☆ VTA's housing plans waste money and hurt low-income people
Image by Fred Borchert, from the Robert Gibson Collection
In a 2.16 article, the Silicon Valley Business Journal tried to paint a rosy picture of how the VTA—after being ranked one of the worst-performing transit agencies in the country—was rolling out big plans to become a housing provider as well. Frequent Opp Now contributor Randall O'Toole of the Thoreau Institute brings a much needed professional, metrics-based critique to the dubious proposal. An Opp Now exclusive.
In a December 18, 2023 commentary, I observed that the Santa Clara Valley Transportation Authority's transit system "was designed for a time when most jobs were in downtowns, most urban residents lived in dense neighborhoods surrounding those downtowns, and few of those residents owned cars." American cities haven't looked like this in a hundred years. Since less than 4 percent of Silicon Valley's jobs are located in downtown San Jose, I urged VTA to redesign its transit system so that it serves people going to destinations outside of downtown as well as it serves downtown.
A February 16 article in the Silicon Valley Business Journal reveals that VTA is trying to do exactly the opposite. Instead of redesigning its transit system to fit a modern urban area, it is attempting to redesign the San Jose urban area to fit its transit system. Specifically, it is supporting construction of high-density housing projects, sometimes called transit-oriented developments, along its rail lines. It claims that doing so will boost transit ridership and provide more affordable housing for the region.
This insane attempt to turn back the clock is going to fail miserably. Like light rail, however, it will cost taxpayers lots of money and construction companies that profit from housing subsidies will support the program.
As my previous article noted, three factors once made transit successful: most jobs were downtown, most people lived in dense residential neighborhoods, and few people owned cars. VTA's transit-oriented development program addresses only one of those factors.
Before the pandemic, transit was truly important, carrying more than 10 percent of workers to their jobs, in just seven U.S. urban areas, namely Boston, Chicago, New York, Philadelphia, San Francisco, Seattle, and Washington. Not coincidentally, these were also the nation's only urban areas with more than 200,000 downtown jobs.
San Jose had fewer than 30,000 downtown jobs before the pandemic, and far fewer today. Building a few dense housing projects is not going to move the needle on transit ridership if the people living in those projects don't have jobs to go to that are also on the same transit lines.
The other factor, auto ownership, is even less likely to change. As my December 18 article noted, "more than 92 percent of households in the San Jose urban area have at least one automobile, and more than 40 percent of workers who don't have cars nevertheless drive alone to work in vehicles supplied by their employers, while less than 14 percent take transit."
Despite the wishful thinking on the part of some environmental luddites, people aren't going to give up their cars because cars are so much faster and more convenient than any other form of urban travel. According to the University of Minnesota's Accessibility Observatory, the average resident of the San Jose urban area can reach 3.5 times as many jobs in a 20-minute auto drive as in a 60-minute transit ride. Building a few dense housing projects is not going to change that.
Thanks to San Jose's urban-growth boundary that creates an artificial land shortage by placing three-fourths of Santa Clara County off limits to development, Silicon Valley is already the third-densest urban area in the United States. Yet growing densities haven't helped VTA ridership. Between 1990 and 2019, the population density of the San Jose urban area increased by 28 percent. Yet total transit ridership dropped by 20 percent and per capita ridership dropped by 36 percent.
VTA projects that building dense housing projects will increase ridership by 14,500 trips per day, including ridership on BART and Caltrain as well as VTA. But the Federal Transit Administration has found that VTA's projections of light-rail ridership were 80 percent too high for Tasman West and 96 percent too high for the Guadalupe line. How realistic is the one for transit-oriented developments?
VTA bases its estimate on studies that have found that people living in transit-oriented developments are more likely to ride transit than people elsewhere. But an analysis by University of California, Irvine economist David Brownstone found that such studies failed to account for self-selection bias. In other words, the people living in these developments and riding transit were riding transit before they moved in, so building the developments won't increase total transit ridership; it will merely relocate the riders.
