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City looks to hike fees on downtown developers opting out of affordability requirements

Tuesday, February 25, 2020 by Chad Swiatecki

The city has proposed increasing the fees paid by downtown developers looking to add density to their construction projects but opting not to include affordable units in the buildings.

At last week’s Downtown Commission meeting, a presentation on the plan to recalibrate the city’s downtown density bonus program revealed that consultants have recommended increasing the “fee in lieu” charges residential developers pay to up to $12 per square foot of their project. Currently those fees run from $3-10 per square foot.

The EcoNorthwest consulting firm also recommended that commercial developments, which currently pay no fees for building beyond their property’s base zoning while avoiding affordability requirements, would be charged between $12 and $18 per square foot of their project. City Council is expected to consider an ordinance to institute the new fees at roughly the same time it gives a third reading to the new Land Development Code in late March or early April.

Erica Leak, policy and planning manager for the Neighborhood Housing and Community Development Department, said the new fees are intended to strike a balance between generating appropriate revenue for creating affordable housing and not discouraging building activity in downtown Austin.

Leak said the new fees will let the city gain about 50 percent of the increased value developers get by being allowed to build higher, more dense buildings than what their base zoning would allow. Currently it is estimated the city captures about one-third of that value.

“It’s walking a fine line to try to ensure the city is able to capture as much incremental value as it can while not disincentivizing participation in the program,” she said. “If you set it incredibly high there may be a fair number of sites where, if you tried to capture more of the value of the bonus, it might make it infeasible.”

Fees captured by the downtown density bonus program are used to create housing units for the homeless in a partnership managed by the Ending Community Homelessness Coalition. Earlier this month KVUE reported that in recent years, developers of 54 projects downtown have paid a combined $8.3 million to the city either to build fewer affordable units than called for in the bonus program’s guidelines, or avoid them completely.

Leak said some of the rationale behind avoiding affordable units comes from the fact that the city’s subsidy for affordable units tops out at $40,000 each, while the cost to build a 1,000-square-foot unit is estimated to be $500,000 based on current construction data.

Commissioners said they’d like to push Council to require more community benefits in developments that enroll in the density program, or look at the possibility of requiring all building projects in the program to include affordable housing with no ability to pay their way out of it.

Commissioner David Gomez said the cost of living in the city’s core has made that area inaccessible to working-class residents, some of whom work in hospitality businesses located there while commuting in from surrounding areas.

“One of the major problems in our city is the cost of property, and you can have the money to try to build affordable housing but you’ve still got to buy the land. These guys can come in, buy the land, and they want to go 80 stories but there’s no affordable housing there,” he said. “I want to pull on the reins and do something different to make sure there is affordable housing downtown for the maids, janitors, bartenders and all the rest of the people that work downtown and can maybe afford to live close to where they work to cut down on our costs.”

Photo by Jeffrey Zeldman made available through a Creative Commons license.

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