Cheaper Homes Tied to Concessions to Builders : Consultant Advises Irvine That It Must Offer Incentives to Developers for Lower-Cost Housing

Increasing the amount of affordable housing in Irvine is possible only if city officials are willing to give developers concessions that reduce the costs of construction, a consultant told City Council members Tuesday afternoon.

Only with incentives--such as increasing the density of apartments, waiving fees for parks and requiring fewer parking spaces--can developers afford to build the lower-priced housing that Irvine officials say they want, consultant Claude Gruen said.

“All we’re saying is that mandating affordable housing is not free,” said Gruen, who is president of a San Francisco economic and sociological research firm.

Housing Supply Lagging

Irvine must also allow more housing to be built because the insufficient supply of houses and apartments is driving prices up, he said.

“One of the reasons rents are so high is that you’ve got more demand for housing than you’re allowing to be built,” the consultant said.

The Irvine City Council is considering a proposal that would require developers to price 30% of new housing for low- and moderate-income households. The city now requires 10% of its housing to be built for households earning up to $56,000 a year. If approved, it will be the highest requirement in the county.

Using a hypothetical 200-unit apartment complex, with 30% of its units set aside for low- to moderate-income households, the consultant presented varied incentives to reduce a developer’s costs.

If no incentives are given, the developer would lose $2.35 million on the complex, Gruen said.

However, if park fees are waived, the developer would lose $2.08 million. Reducing the parking requirement alone would cut the loss to $2.2 million, and combining both incentives would reduce the loss to $1.92 million, according to his rounded calculations.

Only by allowing the developer to build more units on the same property--combined with the waived park fees and a reduced parking requirement--would the developer come close to the break-even point, losing $127,000 on the project, Gruen said.

The project becomes much more affordable if mortgage rates are dropped to 10% or 8%, but federal programs making low-interest loans available for low-cost housing have been discontinued, he said.

‘Linkage’ for Employers

The city could also offset the cost of lower-cost housing through “linkage,” that is, charging commercial and industrial builders a fee to help pay for housing employees drawn to the city, Gruen said.

However, unless the city also offers incentives to the residential builders, those linkage fees would have to be priced prohibitively high, he said.

Further, Gruen acknowledged that one incentive, the “density bonus”--that is, allowing the builder to construct more units on the same acreage--could backfire. Representatives of the Irvine Co. warned him that higher density can translate into lower rents if apartments are seen as less desirable, he said.

There is an ever-growing gap between the number of jobs and housing units in Irvine, with its still-growing industrial and office developments, Gruen said.

About 1,760 housing units are built each year, which is 4,065 too few for the new employees in the city. Even if 3,600 units are built each year, there will still be a 2,225 shortfall, he said.

After the meeting, Gruen said the council should not be discouraged by the data he presented.

Council members “should be commended for getting the facts and figures” instead of blindly requiring more lower-cost housing “and pretending there is a free meal,” he said.

The City Council is expected to vote on the proposed change regarding lower-cost housing next month. Councilwoman Sally Anne Sheridan asked Gruen to present the council with similar figures based on other requirements of less than 30%.

A spokesman for the Irvine Co., the city’s major housing builder, said he believes that the 30% figure is “quite large and excessive” and suggested that the city take a more flexible approach.

The spokesman, Michael J. LeBlanc, vice president of entitlement, said he prefers the council to adopt a plan that encourages lower-cost housing but “doesn’t tie it to a specific number.”

LeBlanc called the consultant’s report helpful in showing the council the hidden costs of lower-cost housing.

Current constraints are contributing to higher prices, he said, “and I’m hopeful the council sees the necessity to take a closer look at its processes.”