Nothing In Return: Vote No on Measure E

A still from a "No On Measure E for the Midway District" video clip.

Note: This piece does not reflect an official position of the San Diego County Democrats for Environmental Action board, though many of our board members share the sentiment expressed here by club president Cody Petterson.

By Cody Petterson

Measure E is a classic "San Diego Special," i.e. a pure giveaway to land speculators, wealthy landowners, and developers, with none of the billions of dollars of upzoning windfall captured by the public. Bring it back with equity upfront, with a significant portion of the increase in land value captured by the public, and you'll earn my vote in spite of my modest concerns about the precedent set by the modification to the 30 ft. coastal height limit. Vote No on Measure E.

Measure E proposes to remove the 30 ft. coastal height limit from San Diego's 1,324 acre Midway-Pacific Highway Community Plan Area. Height limits on the affected parcels would revert to those stipulated in the community and general plans. While in principle I don't object to the removal of the 30 ft. height limit in the Midway-Pacific Highway Zone, I oppose any upzoning that doesn't capture for the public a significant portion of the land value windfall thus provided to property owners.

This is not a partisan issue. It's a public interest issue. I encourage San Diegans to vote No on Measure E because it violates a principle that I consider fundamental: the equity must come up front. The promise to circle back later to make an inequity right is a false promise. The public benefit must come as a condition of private benefit, not an afterthought. The many should guarantee their collective benefits prior to agreeing to provide extravagant benefits to the wealthy few.

An Old Story

The idea that the first step to solving our affordable housing crisis — which is, above all else, the inability of wage-earners to afford the price of the assets in which they must live — is to give asset owners, land speculators, and developers a titanic upzoning windfall and then try, on a project-by-project basis, to claw back at some later date a meager public benefit, is so preposterous that it wouldn't deserve rejoinder, except for the fact that it is the prevailing faux solution to our affordable housing crisis.

This is not, of course, a modern exception. Giving large land owners and speculators enormous windfalls at the public expense has been the dominant feature of San Diego's development history since the city's inception (for an excellent detailing of that history and dynamic, read "Under the Perfect Sun"). Measure E blends seamlessly with two centuries of land speculation, rent-seeking, and "civic-minded" swindles.

What Are People Saying

Let's start by conceding what ought to be conceded. Interstate 5 was a simple, albeit imperfect way of delineating the city's coastal zone, and the Midway-Pacific Highway area would arguably not have been included had a more careful line been drawn. Preserving the 30 ft. height limit in the Midway district zone is not, per se, a hill I would care to die on. Many of the opponents of Measure E argue, however, that removing the limit in the Midway would set a precedent that could threaten its removal in other areas within the coastal zone, or the elimination of the height limit altogether.

Despite the dismissal of these concerns by supporters of E, it's difficult to imagine that a vote to strike down the 30 ft. height limit in the Midway wouldn’t disinhibit to some degree future amendments to the limit. How significant would this disinhibiting effect be? It's impossible to say, but I believe the effect could easily shave a few percentage points off the opposition to subsequent amendments. Is that enough to disqualify it in my eyes? Well, it depends on how significant, or negligible, the countervailing public benefits might be.

Proponents have made several interrelated claims about the measure's purported public benefits, including that it will 1.) ease our housing crisis, 2.) provide desperately needed additional residential capacity in our general plan, and 3.) reduce greenhouse gas emissions. Of these, I believe only the third has genuine merit.

Not a Housing Crisis, But an Affordable Housing Crisis

With regard to the first point, and this can't be emphasized enough, we don't have a housing crisis in San Diego, we have an AFFORDABLE HOUSING crisis, which Measure E does nothing to address. The city of San Diego has exceeded its Regional Housing Needs Allocation (RHNA) target for "above moderate" housing for decades running at 120 percent of Area Median Income (AMI) and above. Through 2019, construction starts for above moderate housing in San Diego had already exceeded (107 percent) the 2010-2020 RHNA allocation, with a year remaining in the cycle. "Very low and "low" income starts, however, were at 13 percent and 17 percent of RHNA targets respectively.

Most alarming of all, however, was the failure to produce "moderate" income housing, which came in at jaw-dropping .2 percent of the RHNA target (just 34 of 15,462 units allotted). And the only reason why "very low" and "low" aren't similarly abysmal is because the taxpaying public covers nearly the entire cost of the affordability gap with subsidies like the Low Income Housing Tax Credit (LIHTC). Which is to say, the market can't produce housing that is affordable to any family making less than 120 percent AMI.

To the extent that it is produced, WE, the taxpaying public, produce it. Certainly, without substantial changes to our city's meager 10 percent inclusionary housing policy, the Midway district redevelopment promises to be at best another vibrant, upper-middle class utopia. And Measure E includes no provisions whatsoever to tie resulting increases in land value to equity for the public.

No Shortage of Residential Capacity in the Plan

Now let's talk about the second claim, that Measure E and the Midway redevelopment will provide desperately needed additional residential capacity. Contrary to the claims of developers and their paid mouthpieces, San Diego has more than enough additional capacity in our community plans to sustain infill residential growth for the foreseeable future. In fact, the city's own Housing Element estimates that we have nearly 175,000 units of additional capacity in our plan, roughly 72,000 of it at planned densities of 30+ units per acre, much of it around transit or along arterials.

