Guest opinion: Who should pay for tech expansion?

GUEST OPINION

BY ERIC FILSETH
Mayor of Palo Alto

State Sen. Scott Wiener’s Senate Bill 50, which would upzone Palo Alto, also asks residents of our city and other communities to subsidize office development.

To understand why, consider Bay Area land-use. Driven by tech demand, commercial office space leases for 50%-100% more per square foot than even luxury residential, so developers understandably favor office space. Investment follows the highest returns. As a result, the Bay Area produces jobs six times faster than homes.

This expansion comes with costs that aren’t being met — affordable housing, services and infrastructure like transportation and schools. If unfunded, these costs get socialized as community ills: congestion, displacement of low- and mid-wage workers, homelessness. Ultimately, somebody pays somehow.

SB50 explicitly reinforces that communities pay. It says:

“No reimbursement is required by this act … because a local agency or school district has the authority to levy service charges, fees, or assessments sufficient to pay for the program or level of service mandated by this act.”

In other words, if Xanadu Tech decrees a stately mega-campus, “a local agency or school district” shall pay for its downstream impacts. Voters aren’t stupid: they know the difference between affordable housing for teachers, which they’ll chip in for, and subsidizing new Xanadu jobs, which SB50 forces. Why else has SB50’s best pitch to communities been an exemption from SB50 itself?

The whole point of SB50 is for communities to subsidize housing developers. Since SB50 really only affects high-end housing, whose demand comes from commercial expansion, that’s where the subsidy ultimately goes.

Full mitigation

In 2019, cities began field-testing policies that link commercial and residential development. The watershed moment was when the Santa Clara County Board of Supervisors required Stanford to “fully mitigate” the impacts of its research expansion.

“Full mitigation” means making commercial development approval contingent on adequate, not just token, housing. Mountain View also required this in its North Bayshore district, Palo Alto’s office caps effectively achieved it, and Menlo Park is now considering it for Facebook’s expansion.

Full mitigation — leveraging commercial permitting, not just zoning — achieves what no Sacramento bill in history has done: it balances job and housing growth. And it requires the housing to be built, not zoned and wished-for.

Full mitigation is the anti-SB50: it makes expanders pay for expansion costs. Those who require full mitigation stop the deepening of California’s housing woes. They stop putting people in tents.

Sacramento should adopt full mitigation, not SB50. The governor’s mission is housing for California’s future job growth — exactly what full mitigation addresses. Maybe it’s 3.5 million units, maybe 1.3 million. If every city balances between jobs and housing growth, then the whole state will balance.

The example of San Francisco

Consider the alternative: San Francisco, Senator Wiener’s own city, doesn’t allocate expansion costs to expanders, and for years even gave them tax breaks. Per the Bay Area Council (www.bayareaeconomy.org/bay-area-job-watch-37/), last year San Francisco issued 5,280 housing permits, while adding 42,000 new jobs, many in tech. With all of these high-wage workers looking for homes outside San Francisco, you’d expect housing prices in neighboring cities to escalate forever.

Sure enough, on Dec. 11, the Mercury News ran an article, “Higher Rents? Oakland Passes San Jose — Surge seen in luxury apartment towers.

The article documents that Oakland, right next to San Francisco’s unmitigated expansion, has become the Bay Area’s second-most costly city for renters (SF itself remains No. 1). The article also says that “90% of new Oakland apartments are considered either luxury or high-end” and that new apartments and condos have been added to Oakland’s limited housing stock yet prices have gone up.

It also said that high-income renters continue to push out low-income residents. The story noted that “in other parts of the Bay Area, rents have largely stabilized,” i.e., farther from SF.

This old strategy — greenlight every commercial development, ignore the necessary housing and infrastructure costs, and blame zoning — has made San Francisco the most expensive rental market in America. They’ve started range wars with their neighbors, and still tents have proliferated in the city. It is an epic fail. Handing statewide zoning control to the policy makers who created this situation would be folly.

