Here in Alameda, there are two ways to talk about the issue of affordable housing.
One is to denounce Measure A, demand “more housing now!”, and denigrate anyone who disagrees as an “obstructionist.”
No matter that Measure A’s ban on multi-family housing was essentially eviscerated in 2012; that 4,286 new housing units have been built, or are proposed to be built, between 2015 and 2023, or that the Planning Board and Council have approved every residential development project put before them in the last five years. Just stick to the slogans and your Twitter followers will shower you with “likes.”
The Merry-Go-Round won’t name names, but the people in this group know who they are, what blogs they post comments on, and which bars they advertise in appearances before Council.
Fortunately, there is another way. It consists of analyzing what our local government can, and cannot, do to increase the supply of housing for low- and middle-income families – and at what cost.
And here we will name names.
One is Councilman Frank Matarrese, who submitted a Council referral back in June 2016 – which it took his colleagues six months to take up – to consider revising the City’s inclusionary housing ordinance to increase the required percentage of “affordable” units and to require that every new development also provide “workforce” housing.
Another is Assistant Community Development Director and City Planner Andrew Thomas, who presented staff’s analysis of, and recommendations about, potential changes in the inclusionary housing ordinance to the Planning Board last Monday. (Mr. Thomas’s boss, Community Development Director Debbie Potter, undoubtedly contributed as well.)
And for a third (with apologies if it causes her any trouble with her political allies), we’ll call out Laura Thomas of Renewed Hope, the only citizen who bothered to speak during the public comment period at the Planning Board meeting, and who offered specific suggestions for finding money to enable the City to build affordable housing itself.
These are serious people, with serious ideas, and the rest of us would do well to pay attention to them. Today, we’ll comment on a few of the matters raised Monday.
At present, the inclusionary housing ordinance requires that 4 percent of the units in every new development project be “deed-restricted” for “very-low-income” households (i.e., those with annual income of $28,050 to $46,750 for a four-person household); 4 percent for “low-income” households ($46,750 to $74,800); and 7 percent for “moderate-income” households ($74,800 to $112,200). If the goal is to increase the number of units available to people in these categories, why not just bump up the required percentages?
The staff report prepared by Mr. Thomas gave several answers, but the one that resonated most strongly with us can be stated in two words: density bonus.
Adopted in 2009 to implement state law, the City’s density-bonus ordinance gives a developer the right to build additional market-rate units if the project includes a specified percentage of very-low-, low-, or moderate-income units. The density bonus ranges from a minimum 20 percent to a maximum 35 percent of the “otherwise maximum allowable residential density.”
As it happens, the requirement for the very-low-income category in the inclusionary housing ordinance is uncomfortably close to the threshold for the same category in the density-bonus law: 4 percent versus 5 percent. By increasing the percentage of very-low-income units in a project by a mere 1 percent, a developer will qualify for a 20 percent “density bonus.” This means that, for a 90-unit project, one more low-income unit will yield 18 more market-rate units.
As the staff report notes, this trick hasn’t escaped the attention of developers.
Tim Lewis Communities, the Roseville-based developer of two projects along Alameda’s northern waterfront (and a $5,000 contributor to the misnamed “Alamedans United” PAC that backed Council members Marilyn Ezzy Ashcraft and Malia Vella in the last election), has used it for both projects: by boosting the very-low-income percentage from the required 4 percent to 5 percent, it gained an additional 69 market-rate units for the Del Monte warehouse (subsequently reduced to 35 when Council reduced the overall project size), and an additional 98 market-rate units for Encinal Terminals. (Both projects include the bare minimum percentages of low- and moderate-income housing required by the inclusionary housing ordinance.)
The upshot is that, if Council increased the required percentages of very-low-, low-, and moderate-income units, some projects might qualify automatically for the minimum 20% density bonus – and others might get closer to the threshold. As a result, even more high-end housing could, and undoubtedly would, get built in the City.
There are, of course, those who would regard this as a salutary outcome. But not everyone would agree with Inner Ringleader and Planning Board holdover John Knox White, who offered what, at least to us, was a novel argument for more upscale housing:
Every time housing comes up, somebody mentions that, well, we’re building housing that’s expensive, and therefore it’s not really making affordable housing, and somebody else has to point out that, if people could buy million-dollar houses or million-and-a-half dollar houses, they might not be buying the 1,300 square-foot houses and renovating them into million-dollar houses. [They might] not [be] jacking up the price for $700,000 houses to over a million dollars, thereby making those houses unaffordable.
(So that’s why the people down the street put on a new roof: they couldn’t find a new million-and-a-half dollar house to buy! Who’da thunk it?)
