Sunday Commentary: Can Housing Work in the Downtown?

People are asking – why are we pushing for housing in the Davis Downtown?  That’s a good question.  There are several answers to that.  The first is that a lot of people think that housing is a critical need – especially, at this point, workforce housing.

From my perspective, going into 2016, the clearest and most immediate need was student housing.  We had increasing enrollment at the university which was only going to increase further over the next five to ten years.  We had no new housing built off-campus for students since 2002.  And the university itself was lagging behind other UC campuses in off-campus housing.

But right behind that housing need are other needs, including the need to provide housing for those young people who graduated from college, and are looking to join the workforce, possibly looking to enter the high-tech field.

This is the point made by Dave Nystrom and Jim Gray with regard to the University Research Park’s mixed-use proposal.  Mr. Nystrom pointed out that “one of the challenges (businesses in the park) face is hiring people because it’s so difficult to find housing in Davis.”

Why the downtown?  For one thing, the opportunities to build on the periphery are limited.  Moreover, the need is for dense, smaller condos and apartments rather than single-family homes.  The downtown has some of the best available space to accommodate such housing.

Last fall, the Downtown Plan Advisory Committee made their view known, as presented to council by Vice Chair Michelle Byars.  She said that “we believe that the addition of residential opportunities in the downtown will serve our community and the adjacent neighborhoods well.”

The DPAC “is generally in support of increasing building heights in appropriate parts of the downtown to allow more residents.”

This was clearly a view the majority on council also supports.  Councilmember Lucas Frerichs stated that “additional housing in our downtown is important for economy.”  He also noted it was important for our environmental goals.

Dan Carson also argued that, by bringing housing into the downtown, “you bring people, you bring economic activity.”

However, the key question is whether the city can make such housing pencil out for developers.  Thus far the economic analysis is not promising.  Matt Kowta looked at ten scenarios for dense redevelopment – only one of those penciled out so far.

That’s an important consideration that may limit the ability to add housing.  However, the feasibility is a separate issue from the need to build the housing or advantages of doing so in the downtown.

The city’s Community Development Director Ashley Feeney told the Vanguard that we need to look for ways to build that minimize costs.

He said,  “We should focus on putting together a land plan that allows for scale and density on parcels where we have the greatest ability to achieve viable results.”

Mr. Kowta said, overall, they “are seeing challenges to feasibility.”  But this problem, he noted, is “not exclusive to Davis.”

The biggest problem can seen looking at the trendline showing the construction cost inflator.  Their estimates show about a 36 percent increase in construction costs between 2008 and 2019.

“We think that’s actually understated,” he explained.  “There is a very steady upward trend in these costs.”

Looking at the data, Mr. Kowta described several takeaways: small lot residential projects are not feasible, economics improve with density, for-sale residential may be feasible on larger lots and at higher densities, office over retail may work in unique circumstances, parking and affordable housing further challenge feasibility.

Finally, a key point: “In the current environment, owner-users may develop but returns are unattractive for investor/developers.”

He makes some suggestions that could help: increasing certainty, lowering additional and controllable costs, eliminating extra requirements.

There are some ways he suggested to mitigate feasibility problems.  One strategy would be to modify projects to optimize economics.  Here small condo projects may not be practical, but more density will hold land costs constant while improving the ability to generate revenue.

Second, he suggests leveraging publicly-owned land.  By the city contributing public land, it would reduce costs and therefore improve feasibility.

Third would be to take stake in the project, either by the city becoming an anchor tenant or partnering with developers “to obtain subsidies for catalyst projects that meet state and federal objectives.”

The city could also invest in public improvements and prioritize ones “that can help private projects.”

Finally, the city can take steps to reduce time and risk for developers.  They can do this by providing clearer planning guidelines, limiting discretionary decision-making, clearing the way for environmental approval through a Specific Plan EIR, providing a fast-track path to entitlements, and following through with streamlined and efficient building permit and inspection procedures.

Matt Kowta noted, “This is the one we really heard over and over again in the public stakeholder meetings.”

One thing that was not discussed is the loss of RDA (Redevelopment Agency) money.  RDA money could at one time have helped to offset the high land costs and construction costs, but that money has now gone away.

A key question is whether that money will return and whether it will go simply for affordable housing projects – or whether cities can use it to develop higher density, mixed-use projects that contain things like workforce housing (and perhaps affordable housing as well).

