new office deliveries.

This is a Bad Idea: Two ex Google employees want to eliminate neighborhood mom and pop bodegas by putting smart phone operated boxes with non-perishable items in buildings. The idea was received poorly to say the least.


Cramped: Seattle is building a whole lot of 1 bedroom apartments and not much of anything else.

E for Effort: California lawmakers passed several bills in an attempt to deal with the housing affordability crisis. Some are a step in the right direction but come with strings attached like prevailing wage provisions so I don’t expect much of an impact. Hope I’m wrong….


Blood in the Water: Silicon Valley has largely flown under the radar of Federal Government regulators while oil companies and Wall Street banks have not.  That is changing quickly as big tech firms find themselves more in the cross hairs of Washington than ever before.

Predictable: Bitcoin took a dive after China banned exchanges.

Building Out: This interactive map of planned development of the LA subway and light rail system between now and the 2028 Olympic Games is fascinating.

Chart of the Day

Popular delusion

Investors still think that the current private equity multiples will get them their usual returns (such as what they got with the 2010-12 vintages). Amazing.

Source: The Lead Left via The Daily Shot


Hear No Evil: A sign language interpreter used gibberish and warned of bears, monsters and pizza during Hurricane Irma because, Florida.

Your Tax Dollars at Work: A former county administrative assistant from Arkansas admitted to fraudulent use of a credit card to make $200k in purchases including a tuxedo for her pug.

VICTORY: A Berlin court upheld a man’s right to fart in public this week.  Fortunately the judge was not long winded in his decision.

Landmark Links – A candid look at the economy, real estate, and other things sometimes related.

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Landmark Links September 19th – The Missing Link

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