BIA’s Borre Winckel Addresses SANDAG Board

Comments by Borre Winckel, on the Virus impacts on housing.

Thank you for this opportunity.  The housing industry is grateful that the Governor declared us an “essential industry.”  Shutting housing construction down would materially worsen the State’s housing picture.  In response, the industry immediately rolled out a job site safety protocol to protect everyone.  San Diego and the County adopted this protocol as have many other cities Statewide.

Housing never recovered from the Great Recession in 2008-2009; that is in terms of supply and the types of housing needed most.   Being allowed to build unfortunately does not shield us from the economic impacts you already heard about.  Building permit levels for Q,1 are in the same dismal range as recent prior years.   And, that is without accounting for the Virus impact, which hit us mid-March.

During Q1, the industry pulled 2,300 permits for single & multifamily units, double compared to last year.  But last year was a very bad year at just 7,500 permits.  Even at that, the issuance of building permits does not necessarily equate to actual building activity.

Clearly, the ripple effect of the economic shutdown and a drawn-out phased reopening action is showing up in delays and cancellations of escrows and deferred rent payments.  At the beginning of April, when the Virus dominated everything, 45% of sales escrows were cancelled.  New home communities were poised to average a sales rate of 1 unit per month.  In all of San Diego, builders reported 22 net sales.  That happened in the week of April 5thMarginal improvements have since been recorded.

Additional tenant eviction restrictions and the clamor for rent free living are putting entire apartment projects that are permit ready on hold.  These decisions are rooted in uncertainty.  The pullback decision is not made by the builders but by their lenders.  In some cases, projects that are nearing completion cannot get electrified, because the public utility doesn’t want bad PR from interrupting service to a record stay-at-home public.  It’s unfortunate, but we get it.

Production is further stymied by the uncertainty created by the implementation of new laws adopted prior to the Virus.  The adoption of Vehicle Miles Travelled, or VMT in short will singularly determine our ability to produce new housing.  VMT, which replaces Levels of Service metrics, is designed to reward Transit Oriented Development and financially discourage more traditional, less dense housing options.  It’s all about reducing Green House Gasses.   I’ll get back to VMT shortly!

The mandated economy shutdown is a disaster particularly for blue-collar workers deemed non-essential and for small businesses.  But for many still salaried white-collar workers, working from home has become the new normal.  Consequently, public transit is far less being used and primary access to housing options near transit is becoming less critical.  The employed stay-at-home workforce is discovering that life in the less urban setting, away from virus epicenters, including public transportation is healthier, less expensive and more livable due to access to open space.  People are biking and walking more than ever. 

We think that a lasting Virus Fear will prove transformational in where and how we shall live in the future.  But, will we be allowed to make that choice?   California Air Resources Board’s guidance in counting reduced GHG emissions does not identify or allow quantification of remote work as GHG or VMT reductions!  That’s so wrong, especially if working from home becomes the new normal for many San Diegans.  SANDAG is in a powerful position to change CARB’s guidance and we request you do.

The “dispersion” of the telecommuting workforce was already happening and is now accelerating.  People will move away from expensive downtown live work areas, and into the smaller cities.  This will not be to the exclusion of TOD development, but it will impact TOD development in size and scale.  What’s even more relevant, is that many employers are now encouraging work from home as the semi-permanent alternative.   These same employers are reviewing the need for all their – now vacant – office space.

Cities that facilitate a balanced land – and cityscape will fare much better in the future, by encouraging a diverse range of housing options.  Perhaps it’s not too early to start pro-active thinking about policies that encourage conversion of office space into housing?

So, where will we go from here and avoid worsening an already harmful housing crisis?  In the short run, for the next 3 – 6 months, housing construction activity will remain anemic and small in volume.  During COVID-19, new home sales slowed down by 20-30%.  Put in context, SANDAG set a RHNA goal of 172,000 units over the next 8 years, or 21,500 unit annually.  Then came the Virus.  Does the Virus become the excuse for not dealing with the pre-existing housing crisis, or mainly the argument for preventing an even worse outcome?

We project a supply of 6,000 – 7,000 new units this year, with the plunge led by apartments, the very housing we need the most.  California’s forever changing regulatory environment isn’t helping either. 

Recently, the State’s Judicial Council, issued rule number 9.  It will keep the environmental review comment period open for as long as the Governor’s Executive Order is in place.  That’s a gift to anyone who wants to block any private or public project.   We raised objections and the Judicial Council is reconsidering their decision. 

Our industry built the home you live in today and where your dependents could live tomorrow.  We ask you to do no harm to housing production by adding new fees, raising current fees or creating new cost-adding regulatory burdens.  Like the Virus, housing too needs a vaccine.

Thank you.

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