In February, I visited Tahanan, a building that might be the answer to San Francisco’s homelessness crisis. I left wishing that the answer had been other than what it was.
Tahanan, at 833 Bryant Street in the SoMa neighborhood of San Francisco, is 145 studio units of permanent, supportive housing for the chronically homeless. It’s a cheerful, efficient building that bears the hopes and scars of the population it serves. The carefully curated murals and architectural flourishes give way to extensive water damage inflicted when a resident on an upper floor reportedly slept with the faucets running. Social workers walk purposefully through the halls, greeting residents, and well-loved dogs are being walked everywhere you turn.
But what makes Tahanan notable isn’t its aesthetic. It’s the way it was built. Tahanan went up in three years, for less than $400,000 per unit. Affordable housing projects in the Bay Area routinely take twice as long and cost almost twice as much. “Development timelines for affordable projects in San Francisco have typically stretched to six years or longer, and development costs have reached $600,000 to $700,000 per unit,” observes the Terner Center for Housing Innovation at the University of California, Berkeley. San Francisco cannot dent its housing crisis at the speed and cost at which it is building affordable units now. But if the pace and price of Tahanan were the norm, the outlook would brighten.
So how did Tahanan do it? The answer, for liberals, is a bit depressing: It got around the government. But the word “government” is misleading here. Government is rarely a singular entity that wants one thing. Different factions and officials and regulations and processes push in different directions. Tahanan succeeded because it had the support of city and state officials who streamlined zoning and cut deals to make it possible. But it needed gobs of private money to avoid triggering an avalanche of well-meaning rules and standards that slow public projects in San Francisco — and nationally.
You might assume that when faced with a problem of overriding public importance, government would use its awesome might to sweep away the obstacles that stand in its way. But too often, it does the opposite. It adds goals — many of them laudable — and in doing so, adds obstacles, expenses and delays. If it can get it all done, then it has done much more. But sometimes it tries to accomplish so much within a single project or policy that it ends up failing to accomplish anything at all.
I’ve come to think of this as the problem of everything-bagel liberalism. Everything bagels are, of course, the best bagels. But that is because they add just enough to the bagel and no more. Add too much — as memorably imagined in the Oscar-winning “Everything Everywhere All at Once” — and it becomes a black hole from which nothing, least of all government’s ability to solve hard problems, can escape. And one problem liberals are facing at every level where they govern is that they often add too much. They do so with good intentions and then lament their poor results. (Conservatives, I should say, are not immune from piling on procedure and stricture, but they often do so in a purposeful attempt to make government work poorly, and so failure and inefficiency become a kind of success.)
Tahanan was built on the former site of a parking lot and temporary bail bond office. Sounds easy enough to build on. But it wasn’t initially zoned for affordable housing. Tahanan could get off the ground only because of legislation passed by State Senator Scott Wiener in 2017 that fast-tracked certain kinds of affordable housing projects in California past the local entitlements process. “This project didn’t have to go before the planning department for discretionary review or the Board of Supervisors,” Rebecca Foster, the chief executive of the Housing Accelerator Fund, which led the development of Tahanan, told me. “We got our entitlements in four months, which is unheard-of.”
But entitlements like these simply mean you can begin the process of building. When you’re building affordable housing, you’re typically using public money. When you’re using public money, you have to abide by public requirements. Take the Local Business Enterprise and Non-Discrimination in Contracting Ordinance, also known as 14b. These requirements began life in 1984 as a preference for minority- and female-owned contractors. But in 1996, California passed Proposition 209, which held that “the state shall not discriminate against or grant preferential treatment to any individual or group on the basis of race, sex, color, ethnicity or national origin in the operation of public employment, public education or public contracting.”
So the contracting requirements were rewritten to focus on small businesses. “The public has an interest in fostering a strong and vibrant network of small and very small micro businesses in San Francisco,” the ordinance says. To qualify under 14b, a contractor must have less than $7 million in average annual revenue. This creates a few problems. One is that it means public housing efforts in San Francisco are, by definition, discouraged from working with large contractors that are successful precisely because they are good at delivering projects on time and under budget. Another is that San Francisco has a tight labor market and an even tighter construction market. There aren’t a lot of capable small contractors sitting around with nothing to do.
In practice, Foster said, a few small contractors end up attached to a large number of affordable housing jobs, causing delays and cost overruns. Then, of course, there’s the cost of compliance — of proving to the city you’re following the 14b rules. Foster’s team estimates that requirements like 14b could add six to nine months and millions of dollars to building an affordable housing project the size of Tahanan.
