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The McConnell Report • February 1, 2008
What's Happening Down the Street?
Think you have it bad doing business in Berkeley with its onerous rent control program, anti-landlord and business bias, ever increasing fees, scandals involving rent board members, cronyism in hiring friends and consultants and on and on. Look at what is happening just down the street in Oakland and you might not think life is quite so bad.
The city of Oakland faces an ever increasing crime rate; 22 people were killed in the first six weeks of 2008. There are so many robberies, burglaries, and property crimes that citizens don’t even bother to call the police because the police department is so understaffed that officers often don’t show up. Just today, Matier and Ross reported that the city has purchased 40 new squad cars that have sat idle for nine months in the maintenance shop waiting to be outfitted.
Citizens and businesses demand more protection but are told that it cannot be provided because there are no revenues to pay for more protection. The city faces a budget deficit expected to be in the range of $30 - $40 million which is compounded by an expected revenue drop of $20 million based upon a decrease in the transfer taxes because of the general housing market down turn and the perception that Oakland is not a good place to live and work because of its continuing failure to address public safety.
Home builders have brought thousands of brand housing units on line. These include exceptional quality homes like the Forest City Apartments on Telegraph, Condos at Broadway Grand, and new units in the Temescal area. But a dark cloud hangs over these and other developments because too many potential buyers and renters tell the developers that they are afraid to live in the city.
In response to this, city leaders ought to be clamping down on crime and pushing through new ways to spur economic development. Instead, they focus on new housing regulations that will:
· Dry up the revenue stream from investments in housing
· Make it more difficult for rental property owners to operate and maintain quality rental housing
· Send a message to commercial and retail investors that Oakland is a bad place in which to invest
· Make the city an even less attractive place in which to invest in businesses that create jobs and tax revenues
Oakland needs to encourage economic development like never before. The Mayor and City Council should be doing everything in their power to attract investment in housing, retail, and commercial development. That is the only way to increase revenues for hiring more police officers and developing and implementing operational systems that reduce crime. That is the only way to increase jobs for Oakland residents, thereby reducing unemployment, which reduces crime. Unfortunately, some city leaders have taken a different tact and have proposed housing policies that will discourage investment.
The Mayor promotes inclusionary zoning even though he acknowledges that Inclusionary Zoning does not produce substantial numbers of housing units. This is true in the best of times. In a down turned market it is even truer. According to the analysis of the city’s consultant, Linda Hausrath, if costs are added that cannot be absorbed, buildings will not get built. In the current market, developers cannot sell or rent market rate housing. An added tax from Inclusionary Zoning will further discourage investment and reduce revenues.
Condominium Conversion Reform
In some areas of the city renters outnumber homeowners by a ratio of 3-1. This has caused the city to repeatedly adopt official housing policy that encourages an increase in homeownership rates. So, one would think that the city would encourage condo conversions to increase the number of owners. Not! Proposals on the table would actually be more restrictive than existing law and make it even more difficult for renters to become owners.
Then there is rent control. The Mayor recommends toughening the law to eliminate the right to pass through debt service costs, reduce capital improvement pass throughs, limit the amount of increase that can be passed on to tenants, and change the current complaint driven system to one where landlords have to file petitions ala Berkeley.
These recommendations from the Mayor come without any analysis of the impact of major changes to rent control. The Rent Board was not consulted. Housing providers were not consulted. No economic analysis was made of the cost of these changes. No analysis was made of the need for these changes or any benefits that will accrue to the city.
Help Is On the Way
Everyone understands the need for quality housing for people at all income levels. I don’t know a housing provider that disagrees with that premise and who would not support responsible programs. But as even the Mayor admitted, the proposals that the city is now considering will not help a lot of people. Worse, in my opinion; they will hurt many, many more.
At this crucial juncture in Oakland’s history, the city of Oakland needs to make sure that revenues are generated to address quality of life issues, and especially the most important issue of the day – public safety. The last thing this city can afford to do in these bad economic times is to discourage investment by adopting bad housing policies that will lead to decreased revenues, that will not help Oakland provide affordable housing, and that will erode the resources the city needs to address public safety.
The good news is that housing providers are fighting back. They have formed a coalition consisting of the Jobs and Housing Coalition, Oakland Builders Alliance, Oakland Association of Realtors, Rental Housing Association of Northern Alameda County, and many others. Together these groups represent large and small homebuilders, businesses, contractors, realtors, rental housing providers, and neighborhood and merchant groups throughout the city.
The coalition has asked the City Council to reject the Mayor’s housing proposals and pledged to work with him and others on policy initiatives that will grow the city.
Who knows, if this is done right, this may be a way to turn the city away from more of the same old bad policies that have hurt cities throughout the Bay Area and toward policies and strategies that actually lead to more affordable housing, more investment, more revenue for Oakland, and ultimately, a reduction of crime.
The package of housing proposals will be considered on February 19th. I will let you know the results. Berkeley property owners should keep an eye on this because if this collaboration amongst business groups can turn Oakland around, similar coalitions should be created in Berkeley.
Greg McConnell is the principal consultant at The McConnell Group, a consulting and advocacy firm that specializes in housing issues and advises apartment and housing associations, property management companies, and individual owners throughout California. For more information about The McConnell Group please visit www.themcconnellgroup.com.
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