SB50 doubles down on this old strategy by subsidizing corporations and hurting communities. Instead, let’s focus directly on balancing jobs and housing growth. Cities have the power to create balance between commercial and residential growth. Sacramento should insist on this, and not try to micromanage the zoning of cities.

Filseth is mayor of Palo Alto and was elected to City Council in 2014.

27 Comments

  1. Thank you Mayor,
    It’s refreshing to hear common sense.SB-50 should not be a a statewide mandate.Case in point is a development that is steps away from Caltrain on Cal ave. Starting rents are $3k per month for a studio apt. Hard to fault the developers when they can get away with it.While well intentioned the bill is inherently flawed

    • Mayor, your comments ring hollow for those of us who have recently moved into your fine region. Where is all the housing being added to Palo Alto? Though your arguments for balance seem pragmatic, my interpretation is that this is effectively retirees wanting to freeze their towns in time while paying no more for living in a highly desirable area for weather and incomes. Prop 13 and 58 have caused outlandish distortions where I pay 20x my next door neighbor in property tax despite land and improvements being the same – it would be 40x if I didn’t buy several years ago. If your town wants ‘someone’ else to subsidise their standard of living, right now the people in those jobs you speak of are the only ones who can afford it. The region needs a more dynamic property market and increasing taxes on underassessed parcels is a place to start.

      • Talk to the developers who find it more profitable to build offices than housing, The Mayor’s absolutely right, Talk to the big tech companies who use gig employees to fatten the pockets of their exes while impoverishing everyone else. Talk to the AI companies who are looking to create more unemployment. Blame the developers for letting COMPANIES use Prop 13 rates since companies, unlike homeowners never die, so reassess THEM, not grandma since she’s being used to justify ADUs.

  2. Thank you for the common sense perspective on SB50. That exact passage in the bill’s text that you quoted has deeply troubled me and should trouble anyone who doesn’t want to see their community left holding the bag.

  3. Thank you Mayor! It’s no coincidence that Scott Wiener’s major contributors are those who will profit most from SB50.

    From the website :

    “Since 2010, when he successfully ran for San Francisco supervisor, Wiener has relied on campaign contributions from developers, landlords, real estate attorneys, property management firms, and real estate lobbying groups to win elected office and remain in power. The state senator is now pushing SB 50, which housing justice activists describe as a “trickle-down housing” bill that will generate billions for luxury-housing developers and the real estate industry, but will worsen housing affordability and gentrification crises in California’s cities.”

  4. This post is ridiculous. Palo Alto is a more expensive housing market than San Francisco so pointing the finger over there is just a distraction. We need more housing in the bay area and cities continue to stall, especially small cities on the peninsula who continue to approve massive commercial projects without housing. Tying housing to new commercial development is a good idea but we are extremely behind on housing as it is now. We need to build more housing for the jobs that have been brought in over the past decade so that our children can afford to live here. Local control has failed to address the situation, so I’m happy the state is stepping in.

  5. Well, I see it a little differently. We need lower-cost housing, which really means higher density: this is the meaningful way to make it viable. Our opposition to higher density, I believe, will diminish if our transportation / congestion issues were improved. Only governments can address transportation, so I suggest Palo Alto focus heavily on that. Expecting corporations to stop growing, or move away, is not a winning strategy. Corporate growth is also personal growth, and the bright, ambitious people of the region won’t want to loose that.

  6. Thanks, Eirc. I go a step further and predict that our descendants will look at our continuing growth of population, buildings, and pavement, with attendant depletion of resource, proliferation of hazard, and destabilization of biosphere qualities on which we depend for well-being, and lament our stupidity and our greed.

  7. Thank you, Eirc. I go a step further and predict that our descendants will look at our continuing growth of population, buildings, and pavement, with attendant depletion of resource, proliferation of hazard, and destabilization of biosphere qualities on which we depend for well-being, and lament our stupidity and our greed.

