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Segment 1

Recording in progress structure inclusionary housing structure.
So, next slide, we use 2 measures of return, and we arrived at these measures in consultation with many Berkeley developers and contractors so that we were using something that would make sense in the real world.
The yield on cost is the measure that is typically used for rental projects, and we used a 6% feasibility threshold for the yield on cost return on cost is the metric that's used for for sale product types.
And for this, we used an 8% return on cost in terms of my final comment about methodology for analysis.
Next slide.
Please.
I want to point out to you that a pro forma is a snapshot in time.
It's composed of multiple assumptions about a wide variety of variables and these variables can change.
Each variable can change over time and depending on how these variables work in conjunction with each other, they can make projects either more or less feasible.
So, just looking at the at this particular chart illustrates this point and what we looked at here was a for sale option for the townhouse product type.
And this is a bit of a spoiler alert, but you'll see that this product is highly feasible with a 29.16 return on cost today.
But if you have a change in sales price and construction costs remain the same, the feasibility gets even better.
However, if you have a change in sales value, where sales values decrease, feasibility gets lower.
And then that's affected also by the change in development costs.
So this, this 2 way matrix shows you kind of how that progression could work together.
But this is just for 2 of the many variables that go into making a pro forma.
I think 1 of the key things to keep in mind with a pro forma is that most of the variables that affect feasibility are things that are outside of the city's control.
So it's really important to remember that the city does not control feasibility.
So, with that, let's look at some of our findings.
Today, development again, using the current in lieu fee for the rental prototypes that we tested going all the way from small lot, single family across to the 18 story high rise.
Nothing is feasible except for the group living accommodation.
So, to the right of the box that stands above that dashed line, there are the mid rise and high rise.
And then to the left, you have 1st of all the 10 story, small multifamily, which is, in fact, the least feasible of any of the product types again as a rental.
Next slide some ownership and sort of this missing middle continuum.
Some product types are currently feasible, but the, the small the 10 lot prototype, the 10 units, sorry.
It's not 10 lots.
It's 10 unit prototype is.
Not feasible.
The 2 bars that you see on the right again, represent the small lot, single family, and the 4plex townhomes and these are highly feasible, but 1 of the factors that we see here is that these are not getting built in the middle of the city.
And the reason is not because they don't yield a profit for a developer, but there are other kinds of challenges to producing these products, including the fact that the sites are available are small and the developers who take on these projects are not getting built in the middle of the city.
And the reason is not because they don't yield a profit for a developer, but there are other kinds of challenges to producing these products, including the fact that the sites are available are small and the developers who take on these kinds of projects is relatively small.
So, the right, the 2 bars, the 1 with a negative return, and the 1 with a very low return, the 2.2 are different ways of testing the small lot, single family prototype.
1 of them includes the inclusionary units on site.
That would be the negative project and the 10 unit small multifamily that uses just the fee is still only 2.2% is the yield.
So, again, below our 6% threshold, and it's important to keep in mind the impact of the fee on these 10 units, small multifamily projects as we go forward with demonstrating our analysis.
So, then our next step next slide please was to test what the maximum reasonable in lieu fee would be on a square foot range using the 3 methods that I talked about previously.
So, you can see in this row on the bottom, which shows the per square foot cost per square foot that the range of these in lieu fees could potentially be.
58.59 cents up to about 118 dollars again, all on a square foot basis, just to give you some reference for thinking about this, the current fee is about 56 dollars and 25 cents.
So, the next thing that we did was to test each of these different inclusionary fees for each product type.
And in this case, we only tested this for rental.
And so we, you don't see the townhouse and small lot, single family here.
And what you see again is that nothing is feasible.
Right? Again, proving that the infeasibility is being driven by different factors today.
These factors include high construction costs.
They include high financing costs, including the famous interest rates that everybody is talking about.
And then also the increase in rents has slowed down, which is actually good for core inflation, but not good.
If you're a developer on the impact of the in lieu fee is different for different kinds of projects.
It's actually much more significant for this 10 unit multifamily.
And the reason for this is because these buildings are too small to take advantage of the state density bonus and so they are paying either the full fee or having to provide the full amount number of inclusionary units.
And so you see a greater step down between the no fee and the affordability gap fee, which is the highest of the of the fees for the multifamily.
And that's because the there's a much larger impact on construction costs as a result of the fee.
It's about an 8% increase in construction costs for the 10 unit, small multifamily, because it's paying the full fee or sorry.
Our lights are dimming.
We have to wave our hands.
There we go.
Whereas for the state density bonus buildings, particularly the 18 story high rise where the fee is actually only being paid on a relatively small percentage of the buildings, where footage because they're already providing a number of the units on site, the impact of the of any of these, the difference in any of these fees is really marginal.
The construction cost increase from any of these fees is only about 1%.
So, the other variables that we consider next slide.
Please are the impact of the 3 new policies that were adopted that Mike mentioned earlier the bird safe building the hard hats and prevailing wage.
So, again, what we found here is that the impact of the bird safe building requirements is really pretty marginal.
It only really increases a 1 to 1.5% increase in hard costs.
And that includes both construction and labor materials hard hats.
Which requires health insurance and training and so forth.
It's a much bigger impact on the, excuse me.
The mid rise and 8 story, the 6 story and 8 story mid rise buildings.
And that's where there's about an 18 to 25% increase in hard costs as a result of the hard hats requirement.
And this is because of the mix of trades that are used for these types of buildings.
It's a little different than what's used for the 18 story units.
There's a tendency to use less union labor on these smaller buildings.
So, this is where you can see the baseline yield cost is in gray and the adjusted yield cost to reflect the impact of hard hats is in orange or gold golden rod and the prevailing wage.
And so the 18 story high rise buildings, which are the most commonly used, and are the requirement for prevailing wage, but have essentially the same impact as the 18 story high rise because the 18 story high rise buildings again, tend to use union labor for all of their trades, which is also prevailing wage.
So, this is where you can see the baseline yield cost is in gray and the adjusted yield cost to reflect the impact of hard hats on these types, excuse me, 3 new policies will have the greatest impact on the 6 and 8 story mid rise buildings, which are again, the, the building, the building types that you most commonly see around town, not in downtown.
So, my last slide before I hand it over to Rick.
Just to give you a sense of what we're discussing in the in lieu fee and that will feed into the recommendations that Rick is going to go over with you was that all but 1 of the prototypes while the townhouse and single family.
Prototypes for feasible and the group living accommodation were feasible, but all the other prototypes are not feasible even with the current in lieu fees.
So, the, the, the, the, the, the, the, the feasibility challenges, it's these external forces and then some projects that you're seeing under construction today are being built because they were being built using some kind of unique or unusual circumstances.
They might have acquired the land for a really low price.
They may have tied up their contracts with their.
For inflation became really bad, so you can't assume that projects that you see under construction today are reflecting today's market conditions again.
The in lieu fees are critical source of affordable housing funding.
This is going back to what Mike said about the ways in which those fees can be leveraged for deeper affordability.
Developments that pay the full fee tend to be smaller and these are the missing middle projects because they cannot avail themselves in state density bonus opportunity.
And so these are the kinds of product types that are most sensitive to the fee level changes.
And then most of the larger projects again, these are anything above the 4 story group living accommodation, the group living accommodation, plus the 6 and 8 story mid rise and the 18 story high rise all are not as impacted by the fee, because they only pay a prorated share of the fee due to the fact that they are getting more bonus density and therefore are providing their blow market rate.
Units on site, so they are less sensitive to the fees.
So, I'm going to stop there and hand it over to Rick to cover the recommendations that go with these findings.
Thank you, Dina evening, mayor and council members.
Thank you for having me next slide.
Please.
So you'll see our recommendations are not and none of them are dramatic departures from the way you handle in lieu fees.
