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Marin County Civic Center
Marin County pursues a flawed strategy as it eases housing affordability requirements - UPDATE
UPDATED: October 27, 2023
Marin County Supervisors recently adopted new inclusionary regulations that ease requirements on housing developers to make a portion of their homes affordable to low-income renters and buyers. By doing so, Unincorporated Marin has, once again, catered to the State Legislature's, Big Tech’s, Big Real Estate Firms’, Construction Labor Unions’ and Big Wall Street Real Estate Investors' prerogatives, instead of doing what is best for Marin. These are the economic sectors that have lobbied heavily for the latest housing laws that take away local control of land use and remove virtually all constraints to market-rate housing development. These same sectors have contributed generously to many California legislators who, subsequently, have pushed for the same agenda.
BACKGROUND
Marin has been losing population for the last 6 years, according to US Census data, and is predicted to continue losing population for the next 8 years and beyond, according to the Department of Finance. Marin doesn't have a housing crisis and doesn’t need a lot of new housing. Rather, Marin has a housing affordability problem.
Preferred local solutions, which address housing affordability, include:
- Preservation of existing affordable housing;
- New development of affordable housing at the scale and locations that are appropriate for local conditions;
- Conversion of market-rate housing to affordable housing;
- Conversion of commercial properties to affordable housing (provided a thorough environmental review is completed & adverse impacts are mitigated);
- Implementation of other affordable housing programs (E.g., housing vouchers, encouraging living wages, preventing developers from being able to pay in-lieu fees instead of actually building affordable units, etc.); and
- Programs that empower small, low-income housing developers and low-income buyers with financial incentives, such as tax credits and creative lending strategies (E.g., affordable home loans).
Besides not requiring a lot of new housing, Marin also doesn’t need to incentivize moderate or market-rate housing. Instead, Marin needs a little more housing, primarily geared to very-low and low-income households.
MARIN COUNTY’S INCLUSIONARY REGULATION
Getting back to Marin County’s Inclusionary Regulation…
An "inclusionary housing regulation" requires a specific percentage of units in all new residential projects be developed in such a way that they are made affordable to very-low, low, or moderate-income households.
“Affordable Housing Units”, as defined by Marin County, are residences for households at or below 80% of the Area Median Income (AMI). The AMI for a four-person household in Unincorporated Marin is $175,000.
Marin County’s Previous Inclusionary Regulation:
Previously, the County’s Inclusionary Regulation required developers who are building two or more market-rate homes to make 20% affordable to households earning 50% or 60% of the Area Median Income (AMI). The lower percentage applied to rental developments, while the higher percentage covered for-sale projects. Fifty percent of AMI is $87,500, while 60% is $105,000.
Unincorporated Marin assumes that residents paying more than 30% of their income on rent are overburdened. Therefore, until recently, developers were required to set maximum annual rent levels at 30% of $87,500 (50% of the AMI), or about $2,187 per month.
In addition, an in-lieu-fee only applied to a fraction of a unit.
Marin County’s Newly Adopted Inclusionary Regulation:
Marin County's new inclusionary requirements are aimed at maximizing the total amount of new housing being built in the county (which we don't need), rather than increasing affordable housing geared to very-low and low-income households (which we do need) and/or avoiding undesirable density bonuses (which should be considered best practices).
It appears that the reason Unincorporated Marin is doing this is to once again try to meet its Regional Housing Needs Allocation (RHNA) mandate and encourage the building of 3,569 units in 8 years, which is an absolutely impossible task. If the County couldn't meet its last RHNA cycle of 185 units, it definitely is not going to reach this cycle's RHNA of 3,569 units. This goal should be abandoned because it won't be achieved anyway and it's the completely WRONG direction for Marin, leading to excessive unavoidable adverse environmental impacts.
Tables for Marin County’s New Inclusionary Regulation:
TABLE 3-4c
Developers of rental units shall select from the following two options for establishing the number of inclusionary units and affordability levels:
Technically, the new Marin County Inclusionary Regulation remains at 20% affordable units. However, it has been greatly weakened.
For some projects, Marin County's new rules lower the percentage of affordable units that must be built to just 10%. Although, this isn't low enough to avoid large density bonuses (explained further down). The new rules allow developers to pay in-lieu fees, instead of actually building affordable housing. Another code change allows developers to locate their inclusionary housing in census tracts that are different from where the majority of their residences are built. The new rules also allow developers the option to build essentially “market-rate” housing (for moderate- and middle-income families) instead of truly affordable housing (for very-low- and low-income families).
