Council to Consider Amendment to Affordable Housing Ordinance

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Prior to the council’s consideration of the Chiles Road Apartments, they will be asked to approve an amendment to the city’s Affordable Housing Ordinance that will make it possible.

The city is in the process of revising its Affordable Rental Housing Requirements.  Back on January 8, the council extended interim provisions until June 30, 2019, as staff works on a comprehensive update.  This proposal would “allow as an alternative requirement a continuing payment to the City to be used to further the City’s affordable housing goals and objectives.”

Specifically it states: “Whether the developer is proposing to pledge to the City a continuing revenue source that will assist the City in satisfying one or more specific affordable housing goals of the City, in an amount that the City Council deems is sufficient to provide a significant benefit in furtherance of the City’s affordable housing goals.”

Importantly, “It does not establish a specific payment amount or minimum amount and does not require payment in perpetuity in order to provide flexibility based on specific project conditions and the particular proposal, which vary from project to project.”

This allows the council to use their discretion based on a range of factors.  In addition, “the alternative provisions will sunset unless extended or reapproved and the Council may choose to clarify or change provisions or request additional information.”

Staff is supportive of this amendment as it “increases the tools available to the City to achieve its housing goals for both affordable and market-rate housing.”

Under existing requirements, the developer has several options for a project in order to meet its affordable housing requirements.  They include land dedication, payment of in lieu fees, construction of on-site affordable units, purchase of off-site units as affordable units, and various combinations of the options as a project individualized program.

Staff notes that housing projects vary greatly on a number of factors and, as such, “a one-size-fits-all approach is not suitable for every project.”

This issue arose from a proposal made by the developers of the Chiles Road Apartments – a project that is up for consideration following consideration of this amendment.

Back in February, Chuck Cunning, who along with Lawrence Shepard is the project applicant, explained as they considered their possibilities for affordable housing, “We knew a long time ago based on our pro formas that we couldn’t meet… the 35 percent (affordable housing requirement) was totally beyond reach. Even the 5-5-5 for our product type is impossible.”

That was later confirmed by the Plescia study.

Mr. Cunningham said, “We had to do something. We began looking at alternatives.”

He said, “It turns out we could do 3.5% total without even extremely low units.”

Why are some of the projects able to get to 15 percent?  He showed a chart that illustrated the vast difference in revenue generated in rental units that rent by the unit versus the bed.

“The income economics are substantially different,” he explained. “That’s a big deal.”

There are other factors on the cost size. For instance, the amount of square footage per bed is substantially higher for their project than for student housing. Beds per unit are under two for their project versus over 6 for student projects.

Parking is a factor – students do not have to have as much parking next to campus, while they have the expectation that people will expect to have a place to park their car. Connection fees and impact fees also work against them since they don’t distinguish between number of rooms.

The idea of the revenue stream was a way to replace funding from redevelopment agencies. “How did we get to 1.65 percent?” he asked. “We basically looked at the internal subsidy that was involved with the median and moderate income units… and that then translated to 1.65 percent of gross rent. The fundamental reason is that it’s what the project can afford.”

What Mr. Cunningham noted in terms of the limited ability to finance affordable housing at his site, has been noted more broadly.

Recently staff has examined, through consulting from Plescia and Gruen, that under current conditions even without inclusion of any affordable housing requirements, “construction of the Large Traditional prototype may have the potential to be feasible, however, may not have sufficient net project value to support land acquisition costs in Davis.

Then they added in affordable housing requirements and many multi-family projects were “determined to be infeasible under the scenarios reviewed.”

This proposal is a way to provide a funding stream even under the tight fiscal constraints of the current market.

Under its Affordable Housing Plan, the 3820 Chiles Road Project would devote 1.65 percent of its rental income to the City’s Housing Trust Fund in perpetuity with a minimum annual payment of $100,000.

Writes staff, “The structure and amount of the payment makes it feasible for the developer and type of project, which has higher per-unit costs than student-oriented rental housing. As such, the program would provide a reliable and growing source of funding once available through the former Davis Redevelopment Agency.”

The funds could be used in a number of ways, including to “support services associated with the existing City’s Affordable Housing Program exclusively targeting, extremely-low, very-low, and low-income households.”

Estimates place the first year of implementation to be $125,000 with increasing contributions as rents increase.  Ultimately, within 15 years, that number could exceed $300,000.

—David M. Greenwald reporting

Join us on Thursday from 7 to 9 at 909 5th Street for our Affordable Housing Forum – https://www.facebook.com/events/783654705344483/

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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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4 thoughts on “Council to Consider Amendment to Affordable Housing Ordinance”

  1. Matt Williams

    Seems low because affordable units cost much more than $125,000.

    Ron’s statement captures the challenge Davis faces.  At the last Social Services Commission meeting Commissioner Dan Kalman and public commenter Martha Teeter both focused (as Ron has in his comment) on “building Affordable units.”  The challenge is that in recent years construction costs have escalated at a very high rate, while income levels for “low,” “very low,” and “extremely low” qualification have changed very little.  Thus the amount of money needed to fund each affordable unit has escalated at the same very high rate that construction costs have escalated.

    In a prior comment here in the Vanguard, Sharla Cheney noted that the existing apartments on the north side of Eighth Street across from the Davis Manor Shopping Center (Grocery Outlet, Dollar Tree, etc.) can be rehabilitated and made available at affordable rents because the rehabilitation construction costs will be minuscule compared to new construction costs.

