Legal or illegal, housing exemption is still morally wrong

By Special to The Enterprise From page B7 | April 24, 2016

By Nancy Price

On Sunday, April 10, Alan Pryor wrote an op-ed in The Enterprise in which he claimed that the Davis City Council’s actions to exempt the proposed Nishi Gateway project from all low-income housing requirements were illegal and a direct violation of the Davis affordable housing ordinance.

In a rebuttal op-ed the following Sunday, Robb Davis offered a spirited legal defense of the City Council’s decision. Ultimately, these claims will be decided in a court of law.

That said, I believe the more important question for voters to decide is whether this exclusive affordable housing exemption for Nishi is morally right or wrong and makes any economic sense for the city.

I believe it is fundamentally wrong for the city to completely waive the requirement for any developer to build 154 units of affordable housing as is minimally required at Nishi by the Davis affordable housing ordinance based on the project’s massive size. Nor are the multi-millionaire developers otherwise required to pay equivalent in-lieu fees of $11.55 million ($75,000 per unit times 154 units).

And what also bothers me is the complete lack of proper public process by which this exemption was granted by the city to the developers. For instance, this exemption was not given on the basis on any extensive independent economic analysis showing the project was not otherwise economically viable. Nor was there even a written request and justification provided to the city by the developer in an affordability plan as is specifically required by the affordable housing ordinance.

The City Council granted this exemption solely because the developers just told them they needed it or the project could not be built.

Then the city attempted to justify this exemption for Nishi and move the project forward by claiming that the project is going to be “affordable by design” with “small units … designed for students.” And the city says the developer has graciously agreed to donate $1 million to the city’s affordable housing trust fund.

Well, as is often the case in new developments, the reality is quite a bit different than the rosy picture presented to the public. As it turns out, the rental units at Nishi will be even larger and more expensive than those at West Village, which are all rented to well-to-do students, mostly from out of state and other countries. (Just look at all the new BMWs and Lexuses in the student parking lots.) So much for providing truly affordable housing “by design” for average- or low-income students.

And what about that $1 million donation to the affordable housing trust fund? Well, it turns out that it is actually only going to be paid proportionately when each of the parcels (including the commercial buildings) is actually “occupied.” The earliest any construction will start is in four to five years and it could take 10 years to build out all the commercial space. That means the city will receive only about $100,000 per year for the affordable housing trust fund starting in year 5 and continuing through year 15.

And what do the developers get in return for this comparatively modest donation? They get a complete exemption from all affordable housing requirements for which Nishi otherwise would have to build 154 low-income units or, alternatively, pay equivalent in-lieu fees of $11.55 million to the city’s affordable housing trust fund.

Donate $1 million to save $11.5 million in in-lieu fees? That sounds like a pretty good deal for the developer to me … but not so good for the low-income residents in Davis.

Another fact is that while the city has exempted this one single project from the low-income housing requirements, it has never, ever done that for any other large development project in the city. This includes The Cannery Lofts (providing extremely low- to low-income rental units), Grande Village (providing low-moderate and middle-income ownership units), The Villages at Willowcreek (providing low-moderate ownership units) and Chiles Ranch (pending discussion of paying in-lieu fees or providing low-moderate ownership units).

And both the proposed Sterling Apartments on Fifth Street and the new apartment proposal for East Olive Drive have affordable housing included in their proposed plans.

The courts will determine whether the exemption of Nishi from the city’s affordable housing ordinance is legal or illegal. But I think all the other evidence points to the fact that is an economically bad deal for the city.

And it just seems morally wrong to me that our supposedly cash-strapped city is making an $11.5 million giveaway of affordable housing money to multi-millionaire developers so they can construct luxury rental housing.

Does this really reflect our Davis values?

— Nancy Price is a Davis resident, a former Davis Planning Commissioner and a plaintiff in a lawsuit against the Nishi Gateway project.

