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Mountain View wants to add developer fees for new rentals

November 16, 2012 | Silicon Valley/San Jose Business Journal

by Jon Xavier

The city of Mountain View is looking at tacking on an $18.95-per-square-foot fee on market-rate rental developments to help fund affordable housing projects.

But some say the fee could have unintended consequences, including reducing the supply of rental housing and depressing land values.

The proposal comes as cities throughout California look for ways to fund below-market housing projects following the dissolution of redevelopment agencies. In addition, a 2009 Los Angeles court case ended affordable-housing set-aside requirements. Mountain View previously required projects to include 10 percent affordable units.

“That really hurt a lot of communities in California,” Linda Lauzze, the city’s administrative and neighborhood services manager, said of the changes.

But industry executives and some council members are skeptical. Vice Mayor John Inks says the fee will unfairly penalize landowners because developers will negotiate lower terms on land deals to offset fees.

“I think it’s unfair to single out owners of development property for a social need that probably should be more widely disseminated,” Inks said.

He added the result could be counterproductive.

“The one thing we can do as a city is allow the supply to increase,” he said. “If you have people that want to tack on fees and restrict development, that definitely has an impact.”

Robert Freed, president and chief executive of SummerHill Homes and [SummerHill Apartment Communities] Urban Housing Group, has several apartment projects in the pipeline. Freed said he’s a supporter of affordable housing and doesn’t oppose a fee per se, but believes the current figure being proposed is too high. He is also concerned that the fee would apply to projects already in the pipeline.

“When a fee of this magnitude could hit projects that are near approval stage, it can kill a deal,” he said. “It’s a little unfair to change the rules in midstream.”

Several other area cities have similar rental-impact fees. Fremont charges $17.55 per square foot, Walnut Creek charges $15 per square foot and San Carlos charges up to $28.27 per square foot.

Apartment rental developers might not be the only ones hit with changes to the city’s fee structure. The City Council will also consider increasing the affordable-housing surcharge on developers of office, hotel and retail buildings when the issue comes before the Council in December.

Demand outpaces units

Mountain View has a 51-unit affordable housing project currently under construction downtown and two affordable projects totaling 76 units in the pipeline. Money comes from various sources, including a $7.43-per-square-foot fee charged to commercial projects. New rental properties don’t currently pay anything into the city’s below--market fund. If the rental fee were imposed to all 930 market units in the pipeline, Mountain View would collect about $15.5 million.

Mayor Michael Kasperzak said pricey Mountain View needs to grow its affordable housing stock by 150 units a year just to keep up with demand and is already about 1,000 units behind its current needs.

That need is one downside of the city’s robust economy. Buoyed by strong tech hiring, the city’s unemployment rate was 5.9 percent in September, nearly three points lower than the state’s average, according to the Bureau of Labor Statistics. Median income was about $88,000, according to the U.S. Census.

As a result, average market rents in Mountain View are among the highest in the region, ranging from $1,500 for a studio to $3,267 for a three-bedroom apartment. Those rents require minimum income of $64,000 to $137,664, according to city statistics.

Freed said the industry recognizes the demand for lower-price housing and hopes to partner with cities to find the best way to solve the affordability gap.

“I think this is an opportunity to have a broader discussion on what are the most effective affordable housing programs,” Freed said.

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