VTA's claim that transit-oriented developments will make housing more affordable is just as specious as its other predictions. What it really means is that it has convinced the state to use taxpayer dollars to subsidize such developments on the condition that some of the apartments in these developments will be rented at below-market prices to people whose incomes are less than 60 percent of the region's median. Since median family incomes in the region were more than $175,000 in 2023, that means a few hundred families earning less than $105,000 will get to live in subsidized housing.
Subsidizing families earning more than $100,000 a year is unfair to taxpayers as it is unfair to low-income people. Truly low-income families won't be able to afford housing that is affordable to families earning $105,000 a year.
Nor will transit-oriented developments have much of an effect on housing prices. Given the supply of home construction workers is limited, affordable housing projects crowd out unsubsidized housing construction. One study found that, for every five affordable housing units built, four fewer unsubsidized units would be built. The State of California wants the Bay Area to build 180,000 affordable housing units by 2031, but doing so would mean 144,000 fewer unsubsidized homes.
Even worse, transit-oriented developments, which tend to be three- or more stories tall, are much more expensive than low-rise housing. In 2015, developer Nicholas Arenson testified before the Association of Bay Area Governments that three-story buildings cost 50 percent more per square foot than two stories, four stories cost twice as much, and five stories cost three to four times as much. He also noted that housing in such projects rented or sold for less because most people want to live in single-family homes, an option denied to many Silicon Valley residents because of the urban-growth boundary.
In any case, the high cost and low demand for mid-rise apartment living is why so many of these projects have to be subsidized even in San Jose's crazy housing market. But, due to their high costs, not many can be built with the available subsidies, so fewer people will have access to affordable housing than if such funds were spent on low-rise housing.
The biggest source of subsidies to affordable housing is federal low-income housing tax credits, which grant developers of such housing credits they can use against their taxes or sell to other companies to reduce their taxes. These subsidies tend to be proportional to the cost of the building, so an increase in subsidies per housing unit reflects a parallel increase in the cost per housing unit.
The Department of Housing and Urban Development's low-income housing tax credit database lists every project that has received such subsidies since 1987. I used the database to examine every subsidized project built in Silicon Valley. During the 1990s, the average project was 2.7 stories tall. This increased to 3.4 stories in the 2000s and 3.7 stories in the 2010s. This contributed to a huge increase in project costs and a reduction in the number of housing units built.
In the five years ending in 2000, more than 800 affordable housing units were built per year at a subsidy of less than $60,000 per unit (adjusted for inflation to today's dollars). By 2019, total subsidies had almost doubled yet the number of units built fell to less than 200 per year, quintupling the subsidy per unit to more than $300,000. The increased subsidies cheat taxpayers and the reduced number of units built cheat low-income families.
Transit agencies like VTA persuaded housing authorities to devote more subsidies to transit-oriented developments by claiming that low-income people were less likely to own a car and thus would benefit from living on a transit line. But this is wrong.
According to the Census Bureau's 2022 American Community Survey, less than 60 percent of the nearly 500,000 workers in the San Jose urban area who earn more than $75,000 a year get to work by car, while more than 70 percent of the 150,000 workers who earn less than $25,000 a year commute by automobile. Less than 3 percent of such workers get to work on transit. Since, as noted above, automobiles make far more jobs accessible to people than transit, affordable housing should be automobile-oriented, not transit-oriented.
VTA should get out of the housing business and should give up on its plan to reshape Silicon Valley to look like a city from a century ago. If it won't manage a transit system that serves the entire region, taxpayers should demand that subsidies to the agency be eliminated.
Randal O'Toole is a land-use and transportation policy analyst for the Oregon-based Thoreau Institute. He has written hundreds of policy papers, scores of op-eds, and six books, the most recent of which is Romance of the Rails: Why the Passenger Trains We Love Are Not the Transportation We Need. He has also been a research fellow or visiting professor at Yale University, the University of California, Berkeley, and Utah State University.
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