Memo to the City Manager (Part III)

Today, the Merry-Go-Round concludes our series of columns on the major challenges confronting new City Manager Eric Levitt and his staff in the coming years.

Nobody asked us, but . . . the most difficult task Mr. Levitt may face is finding the right role for our local government to play in remedying the shortage of affordable housing in Alameda.

The affordable-housing problem is real – you can prove it with hard evidence.

It affects a significant number of Alamedans – about half of the households in the City, by our calculation.

And, thus far at least, it has defied solution – nothing staff has proposed, or Council has approved, has made much of a difference.

Everyone from officeholders to editorial writers agrees:  California, the Bay Area, the City of Alameda – pick your jurisdiction – is in the midst of a housing affordability “crisis.”  At the Merry-Go-Round, we prefer data to declamations.  So we thought we’d take a crack at quantifying the extent of the “crisis” as it exists locally.

We began by updating the table in the 2015-23 Housing Element showing the monthly rents affordable by “extremely low,” “very low,” “low,” and “moderate”-income households in Alameda (defined, respectively, as less than 30%, 50%, 80%, and 120% of area median income).  For this purpose, we used the HCD income limits for 2018 and applied the HUD guideline setting 30% of income as the upper boundary for when housing costs are “affordable.”

Next, we got data on the market-rate rents for one-, two- and three-bedroom apartments in Alameda as of June 2018 from the fiscal year 2017-18 Rent Stabilization Program report prepared by the Alameda Housing Authority.  (We considered using the more recent data in the Zillow monthly rent index, which shows higher rents than the AHA report, but we’re not sure how reliable the Zillow index is.)

We added this information to the updated table and prepared a chart comparing, for each income category, the affordable rent with the market-rate rent for a one-, two-, or three-bedroom apartment.  Where the market-rate rent exceeded the affordable rent, we calculated the amount of the deficit, and it is shown in red.

Here is the result:

Affordability analysis

The picture painted by the red numbers is bleak enough, but the chart does not reveal how widespread the problem is.  So we turned to the latest American Community Survey for data on the number of Alameda households by income category in 2017.

Unfortunately, ACS does not set its parameters in the same way as HCD does, so we selected a range of 0-$49,999 as a surrogate for the “extremely low” and “very low” income categories combined; a range of $50,000-to-$74,999 as a surrogate for the “low” income category, and a range of $75,000-to-$100,000 as a surrogate for the “moderate” income category.  Taking this approach, there were 8,289 “extremely low” and “very low” income households; 4,690 “low”-income households; and 3,901 “moderate”-income households in the City of Alameda in 2017 (out of a total of 30,587 households).

Which brings us to the bottom line:

  • The market-rate rent for one-, two- and three- bedroom apartments exceeds the affordable rent for the 8,289 Alameda households in the “extremely low” and “very low” income categories.
  • The market-rate rent for two- or three-bedroom apartments exceeds the affordable rent for the 4,690 households in the “low” income category.  And only a “low”-income household with four persons – and a household income of $89,600 – can afford a market-rate one-bedroom apartment.
  • The 3,901 households in the “moderate” income category have sufficient income to pay the rent on a market-rate one-bedroom apartment.  A “moderate”-income household with two, three, or four persons can afford a market-rate two-bedroom apartment, but only a “moderate”-income household with four persons – and a household income of $125,300 – can afford a market-rate three-bedroom apartment.

We’ll leave the rhetoric to the politicians, but the data demonstrates that there is indeed a housing affordability gap (as we’ll call it) in Alameda.  Nearly a third of all Alameda households can’t afford a market-rate apartment of any size.  Another 15% do not earn enough to rent a market-rate two- or three-bedroom apartment.  And yet another 10 percent are stretched to afford a market-rate three-bedroom apartment.

The challenge for Mr. Levitt and his staff is to come up with recommendations for what the City can do to close the housing affordability gap.  We’ll tee up the issue by asking a series of questions.

At the outset, let’s take one “solution” off the table.  Rent control, the darling of tenant activists and “progressive” politicians, isn’t a way to narrow the gap.  A rent-control ordinance would cap future rent increases; it would not reduce existing rents.  Moreover, to the extent that such an ordinance causes landlords to take properties off the market, it would decrease, not increase, the supply of housing, including affordable housing.

Theoretically, market factors could bring more housing within the reach of more people:  Wages are rising, and, if the trend continues, perhaps Alameda households in the lower income categories could move up to levels at which market-rate rents become affordable.  Alternatively, if a recession occurs, rents as well as other prices might fall.  If so, perhaps more households in the lower income categories would be able to afford market-rate apartments.

But we know of very few policy-makers – and none of them Democrats – who would advise waiting for the market to close the housing affordability gap.  So the issue remains what our local government can do to fix the problem.

For years, our City Council has been passing laws intended to compel – or encourage – private, for-profit developers to supply the affordable housing needed by Alameda residents.

