Can Fees on Market-Rate Housing Subsidize Affordability in Oakland?

Mayor Libby Schaaf’s housing task forces considers a levy on market-rate housing, but developers warn about discouraging much-needed construction.


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Illustration by Heather Hardison

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For all its vaunted progressivism, the city of Oakland is a laggard in California and nationally when it comes to requiring market-rate home builders to pay something to help develop housing for people with lower incomes.

One reason apparently has been official Oakland’s longstanding fear of exacerbating its reputation as an undesirable place in which to locate new development, particularly when compared to other nearby cities.

Now, however, the Bay Area’s tech-led economic boom has come to Oakland in a big way—as exemplified by Uber Technologies’ September purchase of the old Sears Building in Uptown—and city officials, spurred on by activists, appear close to start requiring builders to pony up.

Thus is the stage set for a series of critical decisions by the mayor and the city council in coming months that will include a possible January vote on whether and how to charge impact fees on new market-rate development. Mayor Libby Schaaf pledges that such fees are coming, but says they likely should be phased in over time.

Affordable housing advocates, demanding swift action, say Oakland is behind the times, noting that more than 100 California cities have similar requirements, including Berkeley and Emeryville, which charge $28,000 per unit.

“Of all the solutions, it will probably provide the most bang for the buck,” said Heather Hood, co-chair of Schaaf’s housing cabinet and Northern California deputy director for the affordable housing funder Enterprise Community Partners. “Our ecology of affordable housing developers can’t be beat. What they need is money.”

Hood and other activists say impact fees are particularly pressing given Gov. Jerry Brown’s dissolution of redevelopment agencies in 2012, the exhaustion of state bonds, and the slashing of federal funding for housing programs in recent years.

In late September, Schaaf appointed Claudia Cappio, Oakland’s assistant city administrator in charge of development, to co-chair a public-private housing cabinet charged with preventing displacement of current residents while increasing housing production.

The issues are complex, Cappio noted. How can Oakland’s government intervene in what is really a regional and statewide problem without squelching new investment that could bring a wave development and life to Oakland?

The city has committed more than $1 million for a study to determine the appropriateness of an impact fee on new market-rate development to pay for a variety of things, including affordable housing, sewers, schools, and libraries. A central question is to determine how much could be charged without discouraging development.

Without any new funding strategies, Oakland would likely produce only 1,594 new affordable housing units in the next seven years, according to a voluminous “Roadmap Toward Housing Equity” that the city council adopted Sept. 30. That is only about 17 percent of the amount that the Association of Bay Area Governments says Oakland needs to build just to keep up with population growth, the document states.

Consequently, leaders of the nonprofit developer alliance East Bay Housing Organizations, the environmental group Greenbelt Alliance, and the transit group TransForm have called for the city to impose the maximum fee possible on new development to support affordable housing.

Given the current demand for housing, Hood believes that developers are willing to accept such a fee, although she says it must be done carefully. Among the ways that could be done, she said, is by tailoring the amount charged according to neighborhood, and by letting developers pay half up front and half when their projects are completed.

Notable developers who have backed Schaaf, however, show serious wariness about such fees, saying that it’s just a matter of economics. If the amount is too high or too rapidly imposed, developers simply will not be able to get financing to build major projects.

“I do think a part of the solution for housing is the potential for a fee, but I don’t think it solves the problems,” said Mike Ghielmetti, president of Signature Development Group and a member of Schaaf’s housing cabinet. “It barely makes a dent in the housing crisis in the Bay Area. … We have to think bigger than a political Band-Aid with regard to housing fees.”

“The city needs to have an open mind,” he added. “It needs to display a good attitude toward investment. A lot of people want to be investing in Oakland right now. No one has to invest in Oakland. I know lot of developers are quite nervous about the impact fee and how much it will be. They have been investing for the last 12 to 24 months, and they see the rules have shifted on them.”

Not every city commands the kind of interest from global capital firms that San Francisco does, Ghielmetti said. To illustrate, he asserted that new developer activity had largely stalled in Emeryville since that city adopted a $20,500 per unit housing fee last year. “That’s a shocking fact,” he said. “I don’t think the fee has served Emeryville well.”

Emeryville Community Development Director Charles Bryant, however, said forcefully that Ghielmetti’s comments were “inaccurate.”

“Emeryville’s affordable housing impact fee has had no chilling effect whatsoever on housing development in Emeryville, and anyone who says otherwise is misinformed and does not know Emeryville,” said Bryant, who agreed with everyone interviewed for this article that there is a regional housing affordability crisis.

Emeryville has 11 rental housing projects totaling 1,865 units currently in development, Bryant said, one of which was submitted after adoption of the fee and four that were approved after the fee. None are actually paying the fee because all selected the alternative of including affordable housing directly within their developments, he said.

“We don’t really want the money,” Bryant said. “We want the affordable housing units.”

Emeryville raised its fee to $28,000 in December, but developers looking to build on a 5-acre site indicated “enthusiastically” that they planned to proceed with their project, Bryant said.

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