Monday Morning Thoughts: Public Policy Questions Rarely Have Yes or No Answers

In a theoretical world we like the certainty of a yes or no question.  The problem is that, in the policy realm, as opposed to the political one, yes or no rarely exists.  There are nuances and shades of gray that should make us think twice before proclaiming yes or no.

Along these lines I have a big concern that opponents of development in Davis have attempted to weaponize the city’s affordable housing program.  For me, we do need more affordable housing, but we have to recognize that money has to pay for that affordable housing and we also have to recognize that, until the increment tax comes back – if it ever does – the only way to do so is to build more housing.

I think it is therefore important to understand the dynamics involved in decisions on affordable housing before evaluating a project and whether or not it has sufficient affordable housing.

For example, the original Nishi proposal that came before the voters in 2016 had no on-site affordable housing.  The council had exempted the project on the grounds that it was vertical mixed use.  They then came up with a deal for $1 million in in-lieu fees, which many voters saw as insufficient and the project was voted down.

The next time the project came back – vertical mixed use was largely gone.  The developers stripped out both the small commercial and the R&D proposals from the project, added in rental housing, and included on-site affordable housing.

The big debate – or one of them – at the time of the election was whether the city was selling out by reducing affordable housing requirements from 35 percent to 15 percent.  But this is where understanding the dynamics is so important.

The 35 percent requirement was put into place when we had a steady stream of increment tax dollars coming in to subsidize affordable housing.  That revenue stream is gone.  That is not a small deal.  That means any affordable housing must be subsidized internally – in perpetuity.

That’s a key factor that no one seems to understand – this is not just a cost of building the housing which is a one-time fee, it is an on-going cost that has to be borne somehow.  I did a rough calculation that the difference between 15 percent and 35 percent was about $2.8 million – every year.  That would mean that somehow the developer would have to cover the cost of $2.8 million annually to increase the share of affordable housing.  That’s not a small cost, especially when it is ongoing.

So here you have opponents of the project attacking affordability of the market rate units, and then they want to impose additional costs on those units.

It is hard for the citizens to evaluate these costs, because we don’t have access to the books.  But the consultants looked at them and concluded that with the 15 percent requirement, the project was going to have greatly reduced margins.

The bottom line is that people had a choice in the election – do they take 200 beds of affordable housing or do they take zero?  That was the choice before them.  We can argue all day whether the project can pencil out with more units, but the choice before the voters was 200 or 0.  The voters this time chose the 200-something affordable beds.

When asked, a student leader was supportive of the project at the 15 percent level and happy that students were getting some beds that were subsidized.

That gets me to the issue of vertical mixed-use exemptions.

The first problem I have here is that, as I said before, affordable housing has become weaponized as a reason to oppose projects.  A project doesn’t have enough affordable housing – oppose it.  The problem with that approach is it means we don’t get affordable housing.

The second problem here is that the same people who are opposing all these projects are the same people saying we need higher affordable housing standards in this town.  The reality is that, when you oppose a project, you are attempting to prevent affordable housing from being built.  The only way we can build affordable housing right now is when it is subsidized by market rate housing – which means if you don’t build the market rate stuff, for the most part you won’t get the affordable.

The third point is that in a perfect world we would not need a vertical mixed-use exemption.  The exemption was put into place when RDA (Redevelopment Agency) funding disappeared. Prior to that, you could fund affordable housing regardless of the type of project, and you could do so at a much higher rate. Until we find a replacement for that funding stream, we are forced to cobble together approaches – none of which will happen if we do not build more housing.

That leads us to the fourth point – is vertical mixed use a good thing?  I think most people would argue that it is.  You are more efficiently utilizing available land.  The University Mall is a nice place, but in 2018 it is inefficient to have essentially single-story buildings sprawling out over an 8-acre parcel.  It would be much better to have the same commercial footprint, maybe even expand it a little, and put housing and parking over it.

But that costs money.  A lot of money.  Mixed use is a lot more expensive to build because you have to have twice the infrastructure – some for the commercial and some for the residential components.  That is a big thing I learned.  That increases the costs to build.

That is why if you read the fiscal analysis from the downtown, they say you have to go up at least four stories for the redevelopment to make fiscal sense.  They write that “redevelopment only made financial sense when it was greater than or equal to 4 stories tall.”

The larger picture on affordable housing is that, without finding new RDA funding, we are going to be stuck with the current approach, with which most people are unsatisfied.  That means the only way to build affordable housing is by building market rate housing, it means that the return will be lower, and it means we will end up exempting things like vertical mixed use.

So, yes or no – do I support the exemption?  It is not a yes or no question.  Right now it is a necessary evil.  But I don’t think it is a necessary policy if we have funding available for affordable housing in this community.

Find us a revenue stream and those rules will change.

But the bottom line is that, if you want affordable housing you cannot oppose every project.  That is why, in the end, I am skeptical of this argument to begin with – it seems like an excuse to oppose new development rather than an issue born from real concern over affordable housing.

—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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83 Comments

      1. Ken A

        I’m sure Howard with his background will have more to add but water and sewer pipes are always “separate” and the pipes are not changed just because the property changed from residential to commercial (the city will not change the water and sewer hook ups if the former city council member who has his home currently for sale sells it to someone who opens another massage place like his next door neighbor currently runs)…

        1. Howard P

          David has it part right, particularly in the title of the article… it is not a yes or no question… it depends…

          It has to do with ‘demand’, and ‘capacity’… the minimum 4″ sewer service can serve more than 1 house… for SF, generally (and yes, there are exemption to this) one 4″ service/lot… but if a granny flat is added to a parcel, there is no need to upsize the lateral… split-lot duplexes share a 4 inch service from the property line to the main.

