San Diego On the Way to Solving Homeless Problem
by John Lawrence
With a combination of safe sleeping and safe parking areas and also converting motel rooms into single occupancy units (SROs), San Diego is heading in the right direction for solving the homeless situation. This is combined with an ordinance that prohibits sleeping in public areas including sidewalks. Finally, a workable solution that gets the homeless off the streets, provides them with some amenities including sanitation facilities and makes the streets and city sidewalks safe for pedestrians again. As a tourist destination San Diego can't afford the spectacle of back to back tents crowding city sidewalks, and the provision of amenities in safe sleeping areas or city sponsored SROs makes the homeless at least somewhat better off than they are without any amenities on public sidewalks. The San Diego Union reported:
The properties being considered include three hotels and one apartment building.
One of the hotels is a 62-unit Ramada Inn on Midway Drive, which the Housing Commission agreed to pursue at its May 12 meeting when it unanimously agreed to apply for $18 million in Project Homekey funding. The estimated purchase price would be $11.6 million, equating to about $182,000 a unit, but adding kitchenettes and other upgrades would increase the overall cost to $29.5 million, or $469,000 a unit.
The city also is submitting a joint $4 million application with Wakeland Housing and Development Corp. to purchase a vacant 13-unit apartment building in Ocean Beach. Purchasing the building would cost $4.5 million, but rehabilitation expenses would increase the cost to $6.8 million, bringing the per-unit cost to $525,000.
The other two properties are a 107-unit Extended Stay America Hotel on Murphy Canyon Road for $40.7 million and a 140-unit Extended Stay America Hotel on Mission Valley Road for $52 million.
Essentially the city is taking the responsibility for providing public housing, something that was abandoned during the Reagan administration. The most dramatic cut in domestic spending during the Reagan years was for low-income housing subsidies. Reagan appointed a housing task force dominated by politically connected developers, landlords and bankers. In 1982 the task force released a report that called for “free and deregulated” markets as an alternative to government assistance – advice Reagan followed. In his first year in office Reagan halved the budget for public housing and Section 8 to about $17.5 billion. And for the next few years he sought to eliminate federal housing assistance to the poor altogether.
Public housing was stigmatized due to failed projects like Cabrini-Green. Cabrini–Green was home to 15,000 people, mostly living in mid- and high-rise apartment buildings. Crime and neglect created hostile living conditions for many residents, and "Cabrini–Green" became a metonym for problems associated with public housing in the United States. Now cities like San Diego are forced to take up the fallen banner for public housing under the metonym of "housing the homeless". The state of California, however, is providing most of the funding.
Other cities have had no problem in providing low cost rental housing. Take Vienna for example, a city which has largely solved the worldwide crisis of soaring rents:
Experts refer to Vienna’s Gemeindebauten as “social housing,” a phrase that captures how the city’s public housing and other limited-profit housing are a widely shared social benefit: The Gemeindebauten welcome the middle class, not just the poor. In Vienna, a whopping 80 percent of residents qualify for public housing, and once you have a contract, it never expires, even if you get richer. Housing experts believe that this approach leads to greater economic diversity within public housing — and better outcomes for the people living in it.
People living in Vienna's social housing pay as little as 3% of their monthly salaries on rent. To boot the availability of low cost public housing keeps costs in the private housing market down.
In 2015, before they bought an apartment on the private market, the Schachingers were making about 80,000 euros ($87,000) a year, roughly the income of the average U.S. household in 2021. Eva and Klaus-Peter paid 26 percent and 29 percent in income tax, respectively, but just 4 percent of their pretax income was going toward rent, which is about what the average American household spends on meals eaten out and half a percentage point less than what the average American spends on “entertainment.” Even if the Schachingers got a new contract today on their unit, their monthly payments would be an estimated 542 euros, or only 8 percent of their income. Vienna’s generous supply of social housing helps keep costs down for everyone: In 2021, Viennese living in private housing spent 26 percent of their post-tax income on rent and energy costs, on average, which is only slightly more than the figure for social-housing residents overall (22 percent). Meanwhile, 49 percent of American renters — 21.6 million people — are cost-burdened, paying landlords more than 30 percent of their pretax income, and the percentage can be even higher in expensive cities. In New York City, the median renter household spends a staggering 36 percent of its pretax income on rent.
Real estate is a place where money literally grows on tree beams. In the last decade, the typical owner of a single-family home acquired nearly $200,000 in appreciation. “Another word for asset appreciation is inflation,” the academics Lisa Adkins, Melinda Cooper and Martijn Konings write in “The Asset Economy,” “an increase in monetary value without any corresponding change in the nature of the good itself or the conditions of its production that would make it scarcer or justify an increased demand for it.” That inflation is creating a treacherous gulch between the housing haves and have-nots. Harvard’s Joint Center for Housing Studies found that, in 2019, the median net worth of U.S. renters was just 2.5 percent of the median net worth of homeowners: $6,270 versus $254,900. Last year, as higher interest rates slowed home sales and caused prices to plateau (and even soften in some overheated cities), the asking price of the median U.S. rental reached $2,000 a month, a record high, according to Redfin. Inflated rent prices line the pockets of landlords while preventing renters from saving for a down payment and ever getting off the treadmill.
Inflation in asset prices, particularly real estate, is causing more people, especially senior citizens, to fall into homelessness. The recent rise in interest rates which supposedly are aimed at curbing inflation have done nothing to bring the cost of housing down. In San Diego county, real estate is still appreciating in value despite the Fed having raised interest rates to highs not seen in recent years. It has done nothing to stop investors and hedge funds that pay cash. I reported previously:
In a deal with the Conrad Prebys Foundation, Blackstone Group, CEO'd by Steven Schwarzman, is buying 5800 rental units in San Diego. According to the San Diego Union, "The deal makes Blackstone one of the biggest real estate holders in San Diego County. It already owns $4.5 billion in assets here — including Legoland and the Hotel del Coronado. The transaction, which also includes Los Angeles-based investment firm TruAmerica as a partner, is expected to close in the next few weeks. The sale of the apartments was praised by Dan Yates, the president of the Conrad Prebys Foundation, who said the portfolio was assembled by Conrad Prebys — a San Diego developer — himself. Yates said the money from the deal will be used for grants primarily in San Diego."
Investors pay cash t buy up cheap rentals, and, therefore, the rise in interest rates doesn't affect them. They don't pay interest. They then give the tenants a 30 or 60 day notice depending on how long they've lived there. Then they refurbish the apartments and rent them out for twice the previous rent. This is the so-called "gentrification" of San Diego neighborhoods. This is why low cost rental units are disappearing just as all the SROs have disappeared. The policies now taking place by the city and county of San Diego to provide converted hotel housing and safe sleeping and parking areas will counteract this trend of higher and higher rents producing more and more homelessness. It's a policy that needs to be continued and increased. It cannot just be a one-off. Eventually, it will put a damper on the private rental market just as it did in Vienna.
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