Well that changed quickly.

I was pretty gloomy about where things were heading last night as I felt like the City Council was rudderless on one of the most important policy decisions it would make in a long time. Instead, it turns out they are just riven into two factions with fundamentally different working theories about the nature of development and the production of affordable housing in California (which isn’t necessarily better).

Going into this discussion it sounded like the City Council would really only make two decisions: determine whether to lower the threshold of the IHO’s applicability to from 50+ unit developments to 30+ units, and decide whether to adopt an approximately $13-19 in-lieu fee right away or phase it in over time.

Despite valiant lobbying from Council Members Arlis Reynolds and Andrea Marr, who I think generally conducted themselves admirably (a few snarky comments from Council Member Marr regarding the majority’s motives notwithstanding), what we got was the same ordinance we had back in April. Except this time, the ordinance is now armed with an in-lieu fee set at a flat $10.00, as a clear incentive to developers to get building.

What this means is that sub-50 unit apartment developments are in the same place they would have been if no IHO had ever been passed, and the economic impact of complying with the IHO for 50+ unit developments has been significantly decreased from what it might have been. And before everyone screams at me developer giveaway!! , let me explain why this is a long-run good outcome for Costa Mesa.

There are more things to ask for than just affordable units

First, with respect to the smaller developments where our consultant, KMA, consistently stated that economic feasibility was murkier than with very large projects with solid economies of scale, we’ve done no harm. If we get tepid building within our smaller sites over the next decade we won’t have to sit up at night wondering if our IHO is the cause.

And second, if that’s wrong and instead we get solid production from this group of sites, great: not only do we get the market-rate units to help take market pressure off of the existing, older housing stock that’s being rapidly gentrified by rising rents, we also have room to negotiate with these developments for other community benefits.

What might those be, you may ask? Well, consider this as an example: this City Council has a strong interest in reducing parking requirements for policy reasons. However, as drafted, the IHO suggests that those reduced parking requirements will only be available for developments that are subject to and comply with our IHO by producing on-site units. But what if we were to offer those lower parking requirements to developments not subject to the IHO (i.e., sub-50-unit developments) in return for some other concession? Perhaps right-of-way improvements? Park land dedication? Accommodation of, say, certain City Council Member’s design critiques, such as ensuring developments have adequate open space and gathering space (which came up repeatedly in the Council’s design review of 220 Victoria Place)?

It’s hard to squeeze blood from a stone. If our IHO would have pushed a smaller development right up to the brink of feasibility, then we certainly couldn’t ask the developer for even more goodies without blowing the whole project up. But now I think we at least have an argument that there is room to negotiate. And while I don’t love that approach — at some point, all these little points can start feeling less like planning and more like a shakedown — I think it could work if the City Council develops a fairly clear framework through the rezoning process such that these kinds of trade offs are predictable to property owners and developers.

Developers: Can’t live with them, can’t kill them

Which brings me back to the conflict of visions up on the dais. I’ve written about this phenomenon before but it bears repeating: clearly, there is one side of the City Council (Reynolds/Marr) who believe that developers are powerful forces of nature only occasionally held at bay by market circumstance, whose destructive energies, if not channeled against their will to public ends by robust regulation, will result in the rapacious over-development of Costa Mesa. Their insatiable need to build and generate profit is always there — like background radiation in the universe — such that it needs no encouragement. Therefore, long dry spells without development doesn’t have an impact on future development; the resources to build will spring into a gallop the instance the bridle is loosed.

On the other side (Harlan/Chavez and, to some extent, Stephens and Harper), seem to see development more like the Los Angeles River; yes, it can flood when stars beyond the City’s control align, but over-engineering can easily reduce what little flow it has in normal times to a trickle or even a dry bed. As the city needs regular, predictable housing production to maintain market-rate housing stability, it’s more important to keep the water flowing than it is to means test every drop or dam it up when it can’t be distributed with perfect equity. Therefore, the risk of occasional market exuberance and overbuilding has to be accepted to ensure that, in steady state, the city continues to thrive.

I’m obviously on the latter team, and so I’m grateful that 4 > 2. (As an aside, Council Member Loren Gameros continues to defies categorization; he was the deciding vote to remove the IHO’s applicability to ownership housing on the grounds it would undermine ownership housing production, but last night supported the Reynolds/Marr contingent apparently on the grounds it would depress rental housing production. So whether he favors the “bridled whirlwind” or “fickle river” analogy, we may never know).

Now we get to figure out who is right based on a real world test. I expect the initial results will favor the Harlan/Chavez contingent, if only because we still haven’t rezoned a single parcel since passing Measure K in 2022. I imagine that must leave Measure K-site owners and developers quite befuddled and uncertain about how to proceed, which in turn means I don’t expect them all to crowd into the permit office at once. But with a little help from the Fed, it’s very possible that we will start seeing some more interest in Costa Mesa development. Which in turn I’m sure will lead to much grumbling and gnashing of teeth from the Affordable Housing Coalition folks that we aren’t netting the affordable units that they want.

And I get it. But building is building and we need it all.

Bad news: this is all kinda academic if we can’t efficiently execute on permitting and processing.

And finally, if we were really serious about actual production of affordable units right away, here’s where we would start: Let’s get One Metro West in the ground and built at fast as humanly possible. That project alone will net us 106 actual units of right-now available affordable housing, which is about the same number of “potential” affordable units we might have seen built by lowering the threshold from 50 units to 30 units. Ditto for the affordable senior housing project by Jamboree Housing on the Senior Center parking lot. If we can’t get these projects through our lengthy entitlement process and out on the market fast then the whole discussion is academic anyway. Anyone that needs an affordable unit now, either through a deed-restricted program or on the open market, won’t need it any more 12 years from now. They’ll be long gone.