Commentary : Fee Tied to Business Development Is a Step Toward Low-Cost Housing

Almost 20 years ago in Irvine, the first committee on housing recommended that there be affordable housing so that the people who worked in Irvine could afford to live in the city. As a member of that committee, it seemed to me that that was not an unreasonable expectation; however, even then there was opposition from real estate interests. They were concerned that affordable housing would interfere with their profit-making potential.

Since then we know what has happened. Driven by the marketplace, real estate values have soared and huge profits have been made. At the same time, the city has struggled to promote affordable housing, but the supply doesn’t begin to meet the demand. Today, only 12% of the people who work in Irvine live in Irvine. The remaining 88% waste hours of time on our congested freeways and contribute to the smog that threatens the health of each of us.

Meanwhile, projections for commercial and industrial development indicate that over 3 million square feet will be built each year until 2010. This amount of space translates to about 9,000 new employees, or more than 5,600 new households, with as many as 30% of them possibly qualifying for low-income housing. (Currently, a family of four must have an annual income under $37,500 a year to qualify, which, according to the 1980 census, would make 60% of Irvine employees eligible.)

The city is attempting to deal with this almost-certain shortage by planning now.

Mandated by the State Housing Element law to provide decent housing for all income groups and to project what housing needs are anticipated, the City Council adopted a plan setting as a minimum goal that 25% of all housing built in Irvine be affordable to low-wage earners. Various sources of funding will be considered, such as federal and state grants and loans, tax credits to builders, tax-exempt revenue bonds, and something new, called a housing trust fund.

The housing trust fund monies will be loaned or granted to low-income housing projects for such uses as down payment loans, on-site costs and school fees. One benefit of the trust fund is that it will have more stability than grants or loans that require renewal and depend on a particular political climate. The council is considering funding this trust fund by assessing a fee on the square footage of all new commercial and industrial development. (The fee is called a linkage fee because it is linked to the number of jobs created and resulting employees requiring low-income housing in Irvine.)

The City Council created a 15-member committee representing a diversity of interests, including developers and low-income housing advocates, and charged them to recommend an appropriate linkage fee. As a member of the committee and a low-income housing advocate, I am satisfied with our recommendations of $3 to $5.50 a square foot, depending on the type of development, although I had hoped for something higher.

It was not easy to reach these numbers. We waded through studies and ordinances on linkage fees enacted in other cities, such as San Diego, Sacramento, Menlo Park and in Santa Barbara County. We hired firms to conduct studies on the linkages between construction of residential buildings and the demand for housing affordable to lower-income groups in Irvine, and on the affordability gap between Irvine’s housing costs and what low-income people here can afford to pay. In addition to the consultants, we had excellent assistance from the city staff. We never achieved consensus, and it was the developers and real estate interests who won the majority opinion that was submitted to the City Council.

Thus, it is with amazement that I listened to the frantic protests of the builders and developers when our report was submitted to the council. Despite the numerical data provided by the consultants and common sense, the building interests questioned whether a linkage could be established between new jobs created and the need for additional housing. Perhaps there are some factors other than job location that create demand, but given a choice, I’m certain that most workers would choose to live near their place of work. Common sense couldn’t have it any other way.

Also questioned was the empirical data because the information regarding the size of households and increased labor participation from second-income wage earners was based on 1980 census material. Had we the time or money to collect more recent data, it is doubtful that the results would have been significantly different. Data regarding the number of low-income wage earners for each occupational grouping and the number of workers per 100,000 square feet in various industries was more recent, as was the salary data for each occupation.

The protesters, of course, complained that the fees would make building in Irvine prohibitive, and that developers would be forced to go elsewhere. However, according to the nexus study, the fees represent less than 3% of the total building cost and our consultants advised us that any fee below 5% would have little impact and would not redirect development.

I have a background in business and I understand the necessity of profit and the importance of a return on investment. But I also know that less profit and less return is expected with lower risk. Irvine, with its proximity to the university and the airport, with its beautifully planned communities, excellent schools and relatively clean air, is not a high-risk area for developers. I am certain that development will continue regardless of the linkage fee.

Furthermore, companies should find Irvine even more attractive when they realize that there is some promise of a diversified labor pool within the city and that their workers will not have to commute to Riverside or Corona in order to find affordable housing.

The controversy is no different than the situation 20 years ago. Real estate interests are afraid that efforts to provide low-income housing will cut into their profits. Profit is the American way, and private enterprise could not exist without a profit motive, but it is also the American way to provide healthy, economically viable communities for all of our citizens.