Commentary: Council Wants to Remove the Vertical Mixed-Use Exemption, but Should They?

Affordable Apartments, Davis CA Davis VanguardThe council got their crack at the affordable housing ordinance and, for the most part, did what was expected – they continued the ordinance until June.  They left the 15 percent the same.  However, they also started tackling the vertical mixed-use exemption.

I get the sentiment of both the council and the Social Services Commission here – we want to provide housing for low income people to live in all new projects.  The problem that they face is that high land and construction costs are making it prohibitive to develop any housing in mixed-use type developments.

The council appears to understand this and is attempting a balancing act in order to provide some affordable housing, while at the same time recognizing that even going to 15 percent is infeasible.

So they are looking at a 5 percent requirement for affordability and at the lowest level – low income (as opposed to very low or extremely low).  They also separated the downtown core – understanding that costs there make this even more problematic.

As Will Arnold put it, it’s a “balancing act.”

“Fifteen percent is not feasible,” he said.  But then again, “zero percent is unacceptable.”  He said, “I would be hard pressed to approve either of (the current proposed mixed use projects) if the affordable number were zero.”

The other key comment here was the acknowledgement that making it onerous and thus infeasible means that we could effectively get nothing.  Councilmember Arnold stated that  “35 percent of nothing, is nothing.  So if the thing doesn’t get built because we’ve put an onerous requirement on there, then no one gets to live there…  So that’s the balancing act that we have in front of us.”

Mayor Brett Lee added, “The idea here is that it’s not zero.”

The problem is that I don’t even think this is feasible.  The city commission reports in both 2015 and 2017 are essentially telling them the same thing.

In 2015, Plescia & Co. found that such housing was “unlikely” based on the estimated return-on-investment.

In 2017-18 Gruen, Gruen & Associates along with Plescia found basically the same thing – except worse.

They write: “The two vertical mixed-use prototypes that include combinations of residential and commercial space with covered podium parking have total development costs of approximately $410,000 to $444,000 per unit.”

Worse yet, they warn that the research was conducted in late 2017, and since then “construction costs have increased.”  They note that “growth in rents have not kept pace with the rise in construction costs,” therefore, “the returns from development of the prototypes would be likely be lower than those presented in this report.”

Even in a 100 percent market rate scenario – thus no affordable housing at all – they found that the two vertical mixed-use prototypes “are not estimated to support positive land values. In other words, a feasibility gap likely exists for these two 100 percent market rate alternatives.”

I know that the council wants to find a way to make this work – especially since a good portion of the next wave of growth is likely to be in vertical mixed-use, whether at the University Mall, the University Research Park, or Downtown.

But I think if they do want to do that, there has to be more work done to make it feasible.  In fact, whether it’s affordable housing or high density redevelopment in the downtown, we may need to reassess how we do development, period.

The study done by BAE Urban Economics found that “development feasibility in Downtown Davis is challenging under current conditions.”

The takeaway is that “developers undertaking speculative real estate development projects in Downtown Davis face unique challenges, including scarcity of sites, high site acquisition costs, and limited profitability.”

They then focused on ways to reduce costs – these included reduction of project risk, streamlining planning guidelines, increased densities, limit requirements that would increase costs but not bring corresponding revenue increases, and considering public-private partnership.

With respect to affordable housing, while the Social Services Commission pushed for the end to the vertical mixed-use exemption, they also recognized the need for the costs to be borne by the entire community, not simply the developer.

While they did not specify how that is to occur, the council on Tuesday mentioned a number of funding mechanisms that might become available.  These include the possibility that Governor-elect Newsom would created RDA v2.0.  Councilmember Lucas Frerichs suggested that the city, in fact, lobby for such legislation.

There is also money that will become available from SB 1 and SB 2.

We should also once again look to local sources, with once again looking toward in lieu fees, the sliding scale proposed by the Chiles Road developers, also taking another look at a parcel tax.

The council is going to come back for a few bites at the apple on affordable housing, but it seems like they need to think much more deeply about the practicality of their modest proposal here for vertical mixed-use.

