City Heights faces gentrification. What will stop it?

Photo of San Diego by Daniel Guerra on Unsplash

Note: This essay was originally published in July 2019.

Majority Latino, over 40 percent foreign-born, and just 12 percent White, the City Heights neighborhood has long been a haven for immigrants and the working class seeking a modicum of affordability in San Diego, one of the most expensive housing markets in the nation. According to The California Endowment, the average household income of neighborhood residents barely surpasses the federal poverty line. It is no wonder why an obscene rent increase in the community recently grabbed headlines across the city’s news outlets.

In April 2019, residents of Marlborough Plaza, a multifamily apartment building, found a surprising notice on their doors: rents were increasing 75 percent, from $1,075 to $1,875. The price hike, the building’s new management company reasoned, was due to a much-needed renovation. But the prospect of new floors and countertops is hardly a saving grace for the current tenants, many of whom will need to vacate their now-unaffordable homes. One resident, a dishwasher, said she’d have to move out after living at the 12-unit complex for seven years.

To Gary London, the rent increase is beneficial. “You’re … creating opportunities for commercial development,” he said. “You’re making the neighborhood safer, and you’re doing all kinds of positive things for the neighborhood and the community as a whole.” Apparently, the positive things include residential displacement and further socioeconomic marginalization of the neoliberal have-nots.

While egregious, the rent increase is perfectly legal and economically logical. The management company gave tenants the required 60-day notice and, with rent control mostly illegal in California, there is no restriction on the amount a landlord can increase rents. Indeed, it would be irrational and against its self-interest for Marlborough Plaza’s management company to voluntarily maintain below-market rents. Following one of capitalism’s favorite axioms, the new $1,875 price tag is simply what the market can bear.

Missing from the many news reports on the rent hike was an exploration of its broader implications. Does the 75 percent premium portend similar rent increases at other apartment buildings in City Heights? What brought it about in the first place? And, most importantly, what can be done to stem the tide of excessive housing costs? I recently dived into literature about the financialization of housing to find answers to these questions.

In her book Urban Warfare: Housing Under the Empire of Finance, Raquel Rolnik, a former UN Special Rapporteur on adequate housing, defined financialization as “the increasing dominance of financial actors, markets, practices, measurements, and narratives … resulting in the structural transformations of economies, firms, states, and households.” In other words, housing has been transformed into a financialized commodity, and systems have restructured themselves to reflect and further enable this economic reality.

She pins the “deconstruction of housing as a social good” to the start of the 21st century. In less than two decades a variety of creative financial mechanisms have proliferated to commodify housing, including public-private partnerships, through which costs are socialized but profits are privatized; tax incentives and exemptions; specially-designated investment zones; and microfinancing, among others.

But the introduction of the state-backed mortgage in the early 20th century could be the true starting point for this process. Due to homeownership being so deeply normalized in American society, it would be difficult to convince a non-leftist layman that the mortgage undermines the public good, generally, and secure housing tenure, specifically, but that is exactly what it does.

The mortgage is, of course, a secured loan, which imperils the individual mortgagor and their household in the event that they are unable to repay their debt. Concerning broader social implications, however, homeownership through subsidized mortgages has been turned into an asset-based, regressive form of welfare that is reliant on ever-increasing home values. This presents a range of negative externalities, from the global (2007–8 financial crisis) to the local (neighborhood opposition to, say, affordable housing projects and even bike lanes). Other examples abound.

The U.S. can get away with paying meager pensions to seniors through Social Security because Americans are by and large reliant on private wealth schemes, such as those through the housing or stock markets, for retirement. This disadvantages non-homeowners and low-wage earners, but the ruling political class, in terms of policy, has hardly shown remorse.

Further, using the mortgage and concomitant state subsidization of it as the primary housing policy, which the US does through the mortgage interest deduction (MID), presents opportunity costs. The major budgetary victim is the provision of social and public housing. In 1978, not long after the Nixon administration declared a moratorium on public housing construction, the Department of Housing and Urban Development’s budget was $83 billion. It is about half that today.

With the emergence of financialized housing, the US Treasury is now nonsensically responsible for much of the country’s housing policy and production. The Low Income Housing Tax Credit (LIHTC) is the only federal vehicle that produces a consequential amount of affordable housing (albeit that which is privately owned), and the money dedicated to the MID dwarfs the investment in the Section 8 rental assistance voucher program. In fact, the MID is an entitlement — pretty much any homeowner can claim it, up to a certain amount — whereas Section 8 is not. The funding for the latter doesn’t come close to meeting the need among low-income renters.

Broadly speaking, our housing policy is essentially making sure privileged homeowners and investors never experience a dip in wealth, rather than making sure people are affordably and safely housed. Rolnik summarizes this stance. “No longer was housing conceived as a common good that a society agrees to share,” she says, after pacing through the recent steps toward financialization. “Instead it became a mechanism of rent extraction, financial gain and wealth accumulation.”

Since public housing never represented a significant portion of the U.S.’s housing stock, the turn to financialized housing is perhaps better exemplified across the pond. In Municipal Dreams: The Rise and Fall of Council Housing, John Boughton charts the history of council housing, the UK’s unique form of public housing. Incredibly, almost half of Britain’s population lived in council housing at its high-water mark in the 1970s.

Central to the council housing model was secure tenure. As long as a tenant adhered to their rental terms, their tenancy was secure for life. This form of stability is essentially nonexistent in the U.S. Of the 138 million housing units in the US, just over one million, or less than one percent, are publicly owned; and every year covenants on thousands of units of privately owned affordable housing are at risk of lapsing. No amount of financial self-sufficiency training, underfunded rental assistance, or recruitment of “innovation economy” jobs will stabilize families the way publicly-owned housing can.

