well when it's costing us $1M/unit with waived fees for BMR housing, it's not too surprising that fully burdened market-rate units are heading for $2M. Maybe Mountain View has priced itself out of further residential development.

Mr. Damerdji's words deserve more attention. If he is correct about a circular firing squad linkage among office development, housing and infrastructure, then journalism has a role to play. How will this play unfold? Sally Lieber's concerns should not be cut short.

It seems to be some sort of an assumption on the part of the consultant that rents cannot rise further. But who would have thought they could have risen so far as they have now? The demand is assured because the East Whisman plan provides more demand in the form of an equal amount of added jobs--enough to fill the housing that is anticipated. The question really should be, will those jobs (and that office space) actually come? That's the only thing that might out the housing off track.

It is insufficiently appreciated that we are already in a situation where there is a large need for more BMR housing units. Lower income levels, and moderate income levels can quality for BMR units but there aren't enough. These income levels won't be in the customer base for market rate housing if a higher proportion of BMR housing is actually built.

It seems quite likely that income levels (especially in the upper quartile) in the area will continue to rise. At high income levels, there really is not the same need to limit housing costs to the mythical 30% of income. A $200K income stream can use some of the discretionary income to elect to live in more expensive housing. That's already what has happened and that's why right now $4000 is a sort of standard for new market rate units. I see no reason why this $4000 figure won't rise considerably over time. The apartments will be very lucrative even if the fees are an extra 3% for city infrastructure.

Not sure if Salim Damerdji understands that impact fees are limited to what a nexus study shows to be necessary; actually all cities set them lower than the nexus study findings. To subsidize developers with general fund money is not sustainable, there is not nearly enough money to subsidize developers to build the housing in the RHNA.

Density Bonuses (of more market-rate units) when a developer includes BMR housing, were intended to be the subsidy that would offset the losses a developer incurs from the BMR housing. The problem with this approach is that there is such a surplus of empty, unaffordable, market-rate rental housing, that approved projects with BMR aren't moving forward. SB-35 added the carrot of more office space, but we have a glut of Class A office space, so that doesn't work either.

The solution to the affordable housing crisis is State subsidies. Each unit of affordable housing costs about $600K to build. San Francisco stated that they need about $16 billion to build the affordable housing in their RHNA; Mountain View needs about $2.2 billion. Mountain View has a relatively poor jobs to housing ratio (compared to Sunnyvale, Cupertino, Campbell, San Jose, etc.) so their RHNA is relatively high.

Of course this is all absurd. Even it the entire State surplus was used to fund the affordable housing in the Sixth Cycle RHNA, it would not be enough money. The real problem is that California's legislature and the Housing and Community Development department is controlled by development and real estate interests. HCD used false data (proven by the State Auditor) to come up with absurdly high RHNA requirements that they know are impossible to meet. When cities fail, the State will take away the cities' approval and permitting process. But even that won't help, because cities already rarely deny or delay new projects except in exceptional circumstances (like the toxics problem at Cupertino's Vallco site).

The real solution is to fix the RHNA process.

"cities already rarely deny or delay new projects except in exceptional circumstances"

That is the polar opposite of what I see! Cities delay and deny new projects every week of every year. As just three examples of the top of my head:

Didn't Councilmember
Lisa Matichak sort of rise to prominence in local politics in opposing a few dozen homes in her neighborhood by the Hetch Hetchy trail? Web Link

Didn't Palo Alto block 60 below market rate apartments for seniors? (Eventually 16 $5M detached single family homes were built instead! How's that for affordability! How's that energy-inefficient home configuration good for the environment?!)
Web Link

Didn't San Francisco block a housing development last year that would have replaced a valet parking lot?
Web Link

Look, if cities are correct in assuming that commercial development makes them money and residential development costs them money, then I can't entirely blame cities for following the money, as much as I might wish they'd do the right thing and have jobs-housing balance.

That's why the solution is to come together at the regional and state level and align everyone's incentives. Every city should play by the same rules -- If you upzone for jobs, you can upzone for housing! I wrote an op-ed arguing for this in 2019:
Web Link

I like the comments that LongResident made about (higher) middle class income streams and the 'mythical' 30% of income to rent/housing. The bigger 'the chunk' of money you have per-person to live on - the more you can spend on 'non-essentials' [expensive cars, restaurant meals, vacations, hone-entertainment-systems, & expensive homes]. But 'U got 2 choose!' U can't always get what U "want".

