Monday Morning Thoughts: Will the City Have to Revise Its Affordable Housing Guidelines?

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One of the big questions facing the city is why they are not getting any market rate multi-family projects anymore that have 35 percent affordable units, as required under the city’s affordable housing ordinance.

At the city council’s workshop back in October, they discussed the possibility that 35 percent is simply too high a requirement to get anything built.

As Councilmember Rochelle Swanson said, “I think the financials are going to dictate that.”

At the time, she suggested that staff reach out to those building the projects to find out what some of the key financing issues are.

“Thirty-five percent of zero is still zero,” she said, referring to the fact that if the units are not built because of the requirements, we get no affordable housing. “It should probably be lower than (35 percent) so that we do see it being built.”

That is the problem that the city faces – we need more affordable housing, but consistently developers and even some affordable housing experts have warned that if the city is setting too high a standard, it could be self-defeating.

But of course we cannot just take the word of developers and builders, and so the city has done the right thing by hiring a consultant, in this case Andy Plescia, to assess what is reasonable.

Robb Davis has asked that staff find out “what has changed.”  In particular, why 15 years ago was the city getting projects that had 35 percent affordable housing, but in the last 15 years we have
not?

There is a general belief that the result will be that Mr. Plescia, when his report comes out perhaps in January,  will recommend, as will staff, to reduce the threshold.  That invariably means that the city and council will be attacked, but the reality is that housing must include realistic affordable requirements.  If the current standards mean that nothing at all gets built – then they are self-defeating.

As Mayor Davis said in October, “[I]f our affordable 35 percent (requirement) is meaning that people are not going to build them, then it is time to review that.”

It may be that reducing some of the requirements for affordable housing counter-intuitively means that we get more affordable housing  in the long run because it allows more projects to be built, even if those projects have a lower affordable housing requirement.

But some have pointed to the fact that new projects have emerged as proof positive that the current standard works.

But does it?

Sterling presented 198 units, of which 38 were affordable.  That comes to just over 19 percent.  It is harder to calculate Lincoln40 which will have 71 affordable beds integrated into its 130-unit, 708-bed complex, but clearly that number comes to well short of 35 percent, any way you measure it.  Even assuming that the affordable units comprised just the two- and three-bedroom apartments, you still get about 11 percent at the lowest end and, at the high end, 20 percent.

Finally, Nishi is only proposing about 11-12 percent affordable units.

According to the staff report: “While the applicant has not finalized unit density, unit type, or unit totals, the applicant based its affordable housing calculation on a 1,900-bed total of which 1,696 would be market rate beds and 204 would be affordable units.”

The need for these projects to generate new affordable housing and money for affordable housing is understandable.  As we have pointed out numerous times, there are two key factors here.

One is the change in the type of development in Davis.  As Robb Davis noted in October, in the past the city built larger housing developments which enabled them to have relatively large dedicated sites to build large “a” affordable housing.

“Those days now largely are done,” he said.  “We aren’t getting any large developments like that that lead to that kind of ability to create the affordable set aside inside.”

The second is the disappearance of Redevelopment Agency (RDA) funding and the $2 million a year that used to come from that.

The key then may be to find other funding sources, so that the city can move away from using existing developments either to build the housing directly or create a fund through in-lieu fees.

“Just do away (with) in-lieu fees in my opinion,” he said, but we need to find a revenue stream and then set in-lieu fees really high to disincentivize their use.

And here we may have some promising avenues.

One avenue is with the state – and while they will not replace all the $2 million annually that came from redevelopment, it is a start.

Recently the state has created a funding source through SB 2.  Sponsored by Senator Toni Atkins, SB 2 would created a permanent funding source for affordable housing by imposing fees up to $225 on certain real estate transactions.  It is expected to collect $1.2 billion annually over the next five years, creating a $5.8 billion fund.  Also SB 3 would place a $4 billion housing bond on a future ballot that would pay for existing affordable housing programs in California that used to be supported by funds from the state’s RDA.

But the city is also looking for local funding, as those affordable housing programs are still not expected to entirely replace RDA.

The city is also looking at potentially $500,000 to $750,000 to come from its proposed social services tax.

If the voters are willing to pass the measure, the city could have three key sources for affordable housing, two of which are new – one would be new development, one would be state money, and the third would be the parcel tax.

Combined, that could be enough to provide a new supply and maintain the current supply of affordable housing now and into the future.

—David M. Greenwald reporting



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About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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23 thoughts on “Monday Morning Thoughts: Will the City Have to Revise Its Affordable Housing Guidelines?”

  1. Todd Edelman

    While there’d be less returns later, a great way to decrease the cost of construction of housing is to eliminate parking, beyond a couple spaces for ADA, carshare and for people in certain professions (like first responders). Combined with transit incentives, electric-assist supermarket shopping and kid drop off bicycles and robust parking permit expansion, there’s be no small “c” cheating and lots of big “J” Joy. There’s enough demand for housing that – minus the parking amenity – new mixed-income housing would still be very, very attractive.

    1. Todd Edelman

      “robust parking permit expansion” excludes this possibility, at least in the immediate area or another one where parking is already congested, excepting the three types I mention above who can park on site. The developer provides residents with a certain free amount of public transport including bike share, electric cargo bikes shared by residents, Zipcar memberships… all of this is much less expensive than building parking spaces.

  2. Howard P

    David… do you know where the 35% came from%? [only question for David, the rest are rhetorical…]

    I don’t.

    Was it by law? Arbitrary decision by City? Staff members’ idea/personal belief?