    Bottom-line we may be better served by concentrating on “making Affordable units available” rather than ““building new Affordable units.” Especially when you consider the following multi step process …

    Revised Development Timeline
    The revised development timeline is as follows:
    October 2015 —— City awards project site to developer
    March 2016 – Submit $1.5 million application to Federal Home Loan Bank Affordable Housing
    Program (AHP)
    June 2016 »- Submit schematic architectural drawings to City of Davis for design review approval
    October 2016 – Receive final City of Davis approval of project design
    August 2016 – Receive award of AHP funding
    March 2017 — Submit $9,126,700 application to Affordable Housing and Sustainable
    Communities Program (AHSC)
    August 2017 – Receive award of AHSC loan funds
    October 2017 — Submit application for tax-exempt bond authority to CA Debt Limit Allocation Committee (CDLAC)
    December 2017 – Receive award of tax-exempt bonds from CDLAC
    March 2018 – Submit application for low»-income housing tax credits to Tax Credit Allocation
    Committee (TCAC)
    June 2018 — Receive award of low-»-income housing tax credits from T CAC
    August 2018 —- Sign Letter of Intent with Limited Partner
    November 2018 — Close construction financing and start construction
    October 2019 -— Initial occupancy

    1. Bill Marshall

      With all due respect to Matt and Sean… neither of whom, to my knowledge, have ever developed a project… nor have I…

      Any number is arbitrary… 1.65%, 5%, 15%, 30%, etc.  As a requirementgoals are different than requirements

      Goals are good… pushing for them are good… requirements, as to affordable housing not so much… time and economic conditions dependent…  unless you’re a ‘bossy butt’ and want to tell others what to do, if you’re not willing to do it yourself…

      If empty nesters were open to renting out rooms/beds, at an ‘affordable’ rate, that would help… know very few who would do that…

  2. Ron Glick

    Staff estimates $125,000 a year the first year. $125,000 is 1.65% of $7.57 million. Seems low because affordable units cost much more than $125,000. Even if this is enough to fund 1/2 unit a year it would take 75 years to get to 15% of the 255 units built at $250,000/affordable unit. Since 75 years is likely beyond the useful life span of rental housing this project is getting off cheaper than both subsidized units at Nishi and land dedication at West Davis Senior. One caveat is that land dedication is likely based on the added value of the land after infrastructure is added but that land likely cost much less when acquired plus the cost of that infrastructure.

    I recognize that passing through the cost of affordable housing raises rents or if the owners absorb the cost it squeezes margins. Elasticity of demand  will determine who pays what but from the developers perspective they are going to need to maintain certain margins to get financing. I think the question is whether the lenders can fund a project with more than a 1.65% annuity paid to the affordable program. I think the answer is yes because Nishi is paying much more through subsidized beds and plan on getting financing and they have a huge overhead of building a $12 million dollar underpass albeit that cost is spread over more units.

    I think the way to go about figuring out what is an appropriate annuity would be to start with the cost of building 38 affordable units and then figuring the present value of the costs minus the subsidized rent rate over the useful life of the property and then compare that cost to what Nishi’s program costs or Lincoln 40’s. I don’t have the ability to do those calculations but I’m pretty sure someone on here can do them.

    1. Matt Williams

      Seems low because affordable units cost much more than $125,000.

      Ron’s statement captures the challenge Davis faces.  At the last Social Services Commission meeting Commissioner Dan Kalman and public commenter Martha Teeter both focused (as Ron has in his comment) on “building Affordable units.”  The challenge is that in recent years construction costs have escalated at a very high rate, while income levels for “low,” “very low,” and “extremely low” qualification have changed very little.  Thus the amount of money needed to fund each affordable unit has escalated at the same very high rate that construction costs have escalated.

      In a prior comment here in the Vanguard, Sharla Cheney noted that the existing apartments on the north side of Eighth Street across from the Davis Manor Shopping Center (Grocery Outlet, Dollar Tree, etc.) can be rehabilitated and made available at affordable rents because the rehabilitation construction costs will be minuscule compared to new construction costs.

      Bottom-line we may be better served by concentrating on “making Affordable units available” rather than ““building new Affordable units.” Especially when you consider the following multi step process that was shared with Council for a recent Affordable project.

      Revised Development Timeline
      The revised development timeline is as follows:
      October 2015 —— City awards project site to developer
      March 2016 – Submit $1.5 million application to Federal Home Loan Bank Affordable Housing
      Program (AHP)
      June 2016 »- Submit schematic architectural drawings to City of Davis for design review approval
      October 2016 – Receive final City of Davis approval of project design
      August 2016 – Receive award of AHP funding
      March 2017 — Submit $9,126,700 application to Affordable Housing and Sustainable
      Communities Program (AHSC)
      August 2017 – Receive award of AHSC loan funds
      October 2017 — Submit application for tax-exempt bond authority to CA Debt Limit Allocation Committee (CDLAC)
      December 2017 – Receive award of tax-exempt bonds from CDLAC
      March 2018 – Submit application for low»-income housing tax credits to Tax Credit Allocation
      Committee (TCAC)
      June 2018 — Receive award of low-»-income housing tax credits from T CAC
      August 2018 —- Sign Letter of Intent with Limited Partner
      November 2018 — Close construction financing and start construction
      October 2019 -— Initial occupancy

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