Right now what they put forward, however modest, is essentially window dressing.  To make it realistic, they have to look at ways to either reduce costs for the developers of vertical mixed-use or look at ways to subsidize the creation of the affordable units.

While this was clearly a preliminary discussion, a recognition from the council of the cost realities was sorely lacking.

It is one thing for the community members to push for ending the exemption, but it is not like this is theoretical.  We have had two separate consultant reports in the last five years saying the same thing – and the situation is getting worse.

There is a suggestion that the Finance and Budget Commission look at this further – but, really, what are they going to find that Plescia, Gruen, and BAE did not?

It is not that the situation is hopeless.  These are current conditions.  Costs of construction can decrease.  We can look at ways to reduce costs.  RDA may return or we may get other monies from the state.

But while I support the concept of integrated affordable housing, our best move might be to use existing city land, and find other land can be set aside for affordable developers to develop and create units rather than trying to squeeze blood out of a turnip.

I was disappointed in the discussion on Tuesday, because the council really needed to figure out ways to make affordable housing possible, not try to push forward numbers that appear likely to be empty.  Good intentions by the council, to be sure – but not realistic.

—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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37 thoughts on “Commentary: Council Wants to Remove the Vertical Mixed-Use Exemption, but Should They?”

  1. Todd Edelman

    Parking is nice. Housing is nicer?

    The first project I got involved in – primarily in this forum, but also in Council and then later the Bicycling, Transportation and Street Safety Commission before I was on it – was the Sterling 5th apartments. Perhaps one of my better ideas – others include covering I-80 to generate electricity with solar, reduce pollution and noise, tunnelizing the below-grade section of CA-113 to do the same latter two plus create a new huge area for mixed development with carfree access to UC Davis campus and bikefree access to 113, or analyses e.g. that our bike share system is inequitable – in response to that is that it should not be permitted to build parking in the same footprint where there could instead be housing.
    Every parking space in the podium parking in the U-Mall re-development concept would cost around $20,000, at least, around 5% of the cost of each residential unit (to make things simple I am leaving aside rental income from both). That’s significant – perhaps even similar to the low-end of a developer’s margin? – but increasing residential density by using this space for housing is much more advantageous. Granted, not every parking space can a bedroom or kitchen due to e.g. lack of windows, but it can at least eventually be something else. (And yes, it’s hidden from the front, but not from the back, in view of housing to the north.)

    More people with no increase in height? Less traffic with a decrease in housing scarcity? More cycling with a decrease in waistlines? More time with family and less time in traffic?

    Parking is nice, but housing is nicer.

    For General Plan, or sooner:
    * No parking in the same footprint which could instead be utilized for housing.
    * Any new parking structure has to accommodate adaptive re-use.
    * No parking minimums.
    * Parking rental fees de-coupled from housing rental.
    * No new or improved surface level off-street parking in Downtown or commercial/mixed-use developments and re-developments: Not at U-Mall, proposed MRIC, University Park, New Paradise Housing (re-developed PG&E site, available as result of landmark case against the utility, as part of settlement related to hundreds of convictions for manslaughter in the Camp Fire.).

  2. Ron

    If the council doesn’t eliminate the exemption for vertical mixed-use, developers will continue to propose vertical mixed-use in areas where it isn’t necessarily feasible (but allows developers to bypass the requirement).

    As an example, the council might want to examine how mixed-use is working at Del Rio (at 5th and Pena, which was formerly a commercial site).

    Downtown itself will became a wealthy enclave, if Affordable housing is not required there. And, it will no longer serve existing residents.

    One might wonder what the goal is, exactly. Development for the sake of development?

    1. David Greenwald Post author

      We’ve had four consultant reports that suggest that it is not feasible to do vertical mixed use – let alone with affordable housing. How do you propose to deal with this problem?

        1. David Greenwald Post author

          Don is a volunteer moderator. He has a business and work. He takes care of these posts as soon as he can. I think the best way for *YOU* to deal with them, is flag them and then ignore them and allow Don to them when he can.