But it’s not just 14b. There are local hiring requirements. There’s the requirement to get your power from the San Francisco Public Utilities Commission rather than PG&E. (PG&E is no great shakes, but the S.F.P.U.C. is considered even harder to work with.) The Arts Commission does a separate review of your design. You need an additional review from the Mayor’s Office of Disability. That’s a good one to examine because, well, who could oppose that? But these projects are already in compliance with the Americans With Disabilities Act, and the additional review takes time and comes at a cost. “They come in when you’re done,” Foster said. “And they’ll say, ‘That threshold is two centimeters off, and it is in all of your doors.’ And so that delays people moving in for another couple of months. And it might mean that you miss a financing deadline and have an adjuster on your tax credit fees that are another $2 million. So it just has a big ripple impact.”
Tahanan is the first affordable housing project in San Francisco built using modular housing. All of the units above the ground floor were fabricated at a factory in Vallejo, Calif. “That definitely helped with meeting the time- and cost-saving goals,” Foster said. But some local unions were furious, even though the factory in Vallejo is unionized. That might have been enough to kill Tahanan in a normal planning process. For that reason, Foster’s group isn’t planning to use modular construction on its next affordable housing project. “It just was too big a political lift,” she said.
Here, then, is another place where progressive goals conflict. Local union jobs are a good thing. Modular housing can make construction cheaper and faster in a state facing a severe housing shortage. Which do you choose?
What made Tahanan possible was a $50 million grant from Charles and Helen Schwab. The grant’s conditions were that the housing had to be built in under three years and for under $400,000 a unit. By using private financing, the project sidestepped the standards and rules triggered by using public money. Again, that isn’t to say the political system in San Francisco was against the project. The Board of Supervisors approved a crucial lease to keep the development operating into the future. But private money was the secret sauce.
I found that realization dispiriting. There isn’t enough private money floating around to solve the housing crisis. But more profoundly, it is damning that you can build affordable housing so much more cheaply and swiftly by forgoing public money. Government needs to be able to solve big problems. But the inability or the unwillingness to choose among competing priorities — to pile too much on the bagel — is itself a choice, and it’s one that California keeps making. When I looked into the problems of building affordable housing in Los Angeles, the same pathologies popped up, and they’re present in the disaster that is the state’s high-speed rail system, too. But it’s not just California.
Tahanan was on my mind when, at the end of February, the Biden administration released its notice of funding opportunity for the CHIPS and Science Act. The centerpiece of the bipartisan CHIPS Act is $39 billion to subsidize semiconductor firms to build factories — fabs, if you’re a semiconductor nerd — in America. The notice of funding opportunity was the administration’s statement of the criteria it would use when awarding this money.
It’s worth taking a moment here to describe the problem the Biden administration is trying to solve and why it’s trying to solve it. “It’s often said that data is the new oil,” Chris Miller writes in “Chip War: The Fight for the World’s Most Critical Technology.” “Yet the real limitation we face isn’t the availability of data but of processing power.”
Processing power comes from semiconductors. And semiconductors are everywhere. They run cars and dishwashers, iPhones and guided missiles, children’s toys and artificial intelligence systems. They are the most complex technology human beings create. A cutting-edge chip can have over 11 billion transistors on it, each a hundredth the size of a mitochondrion.
Very few firms can make these chips. “Unlike oil, which can be bought from many countries,” Miller writes, “our production of computing power depends fundamentally on a series of choke points: tools, chemicals and software that often are produced by a handful of companies — and sometimes only by one.” Factories in Taiwan alone provide more than a third of the new computing power added each year, and they are particularly dominant in the most advanced chips. Were those factories destroyed by an earthquake or captured in a Chinese invasion, the consequences would be cataclysmic.
We are used to thinking about the geopolitics of energy, but the geopolitics of semiconductors may well define the next era. China now spends more money importing semiconductors than oil, and the Biden administration is targeting this vulnerability. It has banned the sale of the most advanced kinds of semiconductors (chips largely used for A.I. systems and cloud-based data processing) to Chinese customers, and the administration is trying, through the CHIPS Act, to make America a leader again in manufacturing advanced semiconductors. If the administration succeeds — if it truly can make America a manufacturing leader again in what is one of the world’s most important and complex industries — that will be a remarkable achievement.
The semiconductor industry was invented in America — the “silicon” in Silicon Valley refers to the material that semiconductors are made from — but we long ago lost our dominant position in making what we invented. A report by the Semiconductor Industry Association says that the U.S. share of global semiconductor manufacturing capacity dropped from 37 percent in 1990 to 12 percent in 2020. Part of the reason is cost. The association estimates that building and operating a fab in the United States costs about 30 percent more over 10 years than it does in Taiwan, South Korea or Singapore.