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Published in Davis Vanguard - Date: March 30, 2016


The City of Davis and the Nishi Developer Have Violated the City's Affordable Housing Ordinance

by Alan Pryor


Background and Conclusions

The Davis City Council is asking for citizen approval of the proposed Nishi mixed-use project in the Davis General Municipal Election ballot in June. The Nishi project will provide 440 multi-family rental units and 210 stacked flat condos. All residential housing will be 5-6 stories. In addition to the residential component, 20,000 sq. ft. of retail and 325,000 sq. ft of office/commercial space is allowed on the 49 acre site.

The City of Davis has an Affordable Housing Ordinance (Article 18.05 AFFORDABLE HOUSING) that requires developers of certain sized residential housing projects in Davis to either construct a prescribed number of below-market, affordable rental or for-sale housing units or pay prescribed in-lieu fees to the City's Affordable Housing Trust Fund.

The City Council has not waived the requirements of this ordinance for any recent and planned residential developments in Davis including the Cannery Lofts (providing extremely low to low income rental units), Grande (providing low-moderate and middle income ownership units), the Villages at Willowcreek (providing low-moderate ownership units), and Chiles Ranch (pending discussion of paying in-lieu fees or providing low-moderate ownership units).

Yet, the Davis City Council is currently wrongfully exempting the developers of the Nishi project from providing any affordable housing units as is otherwise required by the Affordable Housing Ordinance. The current requirement for development of affordable rental units for larger developments of this size is 25% of the total for low income and 10% for very low income. Thus, the 440 rental units at Nishi would require that 154 units be affordable.

Nor is the developer required to pay any in-lieu fee payments to the City such as are allowed for ther residential development projects. At the current alternative in-lieu fee rate of $75,000 per unit as otherwise established by the City, such an alternative in-lieu fee payment by the Nishi developer to the City's Affordable Housing Trust Fund would total $11,550,000.

The City and developer have instead agreed on a drastically reduced fee of $1,000,000 in payments to the Affordable Housing Trust Fund. No explanation is given by the City of the basis of the apparent reduction of payment of $10,550,000 to the Affordable Housing Trust Fund.

Some have claimed that the terms of the Affordable Housing Ordinance can be modified by the City Council at its discretion such that Nishi could be lawfully exempted from the Ordinance. That is true. But changing a municipal ordinance involves a very precise process with a set of clear procedures to be followed that are specified by state statute. This process was not followed by the Council and no explanation has been given for this failure to do so.

The City Currently Claims the Developer does not have to Provide any Affordable Housing at the Nishi Project

The most recent draft of the Development Agreement submitted to Council on Feb 16, 2016 contained the following language pertaining to the provision of low income affordable housing at the Nishi project or payment of alternative in-lieu fees:

“H. [Sec. 207]. Fees, Exactions, Conditions and Dedications

7. Affordable Housing. The anticipated deal points for in the Pre-Development and Cost-Sharing Agreement approved by the City Council on November 27, 2012 assumed that there would be no affordable housing obligation for housing with densities exceeding 30 units per acre. In recognition of project location supporting of reduced costs for vehicle ownership and use, high-density housing including small ownership and rental units, and energy-efficiency features reducing resident energy costs, the Project is not required to provide price- and income-restricted rental or ownership housing.”


In fact, such authorizing language is NOT contained in either the Resolution approving the Pre-Development Agreement or the Pre-Development Agreement itself in November, 2012. Nor is there any other separate discussions or documents prepared by the City and developer discussing the applicability or the requirements of the Affordable Housing Ordinance to the Nishi project. There are also no other contractual agreements between the City and the Nishi developer in which it was agreed the Nishi project would be exempt from affordability requirements of the Affordable Housing Ordinance.

Some have erroneously claimed that the Predevelopment Agreement signed by the Developer and Council in November, 2012 exempts the project from any further affordable housing requirements because it contains the following language:

If residential density is greater than 30 units per acres gross, no affordable housing obligation or fees.”

However, the above language actually is NOT in the Pre-Development Agreement signed in November 2012. In fact, that phrase is only in the Staff report accompanying the resolution and pre-development agreement sent to the Council for approval.

