The RHNA and the real world

Everyone knows (as the saying goes) that the City of Alameda was the first Bay Area city (and, out of 109 cities, one of only two so far) to get its 2023-31 Housing Element certified by the State Department of Housing and Community Development.

The City thus has carried out the mission assigned by the State and regional agencies of designating sites available to accommodate 5,353 new housing units during the next eight years, including 1,421 units for very-low-income households, 818 units for low-income households, and 868 units for moderate-income households.

But let’s not congratulate ourselves just yet.  In fact, the real challenge lies ahead:  building the housing, particularly the affordable housing, called for by the Housing Element.  Which raises the question:  How likely is it that 3,107 new affordable units actually will be built in Alameda between now and 2031?

The short answer is:  Not bloody likely.

And before we find ourselves pilloried as a naysayer (or even a Republican), consider this:  City Planner Andrew Thomas agrees with us!

Let’s begin with the historical record.

For the last planning cycle (2014-22), the City was allocated 444 new very-low-income units; 248 low-income units, and 283 moderate-income units.  The Housing Element submitted by the City and certified by HCD met the VL/L quota by identifying three sites:  Encinal Terminals (234 units), Shipways (146 units), and North Housing (806 units), for a total of 1,186 VL/L units.

Guess how many housing units – in any income category – got building permits issued on those three sites during the last eight years.

That’s right:  None.

By pointing out this fact, we don’t mean to suggest that the City misled HCD by categorizing the three sites as VL/L for purposes of fulfilling its RHNA obligations.  As Mr. Thomas frequently points out, the Housing Element law allows a city like Alameda to count toward its “low income” quota all units “realistically capable” of being built on a site zoned at a density of at least 30 units per acre.  And the Encinal Terminals, Shipways, and North Housing sites all were so zoned.

Nor do we mean to suggest that no building permits were issued for affordable units during the last planning cycle.  Actual construction of affordable housing, however, was hardly . . . robust.  According to Mr. Thomas, approximately 22% (533 units) of all the housing built in Alameda over the last eight years was deed-restricted for lower-income or moderate-income households.  This included 267 units for very-low-income households, 161 units for low-income households, and 105 units for moderate-income households.  That’s a little more than half of the 2014-22 RHNA quota for affordable units.

For the next cycle, the RHNA affordable-housing quota is more than three times that of the prior period.  The Housing Element meets it by identifying two sources of new housing:  existing projects and sites newly zoned to permit residential use.  For each group, we’ll look at the likelihood that the very-low-, low- and moderate-income units included in the site inventory will actually get built.

Existing projects

The site inventory – Table E-2 in Appendix E to the Housing Element – begins with a list of 10 existing projects providing a total of 1,315 new units of very-low- and low-income housing, and 202 units of moderate-income housing.  Here’s an edited version of that part of the table:

Whether this number of affordable units actually gets built between now and 2031 depends on whether the developers deliver on their promises.

Of the 10 projects, five are being developed by non-profit entities, whom the Housing Element is counting on to build 818 very-low-income and 382 low-income units (and no moderate-income units).

Perhaps the major obstacle to building affordable housing faced by non-profits is arranging the necessary financing, which usually includes federal, state, or county grants as well as tax credits awarded by the state and sold to investors.  Like every other interest-rate-sensitive investment, an affordable-housing project is subject to the policy decisions made by Jerome Powell and the Federal Reserve.  But it is also subject – some would say, hostage – to the whims of legislators, bureaucrats, and even taxpayers.

As a result, the process of obtaining financing isn’t easy – or fast.  For example, Eden Housing was selected as the affordable-housing developer for Site A at Alameda Point soon after the DDA was signed in June 2015, but the two buildings containing affordable units weren’t constructed till 2020 and 2021.

Fortunately for Alameda, four of the non-profit developers responsible for projects in the site inventory have shown they can navigate the obstacles and produce concrete results:

• Alameda Housing Authority (North Housing and Tilden Commons):  AHA obtained funding for, and constructed, three affordable-housing projects in the city during the last eight years:  Littlejohn Commons (31 units), Everett Commons (19 units), and Rosefield Village (92 units).  Just last week, it received a $20,635,312 Multifamily Housing Program grant from the State for the senior apartments included in the North Housing project.  AHA acquired the Tilden Commons site (for $2.5 million) from the Alameda Unified School District in March 2022, and that project is still in the pre-development stage.

• Habitat for Humanity (Singleton):  Just ask Jimmy Carter.

• Eden Housing and MidPen Housing (Alameda Point):  Eden Housing will build
  very-low- and low-income units at Site A, and MidPen Housing (as part of a consortium called RESHAP that also includes three non-profit service providers) will do the same in the West Midway area.  Both Eden and MidPen are well-regarded firms, and Eden already has constructed 128 units of affordable housing at Site A (a “senior” building called “The Starling” with 59 VL/L units and a “family” building called “Corsair Flats” with 69 VL/L units).

