Monthly Archives: March 2016

San Francisco’s Affordability Crisis – Is This The Future For Austin?

By Bill Oakey – March 31, 2016

golden-gate-bridge

You can surely expect to find San Francisco on many historic lists of America’s most charming cities. But these days, the City By the Bay is in the throes of a major affordability crisis. That long ago dream popularized in the 1960’s by Tony Bennett with the words, “To be where little cable cars climb halfway to the stars,” today feels more like a nightmare to many longtime residents. If we think affordability is bad in Austin, which of course it is, then we need to look to San Francisco and ask if there is still time to keep things here from getting a whole lot worse.

The recent HBO documentary, “San Francisco 2.0” lays out the sad reality of a once diverse and progressive city falling victim to the encroachment of too much wealth and the perils of the economic divide. Here are a couple of snippets from the synopsis on HBO’s website:

“San Francisco has long enjoyed a reputation as the counterculture capital of America, attracting Bohemians, mavericks, progressives and activists. With the onset of the digital gold rush, young members of the tech elite are flocking to the West Coast to make their fortunes, and this new wealth is forcing San Francisco to reinvent itself. But as tech innovations lead America into the golden age of digital supremacy, is it changing the heart and soul of their adopted city?”

“Alexandra Pelosi (filmmaker) has always been proud of San Francisco, in particular its ‘long tradition of embracing nonconformity.’ She sets out to explore how the arrival of innovators – the so-called “IT invasion” – is reshaping its iconic neighborhoods and forging a tech paradise in the City by the Bay. Pelosi talks to a range of subjects, from ambitious trendsetters bringing an unprecedented wave of wealth, to the entrenched communities of artists and immigrants who are hoping to hold onto the place they call home.”

Then There Was the Recent New York Times Article

Early in March, the Times published an article entitled, “In San Francisco and Rooting for a Tech Comeuppance.” It’s not much of a stretch to think of similarities to Austin. These short excerpts explain it well:

“The consequences for people who do not make their living from technology are increasingly unpleasant. The city is bulging at the seams, adding about 10,000 people a year to a record 852,000 in 2014. A one-bedroom apartment goes for a median $3,500 a month, the highest in the nation.”

“Signs of distress are plentiful. The Fraternite Notre Dame’s soup kitchen was facing eviction after a rent increase of nearly 60 percent. (It was saved for a year after its plight received worldwide publicity). Two eviction-defense groups were evicted in favor of a start-up that intended to lease the space to other start-ups. The real estate site Redfin published a widely read blog post that said the number of teachers in San Francisco who could afford a house was exactly zero.”

“All the renters I know are living in fear,” said Derrick Tynan-Connolly, a teacher at a high school for pregnant teenagers and young mothers. “If your landlord dies, if your landlord sells the building…and you have to move, you’re gone. There’s no way you can afford to stay in San Francisco.”

San Francisco has even had their own short-term rental battle, only theirs came in the form of a referendum. The proposition, which would have placed some restrictions on Airbnb got crushed  under the weight of big money. There were 1,959 minutes of airtime opposing it, compared to only 16 minutes in support.

The Clock Is Ticking for Austin…

Austin Photo By Bill Oakey

Austin Photo By Bill Oakey

The best thing we can do as a community is stay informed and engage with our local officials. One thing that does not bode well for us is that we do not have California wages here. And we have a State government that seems hell-bent on continuing to rely on local property taxes to support schools. Not only that, the declining enrollment in AISD fueled by families with children fleeing the city is destined to get much worse. Portland school enrollment took a steep nosedive in the 1980’s when their boom cycle began pricing families out.

We Need Comprehensive Affordability Solutions

City officials are seeking public input for a new housing plan that is now being developed. You can check it out and see a schedule of public forums,  ATX Housing Community Conversations. Then please check out my recent blog posting, “Saving Austinites From Losing Their Homes – A Homeowner Retention Initiative.” And finally, we can look forward to the comprehensive affordability report to be released next month by the local nonprofit, Liveable City.

