There are other changes that we might recommend after receipt and review of the City’s most recent annual report on in-lieu fees and Cascadia’s most recent economic analysis of the City’s affordable housing program.

Current Status and Provisions of the Temporary Affordable Housing Ordinance

There are many different provisions for determining the affordable housing requirements of different sized projects and types of housing provided (e.g. ownership vs rental housing). Taking as an example a project comprised of greater than 200 units of for-sale housing, the following provisions of the Affordable Housing Ordinance would apply depending on the type of housing in the project.

Article 18.05 AFFORDABLE HOUSING

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18.05.050 Ownership development affordable housing standards.

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(a) Standard ownership affordable housing requirements. Any development that is comprised in whole or in part of ownership units shall comply with the following requirements, which shall be included in the development’s affordable housing plan.

(1) Affordable Housing Requirements, by Residential Product Type.

(A) For projects comprised of market rate single-family detached ownership units on lots larger than five thousand square feet in area, the developer must provide for a number of affordable housing units equivalent to twenty-five percent of the total units being developed, including the affordable units, by means of one of the methods set forth in this section.

(B) For projects comprised of market rate single-family detached ownership units on lots smaller than five thousand square feet in area, the developer must provide for a number of affordable housing units equivalent to fifteen percent of the total units being developed, including the affordable units, by means of one of the methods set forth in this section.

(C) For projects comprised of market rate single-family attached ownership units, the developer must provide for a number of affordable housing units equivalent to ten percent of the total units being developed including the affordable units, by means of one of the methods set forth in this section.

(D) For projects comprised of market rate stacked condominiums or ownership units within vertical mixed-use development, the developer must provide for a number of affordable housing units equivalent to five percent of the total units being developed including the affordable units, by means of one of the methods set forth in this section.

(E) Exempt projects as identified in Section 18.05.080 have no affordability requirements except as provided therein.

(F) For developments that are comprised of more than one residential product type, the affordable housing obligation shall be calculated for each product type separately and then aggregated, before rounding, provided, however, if a development is comprised of ownership and rental product types, the affordable housing obligations for the ownership and rental units shall be calculated and applied separately.

(2) Affordable Housing Requirements, by Project Size.

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(C) Projects Totaling Two Hundred One Ownership Units or More. The required affordable units shall be provided through the following methods, as more specifically described in subsections (b) through (f):

(i) On-site construction of affordable ownership units;

(ii) On-site construction of accessory dwelling units for rental to fulfill up to half of the requirement;

(iii) Through payment of in-lieu fees for no more than fifty percent of the affordable housing obligation of the project, if approved by the city council;

(iv) Provision of a land dedication site; and/or

(v) On-site construction of affordable rental units, if the developer voluntarily requests to satisfy its requirements through this alternative.

Recommended Changes to the Current Ordinance (see emphasized bold sections above)

1) Completely Eliminate the Maximum 50% Allowance for Accessory Dwelling Units (ADU) – The Accessory Dwelling Unit is typically viewed as a very modestly-sized standalone, self-contained structure on a private property parcel which has its own entrance, bathroom, and kitchen facilities. The current Affordable Housing Ordinance allows for up to 50% of a project’s required affordable housing component to be satisfied by the placement of ADUs in a project.

However, there is not even a rudimentary definition in the existing Davis Affordable Housing Ordinance of what constitutes an acceptable ADU in terms of its size and required amenities. Allowing ADUs to partially satisfy the requirement for affordable units in new projects is believed to have been first implemented when The Cannery housing project Development Agreement was being negotiated. At the time the stated understanding was that that the units would be subsequently rented by homeowners to lower income workers or students and thus decrease demand for other low income housing stock in the City. However, there is absolutely nothing in the Affordable Housing Ordinance that mandates the units be rented at all, much less rented at an affordable price.