          Pipes come in nominal sizes (for water, generally 1″, 1.5″, 2″, 4″, etc. [a 2″ line has 4X the capacity of a 1″ line])… that governs ‘capacity’… demand varies… usually that variation is within the range of the capacity of a given line/service.

          Any change in use triggers an evaluation of whether the existing service will meet the needs of the proposed demands.  Depending on the evaluation, Ken is right, that no changes in the service size may be needed.

          Ken is also correct,

          water and sewer pipes are always “separate”

          and, a damn good thing, too, for all the obvious reasons!

        2. Howard P

          Just curious, Ken… to what purpose did you include,

          if the former city council member who has his home currently for sale sells it to someone who opens another massage place like his next door neighbor currently runs

          C’mon, name names!  Be transparent!

          Enquiring minds want to know!  Let us all see that “dark underbelly”!

          [did someone ‘rub you the wrong way’?]

  1. Ron

    Apparently, David did not like being called out on his lack of answer, regarding whether or not he supports the exemption for vertical mixed use.  Again, it’s important to note that David has pointed out the need for more Affordable housing, and has acknowledged (on the Vanguard) that he benefits from it, himself.

    Let’s address a few statements from the article:

    David:  “The problem is that in the policy realm, as opposed to the political one, yes or no rarely exists.”

    This is the opposite of how it actually works.  In the policy (reality) realm, a “yes” or “no” decision ultimately has to be made.

    David:  “That revenue stream is gone.”

    Which means that Affordable housing won’t be built, unless it’s required as part of construction proposals.

    David:  “That means that any affordable housing must be subsidized internally – in perpetuity.”

    In the case of Nishi, I recall another commenter pointing out that the “subsidy” was not real, in that it essenitally consisted of doubling-up of rooms.  (I could probably find those detailed comments with some effort.)

    David:  “So here you have opponents of the project attacking affordability of the market rate units and then they want to impose additional costs on those units.”

    No – you have David constantly attacking affordability, but failing to support Affordable housing.  Despite benefiting from it himself (as acknowledged on this site), and noting the need for more of it.

    David:  “That leads us to the fourth point – is vertical mixed use a good thing?”  

    Has anyone done any research as to the viability of the businesses at the mixed-use development at 5th and Pena?  (Which I understand was converted from commercial-only zoning.)  Also, has anyone determined why some retail spaces are remaining empty in redeveloped properties in San Francisco?  (Which I assume are vertical mixed-use.)  (As mentioned on the “other” blog, a few weeks ago.)

    Also, is University Mall currently “unviable” in its current format?  Or, is the proposal driven by the desire to make even more money?  And, if there’s supposedly a need for more commercial, why not expand that?

    David:  “It would be much better to have the same commercial footprint, maybe even expand it a little, and put housing and parking over it.”

    Or, maybe allow commercial redevelopment/expansion, on sites that are already zoned for such uses.

    David:  “Mixed use is a lot more expensive to build because you have to have twice the infrastructure – some for the commercial and some for the residential components.”

    Much of the infrastructure would be used for both types of development.  If you’re going to “learn something”, I would hope that you’d actually put numbers forth (and not just repeat what developers might be telling you).

    More importantly, the city needs to decide what’s in it’s own best interests, rather than being concerned about developers’ interests (as David seems to be).  There’s been several models which show that student megadorms (such as Sterling and Nishi) are long-term fiscal losers, for the city.  There’s no reason to believe that adding more fiscal losers is going to “improve” the fiscal health of the city. 

    David:  “Right now it is a necessary evil.”

    Hey – finally an “answer”.  You do support the exemption for vertical mixed-use, despite the fact that it will result in NO Affordable housing for vertical mixed-use proposals.  (Including any peripheral vertical mixed-use proposals.)

    [moderator] edited

    1. Don Shor

      More importantly, the city needs to decide what’s in it’s own best interests, rather than being concerned about developers’ interests (as David seems to be).

      What’s in the city’s interests is more revenue.

      There’s been several models which show that student megadorms (such as Sterling and Nishi) are long-term fiscal losers, for the city. There’s no reason to believe that adding more fiscal losers is going to “improve” the fiscal health of the city.

      There have not been *several* models. There are two members of the F&B commission who have made the assertion that you have repeated dozens of times on the Vanguard. It is not firmly established that housing costs the city more money in the long run.

      1. Ron

        Don:  “There have not been *several* models.”

        That’s simply not true, and you know better than that.

        There’s the Sterling analysis (which showed an ever-increasing fiscal loss to the city), as well as several analyses performed for Nishi 1.0 and 2.0.  (Including one from an outside consultant.)  Although the outside consultant was not used for Nishi 2.0, the FBC commissioners used a similar method to show a range of outcomes (that was heavily weighted toward an ongoing and increasing fiscal loss, to the city).

        Unfortunately, the city chose not to further explore the fiscal impacts of megadorms, despite recommendations to do so. However, the city is currently attempting to pursue reimbursements from UCD, to offset the ongoing fiscal impacts of their students.

    2. Ken A

      I didn’t read either and I’m hoping that David and others can take the advice of Alan and use “subsidized” when describing housing made cheaper due forced subsidies that is a lot different than “affordable” housing in places like in Oakdale, CA where you can buy a nice home for under $250K or rent a nice place for under $800/month.

    3. Ron

      Alan:  “TLDNR (the obsessive sniping across threads, and the post).”

      You neglected to mention the sniping in the article itself, such as the quote below.  Not to mention the obssessive focus of the Vanguard articles (which you’ve previously noted, yourself).

      From article above:  “Along these lines I have a big concern that opponents of development in Davis have attempted to weaponize the city’s affordable housing program.”

