Airbnb, housing, transit: Kim-Mai Cutler on the Bay Area’s affordability crisis

In our ongoing effort to bring Curbed-related election year issues into the spotlight in a cycle sorely lacking any real policy substance, we recently sat down with Kim-Mai Cutler to talk about the affordable housing crisis in the San Francisco Bay Area—and across the U.S. Cutler is a stellar tech writer, housing policy advocate, and Bay Area native who examines the knotty intersection of race, class, and Silicon Valley, and how an interplay of economic factors—including Airbnb’s, yes, disruptive, arrival on the scene—contributes to the scarcity of affordable places to live.

You can read our interview with Cutler in full below and listen to it right here:

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Zoe Rosenberg:

I'm Zoe Rosenberg.

Asad Syrkett:

And I'm Asad Syrkett. You're listening to The Appeal, the Curbed podcast.

Zoe:

If you didn't know that the housing market in the Bay Area is the most expensive in the country, I'd like to welcome you to the 21st century. Welcome.

Asad:

Welcome, yeah. Today, we're going to be talking to Kim-Mai Cutler. She's a journalist and a housing policy advocate. She's someone who really is examining the intersection of race, and class, and technology in housing in the Bay Area.

Zoe:

Stick around.

Asad:

Let's talk about your work. You examine the intersection of tech, and race, and housing in the Bay Area, which is a lot to unpack. How did this become a focus of your professional life?

Kim-Mai Cutler:

I'm a native. I've grown up here. I've been here most of my life. I have lived abroad. I have lived in New York. My family's been in the Bay Area since the 1950s, or so. They've also been involved in the technology industry since the 1950s. I just have this, I don't know, personal historical memory from my own family.

My grandfather would talk about what it was like to work in a lab. I got a sense of what the values of the industry were through him at that time and then what the values of the industry were like through my mom and my dad, who both worked in tech.

I don't know. Even though I wasn't alive then, I do feel I have some type of historical memory that I want to preserve. Most people here are not from here. They're also relatively new to tech in general. They might .... An old timer would be someone who showed up in the '90s.

People don't have this overarching understanding of how the state evolved, how the region evolved, how the industry evolved, how they intersect and intertwine with each other. I just wanted to preserve some of that and also give people perspective on where we've been so we can understand where we want to go as a community and as a state.

I think you can't cover California without understanding the complexities of race, and class, and all of that. We like to think that we're a state that's fairly progressive and cosmopolitan, but we have a history that is also very difficult in many ways. We like to pretend that it isn't as difficult here, but it really is.

Asad:

Yeah, for sure. You have a presentation at BIL Oakland. I think that was in July?

Kim-Mai:

Yeah.

Asad:

You talked, in your presentation, about Joseph Eichler, who I know is a revered developer, especially by folks who are into design, as many of our listeners and readers on Curbed.com are.

There was an exchange in that presentation that I found really telling. I don't know if you can anticipate what I'm going to talk about, but ....

Kim-Mai:

Are you talking about Steve Jobs, or are you talking about which part?

Asad:

No—So, you were talking about how Eichler homes have become luxury items. A man yelled out, "I'm a millionaire because of the same phenomenon." This idea that ...

Kim-Mai:

Yeah.

Asad:

... no longer are Eichler tract homes affordable for folks who are middle class. It's like a real luxury thing. You had this moment of exquisitely deployed shade where you were just like, "Oh great. Congratulations. That's amazing."

I don't think he understood his role in this exchange. You were trying to highlight a phenomenon that has been really detrimental for folks who are middle class and are trying to buy homes in that area. Can we talk about that exchange ...

Kim-Mai:

Sure.

Asad:

... and also maybe what you were thinking while that was playing out?

Kim-Mai:

Yeah. Actually, I can talk about a specific example. I do have a friend whose mother-in-law recently passed away earlier this year. She owned an Eichler in Palo Alto that she bought in 1964 for about $24,000.