Unfortunately, the council housing model has been almost entirely dismantled. The Right to Buy program, through which council housing tenants could buy their unit at a discount or with favorable financial terms, removed many units from public ownership. The UK government also incentivized localities to sell off council housing to private investors and companies and has pivoted to public-private partnerships to construct new affordable housing. Today, just eight percent of the British population lives in council housing. Millions are now without the secure tenure that benefitted the post-war middle- and working-classes.

For all the attacks on housing as a public good, the powers that be didn’t single it out due to some exceptional animus. Housing’s commodification is rather a symptom of the global economy’s march toward neoliberal capitalism, which preeminent political economist David Harvey describes as having four core characteristics: privatization, financialization, the management and manipulation of crises, and state redistributions.

Would reversing this trend toward neoliberalism and financialization prevent the gentrification of City Heights? In a word, yes. Harvey summarizes neoliberalism’s four core elements as the accumulation of wealth by dispossession. By levying higher rents at Marlborough Plaza, its management company is dispossessing its low-income tenants of a greater percent of their wages. But the blame doesn’t rest on the private management company alone. Government is at fault, as well. California’s aversion to rent control, among other progressive housing policies, is an endorsement of the rent extraction by the landlord. This upward redistribution of wealth is a hallmark of neoliberal capitalism as described by Harvey and Rolnik.

What if, in an ideal world, half of City Heights’ housing stock was publicly owned, as it was at one time in the UK? This would establish a beachhead against market forces, thus stabilizing a significant part of the neighborhood by offering affordability in perpetuity. This may sound familiar because a similar construct protects wealthy neighborhoods, especially those that lean on “community character” in opposition to affordable housing, from changes to the built environment. Subsidization of home loans, exclusionary single-family zoning, and sustained political power — all of which derive from or rely on public resources — insulate, say, La Jolla from market forces.

After surveying the writing of Rolnik, Boughton, Harvey and also Samuel Stein, David Madden and Peter Marcuse, and my favorite Mike Davis, it’s clear gentrification and displacement are not unfortunate results of U.S. housing policy. They are actually indicative of the system working perfectly. Instead of a ’housing crisis’, we have a ‘housing condition’, in which unaffordability and homelessness are not bugs — they are features.

The typical solutions often proposed — increasing homeownership opportunities, expanding low-income populations’ access to credit in various forms, and increasing subsidies for privately owned affordable housing — only exacerbate the issue, since related inequalities and inequities in land use, wages, education, and healthcare are rarely addressed. The market has never provided housing affordability to those who most need it and it never will, especially in today’s neoliberal economy.

These conclusions introduce an uncomfortable question for myself and fellow YIMBYs. Do the policies we’re advocating represent a continuation of or even a doubling down on the neoliberal regime? A case can be made for that.

On one hand, SB 50 would by the stroke of a pen immediately create rent gaps — a phenomenon central to geographer Neil Smith’s convincing theory of gentrification — near transit and job centers throughout California that housing developers would rush to fill. It also relies on inclusionary zoning to produce affordable housing units, which Samuel Stein in his Capital Cities: Gentrification and the Real Estate State argues is a wholly neoliberal policy: it relies on private developers to produce a public good, at the same time as governments give concessions to ensure the policy’s intended outcomes are realized.

On the other hand, the bill would effectively end exclusionary single-family zoning in California, which should be a hallmark civil rights issue and would put into practice the “affirmatively furthering fair housing” that the federal government requires but never enforces. It would also incentivize dense housing development in richer suburban areas (particularly those in geographically large cities like San Diego), which is essential to progressing toward climate goals, producing naturally occurring affordable housing, and taking development pressure off urban communities at risk of gentrification. (It should be noted that the 75 percent rent hike seen at Marlborough Plaza occurred in existing housing, contradicting the claim that new development is the gentrifying scourge.)

Is it good enough that SB 50 would be a wash in terms of California’s political economy? Probably, since lawmaking is inherently reliant on compromise and appeasing key political interests, and a single bill, no matter how ambitious, cannot end decades of housing segregation and underproduction. But the lesson for the YIMBY movement is it should move past its roots in calling for increased housing supply and evolve into a broader, more progressive pro-housing coalition that explicitly advocates for housing policy that benefits the public good. This shift fortunately is underway.

At a committee hearing at the State capitol on SB 330, a proposed bill that would prevent cities from downzoning and subjectively blocking housing development, Housing Is A Human Right vociferously opposed the bill. While sounding wholesome enough, the group is backed and funded by Michael Weinstein, an inflammatory wealthy businessman who coopts progressive policy arguments to further his own moneyed interests. After the bill passed unanimously in committee, Housing Is A Human Right and similar groups filed out of the room.

Revealingly, they left before SB 329 was heard. This bill would ban housing discrimination based on source of income, ending the common practice of landlords refusing to rent to rental voucher recipients based on that household status alone. Who stayed to support the bill, however, was a representative of California YIMBY, a nonprofit that focuses on statewide housing policy and that spearheaded the efforts to pass SB 50.

Do I believe California is on its way, with YIMBYs dragging it along, toward expansive public ownership, the eradication of gentrification, and an affordable housing stock for all? I do not, especially because those calling for expanded public housing are not yet taken very seriously by the political establishment and legitimate tenant rights groups perpetually struggle to build power.

But it is clear what would “save” City Heights and other neighborhoods like it: renewed public investment, increased housing development in wealthy areas, expanded tenant rights and protections, and a broader reconsideration of housing as a social good, rather than a financialized commodity. The only thing standing in the way of this new reality is the recalcitrance of California Democrats.

Progressive politics and housing policy in San Diego, CA.