      That’s just political b.s., from someone who can’t reconcile his own conflicting statements regarding the need for Affordable housing. (But, who has finally/reluctantly admitted that he supports the exemption. Which means that none would be built, for vertical mixed-use proposals.)

  2. Ron

    If David is going to perform an actual analysis regarding the costs of constructing vertical mixed-use proposals, this should be compared with expected revenues.

    And for commercial properties that are already producing revenues for the city and for property owners (such as University Mall, Trackside, or properties downtown), the additional costs would primarily be incurred for the purpose of building a megadorm or other residential units above them (and not for the commercial component which already exists).

    Also, existing revenues from such properties (for the city and developers) should also be eliminated from the calculation.

    1. Ron

      Perhaps you could explain why the city should be concerned about developers’ costs that would be incurred for rebuilding pre-existing commercial spaces (primarily for the purpose of adding residential units above pre-existing commercial space).  Along with any reason/justification that these costs should be considered, when determining if vertical mixed-use should continue to be exempt from Affordable housing requirements.

      In other words, the costs incurred are primarily to add housing, to pre-existing commercial spaces.

      1. Mark West

        “the costs incurred are primarily to add housing, to pre-existing commercial spaces”

        Actually, the costs are incurred primarily to rejuvenate a deteriorating commercial space, adding significant value (and new property tax revenues) while improving the neighborhood. Adding housing to the mix helps pay for the reconstruction while also improving the efficient use of land in a town that has chosen to limit expansion. We need to provide the housing someplace, and if we are not going to expand outwards, that means building up and at greater densities.

         

      2. Ron

        There’s nothing to prevent developers from “rejuvenating” (or expanding) commercial space/activities within the existing, commercial zoning.

        Davis ACE has recently “rejuvenated” its business by adding (at its own expense) a covered parking lot (with solar panels on top).  Despite opposition from some.

        Regarding additional expansion of student housing (e.g., beyond what’s already been approved), that’s a primary point of contention between UCD and the city (which has led to the current mediation effort).

      3. Jeff M

        This caused me to chuckle a bit.  Sorry, but Ron, given your insertion into all debates about development and growth, I would suggest you do some more homework to understand all the facts.

        When you do a significant change to a commercial space, you get slammed with a long list of new building, fire, environmental, etc. requirements.   I have had small business expansion projects start and then fail because of these things.

        For example, adding 25% or more sq ft to an old building, that building will now have to comply with all the current Title-24 requirements.  So you understand this impact, that would mean, for example, that not only the new windows, HVAC, fixtures, etc. need to be Title-24 compliant, but you would be required to retrofit the entire building.  Once the costs are determined, many clients of mine give up on the project to expand.

        Fire code is another.  In CA every commercial building over 5000 square feet now is required to have a commercial fire-sprinkler fire suppression system.  Have you priced a commercial fire sprinkler system before?

        In a project I am working on, just got hit with another unplanned $6k bill because the state added the requirement that hot water needs to come from the tap in 1 minute or less, or else a re-circulation pump and inside-pipe thermostat switch is needed so that the water in the pipe leading to the faucet is kept hot all the time.  The reason?  People waste too much water waiting for it to get hot.  So instead we will force new projects to not only spend more money on the construction, but we will also waste energy keeping water hot when it is not needed.

        There are hundreds if not thousands of these types of things.   They emanate from a liberal nanny-state mentality.  But they have caused the cost of development to skyrocket.

  3. Rik Keller

    A few comments:

    1) The Nishi project affordability is a scam. Because of the project structure and the doubling-up of all the “affordable” bedrooms, the “affordable” bedrooms actually will produce MORE revenue per bedroom than the market-rate units. No subsidy required (you could even call it a “reverse subsidy”).

    2) When calculated in a per bedroom basis. The Nishi “affordable” units only make up about 9% of the project. (Which deosn’t matter in the end, because they aren’t actually affordable anyway).

    2) Greenwald states that “It is hard for the citizens to evaluate these costs, because we don’t have access to the books.  But the consultants looked at them and concluded that with the 15 percent requirement, the project was going to have greatly reduced margins.”

    This is NOT TRUE. The “consultants” did not look at actual project pro formas and merely looked at the “model project” using same back of the envelelope assumptions. Neither the public nor the consultants have any idea what the margins are or whether the developer’s claim that they couldn’t do the project with a higher affordability requirement is true. (and based on #1 above, we know this claim is not true).

    3) It should be a requirement to conduct an actual pro forma analysis for any proposed development so that the numbers are clear. Relying on developers’ claims that they can’t afford to provide affordable housing at a certain percntage is naive and foolish.

    4) What Greenwald fails to understand is that every project where we settle for a low affordable housing requirement represents a huge opportunity loss for affordable housing: it locks in market rate housing on that site in perpetuity. Just think about the amount of actual affordable housing that could have been done on the Nishi site had a real affordable housing developer been brought in to do it.

    5) State law provides for incentives like density bonuses to be provided in exchange for affordable housing requirements in order to offset the subsidies required. Why does Greenwald never discuss these?

    1. Mark West

      “Just think about the amount of actual affordable housing that could have been done on the Nishi site had a real affordable housing developer been brought in to do it.”

      No one needs to ‘think’ about it as the answer is none. The City does not own the land and has no money to pay for an Affordable Housing development even if it did.

      As David has correctly pointed out, without RDA funding the only option available at this time is to build sufficient market-rate housing to soak up the current excess demand and thereby reduce the upward pressure on rents. Competition between landlords to fill their properties would be a good thing for renters.

