The Class Nature of the “Density Bonus”

We know the real source of the housing crisis now besetting Berkeley (and the bay area in general). It is not a supply and demand problem. According to census figures, Berkeley has (approx.) 49,000 housing units for around 112,000 people, whereas in 1970, it had 46,000 units for 117,000 people, and there was no crisis. [http://www.bayareacensus.ca.gov/cities/Berkeley.htm] The real source is a plan to change the class nature of the city by building housing for a new population of wealthier people. It is called Plan Bay Area. And the crisis it creates is not that nobody can find housing. The crisis is that low and moderate income people cannot find housing when they are forced out of their homes by landlords seeking to rent to wealthier people at higher rents. The crisis is the flood of dislocations resulting from fraudulent evictions, economic evictions, foreclosures, real estate speculation, ownership changes, etc. With the growing dislocations of low and moderate income families, those with higher income can find plenty of housing in Berkeley. Nevertheless, the plan allots the building of over 3900 new housing units in Berkeley. By the time there is a glut, and rents start to come down, most low and moderate income families will be long gone.

That is why neighborhoods are organizing to demand affordable housing now, to protect their neighbors from becoming commuters or exiles. Only affordable housing will alleviate the housing crisis by absorbing families being forced out of their homes by rent increases. Building market rate housing irrationally assumes people will move into higher rent housing if it becomes available. Building affordable housing allows people to move into units at lower rent than they are paying. That has the added benefit of increasing their disposable income, which benefits small businesses.

Corporate developers, however, insist on building market rate housing – and banks insist on dealing with corporate entities (e.g. LLCs), rather than human investers. The developers do not insist on market rate units just because of profitability. They want all market rate units because of their financing. Developers fund their operations with debt, using the project itself as collateral. If land or property values decline, the resulting decline in collateral value puts the developer in trouble with the bank. When faced with an inability to repay the loans, what becomes important to the bank is the ability to put the project back on the real estate market – that is, to recapitalize it – to transfer the loan to another developer or to recuperate the loan through sale. The presence of affordable units, because the earnings from them are related to tenant income, hinders the ability to recapitalize the project. Thus, the corporate debt structure is a barrier to including affordable units in new development. This is a real conflict of interest between communities and corporations.

The city government debates whether to require 10% or 15% affordable housing units in new housing projects, though the constituency that needs affordability is a much greater percentage of the population than that. At the same time, the city gives a discount on the mitigation fee by which developers can buy their way out of including affordable units. The city’s concern about the problem appears to be a sham.

And that is where the “density bonus” comes in. The density bonus promises a compromise, the inclusion of affordable housing units in new projects, in exchange for which the developers can make their projects bigger (at market rate).

To understand the true nature of this "compromise," we need to understand what "affordable" means, and the nature of the conflict between corporate interests and neighborhood interests.

"Affordable" with respect to housing is a technical term used by HUD. It means that tenants pay no more than 30% of their income for housing. In other words, affordability means the cost of housing is calibrated by income rather than according to a rental market, which charges what people are willing to pay – apples and oranges.

HUD divides family income levels into five categories, using an Area Median Income (AMI) as a standard of calibration. The "median" is what is right in the middle between highest and lowest. Moderate income is from 80% to 120% of AMI (right in the middle); low income is from 50% to 80%, very low income is 20% to 50%, and extremely low income is less than 20%. These are all technical terms. Those earning above 120% of AMI are the high income families. For Alameda County, the AMI is $92,000 a year. For a family whose income is at the AMI, 30% of income rent will be $2300 a month. Already, rents for two bedroom apartments are upwards of $2800 a month.

Most people in Berkeley who earn below the median income pay more than 30% for their income for housing expenses – even those on rent control. Those who earn more than the median income generally pay less than 30% for housing. They pay more in actual money, but less as a percentage of their income. Almost a half of low income families pay more than 50% of their income for housing. [See http://www.towncharts.com/California/housing by zip code] Without rent control (prohibited by state law – the Costa-Hawkins Act), housing becomes an “impoverishment machine.”

There is a second factor protecting neighborhoods from this housing crisis, and that is its zoning regulations, which put limits on building height and size, and require set-backs, open space, on-site parking, and community benefits. Cities all over the state have passed such zoning ordinances to maintain their community and residential character, and to prevent overcrowding. In most residential areas of Berkeley, the height limit is three floors.

But banks like bigness, and they measure it by whether their investment will gain them greater earnings than securities speculation (now a major source of financial profit across the corporate specturm). Rental income for four floors would be 33% greater than that from three, and higher still from five. Local zoning regulations form a barrier to this project profitability. It is against those regulations that the state’s "density bonus" operates. The “density bonus” law gives the developers the ability to disregard such zoning regulations, and build bigger buildings. The developer simply has to agree to include a certain number of affordable units, and that will authorize the building of more market rate units. It is designed to increase the attractiveness of a project for bank financing.