Currently, based on analysis that strategic has done, we've sort of recommended and modifications to some of the structures, but the high level recommendation is that we're suggesting that you keep the in lieu fee at the current level of 5625 for the moment.
But that you change the way you address the small projects, the missing middle type projects, but you currently have an exemption for every project under 5000 square feet.
And then a phasing in of a step up in the amount of the fee that's charged for projects between 5000 and 12000 square feet.
And that requires you to put this long table in the.
Um, materials that you give to developers, and it's, it's just a little complicated for staff.
What we're suggesting is a slightly simpler piece of math, which is that you exempt the 1st, 5000 square feet.
Um, for every new project and limit that exemption only to projects that pay the full fee.
So, let me walk a little bit more through these recommendations.
Next slide.
So, the, the 1st idea is that in what we, we did not find evidence that the smallest projects in Berkeley have the hardest time.
Paying being feasible, and in fact, you saw that the only projects that are feasible right now are some of the missing middle projects.
But what we did find was that small projects are more sensitive to the fee, because they're less likely to rely on the state density bonus.
And so they're paying the full fee.
Um, so what we're recommending is that you continue the exemption for 5000 square feet and below, but that you structure it such that every project gets 5000 square feet.
Exempt and that means that that makes a very small difference to the very big, you know, downtown high rises and really big difference to projects that are.
6000 square feet, for example, so they would just pay a fee based on 1000 square feet.
And we're suggesting that you limit that exemption only to projects that are using the full fee options.
So, if you think about the inclusionary ordinance, it says you can comply with the ordinance either by providing units on site or paying the fee, or by doing a combination of methods, or you can do land dedication.
So we're saying only the projects that are choosing the fee option and not providing any units on site would be eligible for this reduction in the square footage that the fee was applied to.
And what that does is it creates a help with feasibility for the missing middle projects that are the ones that are most likely to be heavily impacted by the level of the fee.
And it makes a very little difference to the fee revenue that the city will collect from the other projects, because most of the other projects are providing density bonus units.
And the fee that they pay is really just a residual fee for the portion of the requirement that they didn't meet to their density bonus.
So the impact on the net revenue would be small.
And for projects that are small projects, but use the state density bonus, they would also pay a residual fee and they wouldn't get this exemption.
They pay a fee on all of their roof up.
So, the idea is to target the exemption more precisely to the projects that are most likely to actually struggle with paying the fee.
Next slide.
We are also, as I said, recommending that you keep your fee at the current level of 56 dollars and 25 cents per square foot of residential unit floor area.
And you may have seen in Dina's analysis that we found that you could justify a higher fee.
And it actually, if the market were stronger and development were feasible right now, I think it's likely that we would be recommending that you increase the fee slightly.
But the optics of increasing the fee when nothing is feasible seem challenging, and it doesn't seem like a good moment in the market to be raising the fee.
And it's not likely that an increase in the fee would make a large difference in the revenue that the City realized.
The fee that you might step to would still have to be fairly modest.
And most of the projects are providing units now because of the state density bonus.
And so your residual fee isn't very sensitive to the level, the exact level here.
You may have seen that the current fee is very close to the level that you need to provide one offsite unit in a nonprofit affordable building for every unit that doesn't get built under the onsite option.
So development is basically, developers can choose to pay the fee or provide units and you get roughly the same number of units in Berkeley right now.
The perfect number would be 58 dollars a foot instead of 56 and we're suggesting that you not raise the fee in order to capture those extra 2 dollars right now.
Some people might wonder why we wouldn't recommend lowering the fee given that the market is down.
And I just want to say that we've seen cities try to do this to sort of adjust their fee levels based on the market cycles and the track record of performance is quite poor.
San Francisco just lowered their fee because the market is down.
San Francisco has changed their fee numerous times over the last 20 years.
And each time they've raised the fee when they felt like the market was hot and they've lowered the fee when there was a trough in the market.
But because it takes them a long time to adopt any change and then to implement the change, what you see is that during the periods when the market has been building a lot in San Francisco, their fee has been lower than average.
And during the periods of time when nothing is getting built, their fee has typically been higher than average because they've actually been off cycle.
They've been trying to respond to the market, but they've been half a cycle late several cycles in a row.
And so we don't think that it's practical for jurisdictions to adjust their fee every time the market changes.
When development is feasible again in Berkeley, it'll be very feasible and it'll switch very quickly.
And it would be very difficult for council to increase the fee again in response to changes in the market.
So we suggest the best practice is to set a fee that works across the market cycle when development works, and not to expect the fee by itself to be a buffer to make feasibility happen.
So our recommendation is that you keep the fee at the level that it has been with one exception.
Next slide.
Which is that you've already adopted a policy to index the fee, to increase it every two years based on changes in the construction cost index, which is sort of a published measure of how much it costs to build housing.
And the next fee increase would be scheduled to occur on July 1st of 2025.
And so we're suggesting that you go ahead and implement that increase then and continue to do so every time.
And the key idea here is that by indexing the fee this way, you can keep up with the cost of producing affordable housing off site.
So you want to make sure that the fee that you collect is enough that you can get a unit in a nonprofit affordable building off site.
And the only way to do that is to keep indexing to the construction cost.
So those are our recommendations.
I'm looking forward to your questions and discussion and thank you for your time tonight.
Thank you so very much.
I'm going to recommend we go to public comment before the council discusses the.
The presentation report, so we'll take public comments from any members of the public here in person at 1231 Addison that would like to speak to this item.
So, requesting the study or several elements of it was came from the homeless commission in 2018.
What isn't rather than discuss the presentation, what really isn't covered is the comparison of the benefit of having in lieu units, as opposed to paid into the affordable housing trust fund.
It would have been good to see an analysis of that with the changing times because right now we know that affordable housing is extremely expensive to build the construction costs are very expensive.
The materials are expensive in the Bay area and so we also know that the state is operating at a deficit where.
They're going ahead with current affordable housing projects, but there may not be affordable housing projects coming up around the corner.
So, to what extent should we be waiting the value of requiring more in lieu or the units rather on site as opposed to the affordable housing fee, which is not going to stretch as far.
And it would have been good to hear that discussed to.
Because with the limitation on the affordable housing going forward, we can anticipate there's going to be additional limits and subsidies and everything else is going to be very, very difficult for persons to find housing.
And we want to make sure that there are persons that will be able to access housing and in our community, not only has the extremely low income, but in the below market rate, the very low income and low income persons.
They're very much a part of the working poor.
They're very much a part of the community that keep it going.
Thank you.
Good evening.
Everybody my name is my work with local 104.
The contra cost of building trades council on the 26 affiliates represented by that council asked me to read a letter in response to this study.
So, I'm going to do that unfortunately.
My comments were silenced because they win the Berkeley city council is scheduled to hear the results of a study on the impacts of the hard hats ordinance and prevailing wages on residential construction.
We believe the hard hats ordinance created in partnership with the city has the potential to create a positive and sustainable future for the construction industry in Berkeley, benefiting both the workforce and the community by promoting health care benefits and apprenticeship opportunities, not wages.
The hard hats ordinance can attract and retain skilled and qualified workforce.
This translates to higher quality construction projects, improve safety standards and a more stable.
And committed workforce in Berkeley.
Additionally, the ordinance incentivizes responsible business.
Practices that prioritize worker well, being contributing to a healthier and more empowered construction community.
Importantly, this partnership with the city ensures that these benefits directly reach Berkeley residents who work in the construction industry.
While the study's finding is deserve consideration, we urge the council to carefully consider the limitations of the research, particularly the lack of representation from construction trades representatives.
Several claims in the report require require clarification as detailed below the report suggests that health care reporting requirements limit contractor participation.
However, I've personally been told by non signatory contractors that they already offer health care.