The other non-profit developer (for the McKay Wellness Center) is the Alameda Point Collaborative, whose reputation, of course, is that of a housing provider rather than as a housing builder.  According to a presentation made by APC to Council in March 2022, APC was “awarded $15 Million in State Funding for one-time capital costs” to build the medical respite center included in the project.  We don’t know what, if any, progress has been made on arranging financing for the senior convalescent living facility that also is part of the plans.

In addition to the risks facing all non-profit, affordable-housing projects, the McKay Wellness Center also is subject to political risks that could jeopardize APC’s ability to provide the 100 very-low-income units included in the site inventory.  From the beginning the project has encountered especially vehement opposition, and we have no reason to believe that the opponents have given up on their efforts to kill it or cut it back.

The other four existing projects relied upon as sources of new affordable housing
(69 very-low-income units, 174 low-income units, and 202 moderate-income units) are part of larger developments spearheaded by for-profit firms.  In addition to being vulnerable to changes in interest rates, these projects also are subject to market risk.  As Mr. Thomas likes to argue, the market-rate units in a project “pay for” the affordable units.  If demand for housing slackens, and/or costs of construction increase, the overall project no longer may “pencil out” – and the affordable units will follow it down the drain.

Two of the for-profit developers are familiar to, but not always favorably regarded by, Alamedans:

• Boatworks, LCC (Francis Collins) is better known at City Hall as a litigant than as a homebuilder.  Indeed, the Boatworks project has been the subject of eight lawsuits between the developer and the City over the last 15 years.  In March 2020, the last three cases settled, and the Planning Board approved a 182-unit development that included 13 very-low-income and eight moderate-income units.  The developer still wasn’t happy, and it appealed to Council and got additional waivers.  No further official action has occurred since then, and it’s anyone’s guess whether the 21 affordable units in the site inventory ever will get built.

• North Waterfront Cove, LLC (Tim Lewis Communities).  Having gotten a revised version of the Encinal Terminals master plan approved by Council in February 2022, Tim Lewis Communities, a Roseville-based luxury home developer, is likely to flip the property to a developer with actual experience in building multi-family housing.  This is what it did with the Del Monte warehouse, but it took nearly five years after Council had approved the project for Tim Lewis to cut a deal.  Who knows how long Tim Lewis will wait to find a buyer for Encinal Terminals – or when the buyer will be ready to build the 80 affordable units in the site inventory.

Rezoned sites

The remainder of the new affordable housing in the site inventory — 684 very-low-income-, 695 low-income-, and 695 moderate-income units – is expected to come from eight sites or areas where the zoning amendments proposed by Mr. Thomas now will allow residential development (as well as from new accessory dwelling units).  Here’s an edited version of that list:

The first issue is whether residential development in fact is likely to occur on these sites, and, if so, how many new housing units can be expected from them.

Bear in mind, no project has yet been proposed, much less approved, for any of the sites on the list.  According to Mr. Thomas, however, a commercial property owner doesn’t need to have applied, or gotten approval for, a project that includes residential development for the site to be included in the inventory.  Rather, all it takes is for the owner to “express interest” in putting housing on its land.

As part of his work on the Housing Element, Mr. Thomas contacted commercial property owners with this standard in mind.  Out of nine shopping centers in the city, he found three owners who would entertain residential development.  These three sites made it into the inventory, each with the “capacity” – i.e., the total number of units – estimated by the owner.  In a similar manner, Mr. Thomas approached business owners on Park and Webster Streets.  He found six owners on Webster Street and three on Park Street who were open to the idea of putting housing on their properties.  These sites, and the sum of the capacity estimates provided by their owners, make up the “transit corridor” item in the inventory.

The three individual sites – 2199 Clement, 2363-2433 Mariner Square Drive, and 400 Park Street – likewise were added to the inventory as a result of contacts with Mr. Thomas.

The City planners thus had an evidentiary basis for including these commercial sites and capacities in the inventory.  Nevertheless, we wonder how confident one can be that the property owners will follow through and actually build the assumed number of new units – or any at all.  Pollsters are familiar with the danger of respondents who tell the interviewer what they believe she wants to hear.  And Mr. Thomas is a notably charming and persuasive guy.  As our grandmother used to say, there’s many a slip betwixt cup and lip.

The other two items in the inventory are accessory dwelling units and “infill” residential development (for which, according to Appendix E, the inventory includes only additional units resulting from converting existing single-family homes into multi-family housing).  Undoubtedly, some homeowners will want to add an ADU or convert their home between now and 2031.  The trick is to determine how many owners and how many units.

Mr. Thomas, of course, couldn’t interview every Alameda homeowner to assess his or her interest in adding an ADU or converting a single-family home during the next eight years.  And if he had chosen to rely on the public comments at Council and Planning Board meetings, he might have stricken these items off the list altogether.  When infill residential development was on the agenda, we don’t recall many folks calling in to say, sure, count me in.  More often, we heard declarations of outrage and defiance.

According to the appendix, staff based the numbers for these two items on historical evidence.  After Council revised the ADU ordinance in 2017, permits issued for ADUs averaged 40 per year and the trend was upwards.  Including 50 new ADUs per year in the site inventory thus isn’t unreasonable. (At one point in the process, staff  proposed to include 70 new ADUs per year.)