For some musical accompaniment to this blog posting, listen to “I Left My Heart In San Francisco” by Tony Bennett, 1962 and “San Francisco (Wear Some Flowers In Your Hair),” by Scott McKenzie, 1967.

Homeowner Retention Initiative – Saving Austinites From Losing Their Homes

By Bill Oakey – April 12, 2016

I have presented this proposal to the Austin City Council and two City Council committees:

Homeowner Retention Initiative

Overview: One of Austin’s biggest affordability challenges is the displacement of existing residents due to the rapid acceleration of property values, resulting in unaffordable property taxes. The housing cost spiral has helped fuel Austin’s status as the most economically segregated major city in America. One way to approach this problem is to explore creative solutions such as shared equity mortgages and shared appreciation mortgages. Local government officials should create a strong public outreach initiative so that citizens who feel at risk of losing their homes will know where to turn to seek assistance. Below I have listed both new and existing strategies that should be considered. All non-native long-term residents were newcomers when they first arrived. They are just as vital to the community, its culture and its economy as today’s newcomers.

Options to Review for Consideration

A. Shared Equity Mortgages and Shared Appreciation Mortgages

These are financing arrangements that allow a third-party investor to invest in a percentage of the equity in a home, thereby lowering the payments for the homeowner. When the house is sold, proceeds are split based on the equity ownership percentage. This mechanism should be explored both for renters seeking first time home ownership, as well as a refinancing option for long-term homeowners squeezed by high property taxes. And it could be applied to landlords needing lower mortgage payments or taxes, to facilitate lower rental rates.

­Online Resources For Shared Equity and Shared Appreciation Mortgages:

  1. “Facilitating Shared Appreciation Mortgages to Prevent Housing Crashes and Affordability Crises” – The Brookings Institution
  2. H.R. 3519 – Preserving American Homeownership Act of 2015 (See Attached Bill Summary)
  3. “Shared Equity and Housing” – Andrew Caplin, Economic Data Engineer, New York University
  4. “Shared-Equity Mortgages, Housing Affordability, and Homeownership” – Andrew Caplin, James Carr, et. all
  5. “Housing Partnerships: A New Approach to a Market at a Crossroads” – Book by Andrew Caplin
  6. “The Mortgage Mess, the Press, and the Politics of Inattention” – Andrew Caplin

Note: Determine if the concept of shared equity home ownership can be extended to older homeowners whose mortgages are paid off, but they still face an unaffordable burden of high property taxes. Can shared equity arrangements be worked out with investors willing to share the cost of property taxes?

B. Other, More Traditional Home Financing Arrangements:

  1. Shared equity with land trusts and various model comparisons – This website has a tremendous catalog of information and should be considered must-read.
  2. Co-ownership of a home – usually involving relatives or friends
  3. Reverse mortgages – should be approached with caution through consumer-based organizations

C. Continue phasing in the full 20% City of Austin general homestead exemption.

D. Consider supporting improvements to State law allowing over-65 homeowners to defer their property taxes:

  1. Reduce the annual 8% annual interest rate on the deferred tax amount.
  2. The over-65 property tax deferral option is subject to approval by each homeowner’s mortgage lender. We need to find out what criteria the lenders use, and to what extent the current climate for Austin homeowners favors or disfavors approval of tax deferrals by most lenders.

E. The City of Austin and Travis County should index the over-65 and disabled homestead exemption. They each need to adjust it annually.

F. Make sure that the current City review of a tax swap arrangement with AISD includes an offsetting adjustment to lower the tax rate for over-65 homeowners. Their school taxes are frozen when they turn 65. So a tax swap with the City without an offsetting adjustment would violate the intent of that law.

G. Seniors should be able to opt out of the City’s upcoming composting fee on our utility bills. The fees that we already have are burdensome enough, without making it worse.

H. Research and review the housing affordability and homeowner retention strategies of other cities. See this news article from Portland.

The Decline of Homeownership – Is a Single-Family Home The New Luxury Item?