Will higher density improve feasibility?  Matt Kowta says yes.  Higher density of course keeps land values constant, but it might increase construction costs.

Why do we keep looking toward housing in the downtown even if the feasibility is in question?  Some of it boils down to – if not there, then where?  I don’t see a lot of peripheral development.  I see dwindling numbers of infill sites in town.  And there is a clear need for housing, especially for younger entrants to the workforce.

But it is clear from these numbers, at least at this point in time with high construction costs and no RDA, that such housing will be challenging to build.

—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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41 Comments

  1. Don Shor

    the need is for dense, smaller condos and apartments rather than single-family homes.

    It is very clear that there is a regional demand for single-family homes. That demand is being met in nearby communities.

  2. Don Shor

    But right behind that housing need are other needs, including the need to provide housing for those young people who graduated from college, and are looking to join the workforce, possibly looking to enter the high-tech field.

    Current median rental housing cost in Davis is about $1500 per month. Using the standard of 30% of income for housing, that requires an annual income of $60,000/year. We can assume that any housing provided in downtown redevelopment projects will rent for higher than median, perhaps in the $2000/month range, requiring an annual income of about $80,000/year.

    This is not going to be ‘workforce housing’ for “young people who graduated from college” recently. It is not going to provide workforce housing for people working for $12 – 20 per hour either, which translate to $25 – 40,000 per year.  Downtown housing will provide for a niche market. It has some benefits in urban planning in that it provides a ready market for downtown businesses, especially food and entertainment, and tends to increase overall prosperity. So allowing flexibility to include housing in downtown redevelopment projects has benefits that urban planners have been promoting for years now. But it is a very limited response to the actual demand of the local housing market.

    If you require a significant component of affordable housing in the residential part of these projects, you either cause them to have a lower return on investment, or you cause them to structure it so that the other residents are basically subsidizing the lower-cost housing. In either case, it makes them less likely to occur.

    If there is a desire to provide reasonable-cost housing for young families, local workers, and recent college graduates, the way to do that will likely involve peripheral annexation. If the planning process describes the parameters for affordable housing percentages and all the add-ons that urbanists seem to want in any peripheral projects, those should be described up front. Then builders can decide if they want to try to make a profit within those constraints. This illustrates the urgency of updating the General Plan.

    High cost lofts downtown barely solve any Davis housing shortage.

    1. Alan Miller

      But it is a very limited response to the actual demand of the local housing market.

      It also doesn’t have a lot of yard space that plants go in.

      “The way to do that will likely involve peripheral annexation.”
      With yards that require plants.

      1. Don Shor

        But it is a very limited response to the actual demand of the local housing market.

        It also doesn’t have a lot of yard space that plants go in.

        “The way to do that will likely involve peripheral annexation.”
        With yards that require plants.

        Are you actually suggesting that this is the motivation for my positions on housing growth in Davis?

        1. Alan Miller

          Answer:  No.  I imply only possibilities.

          People have been known to advocate for that which brings their business money. Some accuse the Vanguard itself of taking such stances.

          Also . . . I was assuming you would point out the availability of indoor plants . . .

  3. Ron Glick

    “Why the downtown?  For one thing, the opportunities to build on the periphery are limited.  Moreover, the need is for dense, smaller condos and apartments rather than single-family homes.”

    Housing on the periphery is limited by what? Our own politics but no actual physical barriers prevent us from adding housing on much of the land surrounding Davis.

    Moreover we need single family homes in addition to those other types of housing because people who want children want a single family home as the most popular option. The condos and apartments are good for seniors, singles and students, not so much for young families.

    1. Mark West

      “Moreover we need single family homes in addition to those other types of housing because people who want children want a single family home as the most popular option. The condos and apartments are good for seniors, singles and students, not so much for young families.”

      Through much of the eastern US, the primary housing type for young families (workers, retirees) are 2-3 story tall townhouses, or in the local vernacular, rowhouses. These provide single-family home living with much greater efficiency in land-use, construction costs, and environmental impact. If we are willing to look ‘outside the box’ of our local scene we may well learn ‘new’ ways to provide appropriate housing for our residents.

    2. Craig Ross

      Housing on the periphery is limited by city ordinance approved by the voters.  You’re in denial if you don’t think that’s a real thing.

