County Updates – Developer Option in Jeopardy, Inclusionary Rental?

The Santa Cruz County Board of Supervisors recently gave direction to Planning staff to once again amend the County’s Affordable Housing Program (second time in 3 years), despite the process and economic concerns laid out by representatives the Business and Development Community. The proposed amendments appear to be staff driven, and include the elimination of the ‘developer option’ to pay in lieu fees to the County’s housing program, instead of building deed restricted, subsidized units on site, which tend to be prohibitively expensive. The in lieu fees are also not cheap, at $15 a square foot, but provided some certainty in an otherwise extraordinarily risky process.

The option to pay the fee, which provides much greater flexibility to those attempting to build housing in what is widely considered an unfriendly development market, has been marked for elimination for projects of 7 or more units, seemingly for no reason, despite having only been adopted 2015. Supervisor Friend seemed to be the only member of the Board who expressed caution at the idea of discontinuing the practice, saying that option to pay the fee has only existed for 2 years, and that not enough time had passed to assess how effective it was at promoting more housing development. During the first hearing he asked the very poignant and direct question to the Planning Director and Housing Manager: “will the strategy of requiring on site units result in the creation of more housing?” to which the reply was an ambiguous “well maybe…”.

The overall record of the County’s affordable housing and growth restriction program, Measure J, speaks for itself quite plainly. After it’s passage by voters in the late 70s, the program has helped to engineer what is widely considered one of the worst housing shortages in the country, making Santa Cruz County one of the least affordable places to live in the world, and most certainly one of the hardest places to do business. While other local jurisdictions have attempted to change their programs by pivoting toward more supply oriented measures, like the Cities of Santa Cruz and Watsonville, the County continues to lag behind, and seems to actually be regressing. The developer option was a singular bright spot in providing more flexibility, and was even touted at the moment of it’s adoption as being a step in the right direction, interestedly enough by the same people who just suggested it be removed. Adding insult to injury, the County’s major step towards increasing housing density, the Sustainable Santa Cruz County Plan is behind schedule, and doesn’t appear like it will be ready for another 2 years.

Yet it somehow almost got worse. The County’s own economic analysis found that rental housing was essentially not economically feasible to build, at all, because of the low density and the lack of interest from developers. Yet Supervisor Leopold asked staff to look into a program that would require on site deed restricted affordable rental units for all new projects. Staff was even taken aback, letting him know that it would only create another barrier and further dis-incentivize the development of any new rental housing. Yet he asked for it anyway. There can be no motivation other than to further stop any new housing from being built, despite the near desperate pleas from people of all walks of life for more rental housing.

Thankfully the Housing Advisory Commission voted yesterday to nix that idea, again citing the plain fact that it wouldn’t accomplish anything because no one is building. How is the concept of “getting 15 percent of nothing” so mind boggling?

However, the overarching problem was how the process was carried out. When the housing program was amended back in 2015 there was extensive outreach and a robust public process around the amendments. Developer input was sought out, and all of the Supervisors and Senior Planning staff met with representatives of the Business Community. The Business Council in turn held multiple round tables of our housing focused members and came up with ideas to help, some of which were directly incorporated into the final program amendments. Yet, the roll back of the signature piece of these program amendments, the ‘developer option’, the one change that got buy-in for the amendments generally, was instigated this time around without a single hearing of the Planning Commission or even a phone call to those who had been apart of the process in the past. The agenda was set and made public late Thursday evening, and the business and development community was sent scrambling to figure out why this was happening now, and why such substantial changes were being proposed without so much as an overture of genuine engagement. That is deeply concerning, and speaks more to a problem of culture than policy.