One of the most contentious issues facing Berkeley is how to require developers to help provide affordable housing. We are proposing a new approach.
Everyone agrees we face a critical shortage of affordable housing, but what’s the best way to increase it?
Under current City law, developers of market-rate rental housing projects are required to pay an “affordable housing mitigation fee” into the Housing Trust Fund, which funds affordable housing in Berkeley. There was considerable debate when we voted with a majority of the City Council on April 7 to maintain the current fee of $20,000 per unit until July 1.
Some people say we should charge more for the fee, but that makes little sense since developers typically aren’t paying the current amount. The reason they’re not paying it is that the City law contains an exemption from the fee if developers include some affordable housing in the project. And by including affordable housing, developers win a second bonus. Under a separate state law – called the “state density bonus” – including affordable housing allows them to add up to 35% more units in the project. So developers in Berkeley generally include affordable housing in the project and avoid the fee.
Here’s an illustration: a 100-unit project could either pay an affordable housing fee of $2 million (100 units x $20,000) or provide affordable units in the project and add up to 35% more units under the State density bonus. The allowable amount of extra units varies according to how much affordable housing is added. By including 13 units of affordable housing, a 100-unit project could grow to 135 units under the State density bonus and, at the same time, avoid paying the City’s affordable housing fee mitigation fee. (Affordable housing in this case consists of units affordable to very low income households, which means a family of four that earns up to $46,450.)
The result is that the Housing Trust Fund is not receiving affordable housing fees.
But, you may ask, why should we care about the Housing Trust Fund if the affordable housing is being provided on site in the developers’ projects? We still get affordable housing.
The answer is that we get much less affordable housing when developers provide it directly. Fees paid into a fund can be used to leverage additional funding from other sources. A generally used ratio is 3-to-1 for the amount of affordable housing that can be provided through fees versus units supplied by developers on site.
So we need more of an incentive for developers to pay the fee.
Simply raising the fee is obviously not the answer. If developers currently aren’t paying $20,000, why would they opt to pay even more? They see more profit in providing affordable housing on site, largely because including a few affordable units gives them many extra market-rate units and an exemption from the fee.
We believe the solution is a “City density bonus.” Our proposal — on the April 28 City Council agenda – would give developers an option to the State density bonus. They could still get the extra bonus units, but rather than provide the affordable units on site, they could pay a fee into the Housing Trust Fund. (The State density bonus can be obtained only by providing affordable housing on site, not by paying a fee.)
The developers would gain more units and the community would gain more affordable housing. Based on discussions with multiple stakeholders, we believe one workable scenario would be a fee of $10,000 per unit (subject to future adjustment by the Council). This $10,000 City density bonus fee would be in addition to the City’s affordable housing mitigation fee, which is currently $20,000 per unit, for a total $30,000 per unit. Both fees would be applied to units in the base project, not the additional density bonus units.
In the 100-unit example cited above, the City density bonus would help the developer by allowing 35 extra units, and it would increase the affordable housing supply. Instead of a dozen affordable units that the developer would include on site under the State density bonus, the developer would pay $3 million (100 units at $30,000 per unit) into the Housing Trust Fund, which could be leveraged for a three-fold increase in housing — to about three dozen new homes for very low income households.
We hope the community and our colleagues on the Council will support a City density bonus as an effective option for Berkeley to provide more affordable housing.
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