U.S. Cities Tap Builders for Housing Funds : Shelter: No Orange County community has established a housing fund using commercial fees but Irvine is studying such a plan.
An increasingly popular way for local governments to raise money for the development of low- and medium-income housing is to put the touch on commercial developers.
Cities throughout the nation have set up housing funds by charging fees for commercial development on the theory that new jobs increase the demand for affordable housing. The funds have been used for the construction or rehabilitation of low-cost housing.
No city in Orange County has yet established a housing fund using commercial fees. But Irvine is studying a plan that would require developers of employment-generating projects, including office and industrial buildings and retail centers, either to build housing or put money into a trust fund. The fund would help produce new housing for families whose annual incomes are 50% of the countywide median income, or less; the city estimates that for a family of four, $24,000 would be 50% of the countywide median income..
San Francisco and Sacramento both use commercial development fees to finance affordable housing construction and rehabilitation.
In Sacramento, despite threats of lawsuits from commercial developers, the City Council recently began imposing development fees on all new nonresidential projects, including retail, industrial and office buildings. The housing fund fed by the fees is intended to help finance the construction of 1,000 units a year for very “low-income people,” defined as those earning up to 50% of Sacramento’s median income.
San Francisco’s fees on commercial development have raised $29 million since 1985 for its housing fund. The money has helped to finance the construction or rehabilitation of 5,690 homes, according to Bill Rumpf, housing finance specialist in the mayor’s office.
But Rumpf said the developer fees, which are intended to finance housing for additional workers lured to the city, do not begin to help the city bridge its existing affordable-housing gap. San Francisco also imposes a hotel bed tax, which is contributing $2.5 million a year to the city’s affordable-housing fund.
Some housing experts who counsel local governments, including the planning staff advising the Orange County Board of Supervisors, have warned that charging commercial developers fees for housing funds could discourage new employers from building in the area.
Among those counseling against such fees is John Douglas, senior planner in the county Environmental Management Agency’s advanced planning division. He said the fees could discourage commercial development in South County, which he said is needed to balance housing growth in the burgeoning area and reduce commuting traffic.
But other housing experts say that other cities with similar fees, including San Francisco and Santa Monica, have experienced no slowing of development.
“There has been an increase in office development,” said Candy Rupp, Santa Monica’s housing program manager, “so clearly there is no problem.”
Santa Monica requires developers who build 15,000 or more square feet of new office space or add at least 10,000 square feet to existing office projects to pay a fee to mitigate the development’s impact on local housing and park needs.
The fees have raised about $6.2 million in cash so far, Rupp said. Half is earmarked for parks, half for low- and moderate-income housing. Rupp said the city recently agreed to use part of the fund to make loans with liberal repayment deferral plans available to nonprofit housing developers.
Tapping commercial developers to fund lower-cost housing is not confined to the West Coast.
Mary Brooks, who is in charge of the housing trust fund project for the Center for Community Change, a nonprofit organization in Washington, said there are 42 affordable housing trust funds established across the country.
Brooks said most of the funds were formed over the last five years by state and local governments in response to cutbacks in federal funding for low-cost housing. She said the 21 funds established by states and counties are composed of real estate transfer fees and interest accrued on escrow accounts that is earmarked for affordable housing. But the majority of the 21 city trust funds, she said, is composed of money generated by fees on new commercial development.