This phrase shows only shows what Staff's intent was at the time. But without a legal agreement in place or at least anything else to show us what was actually approved by the Council, this Staff report means nothing legally.

However, even if that provision were applicable and legally justified in light of the over-riding obligations in the Affordable Housing Ordinance, the project still would not qualify for exemption from affordable housing requirements. This is because the Nishi site is 46.9 acres of which 22 acres in 2 parcels are for the office R&D parcels and 24.9 acres in 3 parcels are for residential. 24.9 acres x 30 units/acre = 747 units. But there are only 650 units proposed for the entire project - 440 rental and 210 for-sale units. So the density of the residential portion of the development is only 26.1 units per acre (650 units / 26.9 acres) which is less than 30 units per acre minimum density otherwise specified in the Staff Report.

The Nishi Project is Required by Law to Provide Affordable Housing but is Being Wrongfully Exempted by the City

Close examination of the Davis Affordable Housing Ordinance unambiguously indicates the Nishi project is NOT exempt from the ordinance requirements with respect to development of the rental units based on number of units and density.

Further, even if an exemption from or modification of the standards requirements of the Affordability Housing Ordinance was otherwise requested by the developer and agreed to by the City, there are clear and specified procedures which both the developer and City must follow in order to receive or grant such an exemption or modification of the standard requirements of the ordinance as further discussed below. There are no records showing such a process was undertaken that are available on the City's website supposedly containing all project documents (http://www.cityofdavis.org/city-hall/community-development-and-sustainability/development-projects/nishi-and-downtown-university-gateway-district). Thus it appears that the both City and developer are in direct violation of the City's Affordability Housing Ordinance.

This wrongful decision to exempt this Nishi project from normal provisions of the Affordable Housing Ordinance is unfair to the Davis community which desperately needs affordable housing for students and low-income individuals and families. It also sets a bad precedent for the future residential developments in Davis since other projects applications will similarly expect the same exemption privileges as was given Nishi.

Why Does Davis have an Affordable Housing Ordinance?

“8.05.010 Purposes of article—Findings

The city council finds and determines:

(a)    The city has a goal to provide a range of housing for its local workers and has chosen to take action to ensure that affordable housing is constructed and maintained within the City of Davis.”


Developers of Multifamily Projects Must Submit an Affordable Housing Plan

To ensure compliance with and proper administration of a project's affordable housing obligations , the first step any new developer must take is the submission to the City of an Affordable Housing Plan

“8.05.040 Provision of affordable housing.

(a)    Affordable housing plan. The developer shall submit, concurrently with or prior to the submission of an application for the first discretionary approval for a development, an application as provided by the city describing a proposed affordable housing plan, which shall provide a program to provide affordable housing in accordance with this article and the intended method for implementing such a program. The developer may submit an application under this article at any time subject to staff’s, the planning commission’s, or the city council’s discretion to deny the application on the sole basis of lack of timeliness. Any application resubmitted by a developer to amend an affordable housing plan after it has been approved by the city shall be deemed a new application for the development. Before any agreements between parties or transfer of land is made, all agreements, the affordable housing plan and budget for the provision of affordable housing pursuant to this article shall be approved by the city, in order to ensure that the affordable housing to be developed pursuant to the affordable housing plan will be economically sustainable over time, in accordance with the required duration of affordability for the affordable housing.”

It is believed that Nishi never submitted such a plan to the City as it is not included in any of the on-line project documents available for review on the City's website (http://www.cityofdavis.org/city-hall/community-development-and-sustainability/development-projects/nishi-and-downtown-university-gateway-district). If such a document was not submitted, the developer is in violation of the provisions of this ordinance.

As will discussed later, this failure for Nishi to initially file an Affordability Plan also precludes later application for any possible specialized modifications or potential exemption from any affordable housing obligations as otherwise might be allowed by the Ordinance.

