PD Editorial: No simple answers to fee debate

Conventional wisdom suggests that the quickest way for Santa Rosa to spur housing construction is to slash development fees. But there’s nothing conventional about the current economy and housing market.

This was made clear last week as an expert on development charges laid out the many challenges that confront Santa Rosa and the county.

First, while rents have been soaring, they remain a long way from where they need to be to trigger new housing growth in Santa Rosa. According to Walter Keiser of Oakland-based Economic Planning Systems, apartment rents in Santa Rosa average $1.84 per square feet. While that may have climbed significantly in recent months, it’s far below rents of nearly ?$4 per square foot in San Mateo, $3.50 in Sunnyvale and $3 in San Rafael. And while land prices vary, the cost of construction remains fairly constant from city to city in the Bay Area. “No one can afford to build unless these rents are $2.50 or so,” said Keiser. “You have a price/cost problem here that’s going to continue to restrict the construction of multifamily housing.”

Vice Mayor Chris Coursey summed up the city’s response well noting simply, “That’s pretty depressing.”

It is depressing, particularly given that Santa Rosa officials have spent a good part of the summer brainstorming on how to slow down the escalation of rents and encourage more housing development.

The message the council heard on Tuesday is there’s not much that can be done. As Keiser noted, current rents aren’t high enough to entice many developers to build.

Second, Sonoma County is not only lagging in the development of home construction, it’s well behind in the creation of so-called head-of-household jobs - the kind that provide above-average wages and are generally associated with technology companies concentrated in San Francisco and the South Bay. As a result, the development of office and commercial space is also lagging due to low demand, oversupply and generally low commercial rents. Developers aren’t interested in building office space until rents come up to around $3.50 per square foot, Keiser said. At the moment, they average $1.78 in Santa Rosa.

Given Association of Bay Area Governments growth estimates, Santa Rosa was projected to grow by roughly 570 housing units per year for the next 20 years and was expected to see its employment base grow 21 percent. “It’s our sense, given where things are at today, that it will be very difficult to achieve either of those forecasts,” Keiser said.

Finally, even if there were a likelihood that the reduction of fees would spark new housing development, it’s still not clear whether the city would want to go that route.

The impact fees the city has collected over the past 20 years has totaled more than $230 million.

Meanwhile, the estimated cost of needed infrastructure improvements ­- including sewer and water upgrades - is about $365 million. In addition, the city faces another $350 million in park improvements, ?$173 million in unfunded infrastructure costs for the Downtown Station Area, Northwest Area and Roseland Specific Plans. All told, the city faces an estimated $1 billion in infrastructure improvements, and it’s not clear where all that money is going to come from.

In the end, there may be some helpful steps the city can take to tweak fees. That will become more evident on Sept. 23 during the second part of this discussion, when the council is supposed to provide direction to city staff. But what’s evident is that there are no simple solutions. Cut fees, and the unfunded costs of infrastructure development in Santa Rosa go up. Raise fees, and rents go up.

New conventional wisdom suggests the city may need to look elsewhere for solutions to its housing problems, but stopping the search is not an option.