      “What Greenwald fails to understand is that every project where we settle for a low affordable housing requirement represents a huge opportunity loss for affordable housing:”

      And what you and others apparently fail to understand is you cannot have affordable housing unless you are willing to build housing. What was it, more than a decade, without a new apartment project proposal because of all the ad hoc requirements that were put in place? Every project that is rejected because it doesn’t meet your ‘pie in the sky’ demands, or is never proposed because your demands make the project financially unfeasible, is a “huge lost opportunity” for those residents looking to find appropriate housing in town.

      If you want more affordable housing, raise the money, buy some land, and build it.

      1. Ron

        Mark:  “What was it, more than a decade, without a new apartment project proposal because of all the ad hoc requirements that were put in place.”

        There is no evidence whatsoever to support Mark’s conclusion.  There was a recession, which impacted proposals throughout the region, state, and country.

        Davis is likely one of the more profitable places to build anything, especially with a low vacancy rate.

      2. Ken A

        The city does not even seem to have a few grand that it would take to fix up the “affordable” housing it does own at 1752 Drew Circle and does not seem to care if we go another ten (10) years with 50+ units sitting empty…

        1. Rik Keller

          Ken A.: I wrote a long analysis on this very site about the fake affordability of Nishi. If you were interested in actually learning something and having facts at your disposal rather than misinformed opinions, you could read that.

    2. Ken A

      Rik tells us that:
      “1) The Nishi project affordability is a scam.”
      I’m wondering if Rik can explain how renting beds to some people at a below market rent “a dishonest scheme; a fraud”?  It may not be the ideal situation for everyone (as a college student I would rather rent a $800/month penthouse with a private deck than share a room).
      Let’s hope the other apartment owners don’t find out that “the “affordable” bedrooms actually will produce MORE revenue per bedroom than the market-rate units.” and make every bedroom in town “affordable” (since 99% of business owners are looking for MORE revenue)…
      “2) When calculated in a per bedroom basis. The Nishi “affordable” units only make up about 9% of the project. (Which deosn’t matter in the end, because they aren’t actually affordable anyway).” I’m wondering if Rik has also done the calculations to get the percentage “per kitchen” and “per bike rack”.  If the units are sitting empty for a year after the project we will see if Rik is correct that they are not “actually affordable” and are sitting empty since no one can “afford” to rent them…
      “3) Greenwald states that “It is hard for the citizens to evaluate these costs, because we don’t have access to the books.  But the consultants looked at them and concluded that with the 15 percent requirement, the project was going to have greatly reduced margins.””  Who are these “consultants” why not name names or did they “rub” you the wrong way…  Unless you have a crystal ball no one has any idea how much it will cost to build the property or what the rents will be when it is completed (commercial lenders foreclose on thousands of real estate projects that cost more to build and rent for less than the developers and “consultants” thought things would cost.

    3. Rik Keller

      Mark West: showing your abject ignorance on the subject: the City would not have to “pay” an affordable housing developer to do the project. There are plenty of affordable housing developers who know how to package affordable housing project funding and provide actual affordable housing. The Nishi developers are not one of them.

      1. Jeff M

        There are plenty of affordable housing developers who know how to package affordable housing project funding and provide actual affordable housing.

        Name one.

        And while you are at it, please explain why a lack of affordable housing is a common problem throughout communities in CA.   If there are plenty of these developers, then why don’t we see more affordable housing developments?

        From my perspective it looks like you are just making stuff up without any basis of fact.  Note that if there was enough of a return to be made, developers would produce affordable housing.  The fact is that public money or tax incentives like the RDA program provided are needed to help compensate developers for projects that otherwise would not pencil out.

      2. Ken A

        Since Rik is not”ignorant” I’m wondering if he can explain how Davis can get one of the “plenty” of affordable housing developers (who know how to package affordable housing project funding and provide actual affordable housing) to come to town and build affordable housing.  I’m also wondering if he can name a single “affordable” housing project that was completed without government subsidies or government forced developer subsidies (e.g. if you want to build the Greystone apartments you need to give us part of the land to build “affordable” units)…

      3. Rik Keller

        Mark West: as it has done for other projects, the City could have required the developer to partner with a legitimate affordable housing developer as part of the conditions for approval.  Instead we are stuck with fake affordable housing.

        1. Mark West

          “as it has done for other projects, the City could have required the developer to partner with a legitimate affordable housing developer as part of the conditions for approval…

          Please, Rik Keller, tell us all when the City of Davis has ever forced a property owner to work with a specified ‘affordable housing developer’ as a condition of approval for a proposed project that did not involve City funding (including RDA) or City-owned land? If you are unable to come up with a valid example, then your statement is false. Projects that only happened in your imagination don’t count.

        2. Jeff M

          There are very few qualified affordable home developers.  And those few that exist are non-profits that are very picky about their choice of projects.  And part of their selection criteria will be based on the availability of funding assistance from the county and/or municipality where the project would be located.

          But I think you are missing a great big piece of the puzzle here.  The land is privately owned.  You cannot force a private landowner to develop affordable housing.  You can certainly require that the private land be all or partial affordable housing, but then the private land owner can give you the finger and do something else with his capital.  So you want designated affordable housing and you get no housing which ironically makes all housing more expensive.

          You also don’t get an affordable housing developer (aka a non-profit) to “partner” with a land-owner.  The affordable housing developer will need complete control as the funding comes from sources that require it.

          If a project does not pencil out, then it does not get built.

          CRA used to assist to help the projects pencil out.  But the greedy state government and their greedy education system cronies wanted the cash.

          The City collects a parcel tax to pay for the farmland moat around the city.   Too bad they did not instead use it to purchase land that could be used for affordable housing.  But Davis has its priorities.

