Petaluma seeks solutions to housing crisis

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.

Expedited construction

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.

Details unclear

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.

A new fee schedule could be introduced as soon as July 1, 2018.

In a letter to the city, the Basin Street Property’s legal counsel asserted that the other fees imposed on developers are already steep, amounting to as much as $41,000 for a single family home, without taking into account the affordable housing fees.

“Any move to increase cost to develop that housing makes Petaluma less affordable and a less attractive place to be,” Flannery told the council.

Lack of affordable housing

Residents are concerned that the lack of affordable housing and the 2.98 percent vacancy rate in market-rate complexes is detrimental to the social fabric of the community. Cynthia Clarkson, a case manager at Hospice of Petaluma, said the organization is losing staff as the cost of living in the city skyrockets.

“I know it’s a little bit of an impingement on developers to ask them to pay more, but in the spirit of sharing and providing what we all need to live, someone has got to give a little bit,” she said. “I’m not really worried about the profits developers are making right now, I’m more worried about what’s happening to this town. If we don’t have teachers, firemen and police men, what is going to happen to us?”

The average monthly rent for a one-bedroom apartment is $2,200, meaning that households must earn at least $96,320 annually to make ends meet, according to the study. Average monthly rent for a three-bedroom apartment is $3,250, requiring a minimum household income of $142,880.

Assuming a 10 percent down payment is included in the purchase price of a $625,000 home, a household must make at least $139,681 annually to cover expenses. To afford a $875,000 home with a 10 percent down payment, the household must make a cumulative $195,554 annually.

According to Trulia, the average home price in Petaluma is $665,000. The average median income for a family of three in Sonoma County is $75,500 in 2017, according to the study.

“In a household with $15 an hour wage earners, with two of them working, they’re making less than the yearly income required for a one bedroom … that is out of reach for a lot of us, especially those who only make $15 an hour, which is what people are shooting for as a liveable wage … I just became a homeowner, but to do that was nearly impossible,” said Gabriela Orantes.

Limited government options

Councilman Dave King said the city is limited in its ability to affect the climate for market-rate housing.

“I don’t know of anything that our city government is going to be able to do about market rate affordability aside from letting Chairman Mao or Lenin run on the next ballot, which I don’t think is something they’re going to do - that’s something we have to be aware of and communicate better to the community,” he said.

While City Manager John Brown suggested that the council consider higher fees, Councilman Mike Healy expressed hesitation about stalling the housing market.

“If you go to a higher percentage level and require that inclusionary housing be created, then you’re potentially looking at less market rate being created because you’re scaring off projects,” he said.

Petaluma resident Zen Destiny chastised the city for considering hiking fees, which he said will discourage developers from building in the city.

“Opposing development is how this town gets its freak on,” he said during public comment.

(Contact Hannah Beausang at hannah.beausang@arguscourier.com.)