As funders look for ways to nurture more affordable housing in California, residential impact and commercial linkage fees are increasingly discussed as a way for cities to raise funds to build homes designated for moderate-, low-, and very low-income households.
Cities can legally require new commercial and/or residential developers to pay fees per square foot for affordable housing as long as the city shows that the new development will create an additional need for housing – i.e., a “nexus.” For example, a new hotel will create many low-wage jobs, and therefore the workers doing those jobs will need affordable homes, which increases the need for housing in the city the job is created. Alternatively, a new upscale condo building will bring in residents who need services like grocery stores and childcare, and therefore the workers who provide those services will need affordable homes, many of which will be needed in that very same city.
It sounds simple, but it takes many steps for a city to actually adopt fees, including significant time and money. Cities must hire and manage consultants to develop a nexus study to quantify the relationship between new development and the need for affordable housing. Cities also typically have consultants conduct feasibility studies to determine what fees can be set at without deterring development, which adds more time and expense. Then there is the extended public process for fee approval.
This means that even in places like Silicon Valley, where the need for affordable housing has reached crisis levels and many elected officials are actively working toward solutions, the establishment of residential impact and commercial linkage fees have not been applied either as consistently nor effectively as they could be. Hundreds of millions – if not potentially billions – of dollars for affordable housing have been left on the table as a result, especially with the incredible pace of development across Silicon Valley.
But an effort led by the Silicon Valley Community Foundation has been finding a way to help cities work together to better harness impact and linkage fees for affordable housing. This effort is touched upon in the excellent new report from the Silicon Valley Community Foundation, Impact Fees for Affordable Housing: A Critical Tool for Addressing Silicon Valley’s Housing Crisis, but the full story is one for funders to take note of.
Essentially, the Silicon Valley Community Foundation (SVCF), with sponsorship from the Cities Association of Santa Clara County, Enterprise Community Partners, and the San Francisco Foundation, reached out to every city in Santa Clara and Alameda Counties that had not yet adopted both residential impact and commercial linkage fees. These cities were invited to be part of the “Alameda County/Silicon Valley Joint Nexus Study Project.” By participating in this joint effort, a city could affordably – and with minimal administration – have residential impact and commercial linkage fee nexus studies completed, as well as feasibility analyses, at a lower cost than if they were to develop one themselves.
A big part of the cost of nexus studies and feasibility analyses is gathering and synthesizing all the data needed, including U.S. Census data, economic statistics, and market data. When this is done for an entire county from the beginning, it is then possible for a single consulting firm to parse out the data to create individual nexus studies for specific jurisdictions and gain some real efficiencies.
This is exactly the approach that SVCF facilitated along with coordination help from Baird & Driskell Community Planning. SVCF interviewed and went through a due diligence process, ultimately hiring an experienced consultant, Keyser Marston Associates. Keyser Marston Associates was then the clearinghouse for all data and analysis for Santa Clara and Alameda Counties, so that any interested city was able to be folded into the project. Costs for the “Alameda County/Silicon Valley Joint Nexus Study Project” were then divided between 12 participating jurisdictions, with each jurisdiction paying based on their population size.
“The cost savings for a city participating in the joint study versus doing it on their own was significant,” said Vu-Bang Nguyen, formerly a program officer focused on SVCF’s regional planning grantmaking strategy. “It was a major selling point,” said Nguyen. “And at the end of the project, cities were paying less than half of what they would have paid if they went out on their own.”
Nguyen, as well as Josh Abrams from Baird & Driskell, travelled as far north as Albany and as far south as Gilroy to meet with representatives from city housing departments, planning departments, housing commissions, and city manager’s offices to encourage cities and counties to participate.
“We started with the cities that we had strong relationships with,” said Nguyen. “As we got key cities on board, that helped attract others who were on the fence, but just needed more support.” Throughout the project, it was clear that cities felt more confident in participating if peer cities were, especially neighboring cities, so they wouldn’t be at a competitive disadvantage for development.
Ultimately, the “Alameda County/Silicon Valley Joint Nexus Study Project” included Santa Clara County, City of Santa Clara, Milpitas, Campbell, Los Altos, Saratoga, Alameda County, Fremont, Union City, Albany, San Leandro, and Hayward.
That’s an impressive list of places that now have everything in place to be able to move forward with establishing or updating its linkage fees for affordable housing. Excitingly, many participating cities are now in the process of updating or establishing fees. The Fremont City Council unanimously adopted fees in June of 2017 and the City of Santa Clara followed most recently in December. The cities of Milpitas, Los Altos, Campbell, and Union City are all currently considering impact fees now that their nexus studies are complete.
“The most important investment SVCF made in this project was elbow grease,” says Nguyen. The Silicon Valley Community Foundation’s oversaw all aspects of the project, including hiring and overseeing two consultants, and working actively throughout to get the participation of as many cities as possible. But SVCF’s financial investment in this project was only about $45,000 in total for a consultant to coordinate city and county engagement, a legal firm to review the process, and for the creation of high-quality materials for cities that explain how impact fees support affordable housing.
That’s a relatively small investment in terms of what would be raised for affordable housing if many more cities throughout Silicon Valley adopt impact fees. A quick back-of-the-envelope based on currently proposed residential and commercial development could mean tens of millions of dollars if market appropriate fees were adopted. That money would be nothing short of a godsend during this time of inadequate state and federal funding for affordable housing.
But there’s even more to be gained by cities becoming more coordinated in their approach to linkage fees – and affordable housing all-around. In fact, the coordination between the 12 jurisdictions in the Bay Area also helped in an effort in Los Angeles for a similar affordable housing linkage fee on new commercial development. The linkage fee, brought on by the leadership of Mayor Eric Garcetti, was recently adopted in the City of Los Angeles and will bring in an estimated $100 million annually for affordable housing development. Through continued collaboration between California Community Foundation and Silicon Valley Community Foundation, the Mayor’s office was supplied presentation materials and an update on the Bay Area collaboration which was used to inform the Los Angeles effort. Bringing in the tools and learnings from SVCF “helped validate the message that the linkage fee is a common and effective tool,” says Ann Sewill, vice president of Health & Housing at the California Community Foundation.
As the report describes, affordable housing – particularly in Silicon Valley – is an issue that crosses jurisdictional lines, and many solutions will need to be considered from a regional perspective. Cities aren’t there quite yet, but they are a lot closer thanks to the leadership of the Silicon Valley Community Foundation, and the essential support of the Cities Association of Santa Clara County, Enterprise Community Partners, and the San Francisco Foundation.