Santa Rosa considers revamping development fees to boost housing construction
Santa Rosa rents may be on the rise, but they’re still not high enough to trigger significant new housing construction anytime soon.
That’s what an economist told the Santa Rosa City Council on Tuesday as it began studying whether to adjust the fees it charges developers to help build city infrastructure.
For council members who had been hoping that developers might save the day by boosting the supply of apartments and putting downward pressure on rents, the opinion landed with a thud.
“That’s pretty depressing,” Vice Mayor Chris Coursey said.
Walter Keiser of Oakland-based Economic Planning Systems said as quickly as rents and home values are increasing in the city, they remain far higher in other parts of the Bay Area. Since building costs are largely uniform across the area, he said, current rent levels simply aren’t high enough to entice many developers to build here.
The average apartment rent in the city is $1.84 per square foot, according to Keiser. By comparison, San Rafael’s is $3.01, Sunnyvale’s is $3.49 and San Mateo’s is $3.91.
“You have a price-cost problem that’s going to restrict the growth,” Keiser said. “No one can afford to build much unless rents are in the $2.50 range.”
Keiser’s analysis was the first part of a two-part session studying how the city should go about adjusting its so-called “impact fees” on development. Such fees help the city pay for a variety of infrastructure needs like water and sewer lines, roads, parks, schools and affordable housing.
The fees can vary significantly depending on what part of the city a development is located in, ranging from $31,000 to $61,000 per single-family home. The southeast and southwest parts of the city have special fees of more than $13,000 per unit to address the higher infrastructure needs in those areas.
Fees for apartments are lower, but not much, ranging from $27,000 to $42,000 per unit. The city also charges an array of fees on office and retail projects on a square-foot basis.
The fees have long been assailed by the building community as excessive, unfair and responsible for inhibiting growth in the city.
All told, the fees have generated $230 million over the past 20 years. The problem is that as development has slowed, so has the city’s revenue from them. This has impaired the city’s ability to meet its infrastructure needs and likely will continue to in the future, Keiser said.
Over the next 20 years, building all the infrastructure outlined in the city’s 2035 General Plan would cost about $1 billion. But even if the city added 500 new housing units per year, well in excess of current levels, the current fee structure would generate only about $500 million in fees, Keiser said.
Compounding that shortfall are the constraints on the city’s general fund and a steep drop in state and federal transportation dollars, he said.
The city is left facing a major dilemma. It needs development to pay for its infrastructure costs, but it also needs to invest in its infrastructure to make the city attractive for economic growth.
“How do we maintain Santa Rosa as an attractive place to live and work by investing in infrastructure, which you’ve got to do?” Keiser asked.