Unfortunately, many of these parcels are in areas of the city in which it has been difficult for developers to make residential and vertical mixed-use projects pencil out without public subsidy, and upzoning these areas has thus largely failed to produce substantial additional residential density. To understand why this is, it's useful to reflect on what makes properties valuable.

First off, it's a bit of a gloss to say that zoning "gives" value to properties. Properties are given value by the access they provide to desirable natural (beaches, lakes, rivers, forests, uranium deposits), private (restaurants, stores, office complexes, hospitals), and public (roads, parks, schools, libraries, train stations) amenities (or, put another way, by the effective demand for these amenities). America is covered with vast tracts of land made nearly worthless by their lack of amenities desirable to housing consumers. It doesn't matter if these parcels in the middle of nowhere are zoned for residential, commercial, or industrial uses, or if they have 30 ft. or 3,000 ft. height limits; there just aren't sufficient nearby amenities to attract buyers or renters at prices that would generate returns adequate to justify investment.

In a location like Midway-Pacific Highway, however, there are more than enough natural, private, and public amenities nearby to provide ample returns on mid- and high-rise residential and commercial development. This particular circumstance — in which restrictive zoning in amenities-rich areas creates vast sums of pent-up land value — is precisely what motivates measures like E. The goal of upzoning efforts like Measure E is specifically to "crack" zoning regulations to get at the amenities-value pent up in the affected parcels.

Now, to be clear — so long as the community, equity, and ecological co-benefits are substantial, I'm not opposed in principle to efforts to realize these pent-up amenities values. Measure E, however, doesn't even make a show of balancing private profit and public good.

Environmental Co-Benefits

In relation to the purported environmental benefits of Measure E, there's some reason to give it the benefit of the doubt. Some friends in the environmental movement have expressed support for the measure because it may facilitate transit-supportive infill development. Certainly, one can imagine that removal of the limit might foster the transition to a vibrant mixed-use neighborhood within walkable or bikeable proximity to the Old Town Station and, to a lesser extent, the Washington Street and Middle Town stops.

Honestly, a walkable, transit-supportive vertical mixed-use neighborhood in the amenities-rich heart of the City is probably enough to outweigh my concerns about the disinhibiting effect such a vote would have on the 30 ft. limit more broadly, provided the public obtained a substantial portion of the land value released by its upzoning, which, again, in the case of Measure E, it does not.

Nothing from the Delta

And this is the core of my objection to Measure E, and to all similar attempts to deregulate real estate development: I fiercely oppose any measure or ordinance that would give massive upzoning windfalls to large property owners, land speculators, and developers, while obtaining nothing for the public in return. This is not a difficult concept. I could explain it to my four-year-old son without difficulty. An elected official who acts as though they can't understand this is either uncommonly stupid, extraordinarily lazy, or willfully betraying the public good.

Go ahead and Google "land value capture." First hit: "Land value capture enables communities to recover and reinvest land value increases that result from public investment and other government actions. Also known as land value return, it's rooted in the notion that public action should generate public benefit." Measure E would dramatically increase the market values of the affected parcels. This is well-understood by the proponents of the measure. Because, however, their objective is not to obtain for the public a significant portion of the value thus created — because the interests they serve are those of the wealthy few rather than San Diego's working majority — their measure fails to capture any of that value for the public in the form of affordable housing, revenue, infrastructure, parks, etc.

When I pointed this out in a community forum, Councilmember Campbell, who brought the proposed measure before council, countered feebly and disingenuously that the public would obtain benefit through the development process itself, presumably through things like impact fees and inclusionary policy (the latter of which she has, in the past, characterized as robust, but which is in fact extremely meager here in San Diego). While it's true that future projects would be governed by existing development policy, which obtains some public benefits, and that we might be able to claw some additional public value if a project requires discretionary approval for some other reason, this misses the entire point of my critique: the value that is lost to the public through Measure E is the change in land value that accrues to the owner at the time of the zoning change.

What is lost is the potential for the public to benefit from the delta between the value under the current height limit and the value once the height limit is removed. The best way to grasp this distinction is to recognize that the public could easily gain both a significant portion of the change in land value and a portion of any resulting development profits.

Market-rate development advocates will counter that developers need these windfalls to make their projects sufficiently profitable to warrant investment. But here's the problem with that argument: the developer undoubtedly "needs" the increase in zoned capacity (floor-area ratio, height, setbacks, etc.) to make projects pencil out, but unless they're lucky enough to own the property prior to the passage of this measure, or to have acquired the property in anticipation of compelling the public to cough up an upzoning windfall, they will have to pay the current owner a land price that reflects the new height limit.

