Alameda should keep inclusionary zoning, removing the "moderate" tier for renters

At its next meeting, the Planning Board will continue its ongoing review of the city's inclusionary zoning ordinance and its discussion of IZ's future in Alameda.

This blog previously discussed this topic under the title of Inclusionary zoning in Alameda: An "everything bagel" that may make no sense in principle but is still worth fine-tuning.

In a timely article, the Mercury News recently reported on this very topic:

In April 2023, a new luxury apartment complex on Alameda’s waterfront, Launch, opened to renters, advertising views of the yacht club from its rooftop deck, poolside cabanas and a co-working lounge.

As required by Alameda’s inclusionary zoning law, the developer, Pacific Development, set aside 49 of the 368 units for low- and moderate-income households making between 50% to 120% of the area median income, $51,800 to $124,250 for a single person. The idea was to fill the complex with a variety of tenants, not just the kind of renters who could afford $3,000 a month.

Two years later, the results are mixed: units for the poorest tenants have filled, but all 19 designated for moderate-income renters — the so-called “missing middle” — remain empty, much to the frustration of the developer, Sean Murphy.

“The last thing we want to do as a developer is build housing units that sit vacant,” he said. “That doesn’t solve any social problems.”

The article continues to explain that there's regional variation:

Moderate-income units provide the biggest benefit to renters in high-cost cities along the Peninsula and in Santa Clara County.

At The Anson, a luxury complex in Burlingame, a short walk from downtown, a moderate-income one-bedroom apartment for a renter making up to $156,750 goes for $2,900 — $1,000 less than what a market-rate renter pays. Just down the street at The Bower, a moderate-income renter would pay $2,400 for a studio, while market-rate renters pay $2,900 a month.

Here's a chart from the Mercury News illustrating the variance in IZ-discounted rates for moderate-income renters for a sampling of apartments in Alameda and elsewhere across the region:

Arrows going to the left mean the IZ program is working. A person or a household with "moderate" income level is able to rent in a city in which they wouldn't otherwise be able to find housing. As a result, they may be able to live closer to their work, in a better-resourced school district, or closer to their family and friends.

However, arrows going to the right mean the IZ program is not working as intended given the specific income-level requirements (which are calculated annually by the US Department of Housing and Urban Development) and given the development's costs, financing, and other factors affecting the "list" rental rates. An arrow to the right means that the unit will sit vacant, perhaps until the overall real-estate market changes substantially (perhaps wiping out the current owners of the development in the process).

In their report to the Planning Board, the city's consultants find the same pattern and propose that while moderate-income households don't need help renting in Alameda, they do need help when buying in Alameda. Therefore, the consultants recommend that:

• The city remove its requirement for rental units for moderate-income households, to focus on building IZ units for households with lower incomes.
• The city simultaneously reduce its 15% requirement for below-market rate (BMR) rental units to 10%.
• For developments with for-sale properties, the city continue to require BMR units for sale for moderate-income households.

Making these changes together is important. The cost to developers to subsidize units varies massively depending upon the targeted income level. To designate a rental unit for a moderate income level household is a modest cost; to designate a unit for a household at the low or very-low levels is a larger or even larger cost. In making these changes to the IZ program, the City of Alameda's Housing Element set the goal of keeping the "cost of compliance" neutral — in plainer words, to not have changes to the IZ policy further raise the overall cost of developing a multi-family housing development. Increasing the overall cost of a development will either mean that, best case, the market-rate purchasers assume all of that cost... or worst case, the project can't "pencil" and is never built.

The consultants' report has a few more recommendations related to "in lieu fees" (which would allow developers to pay to support city-wide housing efforts rather than building below-market-rate units on-site in their project) and to "clustered units" (when those fees are pooled to build 100% subsidized affordable housing in a single site).

Should a Martian — or an Abundancebro or a Georgist — happen to land at Alameda City Hall for this evening's Planning Board meeting, they will find these details of inclusionary zoning maddening. It's overly complex. Rather than being derived from first principles, it's a Rube Goldberg machine of cross-subsidies. But it's better than many of the alternatives in coastal California, where we're simultaneously too rich and too poor to build the housing that our society needs.

In the face of our housing crisis, we need to tune up all the tools that we have in hand — including these details in Alameda's inclusionary zoning ordinance.