Recommendations to the Davis City Council for Downtown Housing Projects
Soroptimist financial empowerment talk is April 24

Reply from city staff concerning Sierra Club's downtown housing recommendations

The following email was received by members of the Sierra Club Yolano Group Management Committee yesterday (Apr 4, 2024) in response to the email outlining the recommendations of the Sierra Club Management Committee for Davis downtown housing projects:

Thank you for taking the time to send us your thoughts on the downtown Davis housing projects.  While your email has been received by the City Council members, I want to take this opportunity to respond to your comments.

  1. As you have correctly noted, both the Lumberyard project and the project at 240 G have a 5% affordability requirement. Both of these projects applied for approval when our housing element was not certified and our new inclusionary ordinance had not gone into effect and were therefore afforded the ability to lock in the previous affordability rate of 5%.  Our new inclusionary housing ordinance, which complies with State Law, limits the affordable housing cap to 15%.  The City of Davis cannot require more than 15% as we are unable to demonstrate that it is financially feasible to construct a project with more than 15% affordable units included.    The project at 4th and G, which proposed 20% affordable units under a different provision of the law, is not moving forward as it has been withdrawn.
  1. As you know, parking is not required in the downtown Davis specific plan area. The Lumberyard project has no associated parking while the 240 G project has some underground parking.  Both projects are providing a space for a shared car and pick up space for a ride share car.  Disabled parking is not required if no parking is required. Therefore, the 240 G project will have some ADA accessible parking.
  1. Both of the referenced projects have provided large, indoor bike storage rooms within their projects. Charging stations will also be provided.
  1. Both of the referenced projects have planned for large recreational spaces. 240 G has space planned on the roof of the building.  The Lumberyard includes more traditional space planned for the interior courtyard areas of the project.
  1. Both projects are being conditioned to plant and maintain landscaping in accordance with city standards.

Please let me know if you have any further questions or comments.

SHERRI A. METZKER

Community Development Director

Comments

Roberta L. Millstein

This is not a very responsive reply -- it does not address most of the issues raised in the original recommendations and glosses over past mistakes made. It seems to imply that the City is already addressing what issues it can, which is not true.

R Keller

One response js really misleading : “ The City of Davis cannot require more than 15% as we are unable to demonstrate that it is financially feasible to construct a project with more than 15% affordable units included.”

Yes, State law requires findings. But several years ago the City hired a consultant who produced a crappy pro forma analysis that was subsequently shelved. See this:

https://www.davisite.org/2023/01/comments-on-inclusionary-multifamily-rental-housing-ordinance-review.html

The City has never followed up to do an adequate one. One conclusion that can be drawn is that providing a higher amount of affordable housing is simply not a priority at all for them.

Greg Rowe

Just a few observations from the context of having served as the Chair of the City's Housing Element Committee.

The City response is correct. State law prohibits cities from adopting an inclusionary housing ordinance (i.e., Affordable Housing ordinance) that requires more than 15% of a project's units to meet affordability requirements, unless that city prepares and submits to the State Department of Housing and Community Development (HCD) a fiscal analysis demonstrating that such a requirement is fiscally feasible. The rationale for this requirement is that in the past some cities attempted to completely block the construction of affordable housing by setting the bar so high that nothing could be built; for instance, requiring that 25% or more of the units meet affordability definitions.

In addition, the City has commissioned 2 affordability studies that demonstrated that requiring even 15% of the units to be affordable can render many projects fiscally infeasible. The first was the "Plescia Report" in 2018. To ensure the accuracy of that consultant report, the City even paid a second consultant to review that report to corroborate its findings and conclusions. More recently, the City commissioned a second fiscal feasibility study by a different consultant, which essentially reached the same conclusions.

And let's not lose sight of the fact that "affordable housing" is essentially subsidized housing. If a developer meets the 15% requirement for a 100-unit rental housing project, that means that the tenants of the other 85 units end up paying higher rent to subsidize the cost of providing affordable housing to the occupants of the other 15 units.

After working in redevelopment for a number of years, serving on the Planning Commission since 2018, and chairing the Housing Element Committee, I've concluded that the historical approach to providing affordable housing is simply not very workable. It makes new projects too difficult. I think a far better approach would be an approach suggested a number of years ago by former Mayor Robb Davis. That is, seek voter approval of a modest parcel tax that would be used exclusively to fund the City's Housing Trust Fund. Such an approach would be equitable because it would spread the cost of affordable housing among all existing property owners. Approval of such an approach would mean that in approving it, Davis residents would be given a chance to truly demonstrate their commitment to affordable housing.

Some commenters on the Sierra Club proposal questioned the elimination of parking. Again, State law comes into play here. Under current law, a city cannot mandate minimum parking requirements if a proposed housing project is near a "high quality" transit stop. Most new projects coming on line in Davis, especially downtown, meet this requirement. Some people have questioned whether the absence of parking will dissuade renters and buyers. My response is that it will be pretty much self-selecting. In other words, if someone feels they really need a car, they will rent elsewhere. If a person does not want the expense of owning a car, and feels that Zip, Uber, etc., will meet their needs, then downtown Davis living will be perfect for them. In any case, I think it is an approach that must be tried.