Asad:

Wow.

Zoe:

Yeah, really.

Asad:

Yeah. She was a public school teacher who moved to California from Arizona in the 1960s when Jerry Brown's father, Pat Brown was governor of California.

At that time, we had this one off phenomenon, which is this combination of the car, as a piece of technology and the highway, and the road infrastructure as a piece of public works, combined together, enabled us to really, really inexpensively convert agricultural and orchard land to inexpensive tract housing.

Simultaneous to that, in post-war American housing policy, we made housing. We also made housing an asset, an investible asset. We created all these subsidies and laws, and tax protections that really protected housing as an investible asset.

The problem is over 2 or 3 generations, if you have the housing appreciating faster than median wages, that is really not a sustainable situation for the working class, or the middle class.

By the time that she died, her house was eventually sold for $2.3 million. If you think about that, from her perspective, okay, it's great that a public school teacher got to buy a house for $24,000 and then get a 10,000 percent return on it.

What that implies for present and future public school teachers is not a good situation at all. It's not one that you can really fix easily. We've tied up so much wealth in housing that we can't just reverse that. You know what I mean? That would be, obviously, devastating to a whole different group of people.

We're in this situation where we had a generation of Californians that did incredibly well by their home values and ensconced in law all of these limitations in supply, all these tax benefits.

That is really is coming at the expense of both future generations affordability and then also our ability to finance just really basic public services and infrastructure.

Zoe:

Something that your work touches on and something you were just touching on there and something that you talked about a bit at BIL Oakland is this dynamic between affordability and between median income.

Let's talk about how housing costs in the Bay Area and Silicon Valley are blowing out of proportion compared to what people are making.

Kim-Mai:

Yes, there is an ad that I think I included in that presentation of an Eichler home from 1950 that advertised the home at $9,400. If you were a veteran from World War II, you could get it for $300 down.

Zoe:

Asad and I are sitting in the studio just shaking ...

Asad:

Just shaking our heads.

Zoe:

... our heads.

Kim-Mai:

The median income at that time in the region was $6,600. I got that stat from I don't know if you've read what is that? There's a great coffee table Eichler book on modernism of the American .... Do you know which one I'm talking about?

Asad:

I do, yeah.

Kim-Mai:

It's from that. Yeah, that's like 1.5 times median income in the 1950's. I don't know. Can you imagine ...

Asad:

No.

Kim-Mai:

... if you could buy something.

Zoe:

No way.

Kim-Mai:

If you could buy a house for 1.5. Of course, interest rates were higher. That ratio's gotten wider and wider over the last couple generations. In the late '70s, in the San Francisco and San Jose metropolitan area, your median home price is about three to four times median income. Today, it's about nine to 10.

Asad:

Wow.

Kim-Mai:

Yeah, there's a pretty marked difference. I think some of that reflects the nature and the change in the industry and compensation itself. More people, obviously, since the 1990's have been compensating themselves with equity and stock.

That wouldn't be reflected really. That wouldn't be reflected in median incomes in the same way. People might cash out, or they might have a windfall, or something like that. They might use that as their down payment, or they might use that to augment their home buying capabilities.

On the other side, they're just ... the Bay Area just really hasn't added that much housing relative to its population growth, population growth and job demand, over the last 40 years. When you're in a situation, there's really just not that much for sale.

You can go on Zillow and you can look at how many houses are for sale in Palo Alto. You might get 60 or 70 listings in a time. If you look in San Francisco, San Francisco only sells 5,600 to 6,000 homes a year. That's including existing homes. I'm not even talking about new construction. This is how many units are sold overall.

It doesn't really take that much of a job boom, or maybe one IPO that is large scale to really mess things up again. That part does matter as well. We've averaged 1,900 homes built a year for the last 20 years in San Francisco.