And apprenticeship training, and they voluntarily meet the hard hats requirements.
The report also suggests that the apprenticeship requirement forces a switch to union contractors.
This is absolutely not the case.
Non union contractors can request apprentices from state approved apprenticeship programs, both union and non.
As they often do on public works projects, there is no requirement for non union contractors to have their own programs according to the hard hats ordinance.
The report claims an 18 to 25% increase in hard costs due to union labor.
Supporting evidence may construction trades offer wage rates below.
What is generally seen on public works projects again, this is just 1 of several cases of the fact that none of us who are major stakeholders were consulted during this study whatsoever.
And I urge council to consider that when reviewing it.
Thank you.
Good afternoon or evening John caner downtown Berkeley association.
I have 2 buckets of comments.
The 1st is about process.
Uh, we were made aware of this publishing this studying this meeting today at after 5 PM on Thursday.
Monday was a holiday.
It just is not enough time to review this 70 plus report.
I beg you to hold off on adopting any recommendations to get more feedback.
I was, I think it was December when I was here last and a number of us, and we had urged you to hold off on making a decision about hard hats because we felt that you needed to have good information to make that decision.
And I think the study, while we heard from the power speaker, there's some questions about it.
I want to read 2 passages from the report on page 4457 of the package.
Based on the 20% increase in hard at costs, both labor requirements have significant negative impacts on the financial feasibility of 6 and 8 story prototypes.
And then on page 46 or 59 in the package, the development cost increases associated with hard hats and other tested policies are significant enough to delay.
Or constrain housing production, since the policies increase the required change in rents, prices, development cost and or market return thresholds.
As I think, you know, particularly in the downtown and throughout Berkeley, the vast majority, I would guess 90% of the housing has been all this mid rise.
We have 7 projects coming online this, as we've learned in the study, these projects now in feasible, we're adding 20% to the cost, which is going to make them even more feasible.
So, how long are we going to wait? What are our priorities? The goals of hard hats were admirable, but whether this is the right time.
I don't know whether, you know, you put it on ice for a couple of years, but I would suggest you postpone taking any action tonight.
So you can get a little more feedback and discussion with all the various parties.
Thank you very much.
I have something to pass out to the council.
Can I can I do that now? Silence.
Silence.
Silence.
Silence.
Silence.
Is the clock running.
Okay, I thought that the administrative aspects of my proposal.
Talk, we're not count against it.
My name is Patrick Kennedy.
Okay.
My name is Patrick Kennedy.
I'm a local developer and I've been building student housing in Berkeley for close to 25 years.
And 1st off, I'd like to compliment the.
The report and the people that did the report.
It's a very impressive detailed and I think in large measure accurate analysis of the forces that are going to be impacted by hard hats and bird safe glass.
And I'm giving you that comparison that shows the difference in the costs of a project, the enclave, which had a 20% increase in its construction costs owing to in that case of prevailing wage requirement.
But I realize there's not a player prevailing wage requirement here, but your experts say that the impact is 18 to 25%, which is to say any new project that we build for students would go up in price by between 130 and $150,000 that would add about a $1000 a month.
To the rent of that apartment and at a time when housing affordability as at.

Segment 2

all time low and a time when almost all developers have stopped building a fact that's reiterated in your report, I think it's important to evaluate just what kind of impact this would have and what you want to achieve with hard hats.
I also think that the limitation in the hard hats ordinance that precludes using apprenticeship programs by Peralta College or other local apprentice programs is misguided and would not help our local community.
So I'd like to encourage you to defer any rash judgment on adopting this or get more testimony and observations from the local development community and Peralta before you proceed.
Thank you.
Mayor and City Council, my name is John Dalrymple.
I'm here representing construction trade workers, electricians, plumbers, sprinkler fitters, sheet metal workers.
I think I've lived in four of your districts since I moved here in 1972, so I'll give you a sense of..
But my work involves tracking residential projects.
I track residential projects in about 70 jurisdictions, 100 units or more, what are the community benefits coming out of them, are those workers covered by healthcare coverage, are they getting paid a decent wage, and I've tracked most of the projects in the city for many years.
So you deserve better.
This report is fundamentally flawed as it relates to the construction of the hard hat.
It's now the hard hats ordinance.
You should have an expectation that key players are talked to.
There's many examples.
EJ spoke to some of them.
But again, like, for example, the healthcare coverage.
It's not..
Most construction, non-union construction workers give some level of healthcare coverage to their core workers.
The meeting that was referenced, Council Member Taplin, we had All Rise Construction come in, the very GC that's built dozens of non-union GC that's built dozens of residential projects says, well, we provide healthcare coverage, because we're trying to..
We asked them, why is this going to cost you more if you're going to be under the hard hats? And he couldn't come up with a reason because there isn't.
If you use apprentices, for example, apprentices are paid 20% to 80% of the wage of a journey person.
If you use apprentices, you're lowering the cost of your composite crew rate.
You have a reduced labor cost when you use apprentices.
It's a known number.
It's published, you know, about what apprentices get paid.
They get paid.
And of course, as they get more skilled, more productive, their wages go higher.
It's not uncommon in the public sector, non-union win contracts, bids all the time.
They have to use apprentices.
They call a hall, they get an apprentice.
That's how it works.
And also, there's a gap in the private sector.
So in terms of the use of apprentices or healthcare coverage, the idea that this is going to trigger, we wished, maybe we thought, well, maybe this will trigger having union contracts, but we knew when we did this, it would not.
What it would do is insist that workers make sure that workers got healthcare coverage and that we train the next generation of construction workers.
We offer opportunity for our youth and at-risk workers to get into a middle-class construction career pathway.
That's what we, that's what we, that's what was our aspirations, you know.
So there's other examples of what I think could have been better understood by the consultants in preparing this.
We'll prepare you a more detailed letter than what was submitted today.
But again, I would urge you, when you talk to your city manager, when you give direction, make sure that we have a voice in these studies so that you're given the right information.
So thank you.
Hi, my name is Amir Massey, and I am a developer here in Berkeley, but I'm also a resident of the city of Berkeley.
And I guess I'm kind of wearing both hats for this conversation.
The city, I think, needs to determine what its priorities are.
And if one of those priorities is to continue to produce more housing, I think passing hard hats just based on the data that your own consultants are presenting to you would have a pretty chilling effect on housing production.
And we tried to, actually, this is one area where we are in total agreement with the previous speaker, you should get more input before implementing hard hats.
Because it seems like they weren't consulted when the work was being done.
And I know for a fact that the level of consultation that occurred with the development community before this was brought to you was minimal.
And so we were in a situation in which you got facts initially that said in the original hard hats proposal that only 15% of overall project costs for development projects are based on labor, which is just not accurate.
And now we have a different situation where there's an increase in costs that they don't like on their side.
So you hire the third party, they're giving you the info.
If you don't believe the info, please take your time to figure out what needs to happen in order to be able to put together a policy that makes sense.
If you know, nobody is against higher wages for construction workers.
If nobody's against a higher in lieu fee.
But at some point, it just stops working.
So if you're trying to do both, it just becomes really difficult to pull this off.
And when the presentation was first made, there was a consideration given to potentially offsetting the cost of hard hats by reducing other fees.
Right now, you've got the math in front of you, right? You know what the math is, and there's not enough fees that can be eliminated to offset the cost of a 20 to 25% increase in cost.
So thank you.
Bill Schrader.
Good afternoon, early evening.
My name's Bill Schrader.
I own a development company called The Austin Group.
I've been building here in town since I think the first project I finished.
Well, I started it in 2013, we finished it in 2015.
So it's been almost 10 years.
I'm going to take a little bit different tact, and so we don't repeat what's already been said.
If I was in your shoes, I would ask a couple of questions of us that are here tonight.
