Yesterday I was interviewing Jon Li, candidate for the Davis City Council for an interview that will be published along with interviews with the other candidates starting on Monday. He made an interesting point to me that this council was elected three months before the collapse of Lehman Brothers.
The world of the 2008 City Council campaign saw a major focus on growth and Stephen Souza and Don Saylor argued that we needed to meet our internally generated housing needs, they spoke about a low vacancy rate, they spoke about students commuting in and out of Davis, a lack of range of housing within the city, and of course the lack approved projects and lack of building permits.
It is now two years later, and now the council has 300 housing entitlements set to expire because they have been approved but not built and yet only a handful building permits pulled.
And yet, we are still operating under that 2008 playbook. So I spoke before council on Tuesday night before the same council majority voted by the same 3-2 margin to continue the same policies and extend entitlements for another year.
It still fell on three deaf ears. Six months ago during the discussion of Willowbank, it was asked why the council was pushing forward with this development when the likelihood of it being built in the near future was highly unlikely. At that time, the council spoke in terms of ensuring the units were built in a timely fashion. Towards that end, the city has talked about incentivizing building permits. Has this worked? It appears not.
The council is ignoring the obvious, now is not the time to approve new entitlements. They keep coming back to the same place, houses are not being built. So why are they approving new developments? Why not wait until the market responds, rebounds, so that we can understand what exactly we need?
The problem here is that we do not know what the world will look like at that point. What year will it be? What kinds of housing will we need? What will the global climate look like? All of these things are changing rapidly. A decade ago, we didn’t think about climate change and energy efficiency so much when we built a new development, in five years, our current standards could well be out of date. And yet we are going to push through a rash of 2008-style housing developments?
Even more worrisome is that the city council rammed these projects through in the case of Willowbank and the case of Simmons Ranch without support from the neighbors. If we were not going to build these properties any time soon, why not continue to work on a more agreeable project. Six months ago, Stephen Souza lamented the fact that only Grande in his six year tenure on the council had full neighborhood buy-in, but what has he done to facilitate that? Why push through a project when it will not be built?
Now we keep hearing about the 1% growth target, which of course when I mentioned that on Tuesday, that was all Mr. Souza focused on. He missed this point which was more important than the difference between the word target and “cap”: The rationale that we are given for that is that the council does not want to see the boom and bust development that we have seen in the past. Well, we have now stored up 300 units whose entitlements are about to expire. At some point when the market clears up there will be a glut hitting the market at once, the exact scenario that they want to avoid.
Councilmember Souza responded, “What we are trying to do is see some of these projects, and when I say some, it might be far less than the one percent growth cap, it’s not a growth goal, it’s a cap. That is our valve at the end of the system, that shuts off if we ever reach 263 units.”
But then he continued, “We haven’t reached that in six or seven years. In fact, 25 units last year, 25 units the year before. The market is stopping all growth across the nation. The trends in the last report showed us that housing sales were up dramatically, existing housing sales, construction applications and permits were down dramatically. And it’s primarily due to lending ability.”
Mr. Souza I think believed I was arguing that the 1% growth cap was too high. He then responded with the wrong argument. My argument is that this is a world where you’re one percent growth cap is irrelevant. Why? Because you could approve 10,000 units and still have the same number of building permits taken out.
What is relevant is the way the council conducts its business and acts as though we are still in 2008 or before.
I say let the entitlements expire and then charge the developers to bring it back. That will produce the effect of telling developers that if they are going to take city staff time and push through a development, that there is a penalty if they fail to develop that property in a timely manner. The penalty is that they have to start over and go to the back of the line.
But that will not happen for this council. Instead we will see more examples as will happen with Verona. I understand that hearing is now scheduled for June 1 rather than May 25, next week. But what has happened is simple, the developer at Verona got their project approved in the fall of 2008 right after Mr. Saylor and Souza were reelected. They have now sat on their entitlements for two years. The world has changed. And they are asking for council to change their agreed upon terms as we reported on Tuesday.
