Several of the commissioners and public commenters lamented the fact that the projected revenue stream from the 3820 Chiles Road apartment project at only $125,000 or so to start was insufficient.
Claire Goldstene, who chaired the meeting, noted that it could take about 20 years at that rate to equal a standard in lieu payment.
There were concerns registered that this was simply not enough money to actually build housing.
Claire Goldstene put it that “we have really prioritized the building of units and the need for housing.” She said, “I do share the concern that if this is approved, this serves as an attractive example of other developments coming forward.”
Don Kalman was blunt: “My message: I want affordable units built in this town. There’s a crisis.”
The thing is: I agree that there is a crisis. Where I differ with the concerns of the commission is that I think this is the solution to that crisis.
That crisis in my view is created by three separate problems. The first problem is that when the state canceled RDA (Redevelopment Agency funding), it cut off an annual stream of about $2 million going to the city. The second problem is that the city now has to rely on market rate development in order to build affordable housing – and peripheral subdivisions with land dedication sites, the likes of which we saw at WDAAC (West Davis Active Adult Community), are going to be few and far between.
Finally, there is the financing issue. This is the hard thing for people to accept but the margins for these projects, given costs of land, construction, and other requirements, is thin and that makes it difficult to add a lot of affordable housing without doing things like renting by the bed and providing affordable beds instead of units.
So why is this a good deal for Davis?
Matt Williams did a good job of laying out the math here in a public comment and a comment on the Vanguard. Looking at the annual 5.26 percent rental increase, he was able to project the revenue stream based on gross rent (which by itself has some clear advantages) to go from around $131,000 in year one to nearly $270,000 by year 15.
As he points out – that not only is a good deal faster than inflation, it is also higher than the city’s ability to take an in lieu payment and invest it.
While Ms. Goldstene was concerned that we would not see the revenue equivalent of the in lieu fee until year 20 (it’s probably closer to year 15, looking at Matt Williams’ projections), Greg Rowe pointed out that the city with a steady revenue stream could actually get that money up front through bonding, and use the stream as their means to pay it back.
But there is another possibility here and it is one that gets me excited. While some worried that this could become the norm and they worry that that means housing does not get built – I think becoming the norm will be a good thing, not a bad thing.
Let me throw out one scenario. We have Chiles Road apartments, but we also have proposed projects so far at 2555 Research Park, the URP (University Research Park) mixed-use project, and the University Mall redevelopment. Let’s take those four projects and add two more that could come along in the next few years, and by five years from now, if all of those generate a revenue stream, we could be looking at around $1 million per year annually – maybe going up to $1.5 million by year 15.
That’s becoming a big deal. That is like half to three quarters of the replacement for RDA right there. Add in perhaps a few hundred thousand we could get for affordable housing from the state, maybe a $50 parcel tax, and we could be looking at within five to 15 years having a revenue stream that completely replaces RDA – without even considering the possibility of a new tax increment.
Is that a big deal? Yes it is.
This is actually a lot better than simply a replacement for RDA, because the city has a lot greater possibility of using the money more broadly. Here are just two possibilities. One is that Pacifico, for example, has two buildings that need renovation – using that revenue stream, we could have the money to do that. That might open up 100 units for affordable housing just right there.
Another possibility that Mayor Brett Lee has raised is the possibility of the city itself having a voucher program. So instead of having to build new affordable housing, what if they bridged the gap between subsidized housing and market rate housing by offering a $500 voucher? That’s $6000 per year. Using this principal, the city might be able to provide 100 vouchers for $600,000 a year. Utilizing other monies could expand that further.
Because it is a city program, they can target more broadly – they could do middle income vouchers if they wanted to.
The bottom line is that this innovation is exciting and it has some remarkable possibilities that we have not even begun to explore. Far from not providing housing, this could actually be the revenue stream we need to offer all sorts of affordable housing programs that we have never dreamed of.
The best part is we can do it in a way that is workable for the developers and those needing to get financing for these projects, and still do it in a way that provides great ongoing benefit to this community.
—David M. Greenwald reporting