The 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.”
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