In any event, there still remains some room to maneuver between the inclusionary housing requirements and the density-bonus thresholds: the range between 4 and 10 percent for low-income housing and between 7 and 10 percent for moderate-income housing. At Monday’s meeting, Planning Board member Lorre Zuppan suggested raising the required percentages in one or both of these categories. Mr. Knox White dismissed this idea as “dickering around the edges,” but we think that Ms. Zuppan – as usual – made a valid point. “What’s the real goal here?” she asked. “There may be some benefit to tweaking those percentages in order to get more for the community and relieve more of the crisis for the community.”
Ms. Zuppan’s comment caused us to wonder whether the current percentages in the inclusionary housing ordinance should be adjusted to make sure the requirements fit the needs. The rent study done for the City in October 2015 showed that 5,125 renter households fell into the very-low-income category; 2,195 into the low-income category, and 7,955 into the moderate-income category. But it was the very-low income households who suffered a disproportionate share of what the study called a “severe housing cost burden”: of 3,094 renter households spending more than 50 percent of their income on housing, 2,975 were very-low-income households. Maybe raising the 4 percent requirement for this category would be worth the cost of automatically triggering a density bonus.
This needs-based analysis also would justify distinguishing between rental and owner-occupied housing in setting inclusionary housing requirements for new residential developments. If the “housing crisis” consists primarily of a dearth of apartments for very-low-, low-, and moderate-income households, why not require developers of rental projects to build more of them – and let developers of townhomes and condos off easier? The short answer is that a California Court of Appeal case decided in 2009 struck down inclusionary housing requirements for newly constructed rental units as a violation of the Costa-Hawkins Act.
The other principal argument identified in the staff report for not increasing the inclusionary housing percentages is the one usually invoked by developers: since a project containing low- and moderate-income units already generates less revenue for the developer than a purely market-rate project would, increasing the required percentages would “squeeze” the developer to the point where she’d either raise the sales or rental price of the remaining units – or decide not to build the project at all. At Monday’s meeting, we heard versions of this argument from Planning Board members on both sides of the political spectrum. And even Ms. Thomas agreed that, given the recent travails at Site A (which is subject to a 25 percent affordable requirement, thanks to Renewed Hope), “we really need to see whether that experiment pans out before we push a higher percentage.”
Well, we hate to be contrarian (no, not really) about an issue on which David Burton, Ron Curtis, and Laura Thomas all appear to agree, but we are congenitally reluctant to accept at face value any pleas by a real-estate developer (even one we trust, like Joe Ernst) about the dire consequences of requiring more low- or moderate-income housing in a project. Why not mandate the higher requirements – but give the developer an out if she can show that they indeed would render the project economically infeasible? Of course, a Planning Board responsible for approving this kind of exception would benefit from members with financial expertise, but recent experience shows that the Triumvirate in control of Council won’t appoint such people if they’re Trish Spencer nominees.
Concerns about “feasibility” also dominated the discussion about the second item in Mr. Matarrese’s referral: adding a requirement that a project include a specified percentage of “workforce” housing. (Mr. Knox White bristled at the use of that term – “The City is defining it differently than the rest of the country,” he pronounced – so, if it’ll make him happy, we’ll refer to “middle-income” housing. As used by staff, this term encompasses units targeted at households earning from 120 to 180 percent of area median income – $116,900 to $175,320 using 2017 numbers).
The staff report argued that, since the middle-income units would be sold or rented at market rates, they didn’t “need to be financially subsidized by the other market-rate units in the project that are already subsidizing the 15% of deed-restricted units,” and therefore “are not increasing the costs of the other 85% of the units.” But at Monday’s meeting Ms. Zuppan pointed out that, if the middle-income units were sold or rented at lower prices than the rest of the units, as they surely would be, the project would generate less revenue for the developer than it otherwise would, and the “squeeze” objection therefore would apply to any newly imposed middle-income requirement, too.
In theory, of course, she’s right. But look at what’s been happening with recent projects after Mr. Matarrese (and Ms. Spencer) began agitating for more new housing for middle-income households: the recently approved master plan for the Encinal Terminals development states that 153 of the 510 market-rate units will constitute “workforce” housing. (The original master plan submitted in May 2016 contained no similar set aside.) Likewise, according to Alameda Point Chief Operating Officer Jennifer Ott, Alameda Point Partners has informed the City that 120 of the 600 market-rate units at Site A will qualify as middle-income housing. (Mr. Thomas also told us that the Del Monte warehouse project will “have a ton” of small units, and the Shipways project “has a bunch.”)
Since the inclusionary housing ordinance itself didn’t mandate these actions, the developers may simply have been trying to make their projects more palatable to the politicians whose campaigns they hadn’t supported. But a desire to curry political favor only goes so far: presumably, Tim Lewis and Bruce Dorfman have determined that their projects still will “pencil out” even if they include this much middle-income housing. If so, the economic case against writing a middle-income requirement into the inclusionary housing ordinance becomes that much weaker.
