Rebuttal of the Embarcadero Institute Report on HCD’s Regional Housing Needs Determinations
In response to HCD’s new, higher Regional Housing Needs Determinations, an organization called the Embarcadero Institute Published a report alleging the agency made a variety of technical mistakes. The Embarcadero Institute Report (which can be found here and our full rebuttal can be found here) claims that the California Department of Housing and Community Development made significant errors in formulating Regional Housing Needs for the Bay Area and Southern California.
Their argument is difficult to parse, as they view deliberate changes to HCD’s process mandated by state law as errors rather than intentional process modifications. However, at its core, the report makes two primary contentions: that HCD “double counted” housing need and that HCD used an inappropriately high target vacancy rate of 5 percent for owner occupied housing. Neither of these claims stand up to scrutiny.
In past RHNA cycles HCD has made their RHND targets by taking the Department of Finance’s household number projections for a region, adding small vacancy and replacement adjustments, and then subtracting existing units. In this way they have sought a target number for units that matches the projected deficit, according to the DoF projections. In practice this method has functioned poorly and consistently failed to produce targets high enough to address regional housing shortages.
As a result legislators passed SB 828 in 2018 to institute a process that more accurately sets targets based on a wider variety of factors. The intention is to produce goals for cities that actually reflect the number of units it will take to produce a healthy housing market.
The previous DoF method assumes that commute times, overcrowding, rent burden, and vacancy rates will all stay constant. In other words it proposes a target that is sufficient to keep things just as bad as they are now, rather than making any improvement. The new system aims to set a target that would be sufficient to actually improve commute times, overcrowding, rent burden, and vacancy rates to rates seen in comparable cities with healthy housing markets.
What the Embarcadero Institute refers to as “accidents” and “errors” of adjustments made on top of the DoF’s numbers are in fact intentional adjustments required by state law not “double counting.” The process was fundamentally changed to incorporate a wider range of adjustments and factors and so it should not be surprising that the final target numbers are very different from previous cycles.
On the subject of the target vacancy rate, the Embarcadero Institute is much more straightforwardly incorrect. For one thing, HCD does not distinguish between owner occupied housing and rental housing when setting a target vacancy rate. The law requires that the target vacancy rate be set no lower than 5 percent because this is considered a “vacancy rate for a healthy housing market.” The law does not say that this vacancy rate only applies only to rental units.
In practice, a target overall vacancy rate of 5 percent would necessarily entail a residential vacancy rate that exceeds 5 percent and an ownership vacancy rate of less than 5 percent but setting an overall number allows for flexibility as the rental and ownership markets are highly flexible.
Fundamentally the Embarcadero Institute’s problem with HCD is a political one, not a technical one. The Institute is upset with the changes to state law made in 2018 and dislikes the new considerations that are mandated for HCD in the RHND process. The report fundamentally misconstrues details of the RHND process and it is unfortunate that it has gained traction with those who would seek to undermine this process.