By: Gary London
As published in the San Diego Business Journal: Feb 20, 2012
The death of redevelopment is destined to wreak havoc on existing policies and land use requirements that have been designed to accommodate growth in our urbanized areas. In its wake, the state legislation that yanked the redevelopment clout and the financing away from local control will leave a giant gap in our ability to accommodate the demand for roughly 120,000 housing units in our region over the next ten years.
Every city throughout the region (and the unincorporated county) will be forced to re-evaluate their plans and force Sandag to update its growth forecasts. While Sandag regularly does update every three to five years (last updated in 2010), it may want to fast-forward its schedule for the next one.
The reason? In a previous column (“Kicking the Housing Can Down the Road”) I was concerned that in Sandag’s 10 year projection to add 122,000 units there was already a housing deficiency of at least 27,000 housing units.
On top of this, I argued, each community will almost certainly “push back” plans and proposals by developers to redevelop and alter uses, in their efforts to create more dense urban environments. While some of this resistance is pure NIMBYISM (not in my back yard), some will be grounded in the ability of these same neighborhoods to accommodate the ‘externalities’ of growth such as widening roads, improving sewer pipes, adding fire stations, etc.
The Making of the Next Crisis
This was a big problem before the death of redevelopment; it is a gigantic problem now. We are now starting to see economic recovery numbers. Although new housing development pressure is not around the corner, eventually it will come.
But it’s mostly about money, two kinds of money. The first is “fiscal” — the various financial tools formerly available in redevelopment such as tax increment financing, are now gone. These tools are needed to fix the infrastructure deficiencies that make many of these communities’ redevelopment areas in the first place.
Many of the communities that were formerly within redevelopment areas could depend on the tools in the redevelopment toolbox to deal with infrastructure deficiencies. This is no longer the case, and this is the makings of the next crisis.
The second money issue is called “feasibility.” Builders may not find it financially palatable to bother to build many projects unless they can either raise revenues or reduce costs.
Revenues will go up. Apartment and commercial rents will rise, and condominium prices will go up. But revenues probably cannot increase fast or high enough to overcome the extraordinary costs of building. The last thing that builders need is to be further burdened with new fees to address the backbone infrastructure costs. Mechanisms must be determined so that the greater community is assessed to cover these costs.
Along the way, line item costs have to be reduced on a per project basis.
Public policy can play a role here. Most cities have a parking ratio of 1.5 for Studios and 1-bedroom units and a ratio of 2.0 for 2 and 3-bedroom units. Some cities also require visitor parking on-site. Based on these parking ratios, 600-800 square feet of parking is required per unit, making parking costs the same cost as actually building the unit.
By removing parking costs, a cost barrier would be eliminated. This is important because developers will be able to pay more for the land (which is critical because there are no longer redevelopment agencies to subsidize projects).
You can see the argument I am opening up here: The community and their representatives will certainly argue that if the new project does not provide parking, then it will spill into the neighborhoods. The builder might build the parking anyway (as they do for downtown high rises and there is no actual requirement to do so).
But the debate might actually graduate to a discussion about community parking structures, substitute models such as stacked parking systems, free transit passes or Segways/bicycles provided, etc.
And this is just one line item. There are probably other rules or fees that ought to be revisited to solve the feasibility issue. Clearly, we want to encourage density. We better start now to connect the dots between public policy and the costs to implementing that policy. The death of redevelopment forces us to do so.