  4. Michael Bisch

    I have managed a number of mixed-use projects and either created or advised on a number of specific project pro formas. Developing and operating a mixed-use project is significantly more expensive than a residential-only project. Smaller projects in Davis, such as the Roe Building, are very challenging. An affordable housing requirement is a project killer for most projects. Parking in-lieu fees, tree removal mitigation, Cal Green plus 15%, LEED  and other extractions are project killers as well. The community can choose between encouraging mixed-use projects or having no mixed use projects by insisting on “nice to haves”.

     

    PS: DDBA, with the assistance of a number of developers, architects, GCs, etc. created a pro forma for a theoretical downtown project a year ago showing how very challenging such a project is. This analysis was sent to city staff and the council. The DDBA’s work has now been backed up by the more recent feasibility analysis of the downtown consultants.

    1. Don Shor

      DDBA, with the assistance of a number of developers, architects, GCs, etc. created a pro forma for a theoretical downtown project a year ago showing how very challenging such a project is. This analysis was sent to city staff and the council.

      If you’ll send it to me, I’ll back it up and post a link. donshor@gmail.com

      An affordable housing requirement is a project killer for most projects. Parking in-lieu fees, tree removal mitigation, Cal Green plus 15%, LEED and other extractions are project killers as well.

      Very succinct and bears repeating.

        1. Ron

          Well, it is an interesting article, but doesn’t seem to address Affordable housing requirements in the cities examined (which does not include Davis) or the other fees that Michael referred to.

          The article includes the following quotes:

          “Moreover, without standardized systems to estimate development fees, builders must rely on informal relationships with planners and building officials to obtain accurate estimates—a system that is neither reliable nor fair . . ”

          “Moreover, the broad authority afforded to cities to levy fees results in wide variation of type and amount of fees between cities.  For example, our research found that while one city requires new development to pay a park impact fee of $350 per single family home, another city requires a park impact fee of $55,000 per single family home.”

           

           

           

        2. Ron

          And again, examining costs (without examining revenues) only provides “half” of the story, when attempting to determine what developers can “afford”.

          Revenues (e.g., rent) are established by the market, and are not necessarily directly related to costs. That’s why owners of older units can charge market rates, even though their costs were much less.

          If costs exceed expected revenues, then we wouldn’t be seeing all of these development proposals.

        3. Mark West

          “If costs exceed expected revenues, then we wouldn’t be seeing all of these development proposals.”

          Exactly…a fact that you denied in your 10:25am post above.

          Remember, we recently removed the 35% affordable demand from the list of exactions, helping to make the recent proposals more financially feasible.

        4. David Greenwald

          It’s more complicated than simply being able to “afford” something.  Remember in the case of a Nishi-type affordable project, there is no additional “cost” to additional affordable housing.

          Complicating that is that they have to show investors a sufficient return on investment to get them to fund the project.

          Instead, the you are dealing with a subsidy from market rate to affordable users.  I estimated that subsidy difference between 35 and 15 percent to be $2.8 million – ongoing.

          That has to come from somewhere.  And it is an added ongoing cost.

        5. Ron

          Mark:  I did not “deny” this in my 10:25 a.m. comment, above.  That comment noted that the recession impacted proposals throughout the region, state, and country.  In other words, the recession impacted the “demand” (revenue) side of the equation. Interestingly enough, folks didn’t complain about a lack of housing when almost none was being proposed or built. Many buildings remained empty, during that period.

          David: What is a typical “sufficient return on an investment” to obtain funding? (Assuming that a proposal is not self-funded, in which case this doesn’t apply.)

        6. Ron

          The campaign for what?  You already acknowledged (in your 12:30 p.m. comment) that there was no cost/subsidy for Affordable housing at Nishi. (As Rik initially pointed out.)

          In any case, can you show exactly how you calculated whatever this refers to?

        7. David Greenwald

          The campaign for Nishi, this spring.

          Of course there is a subsidy.  The market rate units charge about $300 to $400 per month more than the affordable ones.  I calculated how much it would cost to increase the number from 15 to 35 percent of the units.  That came to $2.8 million.

        8. Ron

          Well, here’s what Rik noted (from above):

          1) The Nishi project affordability is a scam. Because of the project structure and the doubling-up of all the “affordable” bedrooms, the “affordable” bedrooms actually will produce MORE revenue per bedroom than the market-rate units. No subsidy required (you could even call it a “reverse subsidy”).

          On a related note, have any of the rental prices actually been set, or are they just estimates provided by the developer (during a campaign to gain approval)?

        9. Ron

          I have no idea what you’re trying to say (e.g., in regard to what Rik pointed out).

          However, they might have determined that not everyone wants to live in a double-occupied room – which isn’t actually subsidized anyway.

        10. Ken A

          It is scary that someone actually believes Rik that developers actually make MORE money when they are forced to rent at a discount…

          When Ron writes “folks didn’t complain about a lack of housing when almost none was being proposed or built. ” I was wondering if he can tell us the “period” when “folks didn’t complain about a lack of housing” in Davis (I have personally heard multiple people complaining about the lack of housing choices and high rents in Davis every year since 1980) and I’m also interested to hear from Ron where the “many” buildings that “remained empty, during that period” are located (other than the city owned building at the end of Drew I can’t think of a single (completed with a CofO) multi-unit residential building that has been “empty” in the city Davis ever…

        11. Ron

          Ken:  Are you disputing this (from Rik)?

          1) The Nishi project affordability is a scam. Because of the project structure and the doubling-up of all the “affordable” bedrooms, the “affordable” bedrooms actually will produce MORE revenue per bedroom than the market-rate units. No subsidy required (you could even call it a “reverse subsidy”).

          If you’re disputing this, please explain.