Please read this disturbing article from CNBC. With homeownership at risk more so than at any time in recent history, isn’t it a good idea for Austin to step up to the plate and seek some innovative solutions?

U.S. H.R. 3519 – Preserving American Homeownership Act of 2015

(Referred to the House Committee on Financial Services. No further action to date).

Sponsored By Rep. Keith Ellison (D), Minnesota
Co-Sponsored By Rep. Louise Slaughter (D) New York
Co-Sponsored By Norma Torres (D) California

Note: A similar version of this bill was introduced in the Senate in 2014 as S. 2854 by Sen. Robert “Bob” Menendez (D), New Jersey

Bill Summary

Requires the Director of the Federal Housing Finance Agency and the Federal Housing Commissioner each to establish a pilot program to encourage, through assistance provided under the Home Affordable Modification Program under the Secretary of the Treasury’s Making Home Affordable initiative, the use of shared appreciation mortgage modifications that: (1) are designed to return greater cash flow to investors than other loss-mitigation activities, including foreclosure; and (2) result in positive net present value for the investor.

Requires a shared appreciation mortgage modification to: (1) reduce by specified action the loan-to-value ratio of a covered mortgage to 115% immediately upon modification and to 95% within 3 years; (2) reduce the interest rate if such a principal reduction would not result in an affordable reduced monthly payment; (3) reduce to a specified amount any periodic payment the homeowner is required to make; (4) require the homeowner to pay the investor, after refinancing or selling the real property securing a covered mortgage, up to 50% of the amount of any increase in the value of the real property during a specified period; and (5) result in a positive net present value for the investor after taking into account the principal reduction and, if necessary, any interest rate reduction.

Requires the Director to: (1) provide that an enterprise may negotiate regarding a shared appreciation mortgage modification of a covered mortgage with any mortgage insurance provider for a mortgage on the subject property, and (2) allow advanced claim agreements with respect to such mortgage insurance policies.

Watch The Video – March Regional Affordability Meeting

By Bill Oakey – March 31, 2016

The Austin Regional Affordability Committee met Monday March 28th. You can watch the video here. The Committee includes officials from the City of Austin, Travis County, Central Health, AISD and others. Among those are City Council Members Delia Garza, Ann Kitchen and Ellen Troxclair, Commissioner Brigid Shea, and former State Representative and current Central Health Board Member, Sherri Greenberg.

A highlight of this month’s meeting was an affordability presentation by the local nonprofit, Liveable City. This organization sponsored a collaborative gathering of citizens who divided into groups for a day-long affordability forum. The Regional Committee on Monday will also be discussing their ongoing efforts to develop an Affordability Strategic Plan. In the video, you will also see the introduction of my Homeowner Retention Initiative, along with a presentation on the critical issues facing renters from the Austin Tenants’ Council.

We have a tremendous opportunity to join together and work towards real, tangible solutions to Austin affordability. The issues are diverse and complex, but I believe that Austin abounds with the creative and innovative spirit that can truly make a difference. Hopefully, the topical elements and the results of community input obtained at the Liveable City forum will help the Committee build their Strategic Plan.

Click here for more information on the Austin Regional Affordability Committee.

Taxpayers Stuck For Construction Workers’ Wage Increase

By Bill Oakey – March 24, 2016

This seems to be week for “Holy Cow! Did I Read That Right?” news stories. Here’s one I woke up to this morning. Are you ready for this?

Capital Metro Gives Developer a “Wage Waiver,” (A New Breed of Fee Waiver)

Capital Metro and the Endeavor Real Estate Group negotiated a deal for the construction of the 10-acre Plaza Saltillo development downtown. When the dust settled after Tuesday night’s board meeting, the developer walked away winning their original offer of $11.39 per hour minimum wage for the workers. And yet the workers won also, because they will be getting paid $13.03 per hour. That’s because Capital Metro agreed to “share” part of the difference with money that would otherwise belong to the taxpayers. The shared portion will be 50% of the wage increase  The net taxpayer loss is estimated to be $500,000.