First, between Amir, Patrick, myself, Mark Rhodes, who met with us yesterday, and one other developer, we figured out that we are representing about 65% of the mid-rises that have been built the last 10 years.
So that's why we're here tonight.
We're not building townhomes.
We're not building single-family.
We're the ones building the six- to eight-story buildings.
The second question I would ask, if I was in your shoes, is Bill, Patrick, Amir, are you guys pursuing any new projects in Berkeley with current market conditions, the cost of land, rents that have flattened out, and these additional costs that are being added to the cost of a mid- and a high-rise? I'm going to finish by suggesting that we can arm-wrestle with your consultant about the costs.
I think labor can arm-wrestle with, you know, your staff and their consultant about what it costs to build units.
But the truth is, you already know.
You built a project on Berkeley Way that costs close, I think, over a million dollars a door without any land.
We don't have that benefit.
We're building market-rate housing without any subsidies, city, state, county, federal.
These are market-rate projects that also add in-lieu units.
That's what we do.
And what I am afraid of, I mean, I guess I could retire, I don't really want to, is I just don't know how we move forward if this gets passed for those of us who have been building these projects the last nine years.
So, thank you very much.
Yes, good afternoon.
I'm Tim Frank, and I am representing the Construction Trades Workforce Initiative, which is a non-profit that is associated with the building trades in Alameda County and Contra Costa and Napa and Solano Counties.
And I am here to just recommend that you more or less agree with the opinions you've heard already from John Dalrymple and from E.J., but we'd very much like to see some real conversation with labor about the economic analysis.
The fact that there was no attempt to reach out to labor when the survey was done is a real problem, because there are serious economists working on this side of the ledger that are looking at these same issues and have been engaged in looking at this with the objective of not just getting Berkeley to do the right thing, but also to encourage the state to think about revising how it finances affordable housing.
And in that context, the cost of prevailing wages is a legitimate issue.
And what they have actually found is that the costs that you see reflected here are actually not, we think, an accurate reflection of reality.
It's more or less a set of talking points, which you would get if you survey a set of biased developers that want not to pay this.
But it's not the same as actually having real hard data.
And I would love to see a more rigorous analysis looking at real data and costs from actual projects and would encourage, first of all, just elimination of what you see on slide 25 as essentially an input here, recognizing that that needs to be reviewed, and then some conversation with the building trades and people and the carpenters who are looking at these issues seriously, and with a view towards more data that they should look at so that you could get a less biased view.
And we think that would be helpful.
Thank you.
Thank you.
Are there any other in-person speakers? Okay.
We'll go to speakers on Zoom, if you'd like to speak on Item 1, the Rental Housing Feasibility Analysis and In-Lieu Fee Recommendations, please raise your hand to be out of the speaker's queue.
Okay.
We'll go first to Kelly Hammergun.
I wish to thank the mayor for the hard hats ordinance.
This ordinance represents and supports Berkeley Vale use.
Thank you really so much.
The question is, do you want to drive an in-lieu fee to push inclusionary housing or drive an in-lieu fee to the housing trust fund? And my support is for pushing inclusionary housing.
Inclusionary housing creates opportunities by integrating our community.
May 17th was the 60th anniversary of Brown versus the Board of Education.
We here, we are in an increasingly segregated society by income and by race.
I urge you to push the in-lieu fee to the high end, to push integrated housing and an integrated community.
We will always hear the fear factor, we can't build, this is going to be too high.
And I would say that I think we should take the recommendations from the study.
Right now, we are getting 10% very low income units in these big projects to get the density bonus and we're getting the in-lieu fee for the other 10%, the low income units.
And with the limited amount of land that we have in Berkeley to build on, I would really love to see us work to have more inclusionary housing so that we have a more integrated community and a more integrated society.
And I think I'll leave it there instead of rambling anymore.
And again, thank you to the mayor and the city council for the hard hat ordinance.
It really is a Berkeley value to support our construction workers.
Thank you.
Thank you very much.
We'll go to our next speaker on Zoom.
Mark Rhodes.
Good evening, mayor, members of the council.
Thank you.
Thank you for holding the special meeting.
Thank you staff for bringing this forward, especially thanks to Rick and Dina.
I agree with the findings in the reports in general, but I think we've reached sort of a tipping point in the community with respect to our fees and exactions.
We've been working really hard over the last 25 years to bring more housing to Berkeley.
And we've finally hit a place where we have a true housing pipeline.
And you see that it's affecting rents and availability and things of that nature.
So that's all good.
But with this tipping point, and I don't agree completely that we don't have control over feasibility.
We've seen it work in different ways, especially when we first started using state density bonus in the late nineties.
But I think we have to look at the list of things that we're exacting for.
And we have to make sure that there's a parity with that.
Sorry, I didn't know I wasn't on camera.
We have to make sure that there's parity with that, with our ability to actually keep building the housing.
And so we have to look at the list of things that we're taking money for and try to figure out, okay, what are the things that are the most important things to do? The only other thing I want to add is, you know, as a city planner, as a development consultant and developer, and I think that we have to make sure that these reports and the findings of these reports are not going to jeopardize our housing element certification.
I'm not sure that the state knew that we were considering hard hats, but I think that if they know now that our level of fees and exactions don't support housing development anymore by and large, and the lion's share of it is the six to eight story buildings on the corridors, then we probably have a conversation with HCD that needs to be taken care of.
Anyhow, good luck.
And thank you so much for your time.
Okay.
I'd like to ask, are there any other speakers on Zoom who'd like to speak on the rental housing feasibility study? So please raise your hand at this time.
Looks like this is our last raised hand.
Lakash L.
Well, thank you for letting me talk.
My name is Lakash L.
and I built a couple infill developments in downtown Berkeley in the past few years.
And I'd like to reiterate the comments that it's very important to preserve our current pipeline and future developments.
These fees are, they are a good cause and for sure, I'm all for, you know, affordable housing and the hard hats and apprenticeships and everything.
But I really think more feedback is necessary to take these into account.
And it's very important to see more developments in downtown.
And I think taking a percentage cut of zero is just zero.
So that's unfortunately what we might see in the next few years if the market conditions don't get better.
And at this point, I don't think they have any indication they will.
But I'm urging that maybe no action is taken for now.
I know it's hard to get these things done in the future if the market rate gets better.
But at the same time, taking more time is not impossible right now.
I'm urging that we do that to help all development proceed as much as possible so that more affordable units can be made.
And I think it's very important that we preserve the current pipeline and everything.
Thank you very much.
Thank you very much.
Okay.
I did say that we were not going to take any additional speakers, but more hands keep coming up.
So this is the last call for any additional speakers.
Please raise your hand at this time or else we will not recognize you.
Okay.
Our last raised hand is David Trachtenberg.
Hello.
Good evening.
Thanks for hearing my comments, and thanks for all the time you've put into this question.
I'm going to be very brief.
I come from a union family.
I'm very much in support of the idea that people should have a living wage and health care.
I've been an architect in Berkeley since 1991.
I've seen the ebbs and flows.
I want to give you a little news from the ground.
Right now, our firm, like I think all the local architects that I know, have shed a lot of staff.
We basically have zero projects right now in the pipeline for going through construction drawings, permit drawings.
It is absolutely a clip.
It just stopped because projects simply cannot get financed right now, and it seems self-evident that if we go ahead with the hard hats ordinance at this time, it's going to be quite counterproductive with respect to housing production.
Thank you.
Thank you very much.
Okay.
Thank you.
Thank you, Mr.
Chairman.
Thank you to everyone who came tonight in person and those who provided comments on Zoom.
Let me start out by saying that I agree with what I think everyone said, that we're not ready to make any decisions yet, that we need to ask more questions, we need to gather more information.
Councilor Tapham's not here.
I think his participation is also important as we review this report and provide some guidance on next steps.