          Regarding empty/foreclosed (and significantly discounted) dwellings, they were all across the region (and beyond).  I’m sure that you’ll recall that it was truly a “housing crisis” of epic proportions (but having an opposite meaning today – just a few short years later, to some). I was mostly referring to single-family dwellings, but I believe the vacancy rate for apartments – even in Davis – was also higher during that period.

          It is true that Davis, due to its comparatively stronger planning efforts, suffered less than just about every other city in the region.

        12. Ken A

          Anyone that believes Rik must also believe that the HBS educated guys running Tandem and all the other landlords in town are idiots since they are not begging the government to require them to rent at below market so they make MORE money.

          If Ron can’t post the address of even one of the “many” apartment that he claims sat empty in Davis and the “all across” the region I’ll be waiting for him to say he made a mistake and that even in the worst part of Elk grove in 2012 apartment vacancy was just up a little (and there were no completed apartments sitting vacant anywhere in the region)…

        13. Ron

          Ken:  You’re misstating what I said, above. Again, I was mostly referring to empty/foreclosed single-family dwellings.

          In any case, this took me all of about 1 minute to find:

          “The national apartment vacancy rate rose to 8% in the last three months of 2009, according to Reis Inc., a commercial real estate information provider. That is the highest level Reis has ever reported.”

          https://money.cnn.com/2010/01/07/real_estate/rental_vacancies_soaring/index.htm

          Don can probably provide the chart which shows the vacancy rate in Davis, during the housing crash. (I don’t recall the details, but I suspect that he knows them “by heart”.) I recall that the rate has fluctuated quite a bit, over the years. And, was significantly higher, during at least some points during the recession.

          More importantly, you’re completely avoiding responding to Rik’s post (that I cited above). How about addressing that, instead of the side point regarding the housing crash, during the recession?

          It seems that the entire city of Davis got “snookered”, regarding the Affordable housing claim at Nishi.  (With the Vanguard’s ongoing assistance – even today – to support that misleading claim.)

          Hey – I wonder if this is the first time that the word “snookered” has been used on here?

        14. Ron

          In regard to Ken’s challenge (regarding vacancy rates in the region, during the recession) I was kind of curious and found this (from 2016):

          The rental vacancy rate in Sacramento peaked in 2009 at 8.02%. Since then it has fallen by 4.30% to 3.72%.

          https://www.deptofnumbers.com/rent/california/sacramento/

          There are other articles on the Internet, which show that apartment construction in Sacramento has recently and drastically increased in response to the current (even lower) vacancy rate.  (Perhaps just in time for the next recession, when vacancies will spike again.  And – away we go – back to the boom and bust cycle. Last ones in before the bust “lose”, and ultimately threatens the fiscal health of the host cities, themselves.)

           

        15. Ron

          Thanks, Don.  So, it does appear that vacancy rates were higher (even in Davis), during the recession.  But, haven’t dipped below 4.2% during the last 20 years. (Wondering what happened between 2005-2006, to cause that significant drop.

          In any case, the current (very low) vacancy rate indicates opportunities for significant profits/margins, for development proposals).

          Of course, UCD has also been busy adding non-resident students, since the recession.

          1. Don Shor

            Remember that a 5% apartment vacancy rate is considered ‘healthy’ for owners and tenants.

        16. Ron

          Don:  Since that “healthy” level has not been achieved for the past 20 years (or longer), that should indicate revenue opportunities for developers that would allow them to incur costs (in Davis) that may not “pencil out”, in other communities.

          Interesting that the vacancy rate was almost the same in 1999 (and beyond), as it is today. As others have pointed out, 20 years or more is one heck-of-a-long “crisis”.

          Do you have data going back to say, 1980?

          1. Don Shor

            Ron:

            that should indicate revenue opportunities for developers that would allow them to incur costs (in Davis) that may not “pencil out”, in other communities.

            But earlier you said:

            Revenues (e.g., rent) are established by the market, and are not necessarily directly related to costs. That’s why owners of older units can charge market rates, even though their costs were much less.

            Re: “Interesting that the vacancy rate was almost the same in 1999 (and beyond), as it is today.”
            I have been pressing the need for more rental housing in Davis on the Vanguard since about 2009. It has always been a very tight market, with a serious need for more high-density housing, except for brief periods when batches of units came on line due to spurts in housing construction. In all the years I’ve lived here, we’ve only been at or above a healthy vacancy rate a couple of times. Per the data below, only twice since 1989. Two big factors: the preference of developers to build single-family residences, and, since Measure J, the absence of larger parcels of land being annexed for development.
            http://davismerchants.org/vanguard/apt%20vacancy%20rate%20as%20of%202017.png

            Note: I am not necessarily advocating for annexation of land for development; I really don’t know where or how that might happen. But it is a reality that the absence of larger developable parcels has constrained the development of both rental housing and affordable housing.

        17. Ron

          I just realized something.  I arrived in Davis (as a renter) during this “crisis” (when the rate was about the same as it is, today).  However, I had no trouble finding a place to rent in Davis at that time.  (Pretty sure that it was significantly less expensive then, though.)

          Not sure how anyone can be blaming Measure J/R, for the low vacancy rate for many years prior to its enactment. There doesn’t seem to be a delineating point in the vacancy rate, when Measure J/R was enacted.

           

          1. Don Shor

            Not sure how anyone can be blaming Measure J/R, for the low vacancy rate for many years prior to its enactment.

            There’s that reading comprehension problem again.

        18. Ron

          Regarding Don’s 5:13 comment, there is no discrepancy in my earlier comments.

          Revenues (rents) are higher in Davis, which allows developers to absorb more costs in regard to the “penciling out” of new proposals (compared to other communities, where revenues/rents are lower).