The association is an industry group lobbying for subsidies, so it’s reasonable to be skeptical of its statistics. But turn your attention to construction costs, and the situation looks, if anything, worse. The Taiwan Semiconductor Manufacturing Corporation is trying to build an advanced fab in Arizona. Costs have exploded past the early estimates, and it now looks as though “construction could be at least four times the cost in Taiwan, driven by labor expenses, permits, regulatory compliance and inflation,” as John Liu and Paul Mozur reported in The Times.
Semiconductors are a national security priority. The high cost of building them here has become a national security liability. This reasoning was persuasive enough that the CHIPS Act passed with bipartisan support; 17 Republican senators backed the final bill. And there is a lot to like in the legislation. But it is very hard to read the guidelines the administration just released and see a serious effort to lower costs. The government is adding subsidies with one hand and layering on requirements with the other.
Page 11, for instance, encourages a pre-application that includes an environmental questionnaire “to assess the likely level of review under the National Environmental Policy Act.” Page 20 mandates that applicants prepare “an equity strategy, in concert with their partners, to create equitable work force pathways for economically disadvantaged individuals in their region,” which should include “building new pipelines for workers, including specific efforts to attract economically disadvantaged individuals and promote diversity, equity, inclusion and accessibility.” Page 21 asks for a plan “to include women and other economically disadvantaged individuals in the construction industry,” “strongly encourages” the use of project labor agreements and sets out requirements for “access to child care for facility and construction workers.”
Pages 23 and 24 ask applicants to detail how they will include minority-, veteran- and female-owned businesses, as well as small businesses, in their supply chain and offer seven bullet points detailing how this might be done, including dividing supply chain requirements “into smaller tasks or quantities to expand access” and “establishing delivery schedules for subcontractors that encourage participation by small, minority-owned, veteran-owned and women-owned businesses.” Then there are requirements for “a climate and environment responsibility plan,” as well as community investments in areas like transit, affordable housing and schools.
Many of these are good goals. But are they good goals to include in this project?
“What they’re trying to do with industrial policy is incredibly difficult,” Adam Ozimek, the chief economist at the Economic Innovation Group, told me. “If you try to build a highway and your costs are too high, you just throw more money at the problem. The highway still gets built. But when you’re trying to catalyze the expansion of a globally competitive industry, there’s something pass/fail about it. That’s not the kind of environment where you want to be trying to accomplish seven or eight other goals, especially when people from that industry say the reason they don’t invest as much in the United States as they used to is the red tape and the costs.”
That’s not how Gina Raimondo, the secretary of commerce, sees it. “Every one of the requirements — or they’re not really requirements — nudges are for criteria or factors we think relate directly to the effectiveness of the project,” she told me. “You want to build a new fab that will require between 7,000 and 9,000 workers. The unemployment rate in the building trades is basically zero. If you don’t find a way to attract women to become builders and pipe fitters and welders, you will not be successful. So you have to be thinking about child care.”
When I spoke to members of the administration, this was a core argument I heard: A huge problem for building a domestic semiconductor manufacturing industry is work force development. We don’t have enough skilled semiconductor technicians. We don’t have enough skilled fab builders. All these companies complain about work force shortages. And so the administration is trying to push them to take a broader view of work force development. They need to build and staff their factories now, and they need a pipeline of talent for later.
Some of what’s in the notice of funding opportunity fits that argument. When it says that “applicants must secure commitments from strategic partners, including partnerships with regional educational and training entities and institutions of higher education to provide work force training,” I see how the administration is trying to use its money and muscle to create the kinds of coalitions that might not otherwise form. But does that really explain the push for diversity in supply chain contracts? The call for community investments? Do Taiwanese semiconductor firms really know how to expand the role of women in the construction industry?
When I posed this to Raimondo, she suggested I was thinking too narrowly. “I consider it a fact that a more diverse work force is a more productive work force,” she said.
I don’t disagree with her. But cost, not just productivity, is a core problem for the U.S. semiconductor manufacturing industry, and many of these rules seem likely to raise costs. There, too, Raimondo thought I was missing the forest for the trees. “Here’s the reality,” she said. “We do need to fundamentally make it cheaper to produce chips in America. That won’t come from paying people less. It’ll come from innovation. We need to bring cost down by an order of magnitude, not by 10 percent. That comes from innovating, which is why we’re investing $11 billion in research and development.”