I am the 2024 chair of the Planning Commission, but these thoughts are strictly my own.

R Keller

GR said:

“In addition, the City has commissioned 2 affordability studies that demonstrated that requiring even 15% of the units to be affordable can render many projects fiscally infeasible. The first was the "Plescia Report" in 2018. To ensure the accuracy of that consultant report, the City even paid a second consultant to review that report to corroborate its findings and conclusions. More recently, the City commissioned a second fiscal feasibility study by a different consultant, which essentially reached the same conclusions.”

Here’s the real history: The Plescia report was so shoddy, it got shelved at the Finance Commission stage in 2018 rather than go through a public vetting process. The second report that followed after five years of inaction by the City was just as bad (and it also only looked at multifamily rental housing rather than a full range of housing types). It’s embarrassing that you would try to defend those as a basis for policy-making.

If you want to engage in the issue beyond superficial handwaving, here’s my analysis from January 2023 of the latter report, in as well as a critique of the City’s general lack of seriousness in approaching affordable housing.

https://www.davisite.org/2023/01/comments-on-inclusionary-multifamily-rental-housing-ordinance-review.html

I have copied the text here:

Davis City Council comments 1/17/2023

Item 5: Inclusionary Multifamily Rental Housing Ordinance Review

I have comments on the product and process:


1) It is an overly simplistic, opaque study with bad assumptions.

The pro forma analysis has a lot of “black box” qualities: Doesn’t show the calculations used or major assumptions, so it is not possible to adequately vet, double-check, and critique the methodology, assumptions, and calculations.

The study doesn’t use a sophisticated pro forma analysis: it is very crude and basic and doesn't allow changes in parameters of things like number of stories, unit sizes, and parking construction types and configurations.

Because of this simplistic and opaque approach, it doesn’t offer flexibility in analysis or running different scenarios beyond the very limited canned ones shown.

One terrible assumption: it considers one major parameter as given---the underlying land price.

If even the 100% market units don’t reach the 12% IRR threshold in the pro forma, then that tells me that the land price assumption is too high because we have had recent development proposals for multifamily development

The fact is that land value varies by its scarcity and demand.

This is a massive flaw as the City’s own density, parking, and inclusionary requirements have large effects on this parameter and hence development feasibility.

If you increase affordable housing requirements, you reduce the bidding demand price for land

In reality, land costs are not fixed and are influenced by the IRR that projects can achieve. If you make more affordable units required, that should actually lower land costs because the rate of return is now lower.

Another issue: bringing up reducing/eliminating development/impact fees as the only feasible way to make projects work. If projects don’t cover their own impact costs, you are increasing City debt and subsiding developer profits. I’m shocked that this is the only solution put on the table by the consultants.

There is also a statement on page 39 that “No incentives are needed in a policy that requires 15% - 25% of small, workforce units.” However, there is no data or analysis provided for this assertion.

In actuality, small units don’t usually end up providing affordability. The most expensive components of units are the kitchens and HVAC systems. Small units have much higher per square foot costs.

The City of Davis has seen this inefficiency in the exorbitant proposed rents for the Olive Drive Mixed Use Project even after eliminating parking requirements.

2) Ironically, one good thing about the study is that it shows the City’s planning failure in targeting densities and incentives to get maximum production of affordable units.

It states “Downtown’s new form based code does a great job at removing barriers to development. Unfortunately, this limits our options to offer development incentives as part of the policy.” and the “Residential high density zone encourages development that is denser than what is typically seen in areas outside of Downtown Davis and already removes commonly known barriers to multifamily development.”

But a terrible assumption of the report is that the City can’t modify its density and parking requirements so that they can be used as incentives for increased affordable housing requirements.

If you allow too much default density and reduce parking requirements in a given zoning district up front, you have given away for nothing incentives that you could offer for affordable housing production.

3) There is a failure in City’s process with the Housing Element Update lead to this.

It has now been almost 5 years since the City scrapped its Affordable Housing Ordinance (AHO) for its interim ordinance that drastically weekend Inclusionary requirements.

After breaking deadlines multiple times, back in May 2021, staff stated that it would finally provide a “comprehensive update” to the AHO as part of the HEU. But the HE just ended up kicking the can down the road further.

The very limited nature of the report under review right now demonstrates the need to comprehensively address housing policy, not do it piecemeal like this.

We must think holistically:

The City lost an opportunity with the HEU, and needs to to re-group with actual affordable housing advocates leading policy rather than an advisory group stacked with development interests that pushed failed free-market trickle-down approaches.