Capital Metro will be leasing the 10-acre tract of land to the developer for 99 years. The “shared” portion of the workers’ wage increase will come in the form of a subsidy in reduced lease payments.  The lease subsidy benefits the developer the same way that a fee waiver would. So, I suggest that we label this groundbreaking event the dawn of the “wage waiver.” History will remember that the era began on Tuesday March 22, 2016.

The Tuesday night board meeting played out with the typical drama of an Austin showdown between a developer, government officials and citizen activists. Members of the Workers Defense Fund were justifiably upset because the agreement lacks sufficient worker safety provisions and many workers will be denied worker’s compensation insurance. According to an article in the Austin Monitor, the Workers Defense Fund may oppose the zoning change for the development when it goes to the City Council.

And what will the developer have an opportunity to ask for at the zoning hearing?

Fee waivers, of course!

So, Where Does All of This Leave the Taxpayers?

The worst thing about this first “wage waiver” is the dangerous precedent. $500,000 is “only a little bit of money” out of a big contract. But what about the next contract and the one after that? Every developer that goes into a construction and lease deal will want the same thing. Think about the massive complex of buildings being planned for the land owned by Central Health. What we witnessed this week was the opening of Pandora’s Box.

Pandoras-box

The Straw That Broke The Camel’s Back – Are You Ready For This?

By Bill Oakey – March 21, 2016

In a February blog posting, I discussed the need for the City to compile a list of all their expensive project plans, publish them for public input and discussion, and then set some realistic and affordable priorities on them. What I did not happen to mention is that obviously Travis County needs to do the same thing. In fact, the City and the County need to work together and then bring the community into this discussion.

Just try to imagine Amy’s Ice Cream, Whole Foods, Dell Computer or any other business of any size trying to operate without knowing the cost of all of their plans. Publicly held companies’ shareholders would never stand for it. If anyone reading this blog can find a single City or County office holder or staff member who can identify all of their master plans and project plans and tell us the total cost, I would be very surprised.

Are You Ready for This?

There is a Britney Spears slot machine in Las Vegas where she struts across the screen offering a bonus prize and asks, “Are you ready for this?” Well, ready or not, here comes something that is not nearly as much fun. In fact, I’d say this is the straw that broke the camel’s back.

$620 million for a new Travis County Expo Center!

$620 million for a new Travis County Expo Center!

Yes, you read that right – a price tag that is over twice as high as the failed bond proposition for a new civil and family courthouse! You can see the high cost estimate that totals up to $620 million in this PDF from Page 33 of the County’s draft report. There may be some lower estimates out there in Consultant-ville, but why not factor in the highest estimate and assume that the routine cost overruns will hit that amount in the long run?

Are You Ready for Some More?

Oh, and just when you thought that the plan for two commercial golf courses at Walter E. Long Park had been put to rest, guess what. They’…rrre…back!! The same developer who brought up the original proposal has launched an expanded version that includes a host of other grand ideas. And the Austin Parks Department is about to start…here we go again…a brand new master plan for the park. So, the awesomely expensive new Expo Center would only be one piece of a much bigger package. The neighborhoods near the park have waited for over 30 years for some well-deserved improvements. But a grand scheme for luxury development would only bring on more California-style gentrification. (Quick note on the golf courses – Keep in mind that the Austin City Charter clearly states that no City parkland can be leased or “otherwise alienated” without voter approval).

Last year I addressed the big picture planning cost issue in another blog posting that conjured up images of the multiplying brooms in “The Sorcerer’s Apprentice.” Today I am still haunted by those images of a hapless office apprentice carrying two buckets full of planning reports. As the music gradually rises to a crescendo, the brooms take over his duties and they begin to multiply. A dozen buckets full of plans morphs into hundreds. Our only hope is to wake up the City Council and the Commissioners Court before it’s too late.

Brooms

Click here for a stereo video of “The Sorcerer’s Apprentice.”