I really would like to get more information from not just builders, but also from the labor community about the economic effects of hard hats because there are conflicting conclusions that we've heard stated today.
I would like to get more information about that.
I want to clarify, however, that hard hats has already been adopted.
It's the law of the city of Berkeley.
The question is, how do we move forward? As far as I'm concerned, repealing hard hats is not on the table.
What I'm interested in looking at is, is there some way, if there is a demonstrated need, to look at adjusting requirements to potentially offset some of the impact of these labor standards so that we can help projects pencil a little bit more.
I think the overarching conclusion of the study was that even before you account for the labor standards and bird-safe glass requirements, nothing's feasible except for a four-story GLA project.
That's due to a variety of economic factors, including materials costs, cost of land, and the lending environment with the rising interest rates.
The overall economic picture is challenging.
I don't want to do anything that's going to stop housing production, but I also think it's absolutely critical that we treat our workers fairly, that they have health care until we have a universal single-payer health care in this country.
These are dangerous jobs.
These people deserve health care, and they also deserve good wages.
I don't believe in a zero-sum approach that we can't treat our workers fairly and we're not going to get any housing built.
I think there's a way that we can achieve both goals.
I want to get more information.
I want to have more conversations with all stakeholders.
I want to see if there's something we can do.
As far as I'm concerned, repealing a law that we have passed unanimously, albeit I want to acknowledge some of my colleagues did have concerns at that time because we didn't have this information, but repealing a law the Council's passed, which is already the law of the City of Berkeley, it's not a starting point from my perspective.
How can we work with this and also work to make conditions more favorable, whether it's upzoning, whether it's looking at adjusting fees, whether it's looking at other ways we can streamline to make it work overall while maintaining these labor standards? I'm very open to having that conversation.
I want us to approach this conversation with a perspective of not that this is not going to happen, but how can we make this overall picture work for everyone involved? That's the lens that I'm going to be operating under as we engage in these conversations.
I want to thank our consultants and staff for their work.
I'm certainly very open to looking at what can be done with respect to adjusting fees or requirements to offset economic impacts because I think these labor standards are as essential as the housing that's being produced.
I think we can accomplish both those things, and I want to see how we can do that.
I'm committed.
I think the concerns you're raising are legitimate.
I'm not saying they're not.
I want to sit down with all of you.
I want to look at your numbers.
I want to meet with our labor partners, and I want to see if there's any way we can try to find a middle ground, but hard hats is here to stay.
Councilor Humph.
Thank you very much, Mayor.
Just to clarify, we won't be providing direction tonight? My recommendation is that we not provide direction.
I know some of our colleagues, we also just got this on Thursday, and one of the speakers said, oh, I just got this on Thursday afternoon, and so did we, and we're not economic experts.
We haven't had time to fully digest this, to meet with our staff, to meet with consultants.
We need additional time, too, to really review this information and to ask questions.
Okay.
Thank you for clarifying that because I do have a lot of questions, and some of them I'll ask here, but I'll just say right now to staff that I would really appreciate the opportunity to meet with you, to the folks who are in the business of building things, which is the workers who actually build, and the people who organize the building of buildings would be interested in speaking with all the stakeholders, and I feel like I'm quite a ways away from being ready to have a decision.
I also want to just clarify, we're talking about affordable housing fees here, and I will state the same thing that the mayor did.
I mean, we've already passed hard hats.
I'm surprised that that is the topic of conversation.
What we are here to talk about is affordable housing fees, and I'm not sure how the focus is being shifted to discussion of something that's done, and I certainly stand by that work.
I think that it's hard to make everything pencil out, but having it pencil out on the backs of workers is just not one of the options that I'm ever going to be open to.
I also wonder, why are we screaming at the banks and at the Federal Reserve? The study tells us that all these little things, our affordable housing fee, hard hats, Ford's safe class are very marginal, and these projects are underwater anyway for reasons that are not in our control.
We could take all our fees away, and it looks to me like we still wouldn't have feasible projects.
I think we're a little bit down the wrong track here in thinking about our fees, and we've got the wrong people in the room if we're thinking that someone in here is to blame.
We have big economic conditions, and those are the big factors.
I think building has always been a boom and bust industry, and interest rates is a big part of that, and costs.
Labor is not the only cost in building.
Are we yelling at the steel manufacturers and the folks who make plywood and electrical wire? I mean, these are all costs.
I want to say to staff that as a general matter, and by the way, hi, Dina.
It has been a long time since I saw you.
It's really nice to see you there, even smaller on the page, on the screen.
On the question of the affordable housing fees, I just want to say that I generally like kind of the parameters and direction that you're kind of leading us towards.
I still have a lot of questions that I'll need to have answered, but I certainly don't think this is a time when we – I don't think we should be reducing our fees, and I wouldn't be supporting that.
It seems like we could increase them, but it wouldn't make any difference in terms of the actual feasibility because nothing is feasible.
But I also think that when we don't have feasibility, that might not be the best optics or the best time.
So I think – I have a number of questions about the 10-unit threshold.
Is that – when you say 5,000 square feet, you're imagining 10, 500 square feet units? Is that – or am I conflating two things there? Is the 5,000 square foot exemption meant to approximate a 10-unit building, or are these two different concepts? No, these are two different concepts.
There is currently a temporary 5,000 square foot exemption in the in-lieu fee policy, and the 10-unit project is a prototype that was tested in this study, and it does not get the current exemption under current policy because it is over 5,000 square feet.
It's about 1,000 square feet per unit.
Okay.
And so that's just – the 10-unit thing is just something you decided to test? It's a prototype that represents this missing middle housing between 2 and 19 units.
Okay.
So I'm going to move on to the next question, which is, for example, I was sort of maybe thinking those two were linked.
Did you look at potentially – you're suggesting that all projects get their first 5,000 square feet exempt, and I'm curious whether, since the density bonus projects seem to pencil is so much lesser on them, would we be able to draw a line that says that density bonus projects don't have that exemption, or is there some reason we couldn't do that or shouldn't do that? We have done that.
It doesn't specifically call out density bonus, but the proposal is to provide the exemption only for projects that choose the full fee option, and a density bonus project would typically choose the mixed option.
They would provide some units on site and pay a remainder fee, and they would not get the exemption.
So that's a proxy for that.
Got it.
Not necessarily a proxy for that.
It does happen to have that consequence.

Segment 3

Okay.
So that leads me to another question.
Why not the mixed projects where they have, or why not prorated somehow? Or is it just so de minimis on a larger project? I'm just trying to understand the choices that you're making here.
The idea is that there's not strong evidence in this study to support the basic idea that smaller projects automatically need a lower fee.
And yet there is an attempt underway to try to create a market for missing middle development that's not really there.
And so the possibility that the fees might be a barrier, might be reason enough to offer a lower fee, even though what we found among the projects that are actually getting billed is that the fee is not a barrier.
So the idea is to limit the exemption to the few projects that are actually most likely to be sensitive to the fee.
And the projects that take the density bonus and provide most of their units on site are not very sensitive to the fee.
That's why.
Okay.
It's very interesting.
So I'll just say that as a general direction, I like where you're going.
I appreciate maintaining the commitment to having the fees so that we can have the affordability and sort of the way that I see you trying to balance things.
And I will have more questions to drill down.
I hope in a meeting that we can have with city staff and with you.
But that's sort of a general direction.
I do have a question about who you consulted.
For this study.
There's a question of whether you spoke with labor representatives.
Was that part of the study or maybe did you talk to other people? Or was that not part of how you did this study? We spoke with a mix of developers, general contractors and architects for this study.
Okay.
So you didn't speak with labor? Is that traditional or is there a reason why we wouldn't do that? I think that typically what we're trying to do is get the developers to tell us what their actual costs have been for projects that they've built.