A proper approach is to carefully craft incentives such as increased density and reduced parking requirements that offset affordability requirements. Simply having large allowable densities and allowing by-right development without strengthening affordability requirements is bypassing half of the equation. Density does not necessarily (and usually doesn’t) equal affordability. Providing half of the equation in terms of incentives without receiving the other half in terms of actual commitments to affordability is missing the point.

Conclusion: This study is a poor excuse for a comprehensive analysis of the City’s actual policy option for increasing affordable housing production. The analysis put its thumb firmly on the scale to try to justify a weakening of the City’s inclusionary housing requirements. They claim that the requirements eat into developer profit margins and make it so projects won’t “pencil out,” In contrast, actual economic analysis of the results of implementing inclusionary programs does not bear this out:

“The most highly regarded empirical evidence suggests that inclusionary housing programs can produce affordable housing and do not lead to significant declines in overall housing production or to increases in market-rate prices” (National Housing Conference’s (NHC) Center for Housing Policy: “Separating Fact from Fiction to Design Effective Inclusionary Housing Programs.” https://nhc.org/wp-content/uploads/2017/10/Separating-Fact-from-Fiction-to-Design.pdf

“In fact, inclusionary policies may even promote more market-rate development in cities with very constrained housing markets...There is no credible evidence to suggest that inclusionary housing policies lead to lower rates of housing production. This is likely because developers are able to adapt to flexible inclusionary housing policies by bargaining over land prices and adjusting their profits in the short run.” landowners.https://inclusionaryhousing.org/wp-content/uploads/2016/09/Economics-of-Inclusionary-Housing-Policies-Effects-on-Housing-Production_a.pdf

The City should use evidence-based local policy solutions that further goals for inclusive, equitable, and affordable housing solutions.This process and product is not adequate.


Ron O

Greg Rowe: "If a developer meets the 15% requirement for a 100-unit rental housing project, that means that the tenants of the other 85 units end up paying higher rent to subsidize the cost of providing affordable housing to the occupants of the other 15 units."

There is no evidence for this statement. Landlords charge the "market rate", regardless of their costs (or lack thereof).

If your belief was correct, long-time landlords across the entire city would be charging based upon their (original) costs, rather than the "market rate".

This is akin to someone saying, "well, I only paid $100K for my house 25 years ago, so I'll only ask for perhaps $150K for it when selling it". (When it might actually be worth $700K, today.)

R Keller

Greg Rowe said above "In addition, the City has commissioned 2 affordability studies that demonstrated that requiring even 15% of the units to be affordable can render many projects fiscally infeasible. The first was the "Plescia Report" in 2018. To ensure the accuracy of that consultant report, the City even paid a second consultant to review that report to corroborate its findings and conclusions...."

This attitude really contrasts with comments that a certain Greg Rowe made at the time: "As an example, during the past year the Planning Commission, of which I am a member, has on several occasions received very important reports and only had the benefit of 5 days to review the material; i.e., from the time our packets were available Friday night until the following Wednesday evening meeting. A good example is the revisions to the affordable housing ordinance and the "Plescia report" that served as background to the ordinance amendments. The Planning Commission and Finance/Budget Commission should have been afforded 2 meetings we review, analyze, ask questions, and receive written responses back from staff before those commissions were expected to render a recommendation to City Council." - April 16, 2019 in a comment on this article: https://www.davisite.org/2019/04/extortion-in-davis-not-from-measures-jr.html

Like I said previously, there were so many problems identified with the Plescia report by the Finance/Budget Commission that it was shelved. The report was bad and, as Greg Rowe stated at the time, the process was bad. To my knowledge, there wasn't a follow-up report that "corroborate(d) its findings and conclusions." I'd have to see what document Rowe is referring to here and look at the history of the City vetting an approval of that supposed document to make further comment.

A big question I have is why is the present-day Greg Rowe seeking to revise history with a much more rosy view of what the City has done compared to the Greg Rowe from five years ago, especially given the City's overall inaction on and weakening of its affordable housing provisions in that timespan?

David J Thompson

I pointed out a year ago that the Plescia report was only done (and not done well) on the basis of costs associated with land within the City of Davis.

I argued in the Mace/ Ramos property discussion that the project should have a 25% affordable housing requirement.

Land outside the city is much cheaper and setting aside land for 25% would quite likely prove economically feasible.

The developer has only to give the land. However, they do not need to build it and the state subsides pay to bring costs down to very low and low income families.

I am sure that any development brought in will show land for affordable housing is feasible.
The city could choose to do that but neglects that option.

If land costs do rule it out then do fewer acres for parks etc. Each acre costs the same.

I agree with Ron O that the market sets the price and is not related to the cost of project being lower.

I doubt that the recently approved Lumber Yard will be less than market even though they saved millions by not needing to do any parking.

I also agree with the critique by Rick Keller. In particular, the city's mismanagement and neglect of affordable housing policy defeats the City's ability to attack the problem.

David J Thompson
My own thoughts and not associated with any other entity

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