In-Lieu-Fees
The County’s in-lieu-fee is $362,817 per unit and goes into an affordable housing fund. Ideally, an in-lieu-fee would only be used for a fraction of a unit. However, if an in-lieu-fee is kept as an option, then the fee should be raised significantly.
In many circumstances, $362,817 isn’t enough to actually build a unit in Marin, based on today's costs. It doesn’t include the cost of land. Moreover, in-lieu fees can be eaten up with administration costs. In addition, once the County finds a project where the in-lieu-fee could be applied, many years may have passed and the value of the fee would have been lessened due to inflation.
A higher in-lieu-fee may dissuade a developer from choosing this option in the first place.
Affordable Housing Versus Market-Rate Housing
As previously mentioned, in many instances, the new rules allow developers to forgo building units geared to very-low and low-income households (which we do need) and, instead, build units geared to moderate-income and middle-income households (which we don’t need to incentivize or subsidize).
Indeed, for “Affordable Ownership Housing”, the vast majority of the required inclusionary units are geared to moderate-income and middle-income households. For ownership projects of 5 units and greater, only 5% of the units must accommodate low-income households.
We do need to incentivize and subsidize units geared to very-low-income renters, where the rents can’t exceed $2,187 per month for a family of four. We don’t need to incentivize or subsidize units geared to moderate-income renters, with incomes between $140,000 and $210,000 per year (120% AMI), where the rents are as high as $4,375 per month for a four-person family. We also don’t need to incentivize housing geared to middle-income households that earn as much as 150% AMI or $262,500/year.
How in the world can we consider families making $210,000/ year or $262,500/ year as qualifying for affordable housing?
$210,000 is 20% above the Area Median Yearly Income in Unincorporated Marin and $262,500 is 50% above the Area Median Yearly Income in Unincorporated Marin. These families make more than most households in the County.
On a State level: Only 15% of households in California make over $200,000/ year and only 3.3% of California households make over $250,000/ year. They are considered top wage earners.
This just plays into the Big Real Estate Industry’s agenda, where the Real Estate developers and investors can pretend that they are providing affordable housing, when instead they are charging normal rents, catering to well-above-average earners, and maximizing profits and REI (Return on Investment).
Avoid or Lessen Density Bonuses
Only inclusionary units that are actually built qualify for a density bonus. Whereas, in-lieu fees do not count toward a density bonus.
One big problem with inclusionary regulations that require 10% affordable units or greater to be built is that they automatically qualify a project for a large density bonus, which is the bane of new housing development in Marin and elsewhere. (Please click HERE for an overview and chart of the State Density Bonus.)
Once a large density bonus and related concessions are granted, the complex becomes bloated, lacks parking, and doesn't follow other local development standards (height, setbacks, Floor Area Ratio (FAR), etc.). This increases the risk of the development causing significant adverse environmental impacts, which local residents will have to pay to mitigate, if they even can be mitigated.
Otherwise, residents will bear the consequences. Many of us are already suffering from past Supervisor and City Council decisions that allowed too much development and population growth for what the infrastructure can sustain.
Therefore, if the percentage of inclusionary units that must be built is lowered, then it should be lowered to a requirement of 9% affordable units because this will result in density bonuses being greatly reduced and eliminated in many categories. The difference between density bonuses for 10% affordable units versus 9% affordable units are substantial. (Please view the below section of the previously referenced State Density Bonus Chart):
A “Countywide Office of Affordable Housing Finance” to Help Smaller Developers Build Low-Income Housing
Apparently, one of the reasons why Marin County softened its inclusionary requirements is because developers told officials that providing 20% very-low- and/or low-income units doesn’t make financial sense for them. At first glance, considering the cost of land and construction here, that may sometimes be true. A common complaint is there’s not enough funding available.
However, real estate development is a complicated business, and one person’s impossibility can be another’s opportunity. So, County officials shouldn’t be so quick to give up on a chance to provide the affordable housing that Marin needs.
In looking for solutions to making housing complexes with 20% very-low and/or low-income units financially feasible, I turned to the expertise of Bob Silvestri. Silvestri has had a long career in real estate, construction, planning, development, and finance and has acted as a real estate investment adviser to a variety of private, corporate, and institutional clients.