Further, to our knowledge the City has never polled owners of ADUs in The Cannery to verify that the units have been rented and at what rate. It is believed the vast majority are used simply as office space or for living quarters for other family members of the primary household and not rented at reduced or subsidized rates to low income renters. Thus, the entire premise for allowing ADUs to replace subsidized purchase or rental by low-income residents has been circumvented to the developers’ obvious financial advantage.

If ADUs are allowed to replace subsidized ownership or rental housing as partial fulfillment of developers’ affordable housing obligation, it must be accompanied by a strict mechanism to ensure that the units are actually subsequently rented and at a price making them accessible to true low-income renters.  However, given the costs and difficulties of implementing such a mechanism, we recommend that ADUs simply no longer be allowed to count as Affordable Housing, period. In summary, we believe ADUs can be a valuable way to increase the amount of available housing overall, but they are a poor way to provide subsidized Affordable Housing.

Elimination of ADUs is also consistent with the subcommittee’s proposed acceptable Affordable Housing alternatives if on-site construction of affordable housing is financially infeasible, as follows:

“The secondary level of alternative compliance would allow for other means of compliance such as land dedication, creating services that benefit housing insecure households and making financial contributions to the Housing Trust Fund.”

2) Substantially Increase the In-Lieu Fees Allowed for up to 50% of the Affordable Housing Unit Requirements to Make it Financially Disadvantageous for a Developer to Employ - The Affordable Housing Ordinance should always require subsidized ownership or rental housing to be built if at all physically possible. In rare instances where site considerations may preclude construction of Affordable Housing on the site, in-lieu fees may be an appropriate alternative means of satisfying the developers’ Affordable Housing obligations. Under the current Affordable Housing Ordinance, up to 50% of the Affordable Housing obligations can be satisfied by payment of in-lieu fees which are specifically defined and variable under the current Affordable Housing Ordinance.

18.05.050 Ownership development affordable housing standards.

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(f) In-lieu fees. As an alternative to constructing on-site affordable housing within a development as required by this article, the affordability requirement may be fulfilled through the payment of in-lieu fees pursuant to an adopted fee schedule to be revised on an annual basis, provided that the payment of in-lieu fees has been approved by the city council following review of the project’s affordable housing plan. The city council will review a request for payment of in-lieu fees taking into consideration the following:

(1) Project gross and net density;

(2) Project size;

(3) Economic or planning feasibility of affordable unit provision by another means within the development;

(4) Projected housing costs of the project’s market rate housing/overall housing affordability of the project; and

(5) Accomplishment and trade-offs of other local policy objectives, including smart growth principles, accessibility, energy efficiency, etc.

However, there is potentially substantial downside to the City and the low-income community and substantial upside financial impacts to the developer(s) when this alternative mechanism is used to satisfy the affordable housing obligations. That is, if the in-lieu fee is so low as to provide a financial incentive to the developer to simply pay in-lieu fees to avoid actual construction of affordable housing, this will likely result in less construction of affordable housing.

We have requested, but not received, the most recent copy of the City’s annual report specifying the current amount of the in-lieu fees required to fulfill this obligation should the option be proposed by a developer.

In the past, the in-lieu fee proposed has been as low as $55,000 per unit of subsidized housing otherwise not built by a developer. But the cost to construct even a very modest 2-bedroom apartment by a developer for use as subsidized rental housing is in the range of $300,000 or more. Clearly there is an enormous advantage to a developer to forego construction of an affordable housing unit if they can otherwise just pay to the City a fee that represents only about fraction of that amount. Further, way too much latitude is given to Council to change the minimum in-lieu fees based on what a developer can convince them is feasible. Davis has a long, long history of concessions given to developers who claim that requirements normally demanded for projects “don’t pencil out” and then they are given waivers by the City because the City Staff and Council do not have the financial acumen and experience to push back.

Thus, we strongly recommend that in-lieu fees be increased to eliminate the financial incentive for developers to pursue them. Of course, this will have the added benefit of providing additional funding to the City for future construction or maintenance of Affordable Housing projects.