Santa Rosa considers higher fees for developers who buy out of building new affordable housing

The Wizard of Oz came to mind for Santa Rosa Mayor Tom Schwedhelm at Tuesday's City Council meeting as he pondered how best to encourage the development of affordable housing.

He was looking at a presentation that posed a number of questions. Some of the big ones: How much of a new housing project's units should be restricted for lower-income tenants, and just how “affordable” should those units be? Plus, given that developers can and usually do pay a fee to opt out of that requirement, should the city raise its buy-out costs, and by how much?

The council and staffers were mulling which levers to pull and knobs to turn to spur the creation of affordable homes.

“Behind the screen, you're doing all these dials and bells and whistles to try to get this product: We need more housing, more affordable housing,” Schwedhelm remarked to city staff. “It's an art form more than an exact science. For me, with that image of the Wizard back there, we need to do the right things (to have) more and more houses built in Santa Rosa.”

Based on the feedback so far, Santa Rosa appears set to lower the threshold of required affordable units - currently set at 15% - and likely raise the fees developers pay in lieu of building affordable housing.

Council members appeared to reach the consensus that the current fees are too low, leading most developers to opt out of building new affordable units. Council members also generally agreed that the city should lower its 15% mark to 10% or lower, depending on whether the units in question would be for low- or very-low-income tenants, to have a threshold developers are more willing to target.

“We've been incentivizing in-lieu fee, not incentivizing housing and building,” Schwedhelm said, advocating for more balance between the two options.

Parties interested in changes to Santa Rosa's housing affordability rules should put the council's Oct. 1 meeting on their calendars. City staff will take into account feedback from Tuesday's study session when crafting a version of the ordinance for the council to consider. They'll also incorporate comments made earlier this month by the city's Housing Authority and Planning Commission, interested developers and other members of the public.

Only nine projects between 1992 and 2018 were required to build on-site affordable housing, though another seven were approved but not built as the country fell into a recession, according to city data. Developers of another 23 projects opted to pay a fee that the city puts toward affordable housing, either 2.5% of the sales price for single-family homes or a variable square-footage fee for apartments.

All told, the 32 projects that were built represent 1,684 affordable units. About 90% of those were funded by fees developers paid to avoid building affordable housing themselves, leaving the task to nonprofits or other firms awarded the funds by the city.

Councilwoman Julie Combs bristled after questioning staff and learning that the in-lieu fee for a standard single-family home in a new development was about $16,000 - well below the cost of building an affordable home.

“$16,000 does not build a house. It doesn't build an apartment,” she said. “It's a silly number, and we shouldn't be that low.”

The city's proposal to update the fees would bring the fee for such a home up to $26,000.

New affordable units have been particularly scarce in Santa Rosa's northeast quadrant compared to elsewhere in the city, according to city staff. That disparity is unfortunate but unsurprising, said Councilwoman Victoria Fleming, whose district includes much of north Santa Rosa.

“It saddens me that we have a disproportionately low amount of affordable units in my district, and that's something that I'd like to see addressed,” Fleming said, adding that she didn't want the city's new policies “to be so onerous as to dissuade development. Everybody needs housing in our community.”

Council members also looked favorably at a separate fee of $3 per square foot for new commercial development. Raissa de la Rosa, the city's economic development manager, said a staff analysis estimated such a fee would have generated about $770,000 since 2016.

Neither measure alone would conjure the new affordable housing units the city needs to meet state goals for 2015 through 2023. Santa Rosa has only issued about 30% of the permits it needs to meet that benchmark. Despite a host of recent policy changes meant to spur dense housing development, the city faces long odds hitting that target unless houses start falling from the sky.

You can reach Staff Writer Will Schmitt at 707-521-5207 or will.schmitt@pressdemocrat.com. On Twitter @wsreports.