Housing imbalances at UC Berkeley show how good intentioned policies and legislative action can lead to unintended consequences that can take years to fix
On March 15, 2022 the Wall Street Journal published an article by Christine Mai-Duc entitled Berkeley Housing Decision Reverberates. The article highlights the challenges that the University of California at Berkeley is having trying to house its student body in a city that is materially undersupplied from a residential housing perspective. The situation has become so dire that it led to a judge ordering the University to freeze its on-campus enrollment. The article states that California’s public University system has “added tens of thousands fewer beds than students in recent years, as a problem across the state – a lack of affordable homes caused in large part by restraints on construction – hits college towns particularly hard.” Earlier in the week, Governor Gavin Newsom and the state legislature stepped in with legislation to overturn the judge’s decision and give Berkeley and its sister institutions an 18-month window to address and rectify the housing imbalance. As a result of legislative intervention, UC Berkeley has stated that they will proceed with their original admissions plan and offer spots to greater than 15,000 incoming freshmen and 4,500 transfers.
Several groups are referencing a 1970 state law, the California Environment Quality Act (CEOA) as one of the key hurdles to fast-tracking more affordable housing development in Berkeley and many other cities across the state. It is argued that anti-development groups are using this legislation beyond the original intent and to block development of all sorts. According to the Public Policy Institute of California, “California has added 3.2 times as many people as housing units over the past ten years” and “its median home price of $765,580 is more than twice the national average.” A 2020 report by the Legislative Analyst’s Office stated that “since 2015, UC campuses have added 21,700 beds while enrollment grew by about 43,000.”
The challenges and housing imbalances in Berkeley, California as highlighted in the WSJ article are a dramatic case study showing how good intentioned policies and legislative action can lead to unintended consequences which in turn take many years to remedy. The Berkeley example also shows the need for sophisticated solutions which in many instances will require sensible planning and long-term strategic thinking that may include public/private partnerships between municipalities or quasi-government entities such as a state university system along with large, well-capitalized, real estate companies which in the case of publicly traded real estate investment trusts (REITs) not only bring large scale development expertise to the table, but also the transparency that comes along with annual audited financial disclosure and in many instances, also investment grade balance sheets which are vetted by the major rating agencies for an added level of security.
A good example of a REIT that has spent the last 20 years as a public company investing in and developing student housing facilities with some of the largest and most sophisticated public and private universities is American Campus Communities (ACC).1 ACC is currently the only publicly traded student housing REIT in the US and it has been in business since 1993. Per a recent company presentation, as of 12/31/21, the company maintains an enterprise value (equity plus debt capital) of $11.6 billion, operates in 69 markets across the US and owns/operates 166 properties. The company also has an investment grade credit rating of BBB/Baa2 and available liquidity on its balance sheet of $1.12 billion.
ACC is currently working with UC Berkeley on multiple projects. The first is a third-party fee development project at the Goldman School of Public Policy currently targeted for completion in the Summer of 2024/2025. The second project is Albany Village Graduate Housing which is scheduled for completion in Fall of 2024 and finally, there are additional multi-phase developments in various stages of planning.
Footnote:
Sources:
Mai-Duc, Christine, “Berkeley Housing Decision Reverberates”, Wall Street Journal, March, 15, 2022
American Campus Communities, 2022 Citi Global Property CEO Conference Investor Presentation, March 6, 2022
American Campus Communities, Q4 2021 Supplemental Analyst Package, February 22, 2022
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