It is SO IMportant that this East Whisman Plan area has the "unusual feature built into its zoning plan" of Built Housing before commercial start. Thanks for mentioning that Voice/Kevin!

The elephant in the room for all of this is that the city is banking East Whisman housing as a large portion of the RHNA for the upcoming cycle. How do the higher fees changes how much housing will be built and how likely is it that it will be built during the cycle?

Jeremy Hoffman:

The Palo Alto City Council unanimously approved that senior housing project. It was voters that overturned that decision through the referendum process.

The Mountain View project should not have been rejected since it did not require any rezoning. That was fourteen years ago. Today it would have had to be approved, whether the residents of surrounding areas liked it or not.

The San Francisco project just required a proper EIR. It’s ironic that the entities that used to be so in favor of the California Environmental Quality Act, now often want to ignore it when it affects their profits.

All cities, all school districts, and all water providers should raise their impact fees to 100% of what their nexus studies show is necessary.

This idea that cities should be expected to subsidize for-profit developers is insane.

The State came out with these ridiculous RHNA numbers, which the State Auditor has now shown to be unsupported by any data.
Web Link

The RHNA process has all sorts of issues, and a lot of the problems stem from unreasonable expectations as to what the state could possibly accomplish in the way of housing "mandates" that are really mandates for virtue signalling by cities. The virtue signalling does not guarantee what will happen in those cities from the zoning they set. Really there should be a funding mechanism for BMR housing rather than leaving this up to the local jurisdictions.

Notice that all-BMR projects don't pay any of these impact fees. Problem solved. Build 5000 BMR units there.

Whatever is the cause of a housing shortage, it is not due in any significant extent to "delays" in starting construction on approved projects. Housing lasts for 50 years or more. Even if months are tacked on to the process, the time-adjusted affect on housing supply is negligible. Delay 1 year and the average reduction in usable housing per year over the life of the project is under 2%. 2% of the shortfall doesn't go very far at all toward meeting needs. It's not 2% of the total supply, it's 2% of the increment.

Delay is subjective too. Some housing projects were under consideration in 2008, but then we had a great recession. That upset the apple cart for years after that. The recession delayed some of those projects for 5 years or more. That kind of delay is more significant than government oversight time, but it shouldn't even really be counted as a delay per se. It's just a fact that economic concerns interfere with using the profit motive to fund growth in the first place. We're about to see impact from higher interest rates. Time will tell what that does.

Mountain View met and exceeded its market rate RHNA quota for the current cycle. The state has no reason to doubt it doing so going forward, not even with no zoning changes at all. But BMR is another matter. Too bad RHNA pretends that BMR unit creation doesn't matter Much More than creating expensive luxury units in a high cost city.

The epitome of the BMR portion of the RHNA quotas is that they do not come with any funding from the state HCD bureaucracy or related state entities. BMR units in any location need funding. Why not East Whisman? And certainly why aren't the plans showing more BMR units than market rate when that is the split defined by HCD and pushed out statewide? Why should East Whisman be planning for nearly every unit to be impact fee producing? Quibble that the issue is there should be 55% BMR to match the quotas on the city, but it's not that far off to point out that they could potentially all be BMR units. It's closer than the pretense that they could be a negligible portion.

I think there might be something behind this. None of the land in East Whisman might be available for any all BMR development. It's all planned for intensive market rate uses with minimal BMR. Why?

The housing element, and plans for East Whisman, need to reflect what is actually expected to be built. You just repeating "all BMR" over and over without a realistic plan for how it will be built is just virtue signalling.

Mountain View already has inclusionary zoning to subsidize BMR through market-rate development. A real plan would encourage the city to allow enough development so we can hit those numbers!

Mountain View has a quota next cycle of 6200 total BMR units plus 4900 market rate. Inclusionary cannot possibly be nearly enough. Condos do not even provide them. It seems East Whisman should be at least half BMR units. The area has existing market rate units whose low rents will rise deplacing those who live there now. Development fees can be avoided by building BMR. This concern about such fees overlooks the biggest concern. The locations here need to provide many BMR units not just 15%. Gentrification is a big concern especially in this area!

If you look at the methodology used to calculate RHNA numbers across the state, they are actually more of a ceiling than they are a floor. The HCD makes optimistic projections about economic growth and population growth. Then it sets the total number of units to equal every single unit that would be needed in this ideal world of continued growth in the state. It's a zero sum game. If one city adds excess units then the surrounding cities will see a drop off in investment needed for their own growth.

