By David M. Greenwald
Executive Editor
Davis, CA – Last week I put the five peripheral proposals in a chart to demonstrate that the mix of housing is not bad.
But what did become clear is that we actually need to do a bit more in terms of affordable housing.
An easy target for critics is going to be those 1500 low density homes out of 5200 total units.
One commenter notes: “I don’t understand why Davis would need any additional detached single-family homes at this time, even if there are many who want and can afford them.”
They add, “Our RHNA for ‘Above Moderate Income’ is only 310 units, and that can easily be fulfilled with attached townhouses in Davis.”
Legitimate point. I have a theory on this. And it probably explains why RHNA set the above moderate income so low compared to the very high number (relatively speaking) of affordable units.
Basically for Davis it set the total number of units at around 2100 while the affordable number was just over 900. To me the real number is that 930 affordable units because they know in order to get anywhere close to that number, a community is going to have to 
build a lot more market rate housing.
Basically this comes down to the fact that in order to build affordable housing—much of which will have to be subsidized, and missing middle housing—much of which will have to be offset with other market rate housing, the developer has to offset those “loses” with market rate housing that can be profitable … and those are larger, single-family, low density homes.
We can look at the pro forma from the Bay Area Economics (BAE) that looked at feasibility for the downtown. It is a bit cheaper to do peripheral than infill because you don’t have added costs for things like demolition and parking.
The bottom line is the developers have to show that their project is viable in order for them to attract investors. For the downtown space, BAE established feasibility targets as 8.5 percent for income-producing projects and 10 percent return for for-sale projects.
For a project like Nishi, they might have to show about a five percent return. That’s probably similar to the five projects currently under proposal.
All that being said, I think the city needs to look at these numbers—about 5200 total units and about 866 of them “affordable” units.
For the current RHNA cycle we are looking at 930 affordable units. Part of the challenge right now in getting the current RHNA approved is that the city falls short of that number. But the city seems confident that it can meet those numbers internally.
For the sake of argument, let’s say they can.
That means that really those five projects are going to be vital for the next RHNA cycle starting in 2029 and really potentially the next two RHNA cycles. That’s 16 years potentially on top of the next five or so years we have for this cycle.
Assuming the numbers stay relatively constant, if we could add about 1000 affordable units to those proposals, we might be able to address housing in Davis for close to the next 25 years with those five projects.
That’s not that bad if you ask me. I know some would like to see the density increased even more, but for now let’s use this as a baseline.
To get 1866 from the 5200, you would need about 36 percent affordable housing. I know some people will say, see, if we just kept our previous 35 percent figure, we are there.
The problem of course is there is a reason why we have dropped from 35 percent down to 15 percent.
So what is the solution?
Solution 1: Work to get more funding from the state and federal government for affordable housing
Solution 2: Streamline the approval process in order to add certainty and lower costs
Solution 3: Exemptions for high affordable proposals
Solution 4: Expand the density in order to bring up the total number of units and thus the total number of affordable units.
Assuming the state requirements stay relatively stable (and it seems likely if anything they will go up, not down), I think this paints a pretty accurate picture of what we are going to need to do.
I keep hearing—well, we already have an affordable housing exemption for 100 percent affordable housing projects.
True. So let’s do a key calculation. As of now, in nearly 25 years of Measure J, there have been exactly zero proposals that meet that standard. Let’s see, 100 percent of a zero is… wait for it… zero.
Can we forget that argument now?
I would love to see the state come in and restore funding that existed under RDA. That is what allowed us to get to 35 percent affordable housing.
I know that Assemblymember Cecilia Aguiar-Curry has made similar proposals multiple times, but those proposals have never gained traction.
I think it’s safe to assume, at this point, that more state money is not likely to materialize.
Thus I think we are in the realm of pick our poison—we either need to increase the base of single-family homes to allow the developers to fund the additional affordable housing or we need to make it cheaper, easier, and quicker to get approvals to incentivize additional affordable housing.
In other words, something is going to have to give and the voters are going to have a say over what that is.
Realistically that’s what we are looking at as a path forward at this time.
No, we cannot. With a modest change in state law we can give the city the ability to enable a 100% affordable project and control is own destiny, instead of relying on the for-profit sector to build affordable as a wart on the side of their executive home development.
Pressing for higher density on developer proposals is a must, but there’s no reason not to explore more direct alternatives as well.
I dont think that this is necessariy true. Yes, capital-a affordable housing needs to be subsidized by market-rate development, but I would be careful to jump as far as you have here and state that the market rate development needs to be single family…
Why do you state that Missing middle needs to be “offset”? I don’t think that’s true.
Developers DO make money developing multi-family properties all the time right? They are doing that downtown as we speak. I suspect that they will actually make MORE money if they are allowed to build more densely… at least to some extent.
For example, the cost to develop row houses / townhomes is almost certainly less on a per square foot basis than detached homes. Materials and land costs are lower… So unless something weird about city fees etc is at foot, such structures should be less expensive to build, and if sold at market rates… the developer is going to make just as much money, if not more.
So lets not make such a broad assumption that single family is the only kind of housing that developers can make money on. I think they push the single family because there are more developers who do it, and because it will sell quicker, and… the number 1 reason: It is going to be easier to get through a measure J election where the primary argument is going to be about “cars.
I totally agree with Tim Keller that we’re being too quick to accept the premise that lots of expensive homes must be included in the proposed expansions in order to extract the affordable housing we need. There may be other alternatives that would be about the same to the developers but better overall for the community, but there is no credible forum to discuss the financial details that could lead there.