    Why not 15-20-25-30 percent?  Why not 40-50-60-70%? [or higher?]? Vote of the people?

    Meant as honest question…

      1. Don Shor

        18.05.080 Exemptions from affordable housing requirements.
        (a) Residential developments consisting of fewer than five units are exempt from the requirements of this article.

        (b) Residential developments constructed as exempt condominiums are exempt from the requirements of this article.

        (c) Residential components of a vertical mixed use development are exempt from the requirements of this article.

        (d) The requirements of this article may be adjusted or waived if the developer demonstrates to the satisfaction of the city council that there is not a reasonable relationship between the impact of a proposed residential project and the requirements of this article, or that applying the requirement of this article would take property in violation of the United States or California Constitutions.

        1. Don Shor

          (3) Projects Totaling Twenty or Greater Units for Rent.

          (A) A number equivalent to twenty-five percent of the total units being developed, after the inclusion of the density bonus for the project, shall be developed and made affordable to low income households, households with gross incomes at or below eighty percent of area median income for Yolo County.

          (B) A number equivalent to ten percent of the total units being developed, after the inclusion of the density bonus for the project, shall be developed and made affordable to very low income households, households with gross incomes at or below fifty percent of area median income for Yolo County.

          (C) This requirement may be fulfilled through either on-site construction as stated in subsection (b) of this section or land dedication detailed in subsection (c), as long as the minimum amount of land is provided to make the site economically feasible.

          1. Don Shor

            As to keeping rents affordable:

            (e) The City acknowledges that the published appellate case of Palmer/Sixth Street Properties, L.P. v. City of Los Angeles (2nd Dist. 2009) 175 Cal.App.4th 1396 holds that the Costa-Hawkins Act (Civil Code Section 1954.50 et seq.) precludes local governments from requiring a developer to set affordable rent levels for private rental housing unless the developer has agreed to such rental restrictions in exchange for financial assistance or other consideration from the local government. This section shall be operative at such time that the Palmer case is overturned, disapproved or depublished by a court of competent jurisdiction, or the state legislature amends state law to authorize local governments to require the development and restriction of affordable rental units in the manner set forth in this section. (Ord. 2418 § 1, 2013)

          1. Don Shor

            I have no idea. Perhaps they were waiting for the case to be overturned? “Palmer fix” legislation passed and was signed by Gov. Brown, but it doesn’t allow them to control the rents.
            https://landuse.coxcastle.com/2017/11/02/inside-ca-legislatures-housing-package-palmer-fix/
            Perhaps Eric Gelber can help us out here. If you can’t mandate the rental cost of the housing once it’s built, how does the city actually achieve affordability in a rental development project?

        2. Eric Gelber

          In September, the Governor signed AB 1505, through which the Legislature expressly declared its intent to supersede the Palmer decision “to the extent that decision conflicts with a local jurisdiction’s authority to impose inclusionary housing ordinances.” The Legislature sought “to reaffirm” local agencies’ authority to apply affordable housing requirements to rental projects. To do so, AB 1505 specifies that cities and counties may adopt ordinances that “require, as a condition of the development of residential rental units, that the development include a certain percentage of residential rental units affordable to, and occupied by,” households at or below moderate-income levels. AB 1505 requires inclusionary housing ordinances to provide alternative means of compliance that may include in-lieu fees, land dedication, off-site development of units, or rehabilitation of existing units.

          1. Don Shor

            I still don’t understand how any percentage housing requirement can be effective in the absence of controlled rent. So the 35% requirement does not make sense to me. The other options specified seem like the only enforceable methods.

      2. Howard P

        A plain reading of the code cited, could mean 25% of total have to be affordable… and 10% of total have to be affordable on the low end… it is not clear at all that it is “additive”… so, it can clearly be parsed as 25% affordable, with the 10% within that 25% at the low end, but it is apparently being parsed as 25% + 10% getting to the 35%… I question the reason for parsing it the second way… looks like it is a local ‘preference’ to parse it that way…

        Based on what was cited, looks like 25% affordable (total), but with no less than 10% affordable on low end…

  3. Ron

    One of the big questions facing the city is why they are not getting any market rate multi-family projects anymore that have 35 percent affordable units, as required under the city’s affordable housing ordinance.

    Why would they, since the city has already demonstrated that they’re willing to “overlook” the requirements?

    Not much of a “mystery”, here.

  4. Ron

    “Robb Davis has asked that staff find out “what has changed.”  In particular, why 15 years ago was the city getting projects that had 35 percent affordable housing, but in the last 15 years we have not?”

    Good question.  Actually, I believe there was a shortage of any proposals, during the multi-year recession.

    Another question:  How many sites should the city convert (e.g., from commercial to residential) to satisfy the “need” (largely created by UCD)?

    And, how dense should the city ultimately become (Affordable, or “non”-Affordable)? Is there an ultimate “goal”? Or, are we sticking with “planning via vacancy rate”, regardless of consequences?

  5. Ron

    “As Robb Davis noted in October, in the past the city built larger housing developments which enabled them to have relatively large dedicated sites to build large “a” affordable housing.”

    And yet, we have more than two proposals on large sites (including Nishi, and Sterling – which was approved):

    “Sterling presented 198 units, of which 38 were affordable.  That comes to just over 19 percent.”

    “Finally, Nishi is only proposing about 11-12 percent affordable units.”

    If I’m not mistaken, the two commercial sites in South Davis that are being proposed for housing are around 7 acres, each. Is that correct? Not sure how large the Lincoln40 site is.

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