Here are Bob Silvestri’s comments:
“Marin County is known to have superior real estate appreciation. As such, some developers, particularly smaller, local developers wanting to build infill projects, are willing to accept less return on investment from rental revenues here because they know they will make up for it with property value appreciation in the long run."
"Still, access to all the potential types of financing – low-cost loans, tax benefits, grants, private equity, joint venture partners, and government subsidies -- are not readily available to everyone. This is equally true about having reliable property management after a project is built."
"Larger developers wanting to build larger projects (100 units of more) typically have greater access to capital and in-house finance experts that know how best to structure the acquisition and financing for any development project to maximize returns. And most have their own property management arms. In contrast, most smaller, local developers don’t have this expertise."
"Perhaps, this is where the County, in collaboration with Marin’s other towns and cities, could help these smaller, local developers make low-income housing projects “pencil” by creating a “Countywide Office of Affordable Housing Finance” - a public/private partnership agency."
"Led by a team of experienced housing development and management experts, such a liaison agency could use its unique position to act as a consultant and the “go to” clearing house to connect projects with financing opportunities and partners and property managers and vice versa, including providing “fiscal sponsorship” to help small developer's access grants and tax credit funding."
"Such an agency could potentially open the door to scores of smaller local, infill, housing developers seeking to build new housing projects with affordable units, renovate existing housing, and create housing through adaptive re-use conversions of existing properties."
"It might even be able to pay its own way by charging modest origination fees or structuring project equity or revenue participation percentages.”
Author’s Comment: The new finance agency should focus on smaller projects that fit in with the traditional character of Marin neighborhoods and encourage and show the way for developers to feasibly finance affordable housing without density bonuses.
AUTHOR’S ADVICE
In offering advice on inclusionary regulations, the two main goals that should be pursued are:
1) Provide Marin with More Housing for Very-Low and Low-Income Households - Besides 100% affordable projects, the only new affordable housing geared to very-low- and low-income households that will be built, is what is required in the jurisdiction's Inclusionary Regulation. Therefore, it is very important for the inclusionary rules to prioritize units that accommodate these income levels; and
2) Avoid or Lessen Density Bonuses.
Achieving both these goals would be the best course for Marin, although new State laws make it almost impossible to do so. Unfortunately, Marin County's new inclusionary requirements do not seek to achieve either of these preferred goals.
Recommendations
- Ideally, the Inclusionary Regulation should remain at 20% affordable units and require all the units to be built, except for a fraction of a unit. Moreover, the units should accommodate very-low- and low-income households, for these are the types of units that Marin needs most.
- Do not incentivize housing units for moderate-income households that earn up to $210,000/ year (120% AMI), or for middle-income households that earn up to $262,500/ year (150% AMI). These top wage earners will be accommodated regardless of incentives.
- Ideally, do not allow developers to pay in-lieu fees, instead of building the required affordable housing, except for a fraction of a unit.
- If an in-lieu fee is allowed, then the fee should be significantly increased to dissuade developers from choosing this option and to be a large enough amount to pay for a unit actually being built at another location.
- If the percentage of inclusionary units that must be built is lowered, then it should be lowered to 9% affordable units in order to significantly reduce density bonuses, since in-lieu fees do not count toward density bonuses. In addition, the units should accommodate low-income households.
- For example, in regard to rental project sizes of 10 units or less: The new Inclusionary Ordinance allows the developer to make 10% of units affordable to very-low-income households and pay an in-lieu fee on 10% of the residences. If the County changed this slightly to 9% low-income units being built and an in-lieu fee on 11% of the residences, then the density bonus would be eliminated.
- Do not allow developers to locate their inclusionary housing in census tracts that are different from where the majority of their residences are built.
- The County, in partnership with Marin’s other towns and cities, should create a “Countywide Office of Affordable Housing Finance” to help smaller developers build 20% very-low- and low-income housing that is financially feasible. The agency should focus on smaller projects that fit in with the traditional character of Marin neighborhoods and should structure deals without using density bonuses.
Marin County ought to change its mindset and do what is best for Marin, rather than follow the State Legislature's, Big Tech’s, Big Real Estate Firms', Construction Labor Unions' and Big Wall Street Investors’ agenda.