          A focus solely on costs only provides “half” of the story/calculation. (Which happens to be the only half that development interests want to discuss.)

        19. Ron

          Don:  “Two big factors: the preference of developers to build single-family residences, and, since Measure J, the absence of larger parcels of land being annexed for development.”

          Don (quoting me):  Not sure how anyone can be blaming Measure J/R, for the low vacancy rate for many years prior to its enactment.”

          Don’s response:  “There’s that reading comprehension problem again.”

          Your response makes no sense.  And more importantly, has no place on this blog, especially from someone who is also the moderator.  How does one “report” the moderator’s comment? Or, does he simply get to say whatever he wants, while chastising and/or deleting similar comments from others? Is that one of the “perks” of the job?

          Perhaps you can start taking some personal responsibility for the tone on this blog.

          1. Don Shor

            I suggest you look up the word “since”.

            Perhaps you can start taking some personal responsibility for the tone on this blog.

            I suggest you read more carefully before you reply.

        20. Ron

          To further clarify the reason that Don’s 9:28 p.m. comment makes no sense, his prior sentence was as follows:

          Don:  “Per the data below, only twice since 1989.”

          I don’t recall the year that Measure J/R was enacted, but I believe it was around the year 2000.  The chart shows low vacancy rates for the entire period listed (back to 1989).

          I recall that others on this blog have previously stated that the vacancy rate was low as far back as 1980.

        21. Ron

          Don:  I suggest you look up the word “since”.

          Me (in reference to an insult Don made at 9:28 p.m.): “Perhaps you can start taking some personal responsibility for the tone on this blog.”

          Don:  “I suggest you read more carefully before you reply.”

          Don:  Your use of the word “since” makes no sense, when discussing a chart that dates back to 1989 (and shows no difference, when Measure J/R was enacted). 

          If anything, the chart shows that Measure J/R made no difference in the vacancy rate before, during, or after it was enacted.  So, why did you even bring it up? And, why insult me when I pointed this out?

          Again, I can do without the insults, especially from a moderator. Seriously, I’d suggest a little more humility and self-reflection.

           

          1. Don Shor

            “Two big factors:”

            [Note: this does not state or imply that these are the only factors in the low vacancy rate]

            the preference of developers to build single-family residences, and, since Measure J,

            [Note: the word ‘since’ tells us that the factor I am about to describe is dependent on Measure J having passed. It does not mean that the passage of Measure J was a factor beforehand; that would make no sense. It does not mean that the passage of Measure J is the only factor going forward. It does not mean that Measure J is the only factor in the low vacancy rate.]

            “the absence of larger parcels of land being annexed for development.”

            I can do without the insults, especially from a moderator. Seriously, I’d suggest a little more humility and self-reflection.

            I could do without the nonsense you spewed yesterday when you repeatedly accused me of not having answered your question when my answer was right in front of you and you read it but then kept accusing me of not having answered your question to the point that I literally had to point it out to you word for word.
            I could really do without that kind of stuff from you. You’ll get my humility when you friggin’ earn it.

        22. Ron

          I’m tempted to repeat what you said to me (“stuff it”), regarding earning your “friggin humility”, to quote you again.

          You are correct that I initially missed your acknowledgement that you support the Affordable housing waiver (which means that no Affordable housing would be built for mixed-use developments).  I apologized for missing that during that conversation, but it seems that this remains an unexplained “sore point” for you.  Would it help if I apologized again for overlooking that?

  5. Rik Keller

    David: you calculated the “subsidy”mistakenly based on wrong assumptions of rental prices, and either being totally ignorant of the doubling-up affordable units or choosing to ignore it for propaganda purposes. It’s old information and it is false. Here’s a brief rundown of the real numbers that you continue to ignore:

    Compared to average 2017 Davis rental rates for unit leases, 2/3 of the ‘affordable’ units (for the designated very low-income (VLI) students) would be renting at per-unit rates far in excess of existing Davis unit rental rates: $2,688 for a 2-bedroom unit (compared to $1,660) and $4,032 for a 3-bedroom units (compared to $2,270).

     

    Even when compared on a per-bed basis, 2/3 of the ‘affordable’ units (for the VLI students) will be renting at projected rates ($672) comparable to the existing citywide leased unit averages converted to a per bed rate for a 3-bedroom unit ($709/bed) and more than in a 4-bedroom unit ($595/bed) [note: the existing units also have far below 2 persons/bedroom);

     

    To add insult to injury, these rates for the designated VLI double-occupancy bedrooms ($672 x 2 = $1,344) are even more than the projected single-occupancy room lease rates for the project for the “market rate” units” ($1,000). In a very real way and in an ironic twist, the majority of low-income students will thus be subsidizing the ‘market rate’ students;

     

    The remaining 1/3 of the ‘affordable’ bed (for the Extremely Low-Income (ELI)) students will be paying per-room lease rates of $808 rent ($404 x 2)–all while crammed in at two students per bedroom–compared to Davis existing average rents when converted to per-bedroom rates of $830 (2-bedroom), $757 (3-bedroom), and $715 (4-bedroom). So, only the tiny number of ELI beds have projected rents around current Davis market rate rentals (and are at the high end of the averages)

  6. Rik Keller

    All this talk of bedroom and beds confuses Ken A. So technical! In other news he thinks that is is a very “affordable” deal to get 50% ownership of a car while paying only 75% of the total price!

