Once again issues with Below Market Rate (BMR) housing are under consideration by the Morgan Hill City Council. This time developers are complaining that mandated BMR prices are not enough to cover the costs of construction. This has always been the case and will continue to be an issue with every development. The mandating of a percentage of BMR housing to be included in new developments, otherwise known as inclusionary zoning, as a method of increasing the supply of affordable housing has been discredited by study after study. Why then do cities continue to use this tool in an attempt to promote the construction of affordable housing? I would propose, it’s because they are afraid that increasing the supply of lower cost homes would cause the median price of Morgan Hill homes to fall and thus lead to the perception that home prices in this area are declining. Of course home prices have declined a small amount due to the recent correction in prices, but the run away price appreciation had to come to and end at some point.
Use of inclusionary zoning only makes the problem of affordable housing worse. A few low cost homes are built and the remaining homes in the development are then sold at higher prices to soak up the cost of the BMRs. This is a fact of our economy, someone always pays for increased taxes, fees or subsidies and it is always the consumer that bears this cost. Not only does this result in artificially inflated prices for most of the homes in development, but it results in a split in the “normal” housing market. A “normal” market contains housing spread across a range of prices that not only allows people at all levels to afford homes but that allows for moving up as a families need and buying power increases. With a split market there is an artificial divide that prevents this move with the step up in home prices from the low to mid range being a gap that cannot be crossed. Families living in lower cost housing are then trapped and thus there is no resale of these homes to new families. Thus, the lack of affordable housing.
What is really needed to increase the supply of affordable housing is to approve higher density lower cost housing instead of million-dollar single-family developments. Measure C provides most of the tools. While Measure C mandates the number of allotments each year, it does not fully mandate how those allotments are distributed by affordability. This is up to the City Council to specify in how they set the guidelines for assignment of points in the Measure C competition. How about significantly increasing the points based on affordability? But this is only half the issue; the city also needs to revise zoning to increase density of new developments. You can’t even propose affordable developments if the stage isn’t set for them through zoning. This should occur not just in the downtown core, in which they’ve made great strides, but in the areas surrounding the downtown core.
For a long period development of townhouses and condominiums was impossible due to the lack of availability of construction insurance. However, this problem has been recently addressed. I’m not suggesting creation of multi-story condo towers right up to the edge of the city. But, we need to get away from the concept that demand is only for single-family homes throughout the city. Create more affordable housing by building lower cost developments and not through artificial subsidies and restrictions.
Chris Bryant has lived in Morgan Hill for more than 29 years and makes his living as a commercial realtor. He works on development of high-tech computer-based products. He’s a member of the board of directors of the Morgan Hill Chamber of Commerce as well as the Knights of Columbus. He’s also a member of the Morgan Hill Times Editorial Board.