No more park, no more middle level affordable units, and oh yeah, no more impact fees. That’s $700,000 that the city is not going to get if the council rubber stamps staff’s recommendation. Here we are in a fiscal crisis, we are asking the taxpayers to continue to shell out $3 million a year in a sales tax that originally went directly to salary increases, and we are returning $700,000 in impact fees that were already agreed to two years ago.
On Tuesday I talked about the costs to the city in terms of staff time, council time, and other things, Stephen Souza responded, “All processing of any application be it residential or non-residential, fees pay for the entire processing of that application it is not borne by the residents of this city.”
Mr. Souza does not get it. When staff is working on one thing, whether they are paid or not, that means they are not working on something else. When council has a three hour meeting talking about a development, that means that other issues like the budget do not get discussed. Moreover, as we see with Verona, when projects do not get built in a timely fashion it is costly in other ways. Now we face losing $700,000 or more in impact fees.
But the worst part is that all of this, except the elimination of the park, which is fiscally neutral for the developer but not neutral for the neighbors, was driven by the request of a developer. And the city staff instead of telling them they have their agreement, council is even going to give you an extra year to build your development, so hop to it, instead of that, council is siding with the developer over the neighbors, the citizens of Davis, and the taxpayers.
Worse yet, this sets the precedent that every developer whose project has not been built are going to come back to the city to ask for reductions of costs. The city is now deferring sewer hook up costs until the units are sold in hopes that it helps the developer build more units that right now, we do not need.
The good news is that the council that is seated in July will have two new members that were not elected in 2008 in a different world and we will see if that changes the way we do business. By January of 2011, we will have a whole new council majority, if we do not already by July. The first thing they need to do is change the way we do business.
All of the time, I get neighbors coming up to me and telling me about these projects and they ask my advice on what to do, and I always tell them to try to get the best deal they can. But as we saw in Simmons, in Willowbank, and now in Verona, that is bad advice. I think the advice I will now give is to spend their time trying to get signatures to put the development on the ballot, because that is the only way they can get a binding agreement with the city.
—David M. Greenwald reporting
DGM: ” I think the advice I will now give is to spend their time trying to get signatures to put the development on the ballot, because that is the only way they can get a binding agreement with the city.”
What do you mean by this exactly?
You have it exactly backwards. The economics of building have changed, and, probably so for the long run, yet you, who have consistently opposed housing development, now want to hold the line on deals that were made under much different economic conditions. Your argument that the city hold the line and tell the developer to hop to it would result in nothing getting built, the developers and the city both would have wasted a lot of time and money, exactly the outcome you claim to not want but one you would be happy with since it would result in nothing getting built your preferred outcome.
[i]”I say let the entitlements expire and then charge the developers to bring it back.”[/i]
What is the economic benefit in letting entitlements expire?
[i]”That will produce the effect of telling developers that if they are going to take city staff time and push through a development, that there is a penalty if they fail to develop that property in a timely manner.”[/i]
I don’t understand this logic. Put yourself in the position of the home builder for a moment: You invested a lot of money in land; you invested more in architecture, designing the layout of your project; you invested time and money getting the city to approve your project; and then, before you could build out your approved project, the demand for them disappeared, so much so that building at present is infeasible.
You know (or at least hope) that at some point the demand for housing will pick up again; you are willing to build out your units once the banks will finance your construction and other lenders will finance home purchases.
But now your opponents are coming along and saying that you should have your entitlements taken away because you could not build out right away? And if you want to ever build, you will have to start all over again and pay fees for staff time which you have already paid?
I can’t see how that makes any economic sense.
Also, it creates a real potential problem for future home buyers in Davis: you would be guaranteeing that when the economy rebounds and when financing becomes available and when buyers are ready to move here, there will be a long delay before any of these infill projects can get started. What that means is that home prices will shoot up in Davis, pricing out the so-called “desirable” middle-income buyers. That is beneficial to those of us who already own property. But it’s a very regressive action in terms of helping the haves at the expense of the have-nots.
