By David M. Greenwald
Executive Editor
Davis, CA – For the last several years—since 2018—the city of Davis has operated under a series of interim affordable housing ordinances.
The current ordinance temporarily “establishes an alternative affordable housing target of 15% by the bed, bedroom, or unit with a 5% extremely-low, 5% very-low, and 5% low-income mix.” The sunset date has been extended by City Council multiple times, making the current expiration date June 30, 2023.
The new draft ordinance before the council continues the maximum allowable requirement of 15 percent affordable units—split evenly between extremely low (30% AMI), very low (50%), and low (80%).
These were the recommendations of a subcommittee of Bapu Vaitla and Gloria Partida.
The 15 percent requirement is a decrease from previous levels.
While the city of Davis has had inclusionary housing policies in place for affordable multifamily (rental) housing since the mid-1980s, those policies changed in 2009, when the “Palmer decision” prohibited local jurisdictions from imposing affordable housing requirements on residential and mixed-use projects of more than 10 dwelling units per lot.
In 2017, Governor Brown signed a 15-bill housing package into law which included AB 1505, overturning the 2009 Palmer decision and restoring the legal authority of cities and counties to require affordable housing in rental development projects.
One of the parameters imposed by the state was a limitation on the percentage of inclusionary housing to 15 percent in order to ensure affordable requirements will not 
constrain housing production.
In the past, as staff explains, “the City of Davis was able to require that 35% of all units be made available as affordable housing.” At the time, “the economics of development were different.” Staff notes that larger projects were “able to take advantage of greater economies of scale due to the size of the project.”
Staff notes, “Land dedication for the purposes of providing affordable housing is much simpler on a large, multiacre property than on an infill project site.”
Furthermore, “there were many property owners who had held their property for a long time thereby making the cost of land much cheaper.”
Staff concludes, “These factors, and others, have changed dramatically since the 80s and 90s making affordable housing inclusion at a much higher rate difficult, if not impossible, in the current economy.”
Thus, “to require more than 15% inclusionary units, is both legally and practically difficult. AB1505 requires that the City of Davis be able to demonstrate that a project, constructed in Davis today, would be able to come to fruition with anything more than a 15% inclusionary requirement.”
Staff adds, “With land values as they currently exist, the cost of financing, lack of housing supply and the high cost of construction, it is likely that many projects would not be able to secure financing and ultimately be constructed with a requirement to provide more than 15% of the units as affordable.”
In 2022, the city contracted with Cascadia Partners to undertake a pro-forma based analysis of two hypothetical development types.
Their findings were presented in January. Among their findings, “a 15% inclusionary requirement would not be feasible in their prototype developments. The analysis suggested varying levels of feasibility up to approximately 12% based on levels of affordability, incentives and other external factors.
Among the key conclusions:
- High construction costs currently make development challenging and make the current (permanent) inclusionary requirement of up to 35% infeasible.
- Incentives to developers to reduce costs of increase revenue are limited.
- With few incentives available to offer, requiring deeply affordable units through the inclusionary policy is difficult.
- Inclusionary housing policy is not a stand- alone strategy for affordable housing.
Following the Cascadia report, the subcommittee of Councilmembers Vaitla and Partida worked with staff to propose the framework for the draft ordinance.
“The proposed ordinance lays out the goal of the City: to achieve 15% affordable units within any proposed multifamily rental project of twenty (20) units or more. As currently written, developments with fewer than 20 units would have no inclusionary requirement,” staff writes.
The ordinance allows alternate options to be set by Council via a resolution.
Staff notes: “For non-discretionary projects, if the applicant does not wish to provide 15% of the units as affordable units within the project, the city will offer three additional options, which may include land dedication, designation of existing units as affordable in another project elsewhere in the city, or in lieu fees at a level that closely approximates the total cost of constructing and maintaining affordable units.”
Staff lays out:
- Land dedication – The City has had success with land dedication provided by a developer, either directly to an affordable housing developer or to the City, who then deeded the property to an affordable housing developer to build an all-affordable property. As with the in-lieu fees, it is staff’s intent to develop a formula, to be included in the guidelines, by which an applicant could convert 15% of the units into equivalent land dedication space.
- Designating existing offsite units as affordable – In this option, the developer may choose to designate a number of units, equivalent to 15%, in a different site as affordable. These units would need to meet certain standards, spelled out in the guidelines, and deed restrictions to ensure ongoing affordability would be required.
- In-lieu fees – The City’s current in-lieu fee is set at $81,979. This was originally set based average City subsidy that a typical all-affordable project in Davis required and increases by an annual inflator. Both the Social Services Commission and the City Council have expressed interest in recalculating the in-lieu fee to represent the full cost to build an actual unit. It is staff’s intent to return with a proposed fee that represents this concept. This fee would then be included in the guidelines, which would be approved by resolution.
Staff adds, “Not all proposals fall into the non-discretionary category, however, and are referred to as “discretionary.” For those proposals where the applicant may want or feel they need to propose something different than the standard 15%, or where the City Council has discretion in reviewing the project proposal (annexations, General Plan amendments, etc), the guidelines included in the current temporary ordinance could be included as guidelines in the resolution approved as part of the permanent ordinance.”
