Story #3 of 10 in Haight’s series of Top Ten Stories in California Construction for 2015
Californians have had no concrete relief in the cost of housing throughout 2015. The state’s Legislative Analyst reported in March that the average California home costs $440,000, which was about two-and-a-half times greater than the national average price of $180,000. According to the report, California would have to build as many as 100,000 additional units annually, on top of the 100,000 to 140,000 it is expected to build each year, in order to seriously mitigate its affordable housing problems.
Given these high housing costs and recent demographic trends, the affordable housing movement gained considerable momentum in California this year. Most significantly, the California Supreme Court ruled in June that municipalities have “broad discretion to regulate the use of their real property to serve the legitimate interests of the general public and the community at large.” (California Building Industry Association v. City of San Jose (2015) 61 Cal.4th 435). The case arose from a challenge to the City of San Jose’s ordinance requiring that developers building 20 or more units to either offer 15% of the units at below-market rates or pay into a city fund. The Court found that a city’s broad discretion could entail imposing restrictions on new residential developments, and that there was no reason a city could not attempt to increase affordable housing in the community by requiring new developments to set aside a percentage of units for sale at a below-market price. This decision was a crucial development for the affordable housing movement.
In October, Los Angeles Mayor Eric Garcetti echoed the Court’s sentiment by proposing that city officials look into requiring developers to pay a fee to assist with the funding of lower-cost residences throughout Los Angeles. He also suggested that the city set aside $10 million annually for affordable housing from its general funds. In further support of his position, Mayor Garcetti signed an executive directive instructing city building officials to expedite projects including more than 20 percent affordable units. Shortly thereafter, Los Angeles County supervisors unanimously voted to set aside $20 million in 2016 for the construction and maintenance of affordable housing, with the idea that the county’s annual contribution would increase to $100 million over the next five years. The supervisors did not indicate where the funds would come from, but directed the county chief executive to initiate a plan for the 2016 budget process.
San Francisco Mayor Ed Lee recently followed suit by voicing his support for an increase in the city’s current policy of requiring projects to build 12 percent of their units as affordable units. Although Mayor Lee did not specify the increased percentage he would support, the city is set to hold meetings in December in order to craft a proposal. Such a change in San Francisco’s affordable housing policy would require a ballot measure, and Mayor Lee intimated that he would seek a proposition for the November 2016 election accordingly.
Another Bay area player, Uber Technologies Inc., brought momentum to the affordable housing movement in 2015 with its purchase of the former Sears Building in Oakland for $123.5 million. The biggest tech tenant to ever move to Oakland, Uber will pay the city around $1 million for affordable housing pursuant to its housing/jobs impact fee. The city charges $5.46 per square foot for all office space in excess of 25,000 square feet to those developing new office and warehouse properties, including those making changes to building uses requiring permits. These fees are then earmarked for the city’s Affordable Housing Trust Fund. Notably, San Francisco has a similar fee that is nearly five times as high at $24.03 per square foot. Prior to Uber’s recent purchase, there had not been significant office development to feed Oakland’s affordable housing fund since 2008.
Overall, because California’s housing prices remained significantly disproportionate to the rest of the country in 2015, it is unsurprising that several cities across the state have seen a push for the future development of more affordable housing. Further, given the aforementioned actions taken this year, developers should expect to see the trend towards increasing affordable housing continue throughout 2016.
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