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Carlsbad’s housing fee talks continue

Carlsbad officials remain committed to advancing a recommendation that the City Council adopt a controversial fee on developers who build market-rate apartments.

The fee, which would be $20 per square foot of rental-unit development, was endorsed by the city’s housing commission at the beginning of 2014 as a tool to fund affordable housing in the community.

The proposal drew opposition from groups representing developers, contractors and landlords.

In the spring, the City Council directed city staff to meet with the Building Industry Association of San Diego to discuss alternatives. Those discussions are ongoing.

Debbie Fountain, Carlsbad’s director of housing and neighborhood services, said after talks conclude with the BIA in the new year, the city administration will forward the proposed fee to the council.

At that time, any other recommendations from the staff and BIA will be given to the council, Fountain said.

Funds generated from the fee would be used to subsidize the building of affordable housing, which would allow for lower rents.

Fountain said additional revenue is needed to help Carlsbad provide an additional 1,600 affordable housing units it is expected to need by 2020.

“The fee is definitely a big component of that because pretty much all affordable housing needs to be subsidized,” Fountain said. “Without a revenue source, it is difficult to produce affordable housing, especially for the lowest-income groups.”

Until 2009, the city’s inclusionary housing ordinance required builders of both for-sale and rental housing to provide 15 percent of projects as affordable housing or else pay a fee.

Carlsbad tweaked its ordinance a year later to eliminate the requirement for rental units in response to a state appellate court ruling, known as the Palmer decision, which said inclusionary housing requirements for rental housing violate the state's rent control law.

In 2012, the City Council formally asked staff to come up with ways to address the city’s inability to apply its inclusionary ordinance to rental housing.

A lengthy study from an outside consultant came up with fee options based on the anticipated economic impact and increased low-income housing demand that market-rate developments would create.

But Michael McSweeney, the BIA’s senior public policy adviser, said he thinks the fee that is under consideration will result in fewer, not more, affordable units.

He said the levy would raise the cost of building an average 200-unit apartment complex by $3.6 million, the type of increase that would make a developer unlikely to pursue a project.

McSweeney said Carlsbad should instead take steps to increase its incentives to developers to produce affordable housing.

“If you incentivize something, you will get more of it,” McSweeney said. “If you tax it and put a fee on it, you will get less of it.”

One specific tool McSweeney said Carlsbad could pursue is allowing more density per acre.

He said the city likes to keep housing projects at 23 dwelling units per acre, but it could consider increasing that number to as many as 30 units per acre. The additional units could be slated for affordable use, while the developer would still have the typical number of market-rate units on the site.

McSweeney also said the city could provide development concessions, such as reduced setbacks and increased building heights, as well as make its incentives clear to developers.

However, Carlsbad’s housing department released a fact sheet this spring stating that for more than 20 years it has been using many of the BIA's suggestions about providing affordable housing, such as approving density increases for a site.

Fountain also told The Daily Transcript that the city in recent years has made changes that allow for density of up to 35 units per acre downtown, and up to 30 units per acre in parts of the Barrio neighborhood of the city.

The amount of permitted density will increase in the rest of the city when Carlsbad's general plan update is completed, she said.

In addition, developers who voluntarily make 15 percent of their units affordable and sign an agreement to maintain the affordability would not be required to pay the proposed new fee.

But apartment builders remain concerned.

Josh Vasbinder, West Coast partner for The Dinerstein Companies, said if Carlsbad enforces the $20 per square foot levy, it would leave developers, who still want to build their projects, with two options: raising the rents they charge or voluntarily meeting the affordability requirement.

Rents can only be raised so much to cover additional costs, he said, and developers are unlikely to build affordable units because of rising labor costs.

Vasbinder, whose company both builds and manages apartment complexes, said he thinks firms like his will end up choosing to build in markets as attractive as Carlsbad but where the project costs will be far lower.

“My concern is, it is going to lead to a lot of developers turning away because, economically, deals will not pencil out,” said Vasbinder, whose company does a lot of building in San Diego.

The city of San Diego charges $8.61 per square foot for residential developments of 10 or more units; Solana Beach adopted a $25.28 per square foot fee in 2011.

Carlsbad's proposed fee has the support of the San Diego Housing Federation, which backs affordable housing development.

Laura Nunn, the federation’s policy director, said Carlsbad is continuing to grow and has a workforce that needs housing it can afford.

“We don’t see this as anything that would hinder development,” Nunn said. “We see it as a really important part of the city’s ability to increase its stock of affordable housing to meet its needs.”

She also said she hopes the City Council moves ahead with the fee sooner rather than later.

“It is unfortunate it is taking so long because it is a good solution for what they are trying to achieve,” Nunn said.

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