As the housing shortage continues to squeeze Petalumans, city officials Monday took the first steps to increase fees paid by developers of major projects in an attempt to incentivize them to build affordable units while also adding money to the city’s coffers to fund housing projects and community programs.
Builders of major projects – including rental complexes, for-sale housing and commercial and industrial spaces – are charged a fee to offset the impacts their developments will have on the community. The city also can require that developers of for-sale housing projects include a percentage of affordable units rather than pay the fee.
The city negotiates fees on a case-by-case basis for rental projects, but a bill on Gov. Jerry Brown’s desk could give jurisdictions the ability to also require developers of rental properties to include a percentage of affordable units rather than paying fees. The fate of that bill will help shape the city council’s stance as the conversation evolves.
When developers include affordable units in their projects, the housing is built much faster than if the city partners with a developer for a dedicated affordable housing complex, which can take up to five years to fund and construct, Housing Coordinator Sue Castellucci said.
The city is expecting to receive $1.2 million in developer fees this fiscal year, bringing the combined fund balances to about $4 million. The city has historically contributed more than $3 million to projects, such as Logan Place, the last affordable housing complex constructed in the city.
“We need the product now,” Mayor David Glass said. “We need the product built ... because we don’t have the revenue to bond against and be a meaningful partner.”
An incentive to build
City officials assert that increasing fees could nudge developers to include low-income and affordable housing in the mix with market-rate units rather than opting to pay the fee, which is kept in a fund also used to support nonprofits such as the Boys & Girls Club. The city’s ability to fund those services and build housing took a devastating hit after the 2012 dissolution of the city’s redevelopment agency, which funneled as much as $3 million annually toward those projects.
Since some of the city’s fees haven’t been updated in about a decade, city officials retained Oakland-based Economic & Planning Systems to complete a comprehensive study to examine those impacts while determining a maximum threshold for fees and comparing the city’s practices to nearby jurisdictions. The city currently charges between $2.34 and $4.51 per square foot for projects, depending on the type of construction.
At a workshop Monday, the dichotomy of views of residents and a major developer in the city became apparent, as citizens pleaded for more housing and increased fees while Sean Flannery, the president of Basin Street Properties cautioned the city that raising costs could drive away developers.
There’s much left to pin down about specific details, and the council will take up the discussion again in November after more information is gleaned and outreach is conducted, Castellucci said. Initial conversations indicated a general interest in hiking fees for commercial projects, though a direction was less clear about housing. Increasing fees imposed on developers could also translate to an increase in rent costs for the rest of the market-rate units in the development, Castellucci said.
Petaluma hasn’t seen an affordable housing development open its doors since 2013, but PEP Housing is in the process of planning a $24 million project for low-income seniors and veterans on a city-owned lot at 951 Petaluma Blvd. South. The project, slated to include about 54 units, parking and a wellness center, is set for review by city staff this week. Pending planning commission approval and funding, the project, which will take an estimated 16 months to complete, could break ground as soon as 2019, said PEP’s Director of Housing Development Jim Langford.