So we're trying to understand that as opposed to potentially thinking about this as a more theoretical construct.
If that makes sense.
So are they literally like bringing their books and showing them to you? Are they opening their pro formas, their actuals? Are they bringing that to you or are they just telling you verbally? In general, the responses we got were more verbal responses with the exception of Patrick Kennedy who actually did this study.
I believe he passed that out to you all on the cost impact of switching to union labor.
Okay.
So because I personally would be interested in actually seeing some books.
I'd be interested in seeing the books that get presented to the banks when loans are being sought.
Then I'd be interested in seeing the final books when a project is done, and everything's signed, sealed, and delivered.
I'd like to actually see those numbers.
I don't know why we can't see them.
Is there a reason why we can't have a study that's based on actual numbers rather than just interviews? It's typically not.
I mean, that financial information is considered proprietary and every developer, it's considered proprietary business information.
You can't sign like an NDA with them and say like, we're going to look at 50 projects and we're going to aggregate the information and no one will ever know which one was yours? Maybe, but it's challenging to do that and it's time-consuming and also, yeah, I mean, the developers would have to be willing to participate.
Okay.
I think that would be very helpful to the developers who are here in the room.
I just, why do analysis based on just, I mean, I think it'd be great for the people doing the work for us to actually see the numbers.
I also think that if we're just talking with people, I really do think it would be great to reach out to our labor partners, and I'm wondering if there might still be an opportunity to do that.
Given that we're not going to do recommendations tonight, is there an opportunity to just take another week or two? I get the sense that folks are actually quite eager to speak with you and bring in some additional data and information from our labor partners.
Let me point out to you that the data that we presented tonight in terms of the impact of the different fees, doesn't necessarily include the hard hats analysis.
It was mostly just looking at the different levels of in-lieu fee.
That's really the focus of our work, are the in-lieu fees.
We were asked to address the hard hats question in terms of what the qualitative impact is on development, and that's the number that we presented you.
But the feasibility results that you see do not include the hard hats numbers in them.
They reflect the development costs that developers gave us, and it just is what it is.
The hard cost numbers that we have are the hard cost numbers that developers gave us, and they didn't necessarily break out the hard hats.
Now, also keep in mind that hard hats was just adopted in December.
As David Trachtenberg said, there are very few development projects that are going forward today.
If we were to call developers and ask them what their construction cost numbers would look like today, they would be different than the numbers that the developers gave us in the fall when we were actually asking them about development costs on different projects.
Again, this is a situation that I was trying to describe to you earlier where you have a moving target of understanding feasibility and conditions change.
Okay.
The hard hats impact is anecdotal based on not having done hard hats projects? I would say that's fair.
I think the developers have told us what they're assuming, and again, the trades people have their assumptions about what they're assuming.
I think if you want to research that separately from the impact of the in-lieu fee, that's absolutely fair enough.
I think it's a worthy conversation to have, but that was not the specific mission of this particular analysis.
I just want to be sure that we're clear about what we did and did not do for this study in terms of the feasibility.
Just a little FYI page based on what you've learned from talking to folks who are concerned about this.
That's what they told you and you put it on the page, but it wasn't folded into your analysis.
Okay.
I do think that if we're going to, and I think we may have asked you for a scope that was broad, and maybe the things didn't all feed into the big question we have here, but I do think having presented that results of whatever the inquiry was, I think that we can't just say, okay, it might not be fully accurate and it doesn't feed into the bigger question here.
I think now that it's on a piece of paper and we've seen that there's a lot of community interest, I think I'm going to recommend that we ask you all to go ahead and talk with our labor partners and also drill down a little bit more.
There seems to be a conflation of prevailing wage and union wage and hard hats that may not be warranted.
Again, that may have come from the conversations, but I just think that if we're going to have a presentation that includes it and that it's going to elicit some community interest, it's worth getting a little more robust inquiry and analysis around that.
All right.
Yeah, I think I will save everything else.
I really appreciate, Mayor, that we're going to have a lengthier opportunity to dive into this.
I really want to focus on the affordable housing fee question.
I think it's very important.
I've been saying for a long time that market rate developers will not flood the market with housing so much so that their projects go underwater because they're smart and they're market actors.
What we've seen is exactly what I always expected.
Rents have gone down a little bit, costs have gone up, and market actors are squeezed now.
They're not going to keep flooding the market with market rate housing so that rents keep going down and down and become truly affordable, which is why I believe that we need to have bigger investments in workforce and affordable housing because I don't believe the market will ever create it.
I think that's what we're seeing.
We need the market rate housing.
That's another sector that needs more housing.
But we see that the two don't operate in the way that they might in an econ 101 class, because the cost of a unit is a break on how many units get built when we're asking market actors to provide all our housing.
Thank you, Mayor.
Council Member Kisarwani.
Thank you very much, Mr.
Mayor.
Thank you to Ms.
Ernst and the consultants who conducted the study and for the presentation this evening.
Thank you to the representatives from the building trades and developers who provided public comment.
I want to just level set and say that to me, homes, whether they are below market rate affordable homes or the so-called luxury market rate homes, they are all a community benefit to me.
We often take for granted what shelter provides.
It provides safety, health, and hygiene.
I'm reminded of that all the time when I'm at the Harrison Corridor and I see the consequences of unsheltered homelessness.
I'm a non-partisan policy analyst by training, so I do believe that we should study fees prior to implementing them.
To me, it's not about maximizing the per unit exaction, but the total amount of funds raised that can go towards building a 100 percent affordable housing.
To me, I think for all of us, this is done by actually seeing developments being built that pay the fee or build below market rate units on site or a combination of the two.
I want to make a few points and ask some questions.
I want to start with the issue of the 5,000 square feet, the first 5,000 square feet.
I agree with exempting the first 5,000 square feet to encourage middle housing.
I know this study isn't about the economics of building middle housing, but about the fee itself.
I want to make sure that we just do whatever we can because middle housing, we don't even have the development standards yet.
We don't have the cottage industry of developers who focus on that building type.
I want to make sure that we can encourage that housing type before we think about fees on them.
Mr.
Jacobus, I didn't catch, and maybe it wasn't included, whether you had a recommendation on the tiered fee for the 5,000 to 12,000 square foot projects.
Yeah.
The recommendation was to remove the phase-in tiers, and instead to exempt the first 5,000 square feet of every project.
A 5,001 square foot project would pay the fee on one square foot, and a 6,000 square foot project would pay the fee on 1,000 square feet.
The result of that is similar to the tiering that you have now, but it's just simpler to implement.
Okay.
Thank you for that.
I do want to say the idea of middle housing to me is that we want to keep costs down, so that the market can deliver these smaller units that are affordable to middle-income people.
Remember, these are firefighters who work in our city.
These are people who don't qualify for below market rate housing, but who also may not be able to afford the 1.5 million median home price tag that we face in our community.
I think fundamentally, it makes sense for middle housing to not be subject to the fee, especially in these early stages of trying to get it off the ground.
I'm going to say something, maybe this is unpopular, that the fee should be lowered to accommodate the known costs of bird safe glass.
Because every 1.5 percent is adding cost to building housing.
We heard from our fire chief during the budget presentations that he's looking at a nexus study for a fire fee.
I don't know what future fees are coming down the pike.
I think for any future fees, such as a fee related to fire risk, we have to look at lowering this fee to accommodate a new fee.
I'm really worried about having the fee levels for all of these various goods, increase the cost of housing.
I know it's hard to compare city to city, but we do know we have a substantial fees.
I just think we need to look at that.
Again, the idea is we want to see the housing get built, so we actually can collect the revenue and get the affordable housing built.
Now, I want to talk a bit about the prevailing wage or hard hats issue.
When I look at this, I think it's likely that the developers are going to be seeking a concession using a state density bonus.