The strategy began in 2003 when Council passed the inclusionary housing ordinance requiring that 15% of the units in a new residential project consist of affordable housing (4% apiece for “very low” and “low” income households and 7% for “moderate” income households).  Then, in 2010, Council adopted a density bonus ordinance that allowed a developer to increase – substantially – the number of market-rate units in its project if it bumped the affordable percentages to 5% for very-low income units or 10% for either low- or moderate-income units.  Finally, in 2012, Council amended the zoning ordinance to create a “multi-family overlay” permitting 30 units per acre (rather than the usual 21) to be built on land to which it applied.  If the total number of units went up, so would the required number of affordable units, since the latter is calculated as a percentage of the former.

So how has this strategy worked out?  We’ll avoid characterizations and stick to the facts.

Since 2014, the Planning Board and/or Council have approved, in whole or in part, eight private, for-profit residential projects with a total of 517 affordable units.  Here’s a table:

Project Total
Units
Very
Low
Low Moderate
Alameda Landing   284    25      6     16
Marina Shores     89      3      7       6
Del Monte   380    17    14      24
Alameda Point – Site A   800    48    80      72
2100 Clement     52      2      2        3
1435 Webster       9      0      0        2
Encinal Terminals    589    25    20      34
Alameda Marina    760    33    26      45
Totals  2,963  153  162    202

(We haven’t included the Shipways project, with 54 affordable units in a 329-unit project, because, according to the Planning Board minutes, the hearing on the development plan has been “continued indefinitely.”  Nor have we included the Alameda Landing waterfront project, with an anticipated 300 units, because a development plan hasn’t yet been submitted.)

As we have pointed out in previous columns, the total number of affordable units provided by these eight private, for‑profit projects falls below the number deemed necessary by the regional regulators to accommodate the projected growth in population and employment between 2015 and 2023:  444 very-low-income units, 248 low-income units, and 283 moderate-income units.  And those projects won’t produce anywhere near enough units to satisfy the need for affordable housing for current Alameda households in the lowest-income categories.

But the picture gets even more distressing.  The annual Housing Element reports prepared by the City show the number of affordable units for which building permits were issued during the year.  Here are those numbers beginning in 2014, the first year of the current RHNA “cycle”:

Very Low Low Moderate
2014 0 0 1
2015 16 15 11
2016 17 14 7
2017 18 4 5
2018 1 2 0
Totals 52 35 24

These figures include three projects – Stargell Commons, Littlejohn Commons (aka Del Monte senior housing), and Everett Commons (aka 2437 Eagle Avenue) – in which the Alameda Housing Authority, alone or with a partner, is the developer.  So the number of affordable units built by private, for-profit developers themselves has been scant indeed.

Could the City get more affordable housing built by requiring private, for-profit developers to include more very-low-, low- and moderate-income units in their projects?

That was the thought behind a Council referral submitted by former Councilman Frank Matarrese in June 2016 in which he proposed increasing the percentages in the inclusionary housing ordinance.  At the same time, Mr. Matarrese suggested amending the ordinance to require a developer to include an unspecified percentage of “workforce” units (i.e., units affordable by households earning between 120% and 180% of AMI) in a proposed project.

Council didn’t get around to discussing the referral till the week before the November 2016 election, when it asked for input from staff.  Ten months later, the new Council heard a staff report that dumped on both of Mr. Matarrese’s suggestions.  “The Council is correct in recognizing the severity of the affordable housing crisis,” the report stated.  However,

at this time construction and land costs are extremely high and further regulations that increase project costs could negatively impact financial feasibility and further exacerbate the crisis.  In the current economic climate, housing developments in Alameda are struggling to cover the existing costs of development.  Any change to increase development costs for housing at this time could be counterproductive and result in a constraint on affordable housing development as opposed to an increase in affordable housing.

Without actually taking a vote, Council left the affordable-housing percentages in the inclusionary housing ordinance alone.  It also declined to add a workforce housing requirement to the ordinance.

Mr. Levitt, of course, can reverse staff’s prior position, but it would be foolish for him to do so.  Mr. Matarrese, who brought up the idea in the first place, is no longer on Council, and three of the Council members who balked at it the last time around (Mayor Ashcraft and Council members Oddie and Vella) are still sitting on the dais.  So putting the squeeze on private, for-profit developers isn’t going to fly.

In any event, there wouldn’t appear to be a lot of land remaining for private, for-profit residential projects that would trigger the inclusionary housing ordinance.  The housing inventory prepared for the 2015-23 Housing Element identified 18 parcels available for residential development.  Already, the Planning Board and/or Council have approved projects on 11 of them.  And, given the long-standing antipathy between the City and the developer, it’s unlikely that any project ever will get built on the two parcels comprising the Boatworks.  Unless the City starts re-zoning commercial land to residential, it can’t expect to see many proposals from private, for-profit developers for new projects containing affordable housing in the near future.