It is the landowner — the relatively unproductive rent farmer, the rentier much hated by classical economists — who will derive the lion's share of the billions of dollars of upzoning windfall. The property owner may "need" a portion of that windfall to motivate them to sell to a developer rather than continue merely performing routine maintenance and extracting exorbitant rents. Which is why the public should demand less than the entirety of the value it is liberating; say, in a spirit of extravagant generosity, 50 percent, which would leave the landowners with a hefty reward for their total lack of investment and labor in acquiring the zoning windfall.

Who Benefits?

It's not quite fair to say "total lack of investment and labor," since some landowners have played active roles in obtaining the windfall. Rent-seeking and regulatory capture do require some investment and labor, after all. Our government is not going to sell itself. I'm sure folks have already glanced at the Form 460s to get an idea of who is funding the measure and who might therefore be presumed to benefit most directly from it. Roughly 80 percent ($402,000) of the total for the Yes on Measure E campaign was donated by Brookfield Properties. This is a complete mystery, unless one expends the effort to type "Brookfield Properties San Diego" into a Google search field, and scroll down to this: "A City of San Diego selection committee has picked a proposal by Brookfield Properties and ASM Global to redevelop the Sports Arena property into a mix of entertainment, housing, parks, and office and retail."

Hmm, didn't see that one coming.

But surely the other campaign donors are disinterested, civic-minded folk. Let's see, $9,999 from Orchard I and Orchard II. Orchard, what's that? Orchard Active Senior Living — oh, that's interesting — located at Hancock and Spor…ahhh, there it is. Alright, let's check out another. Kiffman Properties, $10,000. Helmut Kiffman, San Diego investor, owner of Rosecrans Plaza, 3146-3156 Sports Arena Blvd. Purchased for $24 million in 2012. Looks like its zoning designation is Commercial Community-3-6, which gives a 60 ft. underlying height limit. What do you think the return on investment is on a $10,000 campaign contribution that raises the height limit from 30 to 60 ft. on a parcel at the intersection of Rosecrans, Sports Arena, and the Camino del Rio off-ramp? As they say, not bad work if you can get it.

Even this extravagant windfall, however, dramatically underestimates the pent-up land value that the measure will unlock. One of the central canards of the Measure E proponents is that the measure will not alter the underlying zoning and that height limits will simply revert to those currently in the community plan. While this is technically true, it is a bald-faced lie at the level of intention. The reason this measure is coming before voters at all is because the 1972 height limit was established by voters, and therefore can only be removed by voters.

But the corollary is rarely mentioned: the coastal height limit is the only element of the zoning that can't be altered by the Miday planning group and city council. So while it is true that this measure doesn't alter the underlying zoning, it would remove the only impediment to the city council altering the underlying zoning at their sole discretion.

Yes, the removal of the coastal height limit on a parcel with a planned zoning designation of CC-1-3 (1 DU per 1,500 square feet, .75 floor area ration, 45 ft. height limit) would not dramatically increase density. But it would give the community planning group, city council, and the mayor a free hand to alter the zoning designations (including the height limit) and thus radically increase the planned density.

To reiterate, I'm not personally opposed in principle to the transformation of the Midway district, but I consider the municipal government a representative of my interests and, more to the point, of the interests of all working San Diegans, and I'll be damned if I let wealthy commercial property owners steal billions of dollars of land value to which the public is entitled. Or, worse, if we the public are forced to backfill the revenue thus lost in order to fund the city's provision of basic services.

Rent-Seeking and Regulatory Capture

Now, anyone with any knowledge of municipal shenanigans can identify this as rent-seeking and regulatory capture, pure and simple. But it's useful to ask, who are the regulators these rent-seekers are attempting to capture? Well, councilmembers Campbell and Cate, of course, who brought the measure before council (thank you to councilmembers Gómez and Bry for their No votes). A councilmember who cared about their community would never have carried this measure without ensuring that the public — their constituents, the people who pay their salary and whom they purport to serve — obtained a significant portion of the value thus created.

But, more importantly, the captured regulators are us, the voters. These developers and large owners put $5,000, $10,000, $400,000 into blowing sunshine up the public posterior, and we give them a land value windfall of 100 to 1,000 times their investment. And we the public demand nothing in return. We don't even recognize what we’ve given them, or what we've lost, or what we could have — should have — demanded in return, or what WE will have to pay to backfill the revenue hole that is left by demanding no equity, no public benefit, no land value capture. Or that we will have to go without the services that we could have obtained with that revenue. WE are the regulators that these developers and large landowners are attempting to capture.

Vote NO on Measure E

San Diegans have the opportunity to remedy this impending inequity, to rescue themselves from this humiliating failure of fiduciary responsibility to themselves, their families, and their communities. They can vote No on E. They can tell councilmembers Campbell and Cate, the real estate industry, the large landowners, the developers, the Building Industry Association, the Chamber of Commerce, and all their mercenaries: "Come back with a deal that gives the public the portion to which it is entitled." That's not a radical message.

The public liberates value with its zoning decisions, it is in a position to demand a fair portion of that value, and the failure to obtain that portion forces it to backfill the city's budget with other revenue or to forego services. This is not a difficult or revolutionary concept. It's the commonest of sense. "Give us our cut or pound sand." Vote NO on Measure E.