But first, I wanted to ask you, Mr.
Mayor, my understanding of the hard hats, I just want to clarify with you, is if you use union labor, that is pay a prevailing wage, then you are exempt from hard hats, correct? If there's a union agreement, yes.
But there are other alternatives.
You can pay a fee that's set by the State Apprenticeship Council in lieu of providing apprentices.
You can provide, and then there's the healthcare requirements.
There's also a fiat requirement too.
Right.
I just want to clarify.
It means it's one or the other.
Either you're doing union labor or you are complying with hard hats, unless you're in the South side because we have the prevailing wage requirement there.
I'm thinking about the six to eight-story wood construction projects that don't necessarily use union labor.
I think we will find out, but my expectation is they will use a state density bonus concession from the prevailing wage or the hard hats requirements.
If they choose to do so, they will have to make the case that the labor requirement hinders the feasibility of the project.
We will find out relatively soon once interest rates come down, once market conditions improve, what actually is happening with the labor requirements, and how frequently we are seeing developers use a state density bonus concession on that.
The way I look at it is, there are options here in terms of hard hats or prevailing wage in the way that state law is set up.
I'm looking at everything else here and wanting to control costs.
We have to control the cost of housing.
We just adopted the building code the other day.
Those building code requirements, they have a good intention, but they often drive up the cost of housing, particularly in the hillside overlay.
I'm not going to say it's not a good idea, but it does drive up the cost.
We always have to be cognizant of that.
That's the extent of my input tonight, and thank you again for the report.
Thank you, Councilor Cassano.
I just want to provide a time check.
It's 6.01 PM.
We do have several more Council members that would like to make comments on the 4 PM work session on the rental housing feasibility study.
At the conclusion of our discussion, we're going to take a break and then we'll convene the 6 PM meeting.
I just want to just advise people, we're not quite ready to start the 6 PM meeting.
We are still in our prior meeting.
We've been meeting since three o'clock in the afternoon, just to provide context.
We'll go next to Councilor Bartlett.
Thank you, Mr.
Mayor.
Again, thank you everyone for contributing.
Thank you, the wonderful team for your report.
Thank you, all the constituents for really lending a hand to helping us understand and grapple with this complicated issue.
The complications are profound right there.
It's housing.
Housing, of course, is the fulcrum and the entry point to all the elements of a good life.
Within that, of course, there's the economic aspect of housing and the people who work in it, and healthcare costs that are borne by the government oftentimes for people.
We want to get this right.
Without beleaguering the policy elements, I'd like to just get into a couple of questions to help me think through some things for the next time we discuss this.
Mr.
Jacobus, good to see you.
Thank you.
I've gotten to work with you a bunch of times.
I'm thinking about the analysis of inclusionary housing versus in-lieu fee.
Because I, too, I'm starting to wonder if there's a possibility, now that we have these robust funding streams, U1, Measure P, Measure O, and, God willing, this very large county housing bond, multi-county housing bond coming our way.
I'm wondering, in terms of potentially just shifting to an inclusionary policy for certain buildings, if that changes our economic perspective at all.
Any thoughts on that? Yeah, that's a hard question and it's absolutely not one that was in our scope.
As one of your commenters pointed out early on tonight, we weren't asked to look at, should you prefer fees or units, but rather just what should the fee be? One thing I'll say that's, I think, the most important thing on that topic is that this decision, which used to be a really critical decision that every city council with an inclusionary policy had to wrestle with, has been largely taken out of your hands by the state density bonus.
Most of the projects that are going to happen in Berkeley in the coming years are going to provide units on-site, not because your program pushes them to or requires them to, but because they want to use the state density bonus.
They want to use it even if they don't want extra units, they want those concessions.
The bonus is now very valuable and that's driving on-site units.
For you to tilt your program toward on-site units, you'd have to raise your fee very dramatically.
Your fee is right now far below the cost of providing on-site units as Dina's slides showed.
So it would be possible to do that, but it would be a very big change.
There's not a small tweak that would encourage on-site more than it already is encouraged in Berkeley.
When we brought this policy update two years ago, we did show the numbers on how often people are choosing the fee and how often they're choosing the units, and you're striking a balance now.
You're getting fees and you're producing affordable housing with those fees, and you're getting more affordable housing units with the fees than you would have gotten with the units on-site.
But you're also mostly getting most of the projects in Berkeley are providing on-site units, not paying the fee.
So some consolation, you have a balanced program right now.
Okay, well, I'll bet that's helpful actually.
And then, as we talked, as you're presented today, the notion of a floating fee sort of came up, where the fee is sort of algorithmically set according to certain conditions.
It's a bit different than indexing, but somewhat similar.
Curious if you have any thoughts on that.
I've had several clients over the years ask me to develop a floating fee like that.
And I've worked with task forces in at least two different cities, in Seattle and in San Francisco, to try to come up with a formula that would float the fee appropriately.
And there hasn't been one that anyone has ever wanted to adopt.
That's not to say it couldn't be done.
It just, we haven't been able to come up with a good enough formula that would respond appropriately to the changing market conditions in order to set the fee that because the fee is such a small piece of what causes feasibility to change, that you don't have enough control.
If the fee was much, much higher, you could really influence what was and wasn't feasible or when housing was and wasn't feasible.
But the fee is a percent or two of feasibility.
And so you don't have enough, it's not a strong enough lever to influence what's feasible.
And so we wind up having to collect enormous amounts of data.
You'd have to understand land prices in order to really set the fee properly.
And there's no public data on land prices.
And so you could tie it to cost of construction or you can tie it to rent, but neither of those actually gets at feasibility by itself and even together.
Interest rates change and that changes feasibility.
And so you'd have to model the whole of development and keep that model up to date.
And no one wants to do that because it's sort of more trouble than it's worth.
Okay.
Well, if anyone from Cal Computer Science is listening, there's a project for you here.
Thank you, Rick.
Great question though.
Yeah, thank you.
And so my next question is for the labor representatives that were here.
You're still here.
I see you.
I don't have my glasses, but I see figures in a dark shirt.
Okay.
I have glasses now, but I don't wear them.
I'm just too vain.
Okay.
So I was moved by some of your comments and I'm curious just what you're seeing right now in the field.
Are you seeing projects happening? Are you engaging the Hard Hats Initiative? Curious.
Is it still working? Sweet.
So between Alameda and Contra Costa counties, I would say there's probably eight to 10,000 units of housing that we're tracking on our end that I can think of without going through all of my different documents.
I know in Berkeley alone, there's, I just looked earlier today, I think it's either six or seven different developers and we're looking at probably 3,000 units of housing roughly that are in different stages of the permitting process, application phases, all the way through waiting for or just got approval recently.
So sure, there's a decrease in some of the developers that we've typically seen in this space, but I don't know that the quantity of developers has necessarily changed.
One of them that actually spoke tonight about the lack of forthcoming development is actually one of the ones that we're tracking on a 257 unit project.
But one of the big things that we really are focused on trying to change that perception of when it comes to hard hats in the field is the fact that we're not really in the field is the fact that none of this has to do with what a non-union project versus a union project cost and what that Delta is.
For the first time in my life, I'm just gonna say, forget the word union for a second.
And I'm gonna get in so much trouble tomorrow for saying that, but hard hats is healthcare and apprenticeship training standards.
That's it, it has nothing to do with wages whatsoever.
I don't even know if the word wages is put in there at all.
The cost differential between a full, let's say project labor agreement project and what hard hats would be requiring, that Delta is huge.
That is a very different number.
And in regards to one of the questions earlier, when you are signatory to a collective bargaining agreement, again, to your question of what we see in the field, when you're signatory to a collective bargaining agreement, that makes you directly in compliance with hard hats because we already offer all of our members healthcare.
We obviously have our apprenticeship training standards.
