Our current housing affordability crisis did not arrive overnight, but is the result of special interest policy and political impediments in the entitlement, permitting, construction, and financing of residential projects on a region wide basis. Government is the biggest impediment to affordable housing due to the numerous fees and the time required for entitlement.
Affordable housing can only be met through multifamily rental housing, and in order to make that happen, strong fiscal incentives are required. Construction cost alone (excluding all city fees and land cost) are approximately $183,000 per unit and at a typical rate of return of 11% - 15%, with 27.5 straight year depreciation, each unit would require a monthly rental rate of at least $1,750 to cover construction costs. Government is the biggest impediment to affordable housing due to the numerous fees that are now levied at the city and/or county levels. The Home Builders Association of Northern California estimates that City fees are between $50,000 to $100,000 per dwelling unit depending on the City and product; this will add at least $478 to the monthly rent. Since the passage of Proposition 13, instead of paying for planning, permitting, building inspection, and public works through the City’s general fund, Cities have shifted these expenses directly to the development projects under “full cost recovery.”
The only way to equitably and truly achieve affordable housing is to increase the supply to meet demand. In 2000, Mountain View was approximately 98% built-out with only seven sites remaining for residential development but this is no longer the case. Due to an increased vacancy, wherein some projections forecast as much as fourteen years to absorb existing office space, there has been a precipitous decline in office / R&D rental rates. Class C office / R&D is now being converted into housing because there is simply no demand in the foreseeable future for office space. Currently, more than 75 acres previously zoned commercial are available for housing in Mountain View, but at the expense of eliminating a portion of our City’s future tax base.
Mountain View has approximately 855 subsidized units of which 596 are designated for seniors and, has provided more affordable housing over the past forty years than its neighboring cities. An additional 120 efficiency units for low income residents will be added this year. Mountain View has the second highest density in Northern California (again depending on whose survey you use) and both Palo Alto and Sunnyvale have far more jobs than residents. Geographically Mountain View simply doesn’t have the land to make a noticeable dent in this regional housing crisis. So what can we do?
We need to review the use of city, county, and school district surplus properties for housing in an environmentally sensitive manner, but only in areas where it is supported by the appropriate infrastructure (i.e., public safety, schools, public transportation, roads, water, gas, electricity, sewage treatment capacity, and open space). To advocate development without first addressing each of these elements is irresponsible because you risk creating future problems (common in many urban centers) that will diminish the charm and character of the area. The most important element is that we DO NOT denigrate the quality of life that Mountain View has achieved by adding housing in areas that don't fit the existing development pattern or do not have the infrastructure to support the density.
If we are serious
about resolving the housing affordability crisis then we need to “think
outside the box” on a regional basis and provide incentives to eliminate
this housing crisis, which is the focal point of my proposal.
On a regional basis we need to spur housing development through cooperation and by providing financial incentives, similar to what was common prior to the 1986 Tax Reform Act when there was a plethora of apartments, so many that in the 1960s it was cheaper to rent than to own. Once a city’s occupancy rate exceeds a certain level (say 95%) for a specified period (say 1 year) a city should become eligible for housing incentives and subsidies (similar in concept to enterprise zones) because even if the land is provided free of charge you still cannot build quality, affordable housing due to today’s exorbitant construction costs. Financial incentives and cooperation are necessary in order to reduce the investment risk and lower the cost as follows:
The objective is to allow investors to recoup their expenses through lower financing, project costs, and tax write-offs, rather than completely through rents.
Copyright © 2004 - 2005 Matt Pear. All rights reserved.