The Requirements for Affordable Housing are Based on the Type of Housing

There are different specific compliance requirements for developers under the Affordable Housing Ordinance depending on whether the housing is rental or for-sale ownership type housing.

For-Sale Ownership Housing

Following are provisions of the Davis Affordable Housing Ordinance pertaining to newly constructed For-Sale Ownership housing and applicability to Nishi.

“18.05.050 Ownership development affordable housing standards

A developer of residential ownership developments consisting of five or more units shall provide in each development, to the extent feasible, affordable housing for very low, low and moderate income households, as set forth in an affordable housing plan approved by the city, in accordance with the requirements of this section.”


This section of code in the Affordable Housing Ordinance code indicates that this requirement would be applicable to Nishi because each of the total number of for-sale condominium units (220) is far greater than 5. However, exemptions exist depending on the type of for-sale housing built.

“(D)   Exempt projects as identified in Section 18.05.080 have no affordability requirements.”

One such exemption is for “exempt” condominium units of the type proposed for Nishi.

“18.05.080 Exemptions from affordable housing requirements.

(b)    Residential developments constructed as exempt condominiums are exempt from the requirements of this article.”


Exempt condominiums are defined in the definitions section of the Affordable Housing Ordinance of the Affordable Housing Ordinance.

“18.05.020 Definitions

Exempt condominiums are residential ownership units in a condominium development that is predominantly composed of stacked air space units not having separate ownership parcels. Townhouse or single-family developments are not considered “exempt condominiums” under this definition, even if they are subdivided as condominium units.”


Because it is believed all of the for-sale ownership condominium units are described in the project description in a way consistent with “stacked air space condominiums”, it would appear that all of the for-sale ownership units at Nishi would be exempt from the provisions of the Affordable Housing Ordinance.

Rental Housing

Following are the different provisions of the Davis Affordable Housing Ordinance pertaining to newly constructed rental housing units and the applicability to Nishi.

“18.05.060 Rental development affordable housing standards

A developer of rental housing developments containing twenty or more units shall provide, to the maximum extent feasible, at least twenty-five percent of the units as affordable housing for low income households and at least ten percent of the units as affordable housing for very low income households.”


(a)    Standard rental affordable housing requirements. All requirements listed under the respective category must be adhered to and included within the project’s affordable housing plan.

(1)    Exempt Projects Pursuant to Section 18.05.080. No affordability requirements.

(3)    Projects Totaling Twenty or Greater Units for Rent.


(A)   A number equivalent to twenty-five percent of the total units being developed, after the inclusion of the density bonus for the project, shall be developed and made affordable to low income households, households with gross incomes at or below eighty percent of area median income for Yolo County.

(B)   A number equivalent to ten percent of the total units being developed, after the inclusion of the density bonus for the project, shall be developed and made affordable to very low income households, households with gross incomes at or below fifty percent of area median income for Yolo County.

(C)   This requirement may be fulfilled through either on-site construction as stated in subsection (b) of this section or land dedication detailed in subsection (c), as long as the minimum amount of land is provided to make the site economically feasible.”


A straightforward reading of the above Ordinance language indicates that Nishi, unless otherwise exempted by other provisions of this ordinance, is subject to the affordability requirements of the Ordinance because the total number of units proposed at Nishi (440) is far greater than 20 unit minimum threshold. If applicable, the number of affordable units that should be be provided as part of this project would equal 440 Units x 35% = 154 Units.

The City does allow alternative individualized affordability programs as stated below

“4)    Project Individualized Programs for Rental Housing.

(A)   The developer may meet the city’s affordable housing requirement with a project individualized program that is determined to generate an amount of affordability equal to or greater than the amount that would be generated under the standard affordability requirements. The affordable units must, at a minimum, meet the same income targets specified in the standard rental affordable housing requirements as set forth in subsection (a)(2) and (3).

(i)     A project individualized program shall be developed by the developer and city staff, taken action on by the social services commission, and if the main project application requires, heard before the planning commission for decision.