My view is this: we don’t need to process any large new housing developments, because we already have quite a large number of units approved but not built (and West Village will be coming on-line). But let the market work. When the demand is there, those folks with the approved entitlements will start building, which serves the needs of people who have reason to buy homes in Davis. As they build out, then the city council can consider what to do with new applications.
One more thing on this “expiration” plan: If a developer has enough cash to self-finance his project*, putting an artificial end-date on when he can build-out could push a developer to do something that really does not help the public interest–that is, build out shells of homes and just let them sit there for a few years until the market rebounds. A developer might do that if you threaten to remove his entitlement, which greatly reduces the value of his land.
*I don’t think the self-financing option is possible with the locals who are building in Davis. But they could sell their projects to large corporations, like KB Homes, and a company that big might do that to avoid your entitlement time bomb.
Mr. Toad and Mr. Rifkin both make some good points. However, I’m not sure I agree to the extent I am willing for the city to arbitrarily (and in a rush) “redo” the development agreement to the extent it forgoes substantial city fees. What say you on this subject, Mr. Toad and Mr. Rifkin? I’d like to hear your take on that part of the issue…
Elaine: What I mean by that is if the city is just going to abrogate an agreement anyway, collect signatures on the decision and turn it into a referendum. At least then the agreement will be binding.
Rich: The entitlement expire unless extended. If a developer wants to put forth a project during rough economic times, he should be prepared to build it. If not, then he needs to pay a price for failing to build it.
Toad: How do you know what our needs are going to be and what the market is going to look like in five years? So why are we building according to yesterday’s model in a world that may hardly resemble yesterday’s world? That’s what I’m asking.
DMG: “Elaine: What I mean by that is if the city is just going to abrogate an agreement anyway, collect signatures on the decision and turn it into a referendum. At least then the agreement will be binding.”
Gotcha – and I am in agreement. I don’t like it when the city pushes through a substantial change in a hurry, without much time for meaningful citizen input…
[i]”Rich: The entitlement expire unless extended.”[/i]
I understand that, David. I just don’t see a real benefit to obstinancy, if they want a continuation. It is not as if the builders are not building in order to game the system or to benefit by avoiding a new regulatory regime. Their delay is entirely due to exogenous market circumstances they cannot control. Wouldn’t you make the same request were you in their position? And who exactly benefits by denying such a request?
[i]”If a developer wants to put forth a project during rough economic times, he should be prepared to build it. If not, then he needs to pay a price for failing to build it.”[/i]
Yes, but … you have to concede that the Simmons project and the Verona project, which together make up a large percentage of the approved but unbuilt units, were planned long before the housing market and then the general economy went in the tank. So your “rough economic times” argument is ex-post facto, here.
[i]”I’m not sure I agree to the extent I am willing for the city to arbitrarily (and in a rush) “redo” the development agreement to the extent it forgoes substantial city fees. What say you on this subject … Mr. Rifkin?”[/i]
The fees are designed to cover the public’s expense put upon the public by the developer and his development. (Often, they are too low to do this.) I don’t favor waiving any fees. I favor extending the permits (And if that costs a nomial amount, then charge them that.)
The only time I think it could ever be justified to waive development fees is if certain fees were imposed to mitigate against a project cost which, due to a change in the project itself, would no longer be imposed on the city or the neighbors, etc.
CORRECTION: “… if that costs a [b]nominal[/b] amount …”
Rich:
It’s like the union’s from their perspective, they are behaving rational. The problem is not the developers here, it’s the city. But the problem I have is that the developers are pushing through projects and the city is approving projects at a time when nothing is being built and nothing will be built.
And you act like there is a danger here that the move to revise can cost the city. In the case of Verona, that’s nearly a million dollars of cost.
