Can We Solve the Housing Crisis?
Oakland’s core is on the verge of a makeover, heightening fears about rising housing costs and gentrification in a city celebrated for its racial and ethnic diversity. Where will the new workers live in an area so short on housing?
(page 3 of 5)
One reason that the private sector has failed to construct enough housing to accommodate East Bay population growth, developers say, is that its costs of construction are not much lower than those of San Francisco, while the return on investment can be 15 percent to 20 percent lower.
Oakland Planning Director Rachel Flynn highlighted the roughly 15,000 units of proposed housing currently “in the pipeline” in Oakland, with some already under construction and the bulk possibly materializing over the next eight to 10 years. More proposals are sure to be submitted, she said.
But Oakland booster and Signature Development Group President Mike Ghielmetti, a member of Schaaf’s housing cabinet, notes that most proposed housing development projects never actually materialize. “Pipelines are not cranes,” Ghielmetti said. “We’ve seen this before in Oakland where people get very excited about things, but they haven’t happened yet.”
Despite all of Oakland’s sudden cachet, the city only had a few new market-rate apartment projects of significant size open in the last two years. One of those is Signature’s 104-unit mixed-use development at The Hive, the residential portion of which is still under construction.
Last summer, Signature started building the infrastructure for the city’s largest single proposed development, the $1.5 billion residential and commercial Brooklyn Basin complex, which is slated to provide 3,100 units of rental and for-sale housing and 200,000 square feet of retail on the city’s southern waterfront and which is expected to submit specific building proposals starting this year. Yet Brooklyn Basin was approved in 2006 and sat idle for years after the recession because Signature couldn’t get financing until a Chinese company committed $1 billion to the project three years ago. Ghielmetti said real estate development is a risky business, noting that developers will often sit on undeveloped land for years while waiting for financing. Signature suffered significant recession-related losses on the Broadway Grand condominium development, which nonetheless became a focal point for the Uptown neighborhood, he said. It finally sold out in 2014.
“For eight years, we didn’t make any money,” he said. “We are still in business, but we in essence were operating as a nonprofit for a lot of years. We lost a lot of money.”
Developer John Protopappas said his company, Madison Financial, had a similar experience with Il Piemonte, a high-end 26-unit condo development near the top of Piedmont Avenue that was completed in 2007 and only sold out in 2014.
“I would not do that development again,” said Protopappas, who currently has seven different projects in various stages of development. “It was 11 years of work, and while it’s a beautiful result there, we lost money.”
So what would solve the Bay Area’s housing crisis? Or will Oakland, Berkeley, and Alameda permanently join San Francisco as homes primarily for the affluent?
Schaaf’s housing cabinet is working from last year’s “Roadmap to Promote Housing Equity,” a city council-adopted study that starkly documented the negative impacts of rising housing costs on low-income residents, particularly African Americans, who as a group have the city’s lowest incomes.
As this article went to press, that cabinet was preparing recommendations that Schaaf said would likely include plans for the development of 17,000 units of housing over eight years at all income levels, as well as strategies for preserving and rehabilitating another 17,000 units of existing affordable housing.
Schaaf wants to put a city infrastructure measure before voters in November that would include money for helping nonprofit agencies buy and fix up such existing housing. The city council in November already approved money for a consultant and a pollster to prepare the way for an infrastructure bond measure. The same firms also are polling countywide about a possible affordable housing bond measure. Both ideas are at the very early stages, however, and no actual proposals have been made.
To help pay for new affordable housing, meanwhile, the city council was poised at press time to vote on a staff proposal to phase in new housing “impact fees” upon residential development. City offciials have recommencded phasing in fees in December with amounts rising from $5,710 per unit in Central Oakland to $20,710 per unit on Dec. 1, 2018. Other parts of the city would pay less.
If 10,000 units of housing get built over the next 10 years, the fees as recommended would raise an estimated $61 million for affordable housing, with $18.5 million more dedicated to other purposes. The proposed fees have been subject to intense debate, with advocates for the poor demanding that high tariffs be levied as quickly as possible, and developers warning that sudden additional costs could scare investors away.
“Uber really changes the scene,” said Joel Delvacourt, a smart-growth proponent with the Greenbelt Alliance who spent six years helping shape the new Broadway-Valdez specific plan and wants to see developers pay up quickly for affordable housing. “The stakes are much higher.”
But even if all of these measures come to pass, such public funding won’t be enough by itself. That is why Schaaf said she wants the city’s development approval process to be simpler, and she is even trying to get large Oakland employers to help finance housing projects.
“We need to stimulate private dollars. That is why we are looking at streamlining some of our processes to make building market-rate housing easier,” she said. “That is a necessary part of the puzzle.”
Given the concern among business leaders about the impact housing costs have on their ability to recruit and retain staff, Schaaf said she has even approached some major businesses about loaning money for housing developments, though she would not provide specifics.
“Let us just say that I have raised the idea with one of Oakland’s current large employers as well as a future large employer,” Schaaf said. “We’re trying to be creative here. Employers recognize that they need to be part of this solution.”
Schaaf said she is interested in tethering future state Air Resources Board Cap-and-Trade funding to how well localities do in achieving state housing allotment goals, and she is intrigued with an idea raised at the Metropolitan Transportation Commission for developing a fund to combat displacement of area residents by rising housing costs.
Finally, to preserve existing affordable housing, Schaaf wants to expand rent control to 29,000 two- to four-unit apartment units now exempted (new construction would not be affected); to strengthen tenant protections and crack down on abusive landlords; and to limit conversion of apartments to condominiums (something the city has tried and failed to do in the past). Last month, the city council also gave initial approval to Schaaf’s plan to relax rules on building secondary dwelling units, such as apartments above garages, particularly near transit.
So far, the mayor’s approach is getting nods of admiration from many quarters.
“Mayor Schaaf and the city council really want to do the right thing and are really identifying key tools they need in their toolbox,” said Michael Lane, policy director for the Nonprofit Housing Association of Northern California. “I’ve been impressed. I think there’s great potential in Oakland and I think they are on the right track.”