(ii)    If the main project is requesting planning entitlements that require city council approval, the project individualized program shall then be heard before the city council for final decision.”


The developer has never submitted such an individualized program application to the City nor has any such request for such a program ever been considered by the Social Services Commission, the Planning Commission, or the Council as otherwise required by the ordinance.

Other Exemptions for Rental Housing

In addition to exemptions based on the number of the rental housing units or other individualized programs, other exemptions of rental housing from the Affordable Housing Ordinance are possible:

“18.05.080 Exemptions from affordable housing requirements.
...
(c)    Residential components of a vertical mixed use development are exempt from the requirements of this article.

To receive an adjustment or waiver, the developer must request it when applying for first approval of the residential development, or through submittal of a draft affordable housing plan to the city. The matter shall be considered before the city council within thirty days. In making the finding or determination, the city council may assume the following: (1) the developer is subject to the inclusionary housing requirements in this article; (2) availability of any incentives, affordable financing, or subsidies; and (3) the most economical affordable housing product in terms of construction, design, location, and tenure. For purposes of a taking determination, the developer has the burden of providing economic and financial documentation and other evidence necessary to establish that application of this article would constitute a taking of the property without just compensation.”


It is believed that the developer has never submitted such a formal request for exemption from the requirements of the Affordable Housing Ordinance nor even an initial Affordable Housing Plan. The City Council is otherwise precluded from granting any such exemption even if such an exemption were otherwise allowed by the ordinance.

What is a Mixed Use Exemption

A Mixed Use Exemption essentially requires the ground level floor to be entirely commercial and not ancillary in any way to the residential units on floors above the first floor. The City’s Affordable Housing Ordinance in the Municipal code defines “vertical mixed use” as follows:

“Section 18.05.020: Definitions

“Vertical mixed use development means mixed-use structures that vertically integrate residential dwelling units above the ground floor with unrelated non-residential uses on the ground floor, including office, restaurant, retail, and other nonresidential uses. For purposes of this article, vertical mixed use does not include structures that vertically integrate uses ancillary to residential units, such as resident parking, laundry rooms, community rooms, or common space on the ground floor with the residential units above.


So this means unless every single ground floor of every single one of the 3 large 5-story apartment building complexes is entirely non-ancillary space used exclusively as commercial space unrelated to the residential units above, then the Nishi units would NOT be exempt from the Affordable Housing Ordinance.

As can be seen from the following table, the total square footage of the rental units themselves is 494,500 not counting any common areas. Assuming the apartment units are 5 floors with the top 4 floors devoted entirely to residential, this would mean that each of the top four floors has a total footprint of 123,625 sq feet (494,500 sq. ft. / 4 floors) of devoted residential - not counting common areas. That means the first floor that is required to be entirely non-ancillary to residential must also be 123,625 sq ft of entirely commercial space for all of the residential buildings to be classified as “mixed-use”.

Yet, the Baseline Features of the project as approved by Council for placing on the ballot stated “Retail uses to be located within proposed Residential or R&D buildings only allow 20,000 sq “. Because 20,000 sq ft of retail is substantially less than the 123,625 sq. ft., clearly the rental residential units are NOT exempted by the “mixed use” exemption and the development is otherwise required to provide the specified number of affordable housing units or provide land dedication or, if approved, pay appropriate in-lieu fees to the City's Affordable Housing Trust Fund.

Other project information further supports the fact that the entire first floors of the residential rental building are not all commercial. The project Baseline Features currently say: "Ancillary ground -floor retail is permitted of the residential and the R and D buildings as established in the Planned Development for the Nishi property." implying that at least some some residential ground floor use is anticipated. Any residential or ancillary residential development at all on the ground floor negates the “mixed-use” exemption.

Effects of the Failure to Comply with the Provisions of the Affordable Housing Ordinance on the Legality of Holding a Measure J/R on the Project

Measure J/R is a citizen enacted ordinance in the Davis Municipal Code - Chapter 41 CITIZENS’ RIGHT TO VOTE ON FUTURE USE OF OPEN SPACE AND AGRICULTURAL LANDS. It reads, in part:

"41.01.020 Voter approval.