          On the second point, I’m not sure you mean by “inventing” problems. If you want affordable housing – then you need to have development of market rate housing to do that. If we are going to have market rate housing, then we need to find a way to make some of the units more affordable. That’s the problem I seek to solve in this column and I don’t think the policy that the council outlined on Tuesday accounts for some of those problems. How is that an invented problem?

        2. Ron

          edited
          Your article is essentially an advocacy to continue the Affordable housing exemption, for vertical mixed-use.

          Regarding more housing (downtown, or in general), we apparently don’t agree on what the goal is.

           

          1. David Greenwald Post author

            I disagree, my article is an advocacy for finding another way in which to figure out how to do affordable housing for verticle mixed use.

    2. David Greenwald Post author

      You raised the point about Del Rio. Well Del Rio, was exempt from affordable housing requirements as a Vertical Mixed Use Building. It’s also not in the downtown core which lowers the costs. Not sure of your point.

      1. Ron

        The point being that Davis will continue to see vertical mixed-used proposals in locations that might not be suited for it, if the Affordable housing exemption is not modified or eliminated.

        If nothing changes, developers may propose vertical mixed-use developments for the sole purpose of avoiding Affordable housing requirements.

        1. David Greenwald Post author

          I disagree on your first point. You’re opposed to vertical mixed use at Del Rio? At University Mall? At URP? At the Downtown? Those all seem like really good locations for vertical mixed use.

          “If nothing changes, developers may continue to propose vertical mixed-use developments for the sole purpose of avoiding Affordable housing requirements.”

          From all the analysis I have seen, the cost of vertical mixed use exceeds the benefit of not having affordable housing.

        2. Ron

          I brought up Del Rio as an example.  I don’t know exactly how that’s working out, in terms of commercial activity.

          But, one might want to compare the current level of commercial activity with what might have been expected had the site not been converted from commercial usage, to accommodate residences. 

          Note that the site is in a commercial zone, and should have benefited from “synergy”. (Some sarcasm intended, in reference to comments in another article.)

          Are you opposed to re-establishing Affordable housing requirements for all vertical mixed-use?

          Again, I’d suggest providing a link to the report you’re referring to, so that everyone can easily verify the entirety of the report.

          1. David Greenwald Post author

            As I explained in the column, unless we figure out funding, putting Affordable housing requirements – especially on the core area projects – seems self-defeating.

  3. Ron

    By the way, I’d suggest providing a link to reports that are referred to in articles.  That way, readers can verify for themselves the entirety of what is stated, without having to search on their own.

    1. Rik Keller

      Mark West: the Plescia report did not even analyze the effects of density bonuses as financial incentives for the production of affordable housing, so it doesn’t provide an adequate basis for considering the effects of different levels of affordability requirements.

  4. Mark West

    The analysis shows that it is already too costly to build mixed-use developments in town, especially downtown. Adding an affordable housing requirement will only suffice to make it even more expensive to do so. We should be looking for ways to encourage redevelopment, not discourage it as this move would do.

    If the CC believes that an affordable housing requirement is a high-priority, then it will need to identify lower priority requirements that can be reduced or removed to make the proposed projects feasible. Without some sort of adjustment in the required exactions on developers, all that will be accomplished is to guarantee that redevelopment never happens. I have no doubt that for some, ‘no development’ is the desired outcome, but it is not desirable from the perspective of having a fiscally sustainable City.

    1. David Greenwald Post author

      It’s not downtown. They don’t have affordable. And it’s probably why they went with six stories (originally) and “luxury” apartments.

    2. Mark West

      “If vertical mixed-use is infeasible downtown, how do you explain Trackside?”

      First, we will know that Trackside is feasible when it has been built. Approval is only the first step. This is also true when considering our efforts to address the housing shortage…we haven’t actually ‘done’ anything to address the shortage until the new projects have been built and are ready to be occupied.

      Second, the economic situation has continued to evolve since the Trackside project was first proposed. It is not unreasonable to assume that changes in the past few years have impacted the feasibility of similar projects.