Infill units are a different matter.  Council adopted an ordinance implementing SB 9 and permitting duplexes in R-1 zones in January 2022, but the City didn’t get a single application for a new SB 9 unit all year.  Yet the site inventory assumes 20 new units per year resulting from conversions of single-family homes into multi-family housing.  This is lower than the 34 infill units per year staff proposed to include in the inventory earlier in the process, but it still seems aggressive.  We can’t help but wonder whether the City planners’ preference for infill residential development – which they worked so hard to make possible – skewed their prognostication.

Whether the totals for the rezoned sites in the site inventory are well-founded, however, isn’t the main issue under discussion.  Instead, our focus is whether the number of affordable units shown in the inventory actually will get built.  And on this question even Mr. Thomas is among the skeptics.

Take a look at the table above.  For each site, the number of affordable units, as a percentage of the total, is extraordinary.  Indeed, the inventory projects that:

• 90 percent of the new ADUs will constitute very-low-income, low-income, or moderate-income housing;

• 75 percent of the new housing on the three shopping center sites, the transit corridor sites, and the infill residential development sites will be VL, L or M units. (For the last three sites in the inventory, the comparable percentages are 72 percent for 2199 Clement, 75 percent for 2363-2433 Mariner Square Drive, and 73 percent for 400 Park Street).

Moreover, for seven of the nine items, the number of new very-low-, low-, and medium-income units is exactly the same.

Somehow, we find it hard to believe that the owner of, say, the South Shore shopping center actually will construct an 800-unit development in which the units are allocated evenly among the four income categories, with 75 percent of them being affordable by very-low-, low-, or moderate-income households.  Likewise, it would strike us as serendipitous indeed if the new housing built on Park and Webster Streets ended up in an even split among income categories, with 75 percent being VL, L, or M.

By contrast, it may be reasonable to expect that a goodly portion of the new units in residential districts would qualify as affordable by lower-income households.  Indeed, if an ADU or an apartment carved out of a single-family home is intended for use by family members like aging parents or unemployed children, the homeowner might not charge any rent at all.  Even so, we wonder how realistic it is to expect that construction of these units will result in an equal division among income categories or an overwhelming predominance of VL, L, and M units.

When we raised these points with Mr. Thomas, he emphasized that “there is only so much a local government can do” to create affordable housing.  Its role was to “remove barriers” to building lower-income units; having done so, it couldn’t force any developer to put shovel to ground.

For purposes of meeting the RHNA, Mr. Thomas reminded us, he could choose to allocate all of the units on a site zoned for at least 30 units per acre – as the shopping centers, for example, will be – to the lower-income categories.  If he didn’t need to do that to make the RHNA numbers work, he was free to put the units in whatever income category he wanted to (or even spread them evenly among all four categories).  Whatever his allocation was, it did not represent a prediction of what would happen in the future.  That was a matter beyond the City’s control.

And he went even further.  He didn’t really believe that 75 (or 90) percent of units built on rezoned sites would be affordable by very-low-, low-, and moderate-income households.  Nor did he really believe that, notwithstanding the bottom line shown in Table E-2,
56 percent of new housing built over the next eight years would fall into the VL, L and M categories.  More likely, he told us, a residential developer would build only the number of affordable units required by the inclusionary housing ordinance – 15 percent of the total project (25 percent at Alameda Point).  Any higher percentage simply wouldn’t be economically feasible.

A shortfall thus appears inevitable between the number of affordable units included in the site inventory and the number of affordable units that actually get built.  Is there anything the City can do about it?

Well, we have a suggestion – and it’s not completely facetious.

Here’s the governing principle:  If you want to get someone to do something, make it worth her while to do it.

As applied to the construction of affordable housing, this means that the City could think about offering incentives, financial or otherwise, to induce shopping center owners, Park and Webster Street business owners, and homeowners to build the affordable units called for by the Housing Element.  If enough of them take the bait, maybe the City can turn the projections into reality.

Consider the following plan:

• Suppose the City told homeowners that, if they added an ADU or converted a single-family home into apartments and agreed to rent the new units to very-low-, low- or moderate-income households, the City would make up the difference between the market rent and the reduced rent.

• Suppose the City told shopping-center or commercial-property owners that, if they built housing units and deed-restricted a specific (TBD) share of them to VL, L, or M households, the City would give them a cash bonus.

• Suppose the City told all property owners that, if they built one or more affordable units, the City would pick up all or part of the property tax owing on the new structure(s).

This plan would help the City encourage the actual construction of additional affordable housing.  And it would be far cheaper than having the City build the units itself.  Would it destroy the “character” of existing neighborhoods or ruin “quaint” shopping districts?  Only a NIMBY would care.

We’d be willing to bet that an enlightened politician like Mayor Marilyn Ezzy Ashcraft would jump at the chance to employ our first suggested alternative at her Grand Street home.  (Not that she needs the money.)  And surely she must know a Park or Webster Street business owner – maybe one of her campaign contributors – who might be tempted by our second alternative.  What say you, Madam Mayor?

Source:

2023-31 Housing Element: 2023-31 Housing Element (Sept. 2022 adoption draft)