    1. Bill Marshall

      True, as to DT business receipts (local economy) [and hence sales tax/ City revenue]…  increased property tax also helps City revenue, but may well add costs… not my area of expertise… unclear where the “hinge point” is… but it will be ‘real’ (experiential), not philosophical…

  4. Mark West

    “He makes some suggestions that could help: increasing certainty, lowering additional and controllable costs, eliminating extra requirements.”

    “Finally, the city can take steps to reduce time and risk for developers.  They can do this by providing clearer planning guidelines, limiting discretionary decision-making, clearing the way for environmental approval through a Specific Plan EIR, providing a fast-track path to entitlements, and following through with streamlined and efficient building permit and inspection procedures.”

    All of these items are within the City’s capability to change. In fact, these are exactly the items that the City has put in place that give it the reputation for being difficult and expensive to work with. Correcting these issues has always been within the power of the City, and our continuing failure to do so proves that we don’t really want business and development in town. All we need to do to make projects viable is to reduce the City’s ad hoc demands and exactions and the list of discretionary steps that we have implemented through history, including having CC members make extortionary demands from the dais at the time of approval. Simply put, we need to change the City’s culture on how we approach development.

    Redevelopment downtown is not feasible today because we have created a system of requirements and demands that guarantee that redevelopment is not feasible.

    1. Craig Ross

      the problem is that there are a whole bunch of people who make decisions or influence decisions in this town that do not care.  They don’t need housing, don’t need jobs, and don’t want housing and even don’t want jobs.  Until that changes, we will find reasons not to do things.

    2. Bill Marshall

       including having CC members make extortionary demands from the dais at the time of approval.

      Also applies to the advisory commissions… but they, and the CC are just representing “the people”, who show up for those meetings…  and express their views… right?   Anyone who isn’t an ‘advocate’ should not be represented, even if they ultimately have to deal with the consequences… right?

      Albeit it may not be obvious to some, think you know I’m in basic agreement on this item… there are some who want no development so much that they’d like to make sure all developers lose money to develop.  Not many, but some…

      And of those, many are completely opposed to taxes (on them) to fund their pet ‘things’… the developers and ‘newbies’ should bear that cost…  yeah, right (a double positive that is, in fact, a negative as to the ‘justice’ in that)

  5. Matt Williams

    However, the key question is whether the city can make such housing pencil out for developers.  Thus far the economic analysis is not promising.  Matt Kowta looked at ten scenarios for dense redevelopment – only one of those penciled out so far.

    David, it isn’t up to the City to make housing (or any development project) pencil out for the developer.  It really is up to the developer themselves to make that happen.  Jim Kidd’s public comment at the joint Planning Commission  – FBC meeting last Wednesday (see 1:58:00 of the meeting video) sums that up very well.  Steve Sherman’s plans for his 14-unit downtown project is another example in the works.

    That doesn’t mean the City shouldn’t be working hard to find/create win-win scenarios, but bottom-line the City’s direct fiscal impact on whether a project pencils out or not is really only nibbling around the edges.

    1. Craig Ross

      “David, it isn’t up to the City to make housing (or any development project) pencil out for the developer.”

      Isn’t that a subjective view that you’re stating as though it were a fact?

      1. Mark West

        “it isn’t up to the City to make housing (or any development project) pencil out for the developer.  It really is up to the developer themselves to make that happen.”

        Which is how we ended up with projects including a large percentage of 4-5 bedroom apartments rented by the bed. We created the economic environment with our long list of ad hoc demands and the developers figured out how to ‘make that happen.’

        The same can be said for the three-story walkups that will be built at Nishi. We created the economic environment that ultimately led to a project that will use the available land very inefficiently. The City’s choices here are not ‘nibbling around the edges’ as Matt W. claims, they are driving the decisions of what projects are proposed and ultimately built.

        1. Ron Oertel

          “Which is how we ended up with projects including a large percentage of 4-5 bedroom apartments rented by the bed.”

          A large part of the reason for this was due to the city’s failure to update its impact fees, for developments such as this.  In other words, the fees may be set too low.

          The city still hasn’t conducted an in-depth analysis regarding the fiscal impacts of megadorms.  The analysis for Sterling (that David previously posted) showed an ever-increasing fiscal loss to the city, after a number of years.

           

        2. Matt Williams

          Mark West said . . .  The same can be said for the three-story walkups that will be built at Nishi. We created the economic environment that ultimately led to a project that will use the available land very inefficiently.