  5. Jim Frame

    The idea that Trackside isn’t downtown is based on an arbitrary definition of downtown.  The site is already commercial and it’s on a major downtown street.

    I didn’t address affordable, I was responding to statements that mixed-use isn’t viable downtown.

    1. Mark West

      JF: “The idea that Trackside isn’t downtown is based on an arbitrary definition of downtown”

      Actually, the site is defined as part of the downtown core by all of the City’s planning documents since the early 1960s. The downtown core ends at the alleyway on the east side of the site. Those who claimed otherwise were either uninformed or intentionally ignorant.

      AM: “They went with six stories to get four.  Period.”

      This claim is not consistent with the discussions that I had with members of the development group at the time of the proposal. I don’t claim to know all of their thinking on the project, but I do contest this particular claim.

      1. David Greenwald

        On six versus four, what I was told at the time – and shown some rough numbers – six was proposed because that’s what penciled out.  When they went lower, they had to do a number of things to make that work.  I don’t think it was their plan all along.

        1. Mark West

          “I don’t think it was their plan all along.”

          I agree with this assessment. The discussion I heard at the time can be paraphrased as…do we ask for the six we want, or should we ask for eight in order to drop back to six…

          There was a distinct change in the apparent ‘fit and finish’ of the design when the project was reduced to four which at the time I saw as an attempt to reduce costs to make the project more feasible.

      2. Alan Miller

        but I do contest this particular claim.

        Digging into that site with buried unknown toxic properties would have have been insane, and insanely expensive, and caused unknown delays.   As well, some investors said they were told four stories and were surprised by the initial public release in the Enterprise.

        Actually, the site is defined as part of the downtown core by all of the City’s planning documents since the early 1960s. The downtown core ends at the alleyway on the east side of the site.

        Not true.  The strip from 3rd to 5th between the railroad tracks and ally was brought into the core planning area in the early 2000’s as part of a proposal from the owners of ACE, with the OK of OEDNA.  This didn’t remove the parcels from being also in OED.  One city doc has a vague description saying the alley is a border between the two.  All other docs show OED as being bordered to the E and S by the railroad tracks.  If the site was in 1960’s planning documents as being in the core, it wasn’t carried through all of the decades in between.

  6. Alan Miller

    The idea that Trackside isn’t downtown is based on an arbitrary definition of downtown.

    The location of San Ysidro vs. Tijuana is based on an arbitrary international border.  What’s your point?

  7. Matt Williams

    I’m coming late to this discussion, and will try not to cover anything that has already been covered and debated.

    With that said, as an individual and as a member of the Finance and Budget Commission (FBC),  I do have a concern about the Plescia Report (see pages 18-46 of LINK) that I believe it is important to resolve.  Specifically, the Downtown Planning Advisory Committee (DPAC) has received very similar fiscal feasibility information from Matt Kowta of Bay Area Economics (BAE) (see LINK).

    DPAC and the Planning Commission with the blessing of City Council have asked the Finance and Budget Commission to drill down into the BAE fiscal feasibility information.  Given the convergence, overlap, and supplementary nature of the Plescia and BAE analyses, I believe it is important for FBC to include both the BAE and Plescia reports in the requested drill down analysis.

     

    1. David Greenwald Post author

      Matt: I’m trying to understand what your concern about the Plescia Report is. It appears that the findings by BAE and Plescia and others are very similar.

      1. Matt Williams

        David, my concern is process.  The DPAC process has explicitly stated numerous times that both Affordability and affordability are key components of the DPAC considerations and deliberations, but to-date the Plescia Report has not been presented to DPAC … or more importantly, integrated into the DPAC consideration of the BAE fiscal feasibility materials/study/report.

        That is all the more strange since the City has had the Plescia Report in its possession since early in 2018, very early.  Is there a process reason that explains why it is being withheld from DPAC?