So do we still have to comply with hard hats? Yeah, absolutely.
But we do that every day anyway, and then we go above and beyond that by the prevailing wages and different standards that we uphold on a daily basis just by virtue.
And with the hard hats piece, because of the apprenticeships, when you have to follow those requirements, for example, my local, we have a, I believe it's one in four apprenticeship to journey person ratio, which means 25% of my workforce, 25% of the mechanical portion of this and HVAC architectural sheet metal, so on, is going to be cheaper than the rest of the workforce.
So we are literally guaranteeing you that there's going to be a 25% section of that workforce that's cheaper than everybody else.
On non-union projects, statistically speaking, they don't have those apprenticeship ratios.
They don't have those apprenticeship requirements.
So who are you going to get? Sometimes you get a youtube.com contractor, and sometimes you get folks that do play by the rules, but that gamble is up to you if they're not going to meet hard hat standards.
That's very helpful.
Thank you.
Yeah, absolutely.
Thank you.
Councilor Humbert.
Yes.
Thank you, Mr.
Mayor.
And I want to thank our staff.
I want to thank the consultants and everybody who provided input here today, the public comment.
Really appreciate it.
And this is a very complicated report.
I've spent some time with it, and I want to spend a lot more time with it before I probably am equipped to ask really intelligent questions.
But I want to make some sort of broader statements.
Taking a 10,000 foot view, I want to say that, and this sort of reflects the comments of Council Member Keserwani, I want to say that I feel housing is a good in and of itself.
I fundamentally object to the notion that it is something that we should be taxing within an inch of its life, especially if that means that all housing starts screeched to a halt for potentially years at a time when economic conditions change for the negative.
If we taxed food production to the point that there was a famine in California every time interest rates went up, I have to hope we'd change that policy pretty quickly.

Segment 4

the city's bottom line.
We're adopting policy fees and requirements that essentially freeze housing development is bad for our residents and bad for the city's bottom line.
And I think this report should be a wake-up call that we need to rethink our approach.
One thing about the report that I see in it is that it seems to assume that rents in Berkeley are going to go down.
And that's true.
We've seen this for the past decade or so, during which time asking rents for older apartments have actually decreased in inflation-adjusted dollar terms.
Part of why we want to build a lot of housing is to hopefully lower costs in the long run, lower rents.
If we're not building enough housing to correct our current jobs housing imbalance and bring costs down, we're doing nothing.
We're not building enough affordable housing.
We're not building enough affordable housing for our residents.
Our city has lost a number of apartments and is now actually seeing asking rents fall, even in new buildings.
We need policies that try to keep production going very strong, not just keep it barely afloat.
Even in bad economic times and high interest rates, California in the past often had more housing starts during the worst of the pandemic.
The fact that we're seeing similar macroeconomic conditions doesn't appear to me to be supported by historic trends.
Other states and cities across the country have faced this similar interest rate environment and macroeconomic conditions, and they have consistently outperformed us in terms of housing production in the recent past.
We do lack undeveloped land, and we do not have enough affordable housing for our residents.
Our housing stock grew by 11% from 2010 to 2020, but Emoryville, which is a dense city, grew by 11%.
Jersey City of all places in New Jersey, incredibly dense city, grew its housing stock by over 20%.
We're making policy choices, I think, that put us behind, and I'm going to be very judicious about that.
I don't think that's a good policy choice.
We have a few more things to say.
In general, I think we should strive to cap total costs to developers at 2021 levels, inclusive of hard hats, bird safe glass, et cetera.
I'm not suggesting that we abandon those.
This could mean reducing our affordable housing mitigation costs.
Maybe that's not the best approach, but it's something I like to look at to make sure.
Personally, I think we should fully exempt missing middle from these burdens to encourage this kind of more naturally affordable development that integrates really nicely into our neighborhoods.
It really is key to remember that if we impose infeasibly high fees and requirements and requirements, it means zero jobs, zero development fees to support new 100% affordable housing, zero dollars for public open space, et cetera.
It means, frankly, that we could erase our progress on homelessness.
The key to solving homelessness is to build housing for people to live in.
We've just had a really, really encouraging report that Berkeley has reduced its homeless population by 45% over the past two years.
That's a big deal.
We've been putting roofs over people's heads, and I want to continue doing that.
Thank you.
Councilmember Lunapar? Thank you.
First, I'm thankful and appreciative of this work, both from staff and the public today.
I'm also looking forward to our robust missing middle ordinance, and I'm looking forward to hearing from the public and the mayor's comments that this is not a zero-sum game and that we should ensure the participation of our labor partners and the fair treatment that they deserve.
Also, while inclusionary zoning is generally a flawed approach to building our affordable housing, it's the one we have and the one we have to work with.
I only have a couple of questions.
First is a really specific one.
I'm wondering if you could elaborate a little bit on that.
Thank you.
As of right now, there are only three types of buildings that are generally profitable to build, one of which is group housing, the 4-story group housing.
But in figure 13, the only development where in-lieu fees increases 4-story GLAs with all the ones that were assessed.
And I understand that they are more profitable.
I'm wondering if you could elaborate a little bit more on that.
I know that there are many single-family homes which negatively impact housing development, especially for students and other population of residents.
Could you provide some insight on the specific topic? I don't think that's what we were suggesting.
We were just saying that if you were to increase the fee, that would increase the cost of development.
Thank you.
Thank you.
My next question is that on page 5, it says that the maximum justifiable fee determined would be $58.59 per square foot.
And if this fee still allows for development to Pencil, what is the rationale between the fee being set at the current level of $56.25? Is it simply continuity? I think that the reason why this is a question is that there are some factors, and it seems symbolically, given the market conditions, that it wouldn't be worth the trouble to send the signal that you're raising the fee in the middle of this situation.
If it was going to make a big difference to the city's revenue and, you know, it might be easier to justify raising the fee, but right now it seems like it's going to make a big difference to the city's revenue.
So it's just, it's a small difference, is kind of what we concluded.
That makes sense.
Thank you.
My final question is that I'm concerned about the possibility of disincentivizing building on-site BMR units by increasing the in- lieu fee in the absence of them, although I understand that the state density bonus and other things that you're talking about, but I'm just wondering, you know, if that's the case, what would you do? I think that it's, it is true that Berkeley's policy, if you only look at Berkeley's policy and ignore state law, encourages the payment of the fee right now, that you require 20% on-site and you have a fee that, you know, is just a lot cheaper than providing 20% every time, and you would have to either lower the on-site requirement or raise the fee in order to encourage on-site.
But as it turns out, the state allows developers to access really valuable density and concessions in exchange for on-site units, and that, the state is basically paying them to make up the difference between the on-site and the fee option, and they're choosing the on-site option.
It's more profitable for them.
So right now, if you're happy with a mix of on-site and fees, you don't have to change the city's policy.
If you wanted to get only on-site units, it would be, you know, you would have to very dramatically either lower the on-site requirement or raise the fee.
Does that answer your question? Yeah, I think so.
Thank you.
Those are all my questions.
Okay, thank you.
I think this was a good sort of initial discussion.
I will work with the city manager as to when we will bring this back for further discussion and direction.
Definitely want to ensure Councilor Taplin can participate as well.
And so, unless there's any further questions or comments, thank you, Ms.
Belser, Mr.
Jacobus, Margo, and the team at HSCS for all your work.
And with that, I'll make a motion to adjourn the 4 p.m.
special meeting.
Okay, can we please..
Minecraft's not on the Zoom, so is there any objection to adjournment? Hearing none, the motion carries.
We need to take..
Thank you, everyone, for waiting patiently.
We've been meeting since 3 o'clock, so this is..
We just wrapped up our second meeting.
We need to take a captioner break.
We'll be back in 15 minutes, and then we'll start the 6 p.m.
meeting.