How can you Plan When Every House is a Hotel?

California Planning and Development Report

A couple of weeks ago I heard a spiel by one of the founders of a new startup called Feastly, which is trying to pair up chefs with diners. Chefs wake up in the morning, go into their kitchen, prepare whatever they want, put out a call on the Internet – and if it’s something you want to eat, you go to their house and dine. Feastly, in other words, turns every dining room into a restaurant.

It was a compelling pitch, but the truth of the matter is that Feastly is one of hundreds – thousands – millions? – of startups trying to be the Uber or AirBNB of [name your activity]. And it highlights a sudden and enormous challenge that planners in California are facing. Planners, for the most part, write and implement regulations that seek to plan for and control land uses. They do so for a variety of well-established reasons – ensuring that public health and safety are protected, but also helping to stimulate, shape, and channel the supply of built space so that the interests of a given community are balanced against the demands of the marketplace.

But how can you possibly plan for and control land uses when every bedroom is a hotel room, and every dining room is a restaurant, and every coffee shop is an office, and conversely every office is a potential living room or dining room or bedroom? 

The answer, of course, is that you can’t. And talk about disruptive. It’s hard to imagine anything more disruptive to planning in California. Because planning for a presumed set of land uses drives everything else. The whole California planning system, created mostly in the 1970s, is based on the assumption that land uses will be rigidly separated – and the idea that you can predict everything as a result.

The needs for parks, libraries, schools, and lots of other public facilities is all based on formulas tied to land uses. Residential densities determine the number of housing units (based on formulas tied to land use), which in turn determines the need for all these facilities (based on formulas that assume household size and composition), which in turn determines the need for both public investment and impact fees. 

Even the need for road improvements – maybe the biggest driver of planning in California – is based on assumptions about different land uses. Road improvements are based on traffic estimates, which in turn are based on formulas about how much traffic is created by different land uses – single-family homes, apartments, office buildings, restaurants, and so on.

Indeed, even mitigations under the California Environmental Quality Act – the most powerful and legally binding tool in the California planning toolkit – is based on all kinds of assumptions about how different land uses will affect everything from traffic to the waste stream.

The pending update to the General Plan guidelines devotes many pages to land use requirements embedded in state law, including maps, density, intensity, and the impact thereof. It doesn’t say anything about AirBNB.

In a certain way, this is pretty liberating for planners – kind of an extension of the form-based code movement, which focuses more on urban design than on the specific uses contained within buildings. Instead of micro-managing private development through regulation, California’s planners could rediscover the kind of planning that originated with Daniel Burnham and the Olmsteads: Focusing on created a beautiful and well-functioning public realm, around which the developers can build private projects that respond to the market.

Which might be fine except for two things. And these two things reveal the emerging conflict in the planning of California communities.

First is the well-established desire of longtime residents – especially “Boomers or older” folks in affluent communities – to use the planning process to restrict additional development. These folks exert outsized influence on planning in the typical California community, especially compared with people who don’t yet live there because the development projects they would live in haven’t been built yet. The “regulatory generation” doesn’t want change, and over the past 40 years they have been very effective in restricting both the type and the amount of development – especially residential development – in communities throughout California.

Second is the growing concern by Millenials that they are getting aced out of the housing market – especially in the Bay Area, where the success of tech companies appears to be driving housing prices through the roof. One recent study concluded that a third of San Francisco’s housing price inflation is due to presence of venture capital. Even The Onion recently got into the act, publishing a fictitious news story saying that home prices were rapidly escalating in Oakland because a tech worker strolled around and decided he liked it.

The result is that tech workers busily trying to create the next AirBNB are getting priced out of the Bay Area housing market, perhaps because of the very disruptive apps they are creating. Being tech workers, their general reaction has been to suggest eliminating the arcane regulations created by their parents and grandparents, goosing density, and unleashing the power of long-suppressed housing demand. (The archetypal argument of this kind was put forth by Kim-Mai Cutler, the public policy writer for Tech Crunch, in her now-famous primer on the subject, “How Burrowing Owls Lead To Vomiting Anarchists (Or SF’s Housing Crisis Explained)”)

There’s no doubt that over-regulation has skewed the housing market, especially in the Bay Area. But at a time of such extreme income inequality, can the market really be unskewed by unleashing the power of the market – given the fact that a small percentage of the population possesses most of the buying power?

That’s the dilemma of the tech housing crunch: If you build more housing for tech workers, won’t those same tech workers just create new apps to disrupt the balance once again – to the benefit of well-off folks, at the expense of everybody else, including most of the tech workers? It’s a little like the Gold Rush, when hydraulic mining was all the rage.

The fracking of its time, hydraulic mining extracted gold from the Sierra Nevadas by using high-pressure nozzles to literally hose down the mountains, so that the mountains washed away and the gold remained. Marysville, in particular, become a rich city by manufacturing the hoses and nozzles and providing the miners with the supplies they needed The resulting runoff caused the water level in the Feather and Yuba Rivers to rise so much that flooding became endemic in … Marysville. Literally flooded by its own success, Marysville built a massive set of levees to protect it from the deluge – levees which are still necessary today, because the water level in the rivers is still higher than normal, 130 years after hydraulic mining was outlawed. (I wrote at length about hydraulic mining and Marysville – as well as the connection between the Gold Rush and the modern tech economy — in my bookCalifornia: Land and Legacy.)

The regulatory generation’s immediate impulse in San Francisco has been to build the equivalent of Marysville’s massive set of levees – primarily by blocking as much market-rate housing development as possible and favoring  off-market affordable housing instead. This was the impulse behind the recent failed ballot initiative in the Mission District, which would have completely prohibited market-rate development and permitted only affordable housing instead. San Francisco has a long history of this kind of intervention, going back to the first hotel conversion fees in 1981, and there is no doubt that building a lot of affordable housing in San Francisco is a good thing to do. But does it make sense to try to protect workers in the hottest business sector in the world by shutting down the private real estate market completely? Maybe that’s just the ironic result of locating the hottest business sector in the world in the most regulation-friendly city in the United States.

One thing I have learned over the years is that, worthwhile though land-use regulation can be at times, if you completely contravene the market forces at work you will fail to accomplish your goal. Either the power of the market will force the politicians to overturn the regulation in question, as often happens when developers are granted variances; or else the regulation will become fossilized in a way that creates perverse outcomes, as is the case with New York City’s rent control system, which was originally created 70 years ago to deal with a World War II housing shortage. In other words, if you’re not careful, you’ll get hosed, just like Marysville did.

So the solution in San Francisco and elsewhere simply has to unleash the market in some way – to allow developers to respond to the market by allowing more density, or at least more housing units of some kind (even if they are small units), than is permitted under current zoning. But that same solution also has to tame the market in some way – not by suppressing development but by focusing on affordable housing and developments with a mix of incomes, densities, and housing types wherever possible. As for AirBNB, there’s probably no way to stop it – but maybe you could use the revenue stream of transient occupancy tax from AirBNB to build or maintain actual residential housing elsewhere in the city.

And, like it or not, we all probably have to recognize that, in some situations, you just can’t build enough housing – or, at least, enough housing of the right type – fast enough. No matter what the general plan guidelines say.

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