        1. David Greenwald Post author

          You would have to ask someone that question – but it looks like the BAE report was presented in June to the DPAC, the findings are similar. The Plescia report was really just released in early November, so perhaps the answer is that there simply wasn’t time or perhaps they believe that it is overlapping with the BAE report – worth noting that BAE was well aware of the finding by Plescia since they peer reviewed the report in early 2018. All of that is speculation.

    2. Rik Keller

      Matt: I glanced at the Plescia report for the first time just now. On page 5, it states “…consideration of density bonus was not a part of the scope of this assignment…”

      Ya gotta be kidding me! Might as well throw this report in the garbage bin for all it will tell us. Density bonuses are one of the only incentives left for producing affordable housing. Not thoroughly considering their effect on project financial feasibility is extremely negligent.

      The report also did not discuss any of the recent amendments to State density bonus law that make it easier to access them.

      Additionally, the report completely misstates the affordability percentage thresholds regarding when density bonuses are to be granted under State law.

      Beyond this, at a first reading, the report takes a completely simplistic and reductive view towards affordability analysis. Just to take one example, residual land values respond to regulatory regimes. So reducing affordability requirements can result in higher land costs for developers and wipe out much of any expected cost savings.

      Current state-of-the-art affordability analyses in other jurisdictions are more sophisticated than this report and take a broader view, including analysis market demand characteristics at different price tiers. Is this really the report we’ve been waiting most of the year for?

      1. Ron

        Rik:  “So reducing affordability requirements can result in higher land costs for developers and wipe out much of any expected cost savings.”

        Wow – I hadn’t even thought about that.  The irony of reducing Affordable housing requirements resulting in higher land (and housing) costs.

        Makes sense, though. Without such requirements, there’s more profit to be had – making the land itself more valuable/costly.

        1. Rik Keller

          Ron: It wouldn’t necessarily make housing cost more over all, but could make the land component cost more. The same dynamic works in inverse: increasing affordability requirements can decrease residual land values, thus ameliorating part of increased required subsidies for the affordable units.

          Another thing the Plescia Report doesn’t do (at least in my first pass reading): make any kind of assumptions for rent/value increases. These would certainly affect projected returns.

          Another thing I didn’t mention above is that some of the comprehensive affordable housing analyses that I have reviewed examine the demand for affordable housing that the construction of market rate and luxury housing induces. That is an important component to be considered.

          And of course, a thorough analysis would consider the housing needs of various breakdowns of Davis (current population and employees as well as demographic projections). We don’t have that data here either.

          There are some interesting interactive affordable housing models being produced that allow anybody to tweak different variables/assumptions and see how they affect housing production outcomes.

          Here’s an example: http://ternercenter2.berkeley.edu/proforma/

          Interestingly, if you load the page and load the default assumptions (geared to North Oakland I believe), just changing the assumed annual financial return of the model project from 11% to 10% to 9% changes the project likelihood of being built in the next year from 27% to 51% to 74%, respectively.

          This uses that model and applies it to a map-based tool for four jurisdictions: SF, Oakland, Menlo Park, and Pleasanton: http://ternercenter2.berkeley.edu/examplecities/index.html?city=Pleasanton

          Interestingly again, changing the base assumption in Pleasanton from 15% to 25%  required affordable units increases total housing production in the city (all income levels) and results in increased affordable housing production. It also increases tax revenue.

        2. Rik Keller

          Ron,

          one question for you: Why do you think the Davis Vanguard has published several articles discussing the findings of the Plescia report and has simply accepted them at face value without even the slightest attempt at a critical analysis of the contents or scope of it?

        3. Ron

          Why?  Because the Vanguard wants to discourage Affordable housing for infill proposals, so that the only “alternative” is another sprawling peripheral development on prime farmland (which appears to be the Vanguard’s actual goal).

          At this point, the Vanguard is pretty much aligned with Chamber of Commerce-type goals. Once you understand that, it’s easier to dismiss it.

        4. Rik Keller

          Ron: that is my understanding as well. I thought that perhaps without a current ballot measure to carry water for, Greenwald might remember  what a community watchdog organization should be doing: questioning official reports with a skeptical eye rather than lapping them up.

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