Menlo Park: A new tool for funding 'affordable' housing?


The city of Menlo Park could have a new way to increase funding for housing that's affordable to middle- and lower-income families.

During its July 19 meeting, the Menlo Park City Council discussed a proposal to create new fees that commercial and residential developers would pay to address the problem of finding affordable housing for the workers that new developments bring to the area.

While many people at the meeting favored building affordable housing, opinions varied on how effective the new fees would be. In general, developers oppose the new fees, housing advocates support them, and council members say they want more information.

Growing problem

After decades of slow-to-nonexistent affordable housing growth across the Bay Area, the region is facing a severe housing shortage, made more acute by explosive job growth, especially in the tech sector.

In San Mateo County, between 2010 and 2014, there were more than 54,000 new jobs created and only about 2,100 new housing units built, according to a county memo from January 2016.

A complicated legal landscape in California creates additional challenges for affordable housing development that don't exist in other states, said Sujata Srivastava of Strategic Economics, an economics consultant firm that conducted a study to consider the possibility of creating "housing impact fees" that developers of commercial and residential properties would pay.

Restrictions unique to California include a 2009 California Court of Appeal ruling called the "Palmer" decision, which prohibits affordable housing requirements from being placed on housing construction that is intended to be rented, and the 2012 statewide dissolution of redevelopment agencies, which largely dried up funds for affordable housing efforts.

Menlo Park already has "below market rate" fees that it charges on the development of commercial buildings and residential for-sale housing, but because of the Palmer decision, the fees don't apply to residential for-rent housing, according to Jim Cogan, Menlo Park economic development and housing manager.

California cities are, however, allowed to charge for-rent housing developments with "housing impact fees," which are intended to mitigate problems created when the development creates more lower-paying jobs than the city has affordable housing to accommodate.

The underlying concept of "housing impact fees" is that new development creates demands for new services, thereby creating new jobs, including many that don't pay well enough to allow their holders to live nearby. The proposed fee is the effort by consultants to quantify the difference between what the new workers can afford to pay for housing and what it actually costs to create new housing in the community, according to Ms. Srivastava.

The Strategic Economic consultants who authored the study assert that different kinds of construction yield different levels of low-paying job growth. To counterbalance such effects, fees could be created on a per-housing unit or per-square-foot basis.

In Menlo Park, the authors said, development fees for hotels should rise to an equivalent of $10 to $15 from $8.76 per square foot; office, medical office and research and development fees should rise to $25 to $50 per square foot from $16.15; and that development fees for retail, restaurant and service businesses fees should range from $5 to $10. The current fee is $8.76. During the meeting, council members recommended decreasing the per-square-foot fee for those businesses to boost restaurant, service and retail growth in Menlo Park.

On the residential front, the proposed range would be $25 to $50 per square foot for attached and detached single-family homes and apartments, and $25 to $35 per square foot for condos. The fees could also be paid on per-unit basis, and ranges for those would span from $22,900 for one apartment to $150,000 for a single-family detached home.

With the exception of San Carlos, which sets its per-square-foot housing impact fee range up to $44 in some cases, fee rates in nearby cities such as Cupertino, Daly City and East Palo Alto, in all categories of housing are typically no greater than $25 per square foot, according to a staff report.

Ms. Srivastava said that because of Menlo Park's prime situation in the regional real estate market, the city probably could have fees on the higher end of the proposed ranges and still be competitive, and assured the council members that the fee recommendations from the study were conservative.

Opinions vary

Several council members expressed concern about setting the fees too high and discouraging development. Council members did seem to agree that the fees would only apply to net new square footage, so that people who remodel their private homes would not have to pay the full extent of the fees. Developers could be exempted from having to pay the fees if they instead agree to build affordable housing units.

"I don't want to price us out of the market," said Councilwoman Kirsten Keith, who said she needed more information before she could make a decision about the fees.

Private sector developers and those who represent real estate interests opposed the fees because they said it would increase costs, reduce profits and render projects financially unfeasible. Fees set on a per-unit basis could create a disincentive to build higher-density housing.

Steve Elliott, who oversees real estate development at Stanford, said the fee proposal could make Menlo Park housing even more unaffordable.

Tim Tosta, a land-use lawyer who has worked with Facebook and the Bohannon Development Company, said that the real problem is that cities don't do enough zoning for affordable housing, and that would not be remedied by the fees.

Others expressed concern that the fees would be too high should the economy take a downturn.

"If you increase fees and they're not proportionate to surrounding cities, in the next recession, there will be no desire to build in Menlo Park," said Penelope Huang of the Silicon Valley Association of Realtors. She read a letter from Jessica Epstein, the association's government affairs director, who said, "When fees go up, the costs go up, and those are invariably passed on to the buyer or renter."

In a letter signed by the Steve Pierce and Bob Burke of Greenheart Land Co., the developers asked that the new fees not apply to projects already in the city's pipeline. That would include Greenheart's "Station 1300" plan to build a total 420,000 square feet of residential, office and retail space at 1300 El Camino Real, near Glenwood Avenue.

The new fees could add an additional $9.8 million to the $6.7 million they had expected to pay to the city, they said. "This significant and unanticipated fee would cause us to seek cost reductions, particularly with optional items such as as green features and public amenities," they said in an email.

Members of the housing commission and community members spoke in favor of the new fees.

Employee retention is a challenge for local Menlo Park businesses due to high housing costs, noted Christin Evans, co-owner of Kepler's Books. She and other local employers are experiencing staffing problems, she said. "We really are in a severe housing crisis now. I urge you to not make it worse."

She said Kepler's will host an event at the bookstore on Aug. 18 at 7:30 p.m. for people to tell and listen to stories about housing hardship and displacement.

Meg McGraw-Scherer, who is on the city's housing commission and works as an affordable housing finance consultant, said: "Communities that have local sources of funding are the communities that get affordable housing built. We need to consider these sorts of methods to keep our community affordable and diverse."

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Like this comment
Posted by dana hendrickson
a resident of Menlo Park: Central Menlo Park
on Jul 26, 2016 at 12:21 pm

if Menlo Park already collects "housing impact fees" how much has been collected during the past ten years and how have these funds been spent? Also, what is the city process for deciding how the money is used? Also, saddling developers with new large fee increases AFTER they have already invested in Menlo Park is a very BAD practice. Developers are community investors not ATM machines.

Like this comment
Posted by resident
a resident of Menlo Park: Downtown
on Jul 26, 2016 at 12:34 pm

Suggest a slightly lower fee for projects already approved. Create a sliding scale.

Like this comment
Posted by Where did the money go
a resident of Menlo Park: other
on Jul 26, 2016 at 1:34 pm

I would add on to Dana's question. Where were these fees used and what was the benefit? Who is accountable for reporting the use of the existing tax. Why doesn't the council show how the money was spent as support for this additional tax? First explain how you have used current fees before asking for more.

Like this comment
Posted by Joan
a resident of Menlo Park: Central Menlo Park
on Jul 26, 2016 at 1:44 pm

I wonder if these proposed fees would also apply to secondary dwelling units? Already very difficult to build because of excessive fees and costs, it would absolutely kill the secondary unit market - a market we desperately need to provide for our service workers.

Sorry, but further commenting on this topic has been closed.

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