I can't believe that anyone could overlook that the RHNA numbers don't fall short of full supply to meet optimistic high demand...... yep a ceiling on what's remotely possible, not a floor.

The other thing about the RHNA assignments is that they are prospective and actually start to be mandated in advance of any job or population growth. So the system relies on private investment not manifesting to reduce execution of the over ambitious plan in cases where actual growth falls way short of the optimistic forecast. The state depends on the RHNA numbers being a ceiling rather than a floor.

[Post removed due to poster being banned for repeated violations of Terms Of Use: disrespectful/offensive comments]

It is absolutely effectively a ceiling as opposed to being an actual floor. There can be variations from jurisdiction to jurisdiction, but never has a reason ever built MORE than the aggregate quota, and none have actually even reached the total as projected. It's a sign that the methodology is too optimistic as to true market demand.

Of course, the worst problem is that BMR is wildly underbuilt, but that was the case before RHNA existed.

No matter what a city manages to do it's the investors that determine how much of the quotas get built. City saying it sees spaces for 20000 new units doesn't necessarily make the city get any more units than if it said it saw spaces for 10,000. The sad thing is the state treats BMR units and their quotas as if they were as likely to get funded as profit-making ones.

Obviously, the General Plan of a city affects POTENTIAL development, but it's a new claim that the general plan REQUIRES that a city develop above some arbitrary level. The California constitution reserves such decisions for the city. But my point was simply that no matter what plans or how much effort goes into calculating likely outcomes and pointing out locations, city's can't actually CAUSE development. This depends on a lot of external factors chief of which is the willingness of investors to risk cash on any particular project.

When the state sets these high standards for housing development and divides them up among all the jurisdictions, it has to be noted that there is a limit to how much investment will go on. One city being very encouraging and granting incentives is going to take away from the growth in surrounding cities. This also can affect shifts of where housing is added through new projects even within a city. This is why wishful thinking doesn't actually translate the standards into a floor on the amount of development.

I'd say the need to consider more factors lies in the YIMBY zealotry, not in those who reasonably observe limitations to the wishful thinking coming from HCD RHNA figures. One of the factors is that any housing development tends to lag behind office development because investors wait to see that there will be a fair amount of localized demand growth BEFORE they even plan a new housing project, let alone break ground on it. They take into account what else is happening with housing proliferation in the area too.

With high home values, the ability diminishes for a developer to accumulate enough of them contiguously so as to develop apartments. The land values are as great under a SFH as they are in other areas. If a city allowed apartments in current SFH areas, the plan wouldn't be credible. Instead we have this situation which has long allowed 2 ADU's alongside every house. More recently we get his allowance for 4 houses on one current parcel. This makes it even more unlikely that a developer would want to try to build apartments in such areas. The value has gone up even higher.

Take Cuernevaca. The whole thing is covered by an HOA that outright bans combining lots and building apartments on the result. HOA is very common in southern California.

High land prices go along with high prices for houses. The land is not the only cost in acquiring property. When trying to assemble say 10 SFH in Mountain View, you'd expect to get something like 1.5 acres depending on how big are each of the lots. I looked on zillow and found 10 houses to add together. I got 1.5 acres but for $35 Million. This above the price in many other places in the city, where it's easier to purchase because there aren't so many property owners involved.

It's not always the same. In another area of the city, 10 SFH yields more like 1.1 acres of land but for $23 Million in purchase cost to buy out all 10 homeowners.

The unsuitability of claiming to rely on mass conversion of single family homes into apartment blocks lies in the fact that less expensive locations are still available for such growth, as are identified in the city's plans. The city may not be able to prove that this development will occur in their locations, but it is arguably more likely than in the idea of "just build on SFH areas". The rub with the SFH location source is that around here all the SFH still have a great deal of value. Beside paying the $12 Million per acre for land there, you have to cover the cost of around another $10 Million in value to scrape existing structures. Also some homes have more extensive and newer larger residences which add EVEN MORE to the scrape cost. The other locations are in areas where the current buildings are olders and the owners are seeking redevelopment. They also flock to idea of mixed use where on the same land they also build commercial space, utilizing some of the land value. This is feasible mainly due to the identified locations being suitable for commercial use, i.e. with better transit and more traffic going by to patronize the businesses.

So beware over simplification.