For instance, both Village Farms and Shriner’s are offering, in addition to a percentage of “capital A” affordable housing, a discount on several other units. Village Farms is going to buy down the sales price on 300 homes (what happens when the initial buyers go to sell is a detail, but it appears these units will not be permanently discounted), and Shriner’s is also going to sell some houses at “70% of the median price” of Davis houses (again, not clear if this is a one-time and the initial buyer gets a windfall). Ostensibly, both those provisions come out of the developers’ bottom lines, and I do not doubt their sincerity, but I wish we the public could test some additional possibilities.
Suppose again (I’m going to be a nag here) both projects were densified to something like 10 units per acre, and the affordable component was simply a piece of land dedicated to the City, sufficient to construct some number of units at around 30 units per acre. The City would move that land to a non-profit developer who could take advantage of public subsidies (the Feds and the State are filling some new buckets), essentially making a wider group of people shoulder the burden rather than the new buyers of the other houses (sounds more fair to me, actually). All the units built by the developers would be market priced, and yes they won’t be cheap, but they may average less than the median price here and would conserve a great deal of land.
That’s just one idea, and I have no idea whether it would be a net loser to the developers (I doubt it), or how much less profit would be made in the long run. While I don’t believe it’s realistic to ask everyone to open their books, a serious conversation around alternatives like this one could still arrive at a better place than what’s on the table now.
I like this line of thinking Alex… factoring in the “discounts” that these developers are offering as fungible.
I have had a bit of cognative dissonance around those discounts & mechanisms myself… they just seem gimmicky in some way. I am more inclined to “trust” the affordability of housing that is simply designed to be more affordable ( because its a townhome, not a tiny single family home with a cursory yard)
If for some reason such housing is less profitable for the developers, I would rather have them produce the more affordable types at a lower profit and keep the incentives / gimmics out of it…
Just want to give a thumbs up to Alex’s ideas here. This is the path to go. I have struggled to know what level of “overall” density to put on the table, and some of the projects are not far from 10 du/acre. Why not go to 15 and start the discussion from there. His points about affordable are spot on—this is how Davis has always gotten “large” numbers of affordable units. This has not been recognized as the historical norm for our city.
Also, in reference to Tim’s comment about “gimmicky:” that is how Measure J/R/D works. Because it requires a vote of the people, projects lead with a marketing plan that the owners/developers believe will be sufficient to persuade voters. There is little discussion about community need, how to achieve greater connectivity, maximizing the limited land, or how to get the highest number of affordable units. The question merely becomes: how do we get the votes? What will ensure the public’s (50%+1) support? This is not planning, and Alex is correct, there does not seem to be a forum to have meaningful discussions.
Can the city council refuse to put a developer’s project on the ballot for a Measure J vote? If the development team simply says no to higher densities, can the council stymie the proposal by refusing to put it for a vote?
Yes, the council can always vote against a project.
Don
Yes, but no City Council seems to have had sufficient gumption to step in, instead just deferring the decision to the voters. Unfortunately that removes the ability to negotiate a better proposal that conforms with community desires and expectations.
It hasn’t helped that City staff has continually brushed aside commission input, which usually comes from professionals who have more experience than City staff on the specific issues but are “only” volunteering their time to make Davis a better place. The staff should respect commissioners’ input much more than it has to date.
Regarding the notion Measure J would exempt a 100% affordable project, OK, in theory someone can purchase property at market prices and try to find enough subsidy to cover the gap between what the affordable rents can cover and what the total costs are, but that’s a very high bar to clear. What’s even harder to imagine is why any landowner on our periphery would sell any of their land for someone else’s project with no benefit to their own development ambitions. They will save it to use as an incentive to develop their own property. The theoretical exemption only works for some property remote enough from Davis that the owner has no hope of ever being absorbed, but then we’re back to leapfrog development, certainly not what was intended. If I’m missing something in the logic, would be glad to hear.
I fear this provision has misled people to thinking that somehow Measure J reserves a path for the right kind of project. It really never did, and hopefully this wasn’t inserted cynically. I do agree that we should be taking more control of our destiny, and that’s essentially the topic of my other comment today.
It was inserted by people who live in a fantasy land where the Davis housing market is entirely isolated from the rest of world, and the factors that make Davis a desirable place to live and inflate prices really don’t matter.
In fairness, it was probably conceivable during the RDA era that an all-affordable housing proposal could come forward. The fact that no projects have come forward in 25 years (nearly) should suggest we need to make a change.
Jim Frame wrote: “With a modest change in state law we can give the city the ability to enable a 100% affordable project and control is own destiny, instead of relying on the for-profit sector to build affordable as a wart on the side of their executive home development.”
Jim has written about this before. His modest change in state law is to take someone’s property through eminent domain and pay them the land value under the current going rate for agriculture zoned land. In other words he wants to confiscate property from people, underpay them for it and then rezone it to build Affordable Housing.
So I think its a waste of time to take him seriously as if his solution has any probability of happening.
Ron, your focusing on the specific number implications of Jim Frame’s proposed solution is like throwing out the baby with the bath water. Jim’s wasn’t a fully-fleshed-out, final, take-it-or-leave-it effort. It was a first pass, conceptual idea. You appear to want to play the roles of prosecutor, judge and jury and condemn his idea to death.
There is a lot to like in what he has said. If we are to accomplish 28% of the housing as affordable by Very Low Income households, and 17% affordable by Low Income households, and 16% affordable by Moderate Income households, outside the box ideas like Jim’s are going to be needed. Figuring out the fair compensation for the landowner so that there is no “taking” is a very doable task.
Further, Tim Keller’s proposal to make all the 39% of the housing affordable by Above Moderate Income households configured and built for the “missing middle” is an execellent companion for Jim’s proposal. That way 100% of the 2,075 RHNA units will be affordable … and we will see actual progress toward improving housing affordability in Davis … and that improved affordability will be kept permanently if all the units are deed restricted with respect to annual capital appreciation to 2% or the national CPI increase, which ever is greater.