Of course, there are details still be worked out, not the least of which is how to define the requirement (which is different than what to call it). The planners like to use the term “affordable-by-design,” which casts the requirement in terms of square footage. For example, the Encinal Terminals master plan describes two categories of “workforce” housing: one with units of 900 square feet or less, the other with units between 900 and 1,200 square feet. By making an assumption about price per square foot, it’s possible to calculate a sales price and then determine whether that price is affordable by middle-income households. (The staff report takes this approach and concludes that “households within the workforce income range would be able to afford a home in the $500,000 to $750,000 price range.”) But a law based upon a square-footage test makes us a little nervous: why is 900 square feet the magic number? Won’t the assumption about price per square foot (and therefore the conclusion about affordability) change as the market changes?
In addition, as Mr. Thomas acknowledged, staff chose 10 percent for the middle-income requirement because that was the percentage used in the “specific plan” for the Main Street Neighborhood at Alameda Point. But that choice in turn was based on the conclusion by the City’s consultant that a development that included 10 percent “workforce” housing still would generate enough revenue to cover the $53 million cost of replacing the infrastructure in the area. If a project wasn’t required to bear such draconian expenses, it should be able to accommodate a percentage of middle-income housing greater than 10 percent. How much more? Mr. Thomas told the Planning Board that the same consultant who did the Main Street Neighborhood study probably could come up with a figure applicable City-wide.
Ultimately, the Planning Board voted to recommend that Council retain the current inclusionary housing percentages, and it declined to recommend that Council adopt a middle-income housing requirement. We think it also recommended further study on the latter issue, but the video got a little confusing toward the end.
In addition to the items in Mr. Matarrese’s referral, the Board addressed another affordable-housing issue Monday: funding. And this is where Renewed Hope’s Ms. Thomas comes in.
Ms. Thomas is no slouch at pro-housing rhetoric, but it was her pragmatic side that was on display this time. Her focus was on how the City could find money to build low- and middle-income housing itself. One idea was to put all of the so-called “boomerang funds” Alameda expects to receive from the former redevelopment agency into a “housing trust fund.” Another was to earmark any money the City got as its share of profits from Site A for affordable housing. A third was to issue bonds secured by a new parcel tax.
Some of these ideas are problematic. For one thing, we’re not so sure that Site A will produce enough profit for the developer to share any with the City. Nor are we confident that City of Alameda residents would be as amenable as County of Alameda residents to a tax increase intended to raise funds for affordable housing. (The County’s Measure A1, which authorized issuance of $580 million in bonds for that purpose, passed with 73.3 percent of the vote last November.) But the presence of these problems doesn’t make Ms. Thomas’s ideas any less worthy of consideration by Council. Even Mr. Knox White supported them, albeit in a backhanded way: “If the goal is to fund affordable housing and not build more market rate, we’re going to have to start paying for it – or we’re going to have to acknowledge that we need to build market rate to subsidize affordable housing and to bring cost of middle-income housing down.”
Ms. Thomas also dismissed – primarily for historical reasons – another idea for financing construction of affordable-housing projects by the City: in lieu fees (i.e., a charge that a developer must pay “in lieu of” including low- and moderate-income housing in the project itself). According to the staff report, many Bay Area cities charge such fees, especially for rental projects where inclusionary housing requirements are precluded. Setting the right amount for in-lieu fees surely would pose a challenge, and there is no guarantee that the revenue generated by such fees would enable the City to build more, or better, affordable housing than a private developer would build in order to comply with the inclusionary housing requirements. But once again we’re with Ms. Zuppan: at the least, in-lieu fees are an “interesting option.”
With no objection, the Planning Board voted to recommend that Council look at the funding ideas suggested by Ms. Thomas.
So now the ball is back in Mr. Matarrese’s court. Ordinarily, we would hesitate to tell elected officials what to do. But, to us, the affordable-housing issue cries out for the sort of approach former City Manager John Russo took to the pension/OPEB problem: appoint a task force, with all viewpoints represented but all ideologues excluded; identify the specific options available to the City, with the necessary research done by staff; and then take a ranked-choice vote and present the results to Council. We can’t be sure that Ms. Spencer or even Mr. Matarrese himself would endorse this approach. But if they did, it would take only Ms. Ashcraft to make it happen, and we can leave the sloganeering to those who do it best.
Matarrese referral: 2016-06-21 Matarrese referral
July 24, 2017 staff report: 2017-07-24 staff report to PB re ordinance
Housing element March 13, 2017 staff report: 2017-03-13 staff report to PB re H.E. 2016 annual report
Encinal Terminals master plan: 2017-07-17 Ex. 1 to staff report to PB- Encinal Master Plan
Rent study: 2015-11-04 Ex. 1 to staff report – rent study