(a)    Voter approval of changes to land use designations on the Land Use Map from agricultural or urban reserve to urban land use designations or from agricultural to urban reserve land use designations.
...
(B)   Approval by the city council, after compliance with the California Environmental Quality Act, the State planning and zoning laws and any other applicable laws or regulations; and then

(3)    If, after compliance with the California Environmental Quality Act and any other applicable laws, the city council modifies or amends the land use designation for any property from an urban land use designation to an agricultural, open space, or urban reserve land use designation, the land use designation of that property shall not be amended or modified from the agricultural, open space, or urban reserve designation to an urban land use designation without first complying with this article, including, but not limited to, the voter approval requirements set forth in subsection (a)(2).”


It is clear from this language that the Council may only authorize a Measure J/R vote on a project that is compliant with “any applicable laws and regulations”. Since the Nishi project is not compliant with the Davis Affordable Housing Ordinance, the City Council approval of the Nishi vote itself is not valid and the ballot measure was improperly placed on the ballot.

Equivalent Alternative In-Lieu Fees Determination


Although the option to pay in-lieu fees if a developer chooses not to install affordable housing is not available for projects with rental units of greater than 20 units, it is instructive to look at what these in-lieu fees might entail if such an option were otherwise available to the developer such as through a specialized program application by the developer or such as if the housing were single-family ownership housing or rental housing of less than 20 units built by a “Small Developer”.

Currently, the City of Davis has established an in-lieu fee of $75,000 per affordable dwelling unit otherwise not constructed and managed for low-income housing. For the prescribed 154 units of affordable housing not provided for by the Nishi project developer, this would otherwise entail a payment of $11,550,000 to the City's Affordable Housing Trust Fund (154 x $75,000) if in-lieu fees were otherwise an alternative.

The Efforts of the City and Developer to Otherwise Provide Some Measure of Affordable Housing Benefits are Meager

Two weeks prior to final approval of the Nishi project by Council on February 16, the developer seemingly out of the blue offered to make a $1.2 million dollar donation to the City for a low income housing trust fund, on-site civic art, implementation of the downtown traffic management plan, or to establish a new carbon mitigation fund by the City. Ultimately, the City agreed to a $1M donation to the City's Affordable Housing Trust Fund and $200,000 to be allocated amongst the other designated uses in a to-be determined manner as described in the Draft Development submitted to Council on Feb 16, 2016:

EXHIBIT G COMMUNITY ENHANCEMENTS

Pursuant to the Baseline Project Features, Developer shall provide the following Community Enhancements, which are above and beyond the Project's requirements to provide additional benefits to the community.

1. Affordable Housing Trust Fund Contribution


The anticipated deal points in the Pre-Development and Cost-Sharing Agreement approved by the City Council on November 27, 2012 assumed that there would be no affordable housing obligation for housing with densities exceeding 30 units per acre. In recognition of project location supportive of reduced costs for vehicle ownership and use, high-density housing including small ownership and rental units, and energy-efficiency features reducing resident energy costs, the Project is not required to provide price- and income-restricted rental or ownership housing. Nonetheless, the project will contribute one million dollars ($1,000,000.00) to the City of Davis for deposit to the affordable Housing Trust Fund, to be used at the sole discretion of the City Council. This contribution will be allocated per parcel, on a basis such parcel size, parcel use, and/or anticipated building square footage basis, at the time of approval of the first Tentative Subdivision Map for the project. Payment for each parcel shall be made with Certificate of Occupancy for the first building on that parcel.”

However, $1 million dollars is not nearly enough compensation for this enormous loss of 154 affordable housing rental units as otherwise required by the Affordable Housing Ordinance. Or viewed in another way, it represents the net loss of $10,550,000 to the City's Affordable Housing Trust Fund compared to if the Nishi project were otherwise paying in-lieu fees equivalent to those imposed on other developers in Davis.