In that sense, the term "bonus" refers to an imposition by state government, a violation of the democratic aspirations of city residents (expressed through the establishment of zoning regulations). It is thus of a piece with the Costa-Hawkings Act, which prohibits cities from defending their own neighborhoods against rent increases. Hobbled by these state anti-democratic measures, city governments find the housing crisis and its massive dislocations irresolvable. And in the name of resolving the housing crisis, the “density bonus” gives developers the ability to make the crisis worse.

Let us examine this “density bonus” closely. The law sets forth a predetermined schedule of how many more market rate units can be included for each increase in the number of affordable units. It thus refers to the increase in the total number of units. But it is ambiguous. Density in physics refers to a ratio. The density of a gas is measured by the number of molecules per cubic centimeter, for instance. But for housing, it simply refers to size, which in social terms has a perjorative connotation. It suggests that when low income people are included, population density goes up, to compensate for which the developers should get a "bonus." In this ambiguity, the term “density bonus” already reveals a class bias.

The fact that this change in density is given in percentages provides a second ambiguity. Does the percentage increase in overall units pertain to those added, or does it pertain to their percentage of the resulting whole? For example, when added to 8, 4 is a 50% increase; but as a part of the resulting 12, it is 33⅓%. Yet it is the same "4."

The notion of "density" then becomes a "meaning" rather than a measurement. It simply "names" the kind of "bonus" given. It is thus more properly understood as an adjective than a noun (a measurement). Generally, "dense" is the adjective, referring to the character of things like underbrush, fog, or prose styles, etc., while "density" indicates the degree of being dense. But here, "density bonus" refers to a transgression of democratically established social standards. And by expressing itself as percentages, it hides the fact that it primarily provides for bigness and the corporate profits dependent on that.

Here’s how it works [see Cal. Code 65915]. The developer declares that it will put in a certain number of affordable units, for which it can claim a "bonus" consisting of ignoring zoning limits (primarily height and size). And the developer gets a different bonus according to whether the affordable units are moderate income, low income, or very low income. Including very low income units allows much greater disregard of community standards than including moderate income units – another class bias.

Consider a large building with 60 units on 4 floors – that’s 15 units per floor, all market rate. (Though more than 3 floors, we use this example because the numbers are simpler.) If the developer includes 10% moderate income affordable units, the law allows adding 5% more market rate units. If the number of moderate income affordable units included is 40% of the total, then the increase in market rate units can be 35% (the maximum allowable). The developer gets one percent increase in market rate units for each one percent additional affordable unit included (above 10%).

In our example, ten percent moderate rate affordable units would be 6 units (10% of 60), entitling the developer to three more market rate units to the building (5% of 60). An entire (fifth) floor of 15 units (a 25% addition) would require including 30% moderate income units, or 18 units.

If the developer chose to include low income affordable units, there is a different result. A ten percent inclusion of low income affordable units would allow a 20% increase in market rate units. A 20% inclusion of low income units will allow a 35% increase in market rate units (the maximum). The developer gets one and a half percent increase in market rate units for each one percent additional affordable unit. That is, where one moderate income unit is worth one market rate unit (percentagewise), a low income unit is only worth two-thirds of a market rate unit. Adding an additional floor to the building (15 more units) or 25% of the original 60 would only require including 14 low income affordable units. If the developer inverts the calculation (which might be illegal), and considers the fifth floor to be 20% of the total (15 over 75 units), that additional 20% would only require 10% low income affordable units to authorize it – only 6 units (10% of 60). The diminished income loss from 6 affordable units as opposed to 14 affordable units is what the ambiguity is all about.

In the case of very low income affordable units (those most needed to stem the crisis), a developer would need to include only 5% affordable units to allow adding 20% market rate to the building, and 11% affordble to allow 35% additional units. The developer gets two and a half percent increase in market rate units for each one percent additional affordable unit. Very low income units are only worth two-fifths of a market rate unit. That might imply that for the people who made this law, the very low income families are only worth two-fifths of a middle class family. (There’s a Constitutional precedent for that – Article 1, section 3.)

Seven percent very low affordable will allow a 25% addition to the building (filling the fifth floor). Seven percent of 60 is 4.2 units, or 5 (rounding up). Five very low income affordable units thus allow the developer to add an entire floor to the building. For the very low income families, the ones facing the greatest pressures of dislocation, the density bonus cuts their benefit to less than a third of moderate income families, while the developer gets a whole new floor at market rate. With the probability of market rate rents increasing even more, 70 of 75 apartments will soon be bringing in even more money.

The lower the income and standard of living of a tenant, the more s/he will be exploited in the interest of higher corporate earnings. This is the class nature of government policy toward its constituencies. It is this class difference that has resulted in the many struggles over the past decades between social justice movements and corporate institutions (including government).

What the housing crisis (as an “impoverishment machine”) signifies is that the rich do not just get richer; they do so by rendering the poor poorer. In other words, poverty is something that is done to people by policies of impoverishment, and by economic structures and the agents of those structures. In the density bonus, the anti-democratic nature of those policies and the political credo of class bias reveal the housing development projects now unfolding to be a program of wealth, by wealth, and for wealth.