I’m not sure that argument really works. America has been and remains a leader in semiconductor design and research. But the lesson of the history Miller tells in “Chip War” is that when you stop being cost competitive as a manufacturer, you begin to lose the know-how and process innovations that keep you ahead of rivals. We didn’t fall behind on chips because Taiwan and South Korea and Japan made breakthroughs in the fundamental science that we missed. We lost it because they undercut us on manufacturing and then, over time, learned lessons inside their factories that we weren’t learning because our fabs closed after customers flocked to cheaper suppliers.
We’re not, of course, going to undercut Taiwan or South Korea on labor costs; G.D.P. per capita is almost twice as high in America. But costs matter, and what I don’t see in the notice of funding opportunity is a sustained effort to lower them beyond the subsidies. What about giving these fabs expedited environmental review — permitting is a major source of delay — or making it easier for skilled semiconductor workers to immigrate to the United States?
“I think both those are worthwhile endeavors,” Raimondo said, “but both require congressional action. If Congress wants to work with us on a streamlined visa and immigration path for workers in the semiconductor industry, I think that would be excellent, and the same thing with permitting.” Members of Congress, like Senators Mark Kelly and John Cornyn, she added, “have reached out on these issues, and my answer is an unqualified yes, but I have to execute this plan as it exists now in the meantime.”
Raimondo’s point there is an important one. Congress sets the limits on this legislation. She can administer it, but she is no czar. And the projects that get greenlit will also have to work through state and local governments in order to be built. “In Taiwan, TSMC is the island’s most prestigious employer,” Miller told me. “It’s the country’s largest exporter. If it has a request, its request is quickly granted. Whereas in the U.S., semiconductors are one important industry among many. And so they just get less political priority. When they face problems, they’re solved less quickly.”
But I think that undersells the problem in America, at least a bit. The CHIPS and Science Act is one of the Biden administration’s marquee bills. It is a priority. That’s even truer for the Inflation Reduction Act. If the administration has a single signature goal, it is to rapidly decarbonize the American economy. But there, too, if you read through the text of the I.R.A., you will find quite a few goals in competition. The climate side of the I.R.A. pairs investments in decarbonization with buy-American rules and labor standards and much else.
The case for buy-American provisions is clear: They create jobs and raise wages and build supply chains in America. But the case against them, particularly when speed is of the essence, is real. “By excluding foreign contractors — even technically qualified firms based in allied countries such as Canada and Korea — competition is quashed at the outset,” Gary Clyde Hufbauer and Megan Hogan of the Peterson Institute write. “Then, by denying U.S. contractors from acquiring scarce components from foreign sources, delay is guaranteed.” Is risking these delays worth it? It depends, I guess, on how fast you think decarbonization has to happen and how much room you think there is for error.
The challenge of the everything-bagel approach to governing is that sometimes, it’s exactly the right thing to do. On-shoring the supply chain for renewable energy makes real sense. Making sure jobs in semiconductor factories are good jobs is worthwhile. But there is a cost to accumulation. How many goals and standards are too many? And why is subtraction so rare? It is impossible to read these bills and guidelines and not notice that the additions are rarely matched by deletions. Process is enthusiastically added but seldom lifted.
The result is that public projects — from affordable housing to semiconductor fabs — aren’t cost competitive, and that makes them vulnerable when a bad economy hits or a new administration takes over and the government cuts its spending. Liberalism is much better at seeing where the government could spend more than at determining how it could make that spending go farther and faster.
I don’t write this as a critic of the Biden administration’s goals. I’m thrilled to see industrial policy revived. I believe semiconductors are to the 21st century what oil was to the 20th. “In the case of CHIPS, this is first and foremost and primarily a national security initiative,” Raimondo told me. “We have national security goals we must achieve. Period. Full stop. No compromise.” Later, she circled back to that point. “Failure is not an option,” she said. But I worry that statements like that deny the obvious. Failure is always an option. The reason industrial policy had to be revived is that it often fails.
I’m not predicting failure for CHIPS because it includes a child care mandate. These are expensive factories that can figure out child care. But even if no single standard or mandate is decisive on its own, the accumulation of them, in an industry in which we’ve already fallen ruinously behind on cost, can do real damage.
That’s the lesson of “affordable” housing in California. If something as easy to build as a studio apartment complex can become intolerably expensive and slow, then it’s folly to think that far worse can’t befall a fab that ultimately has to compete for customers globally. And if you think failure really is an option — that it’s maybe even the likeliest outcome — then that demands an intensity of focus that liberalism often lacks.
View the full article: The Problem With Everything-Bagel Liberalism in the New York Times.