    1. Ken A

      This may come as a surprise to Rik but some people think that half off a new (aka “affordable”)  Toyota is a good deal even if it is more expensive than a 10 year old Toyota (a new Toyota is not the same as a 10 year old Toyota just like renting an entire 10 year old apartment is not the same as renting a room in a new apartment)…

      I drive an old beat up car and live in an old beat up house but lots of people want to drive newer cars and live in newer homes…

  7. Ken A

    Expedia says it costs $132/night to rent a room at the Hyatt Place UC Davis.  Based on the last housing survey the average cost per night to rent a room in the average 3br apartment is ~$25/night.

    I’m wondering if Rik knows that comparing the monthly rent per room in fully furnished apartment with up to $300/month in owner paid utilities (that often includes water, trash, gas, electric, internet and cable TV) to a “regular” apartment is “almost” as silly as comparing the rent per night for a regular apartment with the per night rent at a hotel.

    P.S. Anyone that is having a a problem with the concept may want to click the link below:

    https://en.wikipedia.org/wiki/Apples_and_oranges

    1. Alan Miller

      comparing the monthly rent per room in fully furnished apartment with up to $300/month in owner paid utilities (that often includes water, trash, gas, electric, internet and cable TV) to a “regular” apartment is “almost” as silly as comparing the rent per night for a regular apartment with the per night rent at a hotel.

      THANK YOU for saying that.  Was thinking the same, but your example makes the point.  This is a huge problem when parties are advertising or seeking rentals in Davis.  People usually don’t distinguish between utilities included and not included, or if just electric/gas or not.  This makes a huge difference, in my abode over $120/person and climbing, for example.  Would be great if there were clear terms everyone used to state one or the other, but people call the low rents first and often utils aren’t included.

  8. Ron

    This article is about Affordable housing and David’s reasoning for supporting the Affordable housing waiver for vertical-mixed use development proposals.  A large part of David’s reasoning is based upon his “$2.8 million dollar” subsidy calculation (as described in his article), for Affordable housing at Nishi.

    However, as Rik pointed out, this subsidy does not actually exist:

    1) The Nishi project affordability is a scam. Because of the project structure and the doubling-up of all the “affordable” bedrooms, the “affordable” bedrooms actually will produce MORE revenue per bedroom than the market-rate units. No subsidy required (you could even call it a “reverse subsidy”).

    1. David Greenwald

      There are a lot of problems with this comment. First, my comment about the $2.8 million has little to do with vertical-mixed use and is focused on the 35% requirement.

      Rik has presented his theory before, I don’t believe he has every walked through his numbers with either the city or the developer. It’s a nice spreadsheet exercise, but it’s basically akin to Google knowledge.

      The big problem with it is as Ken points out, it defies logic. If you can make more money through the so-called subsidized housing, then you would have done more of it. Obviously that cannot be true, but instead of checking out his counter-intuitive finding, Rik runs with it and uses it as a political point. You’re making the same error – it’s convenient to your argument, so with no checking whatsoever you’ve also run with it.

      I had other things going on yesterday and didn’t have time to verify (I had discussed this when it came up during the campaign), but I believe there are a few erroneous assumptions, the biggest being that the only doubled up rooms are “Affordable” and that doubled up rooms and non-doubled up rooms are the same size. Once that is taken into account, you realize that doubled up rooms are larger. There are both market rate and affordable doubled up rooms. The affordable doubled up rooms generate less revenue than non-affordable doubled up rooms. And that cost is subsidized from the market rate rooms.

  9. Howard P

    Ron… your 5:14 post… when we came back to Davis, to sink roots (1979), and not just go to school, vacancy rate for apts as 0.25% (0.0025).  ~ 1% of MF units need to be refurbished each year, so they are effectively “off-market”, or deteriorate further…

    During recessions, many MF owners took more of their units “off-line” (increasing the vacancy rates) to take advantage of the ‘recessed’ costs of re-hab.

    4-5% vacancy at beginning of academic year, is considered ‘healthy’ for affordability for both owners and tenants (a “sweet point”)… yet people are not necessarily on the ‘academic cycle’… for jobs, other reasons, they are looking in the late Oct to early May period… great majority of leases in Davis are Sept 1-Aug 31 cycles.  Vacancy stats are generally gathered as of ~ Oct 1.

    In the past (40 years ago) many MF leases were for 9 months, so the owners had 3 months to have unoccupied units refurbished… now, almost all are 1 year leases…

    1. Ron

      I recall you mentioning this, in the past.  (0.25% vacancy rate, or .0025 – back in 1979.)  But, there was no Vanguard at that time, to let you know that you were experiencing a “crisis”.

      The same conditions existed (low vacancy rate, but no Vanguard) when I arrived as a renter, years later.

      Glad that we both survived.

      1. David Greenwald

        Ron – jumping in here late as I was occupied with other things yesterday – the same rental vacancy applied, but what’s changed is more students are jamming into basically the same housing supply as existed 15-20 years ago. So the data presented by the students two weeks ago showed, the density increasing by almost a full student per unit.

        1. Ken A

          The 1978 inflation rate was 7.59%. The inflation rate in 1979 was 11.35% and it hit 13.5% in 1980.  Despite this massive double digit inflation the ~13K undergrads at UC Davis almost all still has their own room since tuition was under $100/month and you could rent most rooms for ~$150/month.

          With a $2.90 minimum wage back then a little over two weeks of work would pay tuition and rent.  Today with ~30K undergrads at UC Davis more are “doubling up” since at $1,162/month for tuition ~$800/month for your own room it will take MORE than working full time (four 40 hour weeks) at the current $11/hour minimum wage to pay rent and tuition…

        2. Ron

          David:  “So the data presented by the students two weeks ago showed, the density increasing by almost a full student per unit.”

          As Rik pointed out, you’ve incorrectly labeled this as a developer “subsidy”, at Nishi. And then referred to that as a reason to not require actual Affordable housing, for mixed-use development proposals.

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