I agree that the two projects were planned before rough economic times, but Simmons was approved last year when we knew it was unlikely that the units would be built any time soon, I give the council more benefit of the doubt on Verona which was approve about the time the economy collapsed, but even then we were in the foreclosure crisis and the real estate market had taken a huge hit.
[i]”… the problem I have is that the developers are pushing through projects …”[/i]
Proposing, not pushing through.
[i]”… and the city is approving projects at a time when nothing is being built and nothing will be built.”[/i]
But who does that harm? Who is the victim here?
It seems to me you don’t think these are great projects. That’s a valid opinion. You seem to think [b]the city council[/b] should not have approved them as such. Again, a valid opinion. And because the council erred, you want to punish … the developer?
In the cases at hand, the developers have spent a substantial amount of money — how much, I don’t know — to get to the points where they are now. The only people I could see benefitting from taking away these entitlements and requiring these particular developers to start again by killing their approved projects would be [i]other developers[/i] waiting on the sidelines.
[i]”I agree that the two projects were planned before rough economic times, but Simmons was approved last year …”[/i]
Simmons was approved in 2009, but it was in mid-2007 when they first unveiled this project to the public. (Mary Simmons passed away in early 2006.) It’s pretty rough justice to hold it against the developer that it takes 2 years for the city to act on a project like that. Much of the time was spent trying to forge an agreement with the neighbors, only to have staff decide that the developer/neighborhood agreement was outside the requirements of the GP.
Entitlements are worth big bucks to the developers. They can bring their projects before the Council for entitlement when they have a Council majority that they are confident will be amenable and then can sit back and wait for the housing market to improve or sell the property for a tidy profit with its entitlement. Entitlements should have a definite and reasonably short lifespan after which they would come back to the Council for extension as is or reconsideration with modifications.
Excellent Article and Analysis David
This is the exact reason the Davis City Council needs a serious developer lovin’, bought and sold, gang of 3 house cleaning. We need to send Auntie Ruth and her “spells” a packing along with the Pool Guy. As for bought and sold candidates, we need to trounce Vergis and her ilk at the polls, change the direction of this town and elect some people with common sense and vision.
The Propaganda Party Line:
Green Shoots and Recovery Kool-Aid
This state will set record foreclosures in 2010. Over 60% of the home sales in Sacramento are distressed sales. Read: REO or short sales. The US will see a probable 3.5 million foreclosures in 2010 and then top that in 2011.
Obummer’s HAMP, HARP and HUMP programs are nothing but backdoor bailouts to the banks with little benefit to the American public… hence the pathetic mortgage modification numbers. Case Schiller Index indicates another downward step in home prices.
Unemployment in California is classically understated in California by the BLS U3 at 12.6%, 12.9% in Yolo county and underemployment by U6 is above 22%. The BLS overstates GDP by approximately 2%… yet your current administration of corporate shills and Wall Street puppet in chief claim “green shoots” and recovery around the corner…
Yesterday’s Growth is Today’s Services Liabilities
If you believe the current “recovery” party line… I have a deal for you on a swamp condo in Florida… This is the new normal. This is an environment that requires new leadership, new methods and new ideas. Not the same old developer deals and discounts because the Council has thought for two decades now you can grow your way out of budget problems.
The NEED to Believe
More discounted fees for developers and the City picking up the tab on infrastructure is how the City got into this mess as Davis’ part of the housing bubble. You could not grow your way out of budget problems then and you doubly can’t now.
Unfortunately the American public has a problem. The Need to Believe. The American public need to believe in their home values, 401k’s, endless HELCO’s, credit cards and retirement. In short, a Need to Believe in the bubble economy. Those with decreasing Davis home values need to believe that the world will be:
“Same as it ever was.”
“Same as it ever was.”
Problem is we need people with common sense and vision to run for council.
“Where have you gone Jules Partanskio?”