If you're only selling, I don't know, 6,000, if you can increase that supply a little bit, that can actually have an impact. I think what you're seeing this year where home prices are not increasing by 14 percent a year, that is the impact of that additional supply along with a little bit of cooling in the funding markets.

Asad:

Yeah, that anticipates a question I had for you about just this system as it operates. Is it possible to make the kinds, really, of substantive changes that we would need to increase access to housing, but within our existing political and economic frameworks? Is that too tall of an order, or are there things that can actually be done?

Kim-Mai:

I personally think that in California you'd need comprehensive tax reform to have a really serious conversation about access and affordability at multiple different levels.

The current situation we have now is A, we don't really build very much. Also, we've very limited resources to make housing subsidies to people who clearly can't ... for them, the market's really just never going to work based on land costs in San Francisco and San Mateo County, or Santa Clara County.

What ends up happening in the Californian system is we always try to extract those subsidies out of new construction. You're in the situation where we've been under producing for 40 years and we're trying to extract a token amount of low income housing support from the small amount of housing that we're building.

We can't think more broadly about it because we've so constrained ourselves over the last 40 years in terms of all kinds of voter initiated tax restrictions.

Zoe:

Shifting just slightly, there's this idea that Airbnb helps make housing affordable for homeowners and renters by helping to provide supplementary income. At the same time, the company is coming under fire because they're being pegged as driving housing prices up.

You've written quite a bit about Airbnb. How do you think that's affecting housing in the Bay Area?

Kim-Mai:

I think I've said this before. If you increase the amount of rent that you can earn from a given physical space, whatever that is, whether that's Airbnb, or whether that's job boom, or not building enough, or whatever, you're also increasing the value of the asset. I would assume that over time, part of it would just get capitalized into the asset value.

If you bought in early, before the value of Airbnb rents was priced into whatever earning capacity the unit had, I suppose that would help you with affordability. If you don't have the right to land and you haven't bought anything yet, and Airbnb earning capacity is getting priced into assets, then that would not help your affordability.

Zoe:

To break it down into layman's terms, you're saying that it'll help some people, but not all depending on when they bought in the market?

Kim-Mai:

Right, depending on when they got it which is a very classic Californian thing. If you got in early, you're gold. Yeah, there was a meeting that Chris Lehane held once. It was the day after they defeated Proposition F in last November's elections.

Zoe:

What was that?

Kim-Mai:

They brought in these ....Proposition F was this voter initiative that was meant to severely restrict Airbnb by allowing neighbors to sue other neighbors if they thought they were violating the city's ordinances.

Zoe:

Yikes.

Kim-Mai:

Airbnb won. They spent $8 million to defeat this proposition. Then Chris Lehane who is their guy, who they hired in, who had experience from the Clinton administration, he had this little presser. He brought in all these people. He brought in a bunch of hosts.

They fit that stereotypical description of just homeowners just paying their bills, or whatever. There was an older man there and there was an older woman there. They both said Airbnb was really, really important for them.

I asked one of the women, why don't you have a roommate? She literally said back to me, "This is my asset. This is how I want to monetize it." Of course, I looked her up. I looked up her property records. I was like, "Oh my God. You own a $2 million condo that you bought for $300,000. Of course, you want to monetize it that way."

I'm sure it helps her with her affordability, but for the person who wants to get in later, it's not such a good situation. For the tenants, it's not such a good situation in case your landlord thinks that they can earn more by having an unjust eviction and they want to earn more through Airbnb.

Zoe:

What I was starting to ask earlier is I've been in New York for a long time. I have an understanding of when things got expensive here, which has been happening for a long time.

Asad:

Very slowly over a long period of time.

Zoe:

Yes, right. To understand your answer a little bit better, when you say people who bought at the right time in San Francisco are doing okay with Airbnb, it makes sense for them. When would that be?

Kim-Mai:

We starting having a huge upswing. There was 2008-2009. There was the recession. In our local market, Bay Area housing, and I'm not just talking just about San Francisco. My understanding is it fell 30 percent from peak to trough after 2008-2009.