So what’s the alternative?  Well, if the City can’t depend on private, for-profit developers to meet the needs of its residents for affordable housing, maybe it ought to start exploring ways to do so itself.

If he cares to, Mr. Levitt could read our prior columns approving this approach.  Or he could sit down with Bill Smith or Laura Thomas of the Renewed Hope housing advocacy group and hear what they have to say.  We doubt it will be much different from what they’ve been saying publicly for years.

“We need to draw on sources other than market-rate housing to finance affordable housing,” Mr. Smith told Council last April.  “[U]nless we provide additional funding for affordable housing,” he warned, “the State is moving toward taking away much of our ability to shape development in our city.”

Thereafter, Mr. Smith argued to both the Planning Board and Council that new market-rate residential projects may exacerbate, rather than ameliorate, the existing shortage of affordable housing.  Instead of such projects, he said, the City should pursue “social financing methods for affordable housing,”  including philanthropic, business and governmental sources.

For her part, Ms. Thomas has suggested, among other things, that the City issue affordable-housing bonds (like the County of Alameda and the City and County of San Francisco have done) and/or establish an affordable-housing fund to which the so-called “boomerang funds” from the former development agency and the City’s share of profits from Site A would be deposited.  She also has endorsed accessory dwelling units (“ADUs”) and “manufactured housing” (aka mobile homes) as ways to add to the City’s supply of affordable housing.

Who would put together affordable-housing projects for the City?  Well, the Alameda Housing Authority has plenty of experience in that area, both on its own and with a non-profit developer as a partner.  Indeed, the AHA has played a role in every project dedicated to affordable housing that has seen the light of day in the last few years.

As previously noted, the AHA has built two projects that allowed a private, for-profit developer to meet the requirements set by the inclusionary housing ordinance to provide very-low and low income housing:  the 32-unit Stargell Commons for the Alameda Landing project, and the 31-unit Littlejohn Commons for the Del Monte warehouse project.  (In like fashion, Alameda Point Partners “assigned” its contractual duty to include affordable housing in the Site A project to Eden Housing, a non-profit developer that is proposing to build a 60-unit “family” project and a 70-unit “senior” project for very-low- and low-income households on the parcel known as Block 8.  APP is contributing $3 million of the construction costs.)

Moreover, the AHA has built affordable housing on City-owned land that was not related to a private, for-profit residential project.  The most recent is Everett Commons, 20 units of very-low- and low-income housing located on the site of the former Island High School, which the City acquired in a swap with the Alameda Unified School District.  Before that came the 62-unit Park Alameda apartment complex that replaced the Islander Motel and the 19-unit Jack Capon Villa for people with disabilities.

And the AHA has two more affordable-housing projects in the works.  One is conversion of the AHA-owned Rosefield Village into a 78-unit apartment building for extremely-low-, very-low-, and low-income tenants.  Another is construction of at least 90 units of permanent supportive housing for formerly homeless households on 12.3 acres of land conveyed to the City by the U.S. Navy at the former North Housing site.  (According to the AHA website, “AHA plans to build up to 489 units of housing over the entire site, of which permanent supportive housing is one part, and is currently undertaking a master planning process to redevelop the 12 acre parcel of formerly Coast Guard housing.”)

If Mr. Levitt and his staff chose to compare the AHA’s track record to that of private, for-profit developers, they might very well conclude that the better way to get more affordable housing built in Alameda is to direct the City’s resources, in time and in money, to its own housing agency.

We don’t mean to suggest that the new City administration should delegate the task of providing affordable housing exclusively to the AHA.  But we do think the challenge of finding pragmatic ways to close the housing affordability gap is one worth accepting.  Otherwise, for the next few years all we’re going to hear is “Build, baby, build.”  The issue deserves more thoughtful consideration than the sloganeers are willing or able to give it.

Sources:

Housing Element: 2014-07-15 Ex. 1 to staff report- 2015-2023 Housing Element; 2015-11-03 Ex. 1 to staff report – 2014 Annual Housing Element Report; 2016-09-12 staff report to PB re H.E. annual report; 2017-03-13 staff report to PB re H.E. 2016 annual report; 2018-03-12 Ex. 1 to staff report – 2017 Housing Element Annual Progress Report; 2019-03-19 Ex. 1 to staff report – General Plan Annual Report

Matarrese referral: 2017-09-19 staff report re inclusionary housing ordinance

AHA report: AHA, FY 17-18 annual report re rent stabilization ordinance

North Housing: 2018-11-14 AHA development plan

About Robert Sullwold

Partner, Sullwold & Hughes Specializes in investment litigation
This entry was posted in City Hall, Development, Housing and tagged , , , , , , . Bookmark the permalink.

1 Response to Memo to the City Manager (Part III)

  1. Allan Mann says:

    Has anybody looked seriously into building housing (affordable and/or otherwise) over the huge parking lots at shopping centers, leaving the first level for parking. I’ve seen that work on a small scale in LA.

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