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City Council Buys Into Plan to Make Condo Developers Pay Up
Closing a potential loophole for small-time condominium developers, the Santa Barbara City Council on Tuesday gave the nod to a draft ordinance that would require them to set aside money for building housing for the middle class.
Tuesday’s 6-1 decision was in favor of an amendment to the four-year-old “inclusionary housing” ordinance, which aims to help retain middle-class workers in one of the nation’s most expensive housing markets.
The ordinance requires developers of condo complexes of at least 10 units to set aside 15 percent of them for people with middle-class incomes. Tuesday’s amendment would extend the ordinance to include projects with as few as two units.
Under the new rules, the developers of such projects would not be required to build extra affordable units, but instead must contribute a fee of $17,700 per unit to the city’s affordable housing fund. It turn, the city could use the money for a variety of purposes, such as subsidizing developments for workforce housing.
The final wording of the ordinance still needs to be crafted by the ordinance committee for future council approval, but Tuesday’s decision brings the proposal close to realization.
Voting against it was Councilor Dale Francisco, who opposes the entire ordinance because he says it’s ineffective and unfair to property owners and home buyers.
“We should not be singling out one group of people simply because we can get the money from them,” he said. “It is extortion.”
Supporters countered that Santa Barbara’s housing market is unusual, for its stratospheric nature and for how converting rental apartments into condos can create instant wealth.
“Our housing market is just kind of crazy,” Mayor Marty Blum said. “I really do prize our diversity here in this city. We need to find ways to keep our middle-income people around and close by.”
Council members Das Williams and Helene Schneider said the amendment would close a loophole, noting that the vast majority of condo developers have skirted the requirement of the original ordinance by building fewer than 10 units. Staff members said that 95 percent of the nearly 200 condos added to the market since the original ordinance was passed have been a part of such smaller developments.
“That’s about $3.5 million of inclusionary fees that we just didn’t capture,” Williams said.
The ordinance does not generate money for residents considered poor, but the city receives federal money for that purpose. Over the course of four years, about 70 units have been built or approved for the middle class.
City staff members said a recent auction for three units drew about 140 applicants.
Winners are prohibited from selling the dwellings at market-rate prices for 90 years. They also are forbidden from renting them out.
In some cases, two-bedroom condos have sold for about $350,000, a little more than half the median market value.
Noozhawk staff writer Rob Kuznia can be reached at rkuznia@noozhawk.com.
Comments
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» on 06.25.08 @ 04:32 AM
Does anyone really think that the “developer” pays these fees? Like in, out of their own pocket? Helloooo? The fact is that our city council just added $17,700 per unit to the price of those new units. In other words, people who can afford the new higher price will be subsidizing those who can obtain (through a process potentially fraught with favoritism and fraud - witness SB county’s shameful program) an “affordable” unit.
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» on 06.25.08 @ 05:10 AM
It’s certainly not “extortion” (which is synonymous with “blackmail” but it is taking from Peter to help Paul. Some condo complex builders will have to pay the city and in term will raise the prices on their units an equivalent amount so that, down the road, someone will get a subsidized unit. (If a subsidized unit costs 350K, that’s approximately 20 buyers who will pay at least $17.7K more.)
Fair enough, if the lucky subsidized buyer has truly middle income, that is, income in the median range of SB which is less than $60,000. If higher incomed people are subsidized, it is this voter wrong.
What is the income range of those qualifying for this subsidy? That will be the important fact to determine the fairness of this expanded city program!
2000 census from Wikipedia: The median income for a household in the city was $47,498, and the median income for a family was $57,880. (Per capita income in the city was $26,466.)
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» on 06.25.08 @ 05:30 AM
It is remarkable how reactionary the Santa Barbara City council can be. The penalties for the negative impacts created by their irrational policies are always visited on local residents. The most negative effects on our local invironment are caused by tourism. More water is consumed, more resources are used, more streets are dirtied and crowded, more crime is generated with the impacts falling on the responsible residents who plan to stay here. If there weren’t so many low wage jobs needed to keep the city’s public revenue stream generating hotels and tourist facilities running, the city wouldn’t need to bother with afordable housing. The market can take care of the problems when there is balance. Recall now and get city councillors more interested in our residents than ill conceived trendy social engineering.
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» on 06.25.08 @ 07:01 AM
Just a reminder about basic economics here.
If the market rate for this housing is, say, $700 thousand for a typical condo subject to these price effects enacted by the City Councilmembers (or even the Councillors), then the selling price for these typical condos will still be $700 thousand.
The sales price is the market price. That is why it is all called Market-Rate Housing. If the developers want to raise the price for whatever reason, they still compete in the open market and the sales price may rise because the whole market rises, not because of a city-imposed fee. Housing prices will rise because of the laws of supply and demand and the sales price that clears the market.
If the city-imposed fees go down or stay flat if no such City Ordinance were enacted, will the builders and developers also keep their prices low even though the market price rises? Obviously not.
If the City adds costs via this Ordinance, but the market rate stays the same, then the price of those regulatory costs is absorbed by the builders and developers because the market rate is the market rate.
THAT IS WHY the builders and developers, and their friends, complain so much.
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» on 06.26.08 @ 04:30 AM
But, Milton, the developer still must make a profit. So the quality or size or amenities of the new units will fall consistent with the tax and the market price. Taxes are always paid by the end user, one way or another and call it what you will this “fee” is a Robin Hood tax. And, as our city council knows, the rules of economics do not apply in Santa Barbara.
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» on 06.26.08 @ 05:04 AM
Milton Friedman is dead. He must have been or he would have noticed what happened to condo prices lately. All the city mandated ginger bread and regulation has run the price to build them far above the market price received. Add more fees? Supply will decrease long term. How does this help anything?
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» on 06.28.08 @ 06:53 AM
The person who said that this new fee must be absorbed by the developer is just plain wrong and does not understand basic economics.
Yes the market price is set by the existing units—but the important part left out is that the price of existing units is set to match what the cost to replace such a unit it. As the price of land goes up and the price of materials and labor goes up the price of existing units goes up to match. This is because the demand is greater than the supply of existing units and so the new units compete with the existing units for the buyers.
For example if 1000 new residents must be housed and there are only 500 existing houses there must be 500 new houses constructed. since all 1000 compete for the 500 existing houses and 500 must pay the going cost of a new unit then the price of the existing units is bid up by supply and demand to match the price of a new unit. so if the price of a new unit must include a city in-lieu affordable housing fee then the price of all existing units goes up that same amount.
Remember, if ,say, 1000 people must be housed and there are only 500 existing houses for sale then the other 500 have to buy a new house. Then the builders compete with each other and this competition determines the price of a new unit but none of the builders will build unless they can make a fair profit after having ALL of their costs paid including any city fees. So it is a fact that any city fees are added to the price of a new unit and are not absorbed by the developer.
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