.When Do Affordability Requirements for Developers Work?

With rents going up, it came as no surprise when the issues of working people became major campaign issues in the November 2016 election for Santa Cruz City Council.

A progressive slate of four candidates, three of them renters, ran on issues like raising the minimum wage and creating legal places to sleep throughout the city. Branding themselves as the “Brand New Council,” the candidates also ran on affordable housing demands—calling, for instance, for Santa Cruz to strengthen affordability requirements for new housing developments, and increase the required percentage of units deemed affordable in new housing developments up from 15 percent, to 25.

Passing such rules for new rental developments would have been prohibited at the time, but are now allowed, thanks to last year’s housing-related bills at the state level.  

Since that 2016 election, the City Council has passed a robust housing package lauded by affordable housing advocates. The ambitious recommendations, approved June 12, relaxed parking requirements, modified accessory dwelling unit rules and tackled density bonuses—and did so all with surprisingly little opposition.

“People came back with support for removing parking requirements for ADUs, removing covered parking—things that I was like, ‘Really?’ We surveyed a bunch of different ways,’” Councilmember Cynthia Chase says of the 18-month process leading up to the vote. “That actually was a really good process to have because then when we came forward with the recommendations, we had virtually no opposition on Tuesday night. We basically said, ‘Are you sure, are you sure, are you sure? OK! We’re gonna go forward with this.’”

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Still, the new affordability laws earned a dissenting vote from Councilmember Chris Krohn, who believes they don’t go far enough, and hinted that the affordability requirements—also known as “inclusionary zoning” rules—will be a big issue this election again. As part of the recommendations, the council voted to slightly loosen the inclusionary requirements to as low as 10 percent in some circumstances, in hopes that it spurs smarter housing development.

Krohn isn’t up for election, but two council candidates—Justin Cummings and Drew Glover—are calling for raising the inclusionary requirement, and Glover says he has the skills to bring a more visionary leadership style.

“There is a need for a shift from business as usual to something a little more creative,” says Glover, who also ran in 2016 on the slate with Krohn. Glover, Cummings and Krohn have called also for eliminating the “in lieu” fee that lets developers fund affordable housing off site, instead of building it themselves.

Psychotherapist Cynthia Hawthorne, who’s also running, says she supports the newly approved Housing Blueprint Subcommittee recommendations as written, but also stresses that the council needs to check on the inclusionary aspect in five years, as outlined in the council’s vote.

The thinking behind lowering the inclusionary requirements is twofold; first, it makes it easier for developers to build. Even building market-rate units should create more supply to better meet demand—especially if the city incentivizes developers to build smaller, cheaper units, instead of extravagant, high-end condos by the beach.

The second, as Councilmember Richelle Noroyan puts it, is that “zero percent of zero is zero.” Noroyan, the lone incumbent running, says that if the council gets too idealistic and makes its inclusionary rules too strict, no one ends up building any housing, affordable or otherwise.

Glover says the city simply needs to do a better job of attracting low-income housing developers, but it isn’t clear which ones don’t already have Santa Cruz on their map. On top of that, most affordable developers rely on outside funding. Much of that money—at both the state and federal levels—has dried up in recent years. Lastly, as Noroyan notes, in the aftermath of the Great Recession, lenders are expecting to see bigger projected profits than ever.  

In general, although the idea of raising the inclusionary requirement sounds good on paper, there has been little evidence that it’s a good idea in practice. The Bay Area Economic Council found in 2016 that if San Francisco were to raise its inclusionary rate slightly, to 17 percent, it would create unforeseen hardship for more than 2,000 households—and that raising it to 25 percent would be one of the worst things city leaders could do for affordability.

The only two policy suggestions that would be worse for affordability, according to the report, are a building moratorium—which demonstrates the power that building new units can have on prices—and eliminating rent control, which has been in place there for 39 years.

The rent control findings show how much the policy can mean to many low-income residents. What’s less clear from data compiled over the years is what impact implementing a new rent control policy has, with economic analyses showing a clear benefit for some renters, but also a detriment to others. Rent control will also be on the Santa Cruz ballot this year.

The one potential candidate who’s taken the hardest stance against raising the inclusionary requirements is one who may not end up running.

“I’m fully willing to admit that there are no silver bullet solutions,” says Robert Singleton, who filed a Candidate Intention Statement last month, although since then, the increasingly crowded council election field has given him pause. “We can’t pick an inclusionary percentage, and all of a sudden, housing is affordable. Just imposing rent control isn’t going to make housing more affordable. Simple solutions don’t solve complex problems.”

Even though he lauded large portions of the subcommittee’s housing plan at the June 12 meeting, Krohn expressed vague reservations as well, saying he was “not so comfortable being this canary in the coal mine.”

In addition to calling for inclusionary requirements of 25 or 30 percent, Krohn called for an Affordable Housing Commission, instead of the educational Affordable Housing Academy sessions suggested by the committee. He implied the new plan somehow changes the owner-occupied rules for accessory dwelling units—it doesn’t—and that it additionally “props up” the controversial corridor zoning update, which it also doesn’t do.

“It seems to me,” he added at the meeting, “if this plan goes forward, you all are throwing down a gauntlet for the next election. I, for one, say, ‘OK, looking forward to November.’”

It was an odd departure from themes of unity that pervaded the night, an evening during which the entire realm of politics, elections included, had seemed the last thing on anyone’s mind.

Who was it that threw down the gauntlet, exactly?


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