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Executive roundtable

High fees, lengthy processing killing projects

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The high fees of new housing costs and accompanying bureaucracy are killing the American dream.

Those were the conclusions made during a roundtable discussion at the Daily Transcript offices recently.

The discussion centered on a new study by Point Loma Nazarene University’s Fermanian Business and Economics Institute, which stated that as much as 40 percent of new housing costs are attributable to fees and bureaucracy.

Borre Winkel, Building Industry of San Diego president and CEO, said that although he considers San Diego to be a major offender when it comes to fees, the city isn’t alone.

“Carlsbad has proposed a $20-per-square-foot charge on new apartment construction,” Winkel added.

Lynn Reaser, Point Loma Nazarene chief economist who authored the Fermanian Institute study, said although San Diego will never be as cheap of Texas or Idaho, its leaders need to get a handle on these issues or companies will increasingly flee the state -- or never come here.

Winkel said nothing leads him to believe the problem will be resolved anytime soon.

“If 40 percent isn’t enough, where are we going?” Winkel asked. “We can’t get approved, anyway.”

“It costs more to have a project reviewed than engineering and architecture,” he added. “You don’t get the best architecture, you don’t get the best designs, and you will agree to anything to get a project approved.”

Reaser said that 40 percent is a daunting figure, but she remains optimistic.

“If we can’t solve this 40 percent problem here, then who can?” Reaser asked.

Traffic is often cited as the reason for a project’s rejection, but Winkel said that even if it weren’t an issue, neighbors too often find reasons to oppose a development.

Rudy Medina, an adviser for Medina Investments/Next Space Development who has fought to get a condominium project built on a 25,000-square-foot site on Rosecrans Street at Shelter Island Drive, said he won’t do any project that is subject to discretionary approvals.

“The community is so adamant. They act like they will jump off the Coronado Bridge before they will give you an extra unit,” Medina said. “It took three tries.”

Medina said he might have been able to get 50 units for the development, but that number had to be reduced to accommodate parking requirements.

The developer then tried to get a 30-unit site for the property, but the public wouldn’t hear of it, he said.

Medina, who noted that the property has been abandoned for years, said the development is being allowed 16 units -- with 5,000 square feet of ground-floor retail space -- meaning that coupled with processing expenses, fees and delays, prices will have to range from $1 million to $1.1 million for the developer to make a profit.

“If we would have been allowed to have 30 units, we would have been able to have prices in the $600,000 to $700,000 range,” he said.

Winkel said as a result of delays and fees, only a fraction of the needed housing is built in any given year.

“At least 10,000 to 12,000 housing units per year are needed [in the county] and we haven’t done that in nine years,” Winkel said.

Winkel said only about 6,600 housing permits were issued in the county last year, most of which were for apartments.

“We’ve only had 2,000 to 3,000 single-family housing units per year for 10 years in a row,” Winkel said. “And we’re not building entry-level [single-family] housing anymore.”

Marcela Escobar-Eck, Atlantis Group principal, countered that some 20,000 housing units are in the pipeline in Chula Vista.

Escobar-Eck said it’s frustrating that relatively few people are living near where they work.

“South Bay to Sorrento Valley sees the biggest amount of gridlock,” Escobar-Eck said.

Rich Seges, Civic San Diego vice president, said that with all the talk about a land shortage, he doesn’t know why people aren’t building developments in Encanto or on more of those surface parking lots downtown.

“Encanto has all the infrastructure,” Seges said. “It’s five minutes from downtown.”

David Dilday, a development broker with Pacific Coast Commercial, said that in theory, plenty of developable land exists for both residential and commercial.

“We have environmental regulations that are so onerous, developers refuse to start their projects,” Dilday said.

Dilday said Santee residents fought for 12 years against a proposed 424-home subdivision by Pardee Construction on 113 acres in the East Elliott area, even though the land is outside that city’s jurisdiction and within the city of San Diego.

Eventually, the San Diego City Council approved the plan in the summer of 2013. The property was later annexed to the city of Santee later that year and continues to be processed.

Sometimes it’s the agencies that have the rug pulled out from under them.

Seges said a problem Civic San Diego continues to have is that with the dissolution of redevelopment entities such as the Centre City Development Corp. by early 2012, much of the processing has had to be redone.

Escobar-Eck said that developers might be willing to pay higher impact fees if they had some certainty as to the timing of those projects.

Reaser agreed.

“The math just doesn’t work out if the time is three to 10 years or even longer,” Reaser said.

Yet the battles haven’t only been on the residential side.

Gordon Kovtun, KCM Group principal, has been overseeing the transformation of the Plaza de Panama in Balboa Park, a project that despite controversy over the parking area, was approved within three years from first submittal.

“We knew that the [environmental impact report] had to be bulletproof,” Kovtun said.

Escobar-Eck said another problem with government is a lack of continuity, which is exacerbated by term limits.

“Imagine trying to run a company like the city has been run, with three mayors and several council members changing over,” Escobar-Eck said.

“Since there are going to be opponents on each and every project, the task is to find someone who is willing to listen,” Dilday said.

Roundtable Participants

Dave Dilday, Development Broker, Pacific Coast Commercial

Marcela Escobar-Eck, Principal, The Atlantis Group

Mike Fager, Charter Manager, Jet Source (Roundtable Sponsor)

Gordon Kovtun, Principal, KCM Group

Rudy Medina, Development Adviser, Medina Investments/Next Space Development

Lynn Reaser, Chief Economist, the Fermanian Business and Economics Institute at Point Loma Nazarene University

Rich Seges, Vice President, Civic San Diego

Borre Winkel, President & CEO, Building Industry Association

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1 UserComments
Robert Leif 12:00am June 4, 2015

Since much of the Planning Departments work is cost-plus, there is no incentive for productivity. A major problem is there is no official agreement on the definition of Smart Growth, which is a meaningless, nebulous, but nice sounding term. It should be replaced by transit-oriented development, which has been defined as "a type of community development that includes a mixture of housing, office, retail and/or other amenities integrated into a walk-able neighborhood and located within a half-mile of quality public transportation.” This definition can be extended to be a set of rules that in the form of zoning actually determine what can be constructed. A simple rule is that buildings are not transportation oriented if they are outside of the one-half mile limit. The present permitting procedure needs to be semi-automated. For most projects, filling in a form with a computer and submission of plans that are in a public format should be sufficient.