  8. Good analysis on the results of the current programs. Doubling down and spending more will not resolve the mass wage and price disparity that up-zoning brings to our communities. The only solution to fix inflation is curtail spending.

  9. One of the most well written pieces on why SB50s well meaning but unintended consequences will worsen the housing crisis – exacerbating the blight seen in the district of Senator Wiener to be statewide.

    Full motivation, impact fees and commercial caps to help restore balance overcome SB50s overly simple “let’s build our way of t of the housing crisis” prescription that ignores the root cause: rapid unchecked tech expansion without commensurate affordable housing, transit and road capacity.

  10. Interesting, but misguided. Companies will never employ anyone if they have to assume responsibility for housing everyone they employ, or whatever cost a city or state deigns to assign to them.

    What’s missing is that public employee unions in the cities want commercial development to fund their raises and pensions, w o the commensurate costs that come w housing. Developers want to build commercial development, as it’s more profitable.

    People are having trouble affording housing all across the country. Their income is too low and they can’t compete w more highly paid employees who bid up the price of housing. Income subsidies could help. Or affordable housing, but not market rate housing.

  11. Companies will continue to push for lower wages and the “gig economy” which is just another way to under-pay workers while sticking the rest of us with the social and economic costs of their greed.

    Thank you, Mayor Filseth, for saying what needs to be said.

    Also, some investigative reporting on who’s funding the local, state and national YIMBY party would be special.

  12. Thank you Over-taxed millennial for writing. I’m a longtime Palo Altan and I agree with you 100%. It’s obscene that my neighbors pay twice what we do in property taxes and have half of the space/housing. Forget asking the City where the denser housing is going up, my question is why is disappearing?? We all know about the president’s hotel, but what about those older triplexes that’s are disappearing?? I’m watching dwellings with smaller affordable units being replaced with giant McMansions. The Mayor’s words ring hollow indeed.

  13. Eric Filseth is the king of diversionary tactics, by blaming evil outsiders. What he is unwilling to admit is that Palo Alto created its own problem by zoning so much space for commercial development and so little for housing units.

    Until Filseth shows that he can successfully address the lack of housing in Palo Alto, he should not be complaining that outsiders are pointing out Palo Alto’s foot dragging.

  14. As a longtime Palo Altan, I agree also wth Chrisk. I’ve watched the price of construction just skyrocket as setbacks from the street grow larger. Other cities are filled with beautiful duplexes that look like single family residences but are two homes. There’s no reason we can’t allow the larger lots to have multiple dwellings on them. The City gets all the tax benefits from all the commercial development, but won’t put a dime into housing.

  15. Thank you Eric for your words of wisdom. The jobs / housing imbalance is continuing to drive housing prices higher and the same folks advocating for housing growth are not putting the brakes on office expansion, resulting in housing prices continuing to climb.

  16. I think that the cities (led by mayors like Filseth) need to be the ones to plan their cities. It is because our elected officials have failed at this task that Sacramento needs to take over. Palo Alto can tell the developers what to build. Filseth and his city council can say no to new office space and yes to any type of housing they feel is necessary and the developers will build it. Higher density is what we need, and it is up to the mayor and city council to make it so!

  17. In expressing support for SB 50 in concept recently, 4 of 5 county Santa Clara County supervisors at least acknowledged that the devil could be in the details. The devil may also be in the concept that developers – not cities or counties – may choose what to build from among a range that extends from not very good to awful. Suppose a bill provides that a developer may choose to build (1) luxury high-rise full-priced condos with little or no onsite parking overlooking YOUR BACK YARD, (2) apartments near mass transit with substantial set asides of subsizided units for families making $100,000 per year, and (3) apartments or condos for the homeless – with the hope of subsidies from various sources. Which onw will a developer choose? Would such a bill generate “affordable” housing? Not at all.

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