Transferring development rights to allow for taller buildings. Increasing the amount of affordable housing required for large developments. Offering developers a discount if they pay into the Housing Trust Fund at the beginning of the development process rather than the end.
These were some of the ideas tossed around Tuesday night at a special city council meeting held to discuss affordable housing. While nothing was decided, the meeting brought together a broad array of people involved in housing, from economists at the Association of Bay Area Governments (ABAG), to UC Berkeley professors specializing in housing and gentrification, to developers, consultants, affordable housing developers, Berkeley planning staff, and people involved with government subsidized housing.
There was broad agreement that the current economic boom has increased the demand for housing and has driven rents up to new highs. A report prepared and submitted by Dee Williams-Ridley, Berkeley’s interim city manager, said rents in Berkeley have increased 12% over the last year and now average $3,584.
Half of the renters in the Bay Area pay 30% of their income on housing, and a quarter pay 50% of their income, according to Cynthia Kroll, ABAG’s chief economist. Berkeley has seen higher population growth than other Bay Area cities in recent years, but has built less housing, she said.
Labor costs to build projects have skyrocketed, contributing to the expense of construction, which translates into higher rents, according to Patrick Kennedy, a developer whose company, Panoramic Interests, constructs multi-family housing projects in Berkeley and San Francisco. In a five-month period in 2015, labor costs went up from 11% to 25%, depending on the complexity of the project, he said.
In the past 14 years, only 427 units of below-market-rate housing have been constructed in Berkeley, according to Eric Angstadt, the city’s planning director. The vast majority of those were built before 2012. Only 31 affordable units have been built in the past four years, he said. There are another 175 in the pipeline.
Given the crisis over housing, the different groups who presented to the city council agreed there is no magic bullet, no single thing that can be done to improve housing affordability. Instead, Berkeley needs to consider a number of different approaches, ranging from additional fees and taxes, streamlining zoning, and building on city or school-owned property, among other measures.
The central question of the night was how to get money in Berkeley’s Housing Trust Fund. Developers must currently make around 10% of the apartments in their projects affordable or instead can pay a $20,000 per unit in lieu fee to the Housing Trust Fund. Other monies in the fund come from the Inclusionary Housing Ordinance, the Condo Conversion Ordinance, and the housing mitigation fee on commercial development, according to Williams-Ridley. Dollars deposited in the HTF can be leveraged with state and federal housing money and are more flexible than other dollars.
“Having any City funds helps, and having a greater portion of City funds can help projects be more competitive for state funds under scoring criteria related to leveraging,” said the report.
Berkeley currently has around $3 million in the Housing Trust Fund, although half of it is committed to current projects, said Amy Davidson, senior community development project coordinator. The amount of money in the HTF varies from year to year and is never consistent. The HTF needs about $5.1 million to $14.8 million annually to build the housing the city needs, according to Williams-Ridley’s report.
Carole Norris, the chair of the board of the Berkeley Housing Authority, struck the darkest tone of the speakers, commenting on how escalating prices have already changed neighborhoods. She expressed particular astonishment that a house near San Pablo Park — not considered one of Berkeley’s tonier neighborhoods — just sold for more than $1 million.
“We face a difficult environment for affordable housing,” said Norris. “Unless we take action, the opportunity to keep Berkeley the amazing community it is will elude us… We have seen an increase in luxury housing development in what were once our most affordable neighborhoods.”
Kennedy and Mark Rhoades, whose Rhoades Planning Group just helped the 302-unit apartment complex at 2211 Harold Way get its entitlements, talked about city and state impediments to completing projects. They said those roadblocks not only added costs to projects, but slowed down their completion which ultimately meant there are fewer new apartments put on the market. Both men have previously said that having more market rate apartments in Berkeley will lessen the rent pressure on older housing stock.
“Any more costs you add will reduce supply,” said Kennedy.
He said there are three things Berkeley can do to encourage development of affordable housing. They include allowing car-free development. Each parking space can cost $75,000 to construct, he said. Berkeley can also allow “micro-design,” which he defined as small, but not tiny units around 725 square feet for up to four people. Everyone gets a small bedroom and there is a small communal space. The third thing Berkeley should do to make units more affordable is to allow more modular construction, he said.
