Public Comment

New: Berkeley's Affordable Housing Mitigation Fee: An Open Letter to Mayor Bates and Members of the City Council

Shirley Dean
Sunday April 03, 2016 - 12:15:00 PM

I am writing to you regarding Item number 10a on your agenda for April 5, 2016. I apologize for the lateness of this communication, but I experienced great difficulty in downloading the item from the City’s website, and I was unable to do so until this date.

The item sets the Affordable Housing Mitigation Fee (AHMF) at $34,000 per unit as supported by the most recent Nexus Study. Raising the AHMF from the discounted $28,000 is long-overdue, particularly since the Nexus Study supported raising it to $34,000 per unit months ago. In some ways, setting the fee at $34,000 per unit in lieu of providing below market rate units on-site acts as a small incentive for the developer to provide those units on-site, if the developer wanted to escape payment of the fee. Including below market units on-site means they will be available to people faster than they would be if payment were made into the Housing Trust Fund (HTF), and if the developer chose instead to pay the fee instead of the including the units on-site, It would help the HTF accumulate funds faster. So setting the fee at $34,000 has a certain win-win to it. However, that is undone if you allow the AHMF to be reduced back to $28,000 if the fee is paid early. Takes away any incentive for the developer to provide below market rate units on-site, less funding into the HTF, and longer waits for below market units to become available.  


The Item provides two reasons [which] are stated in the item for reducing the AHMF if paid early: 

Reason #1: “Depending on the rate of return at the time, a smaller fee paid earlier could be equal in value to a larger fee paid later.” This is an unknown. Who knows what the ‘rate of return’ will be at any time in the future? So why is this being proposed when the outcome can’t be predicted? I hope that it just isn’t being offered as an extra perk for developers to pay less. 

Reason #2: “A fee paid earlier into the Housing Trust Fund also allows the City to begin providing affordable housing sooner.” Historically it appears that developing a hypothetical building with 100 below market units takes more time than developing a building with 100 units of all market rate units, or a building with 100 units that are a mixture of market and below market rate units.  

Please keep in mind that the purpose of the HTF is more than producing new below market units. As you have been told on numerous occasions – over time, in buildings with all below market units, the gap between the cost to maintain and repair the building and the rents needed to keep the units affordable to the occupants widens until large sums of additional funds from the HTF, and maintenance suffers until it becomes absolutely necessary to refurbish and make habitable those buildings once again. That’s when the HTF is needed once again. Also, the costs to the City to monitor on an annual basis and do whatever else is required, such as inspections when needed is a factor. Upkeep and monitoring below market rate units in a privately owned building which contains a mixture of below and market rate units could be done with less cost to the City through an efficient program instituted by the City, such as the Residential Safety Inspection Program you have indicated you are putting in place. This won’t happen automatically. It is time for all housing programs to be inter-related to insure that housing in this City is safe, sanitary and attractive. It is your job to ensure an effective program exists. 

Moreover, it must be made clear that all on-site below market rate units are permanent, remaining for the life of the building, even if the building is converted from rental to condominiums. 

The item also seeks to increase the percentage of below-market rate units from the current 10% to 20%. Since the item is a referral to the City Manager to return with a revised AHMF Ordinance, I strongly suggest that instead of stating that the new percentage will be 20%, that the item provides advice to the City Manager to consider increasing it to a percentage greater than 20%, but no less than 20%. Other cities are approving greater percentages. Why should Berkeley not follow that lead? 

Lastly, since the HTF is in need of funds to produce new units as well as repairing and maintaining older buildings with below market units, please discuss the idea of a business license tax fee increase for rental property owners. This is not part of Item #10 but it is on the agenda in another item when you are considering placing items on the ballot. I doubt it would be a violation of the Brown Act to discuss this matter at that time. With the rapid and large increase in rents that has been well documented, it only seems fair to increase the Business License fee for rental properties when other businesses will have seen their taxes go up when their gross receipts increase. However, why does this even have to be placed on the ballot? Why can’t it be done by legislative act? If done by legislative act, the City would have more flexibility to fix any problems that might be encountered. 

In summary, It is time to consider encouraging on-site below market units, increasing the percentage of below-market rate units in a building and increasing the funding that goes into the Housing Trust Fund.  

Thank you for your consideration of these remarks.