          Mark, what City policies do you believe caused the Nishi developers to propose three story walk-up residences in Nishi 2018 versus five-story elevator residences in Nishi 2018?

          I can not think of a single City policy that contributed to that decision.  That was a discretionary decision by the developers based on a combination of their own experience (managing walk-ups), construction costs, Federal regulations, and State regulations.

          I look forward to your answer.  It is possible that I have overlooked a City regulation that you are aware of.

      2. Matt Williams

        Craig, what percentage of the costs of a typical development are paid by the developer to the City?

        Once you have that percentage, then compare it to the remaining percentage that is not paid to the City.  Once you make that comparison you will quickly realize that my statement is not opinion, it is a very simple fiscal reality.

        BTW, Matt Kowta included the answer to the question in his presentation Wednesday night.  Based on his number, for every dollar paid to the City over fifteen dollars are paid to someone other than the City.

      3. Mark West

         “for every dollar paid to the City over fifteen dollars are paid to someone other than the City.”

        Yes, but what percentage of those other ‘fifteen dollars’ are paid out as a consequence of a demand from the City? The most recent example being the requirement for photovoltaics on all projects. The City sets the requirements (at least for those things that go beyond the State requirements) not the developers.

        1. Matt Williams

          That is an excellent example Mark.  The presence of PV on a new building increases the value of the building, increases the sales price and pays back the developer all their cost plus a margin consistent with the rest of their project.  Bottom-line, PV doesn’t reduce developer profits, it increases them.

        2. Alan Miller

          PV doesn’t reduce developer profits, it increases them.

          If that were true, why would the City have to weigh in at all — developers would just do it.

        3. Mark West

          “The presence of PV on a new building increases the value of the building, increases the sales price and pays back the developer all their cost plus a margin consistent with the rest of their project.  Bottom-line, PV doesn’t reduce developer profits, it increases them.”

          Even if true, something that is debatable, it is of no relevance. My comment was on how the City increases the cost of development with all of the ad hoc demands, of which the new PV requirement is one. It doesn’t matter if it is ultimately a good investment for the builder, the requirement increases the costs of the project, which either must be offset by reductions elsewhere (fewer niceties) or makes the project less feasible and more difficult to finance.

          As Alan M. points out, if your assessment was true there would be no need for the requirement.

        4. Matt Williams

          Alan asks a very good question … and the answer is pretty straightforward … developers more often than not make decisions not on basis of doing the right thing, but rather on the basis of avoiding making a mistake.  With respect to PV the mistake they are looking to avoid is any liability they might incur for the wide range of individual electricity usage levels associated with potential buyers that are beyond their control.  They want to sell what they know, and for most of them, up to date knowledge of the ins and outs of PV is outside the box knowledge. It is really all about the acronym KISS.

        5. Matt Williams

          Mark, go back and look at the comments that preceded yours.  The discussion was about making housing pencil out for developers.  The last time I checked “penciling out” is not about costs, but rather profits (and cash flows).  So I stand by my comment.  Every new housing sale that includes PV has a stronger bottom-line than the same housing sale would have without PV.

  6. Mark West

    “Mark, what City policies do you believe caused the Nishi developers to propose three story walk-up residences in Nishi 2018 versus five-story elevator residences in Nishi 2018?”

    Measure R.

    1. Matt Williams

      How did Measure R cause the Nishi proposal to go from  5-story residential in 2016 to 3-story residential in 2018?  The answer is that it didn’t.

      Now if you had said CEQA rather than measure R, you would have been giving a correct answer … but CEQA is not a City policy.  It is a State policy.

      So far you are batting 0 for 2.  You do get an infinite number of at-bats though, so keep on swinging.

    2. Mark West

      Matt W.: “How did Measure R cause the Nishi proposal to go from  5-story residential in 2016 to 3-story residential in 2018?  The answer is that it didn’t.” “Now if you had said CEQA rather than measure R, you would have been giving a correct answer … but CEQA is not a City policy.  It is a State policy”

      Yes, Matt, CEQA, or more accurately, the desire to not add costs to the project by repeating the environmental assessments of Nishi 1, were important determinants leading to the decision to propose three-story walkups instead of a more dense option with Nishi 2. That answer, however, is incomplete. The only reason that the three-story walkups were even considered for Nishi 2 was because of the Measure R vote that rejected Nishi 1. Without Measure R, Nishi 1 would be the approved project and CEQA would not be an issue.