Rhoades said that Berkeley has a plethora of fees and each project is reviewed by numerous commissions, including the Zoning Adjustments Board, the Landmarks Preservation Commission, and the Design Review Commission. This slows down construction considerably, which adds to the cost.
“We have let two generations of people in Berkeley go without a housing supply pipeline and we try to make up for the sins of the past by fees and regulations,” said Rhoades. “Berkeley is not a housing-friendly community.”
Dan Sawislak, the executive director of Resources for Community Development (RCD), said in this heated market his group is often competing with private, well-funded developers for prime development parcels.
“How do we buy sites when we are competing against folks with resources in a market that is really challenging?” said Sawislak.
The only way is if his and other affordable housing groups can use city money for pre-development planning. The Housing Trust Fund really needs to have funds that are predictable and stable.
“Every dollar the city of Berkeley puts into affordable housing not only leverages that amount three or four times, it stays as a community asset for generations,” said Susan Friedland, the executive director of Satellite Affordable Housing Associates (SAHA), which she characterized a “real-estate developers with a social purpose.”
Councilman Jesse Arreguín has suggested that Berkeley immediately make a $1 million loan to the HTF to spur the construction of affordable housing projects. The city council has not yet approved this idea.
The other issue discussed was federally subsidized housing. Berkeley sold the public housing it owned a few years ago and today provides rent vouchers to 1,900 people, according to Norris. She and Jon Gresley, former executive director of the Oakland Housing Authority, suggested Berkeley take money from the sale and use it to build more affordable housing.
The city council will devote a portion of its April 5 meeting to considering solutions for the affordable housing crisis. Among the solutions:
- Angstadt introduced the idea of creating a market for the exchange of development rights. People with low-rise buildings in the downtown, for example, could sell their right to construct a five-story building to a developer, who could then add that height to a nearby project. Berkeley could then allow non-profit housing developers to buy those initial density rights that had been sold. The exchange could reduce city subsidies and result in a wider range of affordable housing.
- Mayor Tom Bates plans to introduce a provision that will increase the required percentage of affordable housing in a project from 10% to 20%. The city council will also reexamine the amount developers pay as in lieu fees. It is set at $28,000 per unit (but has been lowered to $20,000 as an incentive.) A recent study that the city council has not yet considered suggests the fee should increase to $34,000. Bates also suggested that developers be allowed to pay the lower fee if they make the payment when they take out a building permit rather than when they get an occupancy permit. Bates also wants Berkeley to consider adding its own density bonus on top of the state density bonus.
- Create a windfall profit tax on rentals. Stephen Barton, the former Director of the Berkeley Housing Department, said there are 19,500 rent stabilized units in Berkeley. Rents from these units went from $166 million in 1988 to $366 million in 2015. There was a $21 million increase in rents from 2014 to 2015 alone, Barton said. He said a large amount of rent charged is not needed to maintain a building and earn a profit, but is merely an “admission charge” to be in Berkeley. The public has made Berkeley a great place to live by enriching its culture and history and consequently the public is entitled to recapture some of that value, said Barton. He is proposing that Berkeley increase the business tax it charges for each rental unit. If the current tax rate of 1.081% tax goes up to 1.8%, it would bring Berkeley an additional $4 million. A 2.8% increase could bring $6 million to the city, he said. Voters would have to approve this and some of the funds could be used to build affordable housing.
- Councilman Kriss Worthington suggested that Berkeley accept “over-the-counter” applications by non-profit developers for HTF to speed their applications. Currently, developers must wait for a formal Request for Proposal issued by the city to request predevelopment funds.
- Councilman Laurie Capitelli suggested partnering with the Berkeley Unified School District to build housing for teachers on vacant school property. City Councilwoman Susan Wengraf suggested Berkeley build housing on land near its senior centers.
Despite all the ideas that will be discussed April 5, Worthington cautioned the council that it needs to act swiftly if it wants to put any housing measure on the November 2016 ballot.
“We have very excellent policy ideas that could be done as initiatives or ballot measures and in order to get them on the ballot we need to make a decision in a pretty prompt way,” said Worthington.
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