Then we started coming way up again in about 2012. That, of course, was when Facebook IPO'd. I think that would be the more salient. The Facebook and Twitter IPOs would be more important to emphasize and not 2012 and afterwards period than say Airbnb.

Airbnb would probably ... might effect some small amount of rental inventory. I don't think the capitalization effect of Airbnb is probably as significant as the overall issue of shortage and demand and then of course, lack of subsidies on the low income side.

Asad:

Hand in hand with housing issues, you've also talked about how important transit is for socio-economic mobility and just being able to create a city in which people are actually able to get to where they need to be to increase their earnings. Is there a transit and access solution to San Francisco's particular, or the Bay Area's particular issues?

Kim-Mai:

In the Bay Area, we ... I want to say we have at least 2 dozen transit agencies. I don't remember the exact number.

There's a difference between our political and government structure and New York City's government structure in that in, I think it was 1898, you guys decided to annex the other 4 boroughs and create a singular government to roll them all and to have 800 miles of subway and this and that.

In the Bay Area, we have 101 governments for 7 million people. As a result of that, we have a fragmented transit system. That makes it difficult because we never made the same types of investments that New York City did at the turn of the century.

If you look at Muni, the reason Muni exists in San Francisco is they were actually privately run street car lines that were then rendered financially unstable, or even insolvent by the emergence of the car. The city then decided to municipalize that system.

BART is a later mid 20th century system that was actually supposed to go around the entire bay. San Mateo County and Marin County decided to drop out in the '50s and left us with a partial system, or an incomplete system.

We have BART. We have Muni. We have Caltrain. Caltrain is a re-purposed Southern Pacific line from the 19th century.

Asad:

There are all of these fragmented elements that aren't really fitting together in the way that they would need to provide the blanket ...

Kim-Mai:

No.

Asad:

... coverage that folks need access to.

Kim-Mai:

Right, yeah. There's no .... I believe your system .... MTA's market share is of New York City public transit is probably I don't know. It's probably in the 70s, 80s, or 90s percent. We don't have a system that has above 45 percent market share in the Bay Area.

We have a deeply fragmented system that just doesn't work coherently together. We're trying to get this. There's a $3.5 billion bond measure called Measure RR that is supposed to cover some of the $9.6 billion in maintenance, capital improvements needs that we have over the next 10 years.

Asad:

Is that something that folks will be voting on in November?

Kim-Mai:

Yeah. In California, again, because of our initiative system and then in particular Prop 13 and then Prop 218, any revenue raising measures like taxes and bonds, they need to have 2/3 majority vote. So, a minority can block this particular maintenance bond that we need.

My understanding, from talking to people, is that it's hanging around the 67 percent area. If it doesn't pass, I'm really not sure what we're going to do to fund.

There are pieces of rail that I think .... We have a BART director. Rebecca Saltzman, I want to say. She was pulling out rails from the BART line. They were literally dated from the '60s.

The train control system's from the '70s. This is a really old .... It was state of the art when we had it. It's not anymore. There's issues that different people have with BART's choices of investments over the last 10 years, over expansion versus maintenance.

At the end of the day, this is a really important system. If we don't make investments and if we don't try to maintain it, it will break down. There will be pretty severe transit and economic consequences ...

Zoe:

Yeah.

Kim-Mai:

... in the region.

Asad:

Absolutely. Thank you so much for calling in and for joining us today.

Zoe:

Yes, thank you. We really, really appreciate it.

Kim-Mai:

Cool, thank you.

Asad:

That was the eighth episode of this second season of the Curbed Appeal. We hope you enjoyed listening.

Zoe:

If you would like to keep up with us, please subscribe on iTunes, or in the podcast section of the Spotify app. If you want to keep up with Kim-Mai, check her out on Twitter, @kimmaicutler.

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