      “So far you are batting 0 for 2.  You do get an infinite number of at-bats though, so keep on swinging.”

      Wrong (twice).

      1. Mark West

        “Measure R itself did not defeat Nishi in 2016, rather the failure of the Nishi team to mount an effective campaign strategy…”

        Matt – Utter nonsense. Without Measure R there would have been no need for the campaign. The CC approved Nishi 1 and that should have been the end of the story. The campaign, first vote, new proposal, and second vote all came about because of Measure R, the City’s policy that resulted in a project with three-story walkups.

        ‘Measure R – the citizens right to bad outcomes.’

        1. Matt Williams

          That may all be true Mark, but it has nothing to do with the Nishi developer’s decision to change their 5-story project with 67 units per acre and  199 beds per acre into a 3-story project with 27 units per acre and 85 beds per acre.

    3. Matt Williams

      Well Mark, I’ll give you credit for a imaginative argument on this one.  Not quite as imaginative as your City Council candidacy in 2018 … or was that an imaginary candidacy?

      With that said, your statement “The only reason that the three-story walkups were even considered for Nishi 2 was because of the Measure R vote that rejected Nishi 1. Without Measure R, Nishi 1 would be the approved project and CEQA would not be an issue.” is a notch off the mark.  Measure R itself did not defeat Nishi in 2016, rather the failure of the Nishi team to mount an effective campaign strategy defeated the project at the polls that year.  My opinion is that it was a shame that they came back with an inferior project in 2018 to the one they proposed in 2016.  I realize that not everyone agrees with that opinion, but I’m comfortable with it, just as you are probably comfortable with your Council campaign.

  7. Tia Will

    This is a question I pose having no knowledge of city planning or the priorities of developers. I am wondering how many of you who are expressing the view that the city should be in some way “helping” the developers, have also expressed the view that government should not be choosing “winners and losers”?

      1. Mark West

        Alan M. “Especially seven hours of crickets.”

        I apologize Alan M. – and Tia – with four teens in the house I don’t always have the opportunity to respond in a timely fashion. I hope you enjoyed the crickets; I have always loved their sound.

        “I am wondering how many of you who are expressing the view that the city should be in some way “helping” the developers, have also expressed the view that government should not be choosing “winners and losers”?”

        I have frequently complained about the City’s efforts at picking winners and losers, so it is likely that this comment was directed at least in part towards me.  I view the ‘picking of winners and losers’ as the City creating a non-level playing field that favors one party (or parties) over all others.  Examples might include limiting the size of retail stores outside of the downtown or even preventing them entirely if they are thought to compete with an existing one downtown. Another example would be how the City Staff created an entirely new process that added nearly a year (and additional costs) to the evaluation of two hotel projects, a process that was largely focused on whether the City needed the added room capacity. In truth, the goal was to protect the existing hotel owners in town from the competition, something the City has no business doing. If a proposed business is otherwise legal, the City should not be creating limitations to the establishment of one over another or ‘running interference’ for existing business owners (aka, their friends). The goal should simply be allowing more businesses to prosper in town.

        On the development side, my comments have focused on the requirements that are often unique to Davis, and which increase costs and create disincentives for new projects. Many of the requirements appear quite reasonable or at least sound great. Who wouldn’t want our new buildings to be LEED Platinum, be net-zero energy, provide open-space mitigation, minimum parking requirements, and in the case of housing, have 35% affordable? The problem is that the costs of all these great sounding requirements add up to the point that construction is no longer feasible and either doesn’t happen or happens with unintended consequences (5 room apartments rented by the bed).

        If we want to incentivize the creation of projects we need to help the City become fiscally sustainable and provide opportunities for appropriate housing for our residents, then we need to prioritize these requirements and reduce the total cost to developers (by dropping the low priority items) so that we get the desired projects proposed. This is something the City should do across the board for all developers and all projects, creating an even playing field for all proposed projects, not choosing which developers we want to favor. This isn’t an effort to provide special favors for specific developers, but one to reduce costs for development so we can get the projects we need.

        Do you see the difference?

    1. Rik Keller

      Tia: you are correct. And Mark West somehow failed to mention in his response how he has called for subsidies for certain types of development that he favors.

  8. Alan Miller

    People are asking – why are we pushing for housing in the Davis Downtown?  That’s a good question.

    Who is “we”.  That’s a better question.

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