Council Explores the Challenging Economics of New Housing

DOER Marine approved for short-term lease

On September 3, City Council held a study session to explore the challenging economic realities of new housing construction and possible approaches to catalyze future development at Alameda Point . Council also voted to authorize the City Manager to execute an 18-month lease with DOER Marine Operations for a portion of Alameda Point Building 41.

Background

The City of Alameda supports doing its share to address the regional housing crisis. It has committed to 10,000 new homes in its 2040 General Plan and was the first local jurisdiction in the State to complete a certified housing element in the 2023-2031 cycle. The City’s Housing Element specifies future locations for over 5,300 new homes.

Since the Navy conveyed the former Naval Air Station to the City, the City has built and approved 2,251 housing units, of which 25 percent are affordable to lower-income households. Construction of two significant master-planned developments, Site A and West Midway/RESHAP , has begun, and there is room for yet more housing, with an additional 129 acres zoned for residential development, mixed-use with residential, or adaptive reuse with residential.

Alameda Point will be important in providing affordable housing in the City. In addition to 200 units provided for formerly unhoused individuals by the Alameda Point Collaborative and its partners, the 2001 Renewed Hope Settlement Agreement established that a minimum of 25 percent of new housing units in Alameda Point would be affordable to lower and moderate-income households.

The California Department of Housing and Community Development considers very-low, low, and moderate incomes to be 50%, 80%, and 120% of median income, respectively, although regional adjustments are applied. The table below shows the 2024 limits for each income level in Alameda County. Median income for a household of four is $155,700. A household income of $120,800 is considered “low income.”

Economic barriers to new housing

Despite a regional housing crisis, current economic conditions discourage new housing construction. Inflation, increased labor and insurance costs, high interest rates, and limited capital have almost entirely halted new multifamily housing construction.

While most factors affecting costs are regional, some are specific to Alameda Point, including infrastructure replacement needs, project labor agreements, the 25% affordable housing requirement, the City’s fiscal neutrality policy , and an Excess Housing Unit Fee.

The Fee results from an agreement formed when the Navy conveyed the former Naval Air Station to the City. They agreed that if the City built more than 2,011 initially planned housing units, it would compensate the Navy with a per-unit fee to help subsidize remediation and conveyance.

Initially, the Fee was $50,000 per unit with adjustments based on a home price index. The Fee is now $104,000 due to the aggressive increase in Bay Area housing prices. Neither the Navy nor the City anticipated an increase of this magnitude.

The City’s affordable housing goals require subsidies. However, state funding for affordable housing development has decreased, as has Alameda Point’s competitiveness for such funds, for reasons such as not being considered “difficult to develop” or a “high resource area.”

City staff estimates that at Alameda Point, the cost to build a townhome is $1.32 million, with an expected sales price of $1.15 million. The estimated cost of building a multifamily facility is $920,000 per unit, with rent revenues over its life of just $480,000. This partly explains why West Midway townhomes will be built before Site A apartments.

Additionally, Site A development stalled recently due to a clause in its development agreement, allowing it to pause construction when housing prices dropped. Development will not restart until there have been four quarters of growth. So far, there have been two.

Work Plan

To address the problem of construction costs exceeding expected revenue, City staff have:

• Reached a tentative agreement with the Navy to modify the Excess Housing Unit Fee so that adjustments are based on the consumer price index instead of a home price index. A fee of $104,000 would be reduced to $70,000 per unit or to as low as $42,000 if paid upfront.
• Eliminated minimum parking requirements to reduce costs and encourage sustainable transportation.
• Loaned $9.5 million to Catellus Development Corporation , to construct RESHAP infrastructure.
• Modified the Subdivision Ordinance to streamline project approvals.
• Waived some impact fees
• Supported RESHAP funding applications, resulting in an award of County Measure AA funds and federal funding.

The City is also applying for a “pro-housing designation” to increase its competitiveness for state affordable housing funds.

Base Reuse and Economic Development Department Director Abby Thorne-Lyman proposed developing the Main Street neighborhood (“Package K”) with lower-density and infill development and preservation of historically significant homes. This is consistent with the City’s analysis that townhomes are more feasible in the present market. Also, this project is financially workable because some infrastructure already exists.

Thorne-Lyman also proposed exploring the inclusion of housing in an Enterprise District near Encinal High, as a way to incentivize commercial or light industrial developers. She recommended delaying the development of mixed-use areas until there is a more robust multifamily housing market.

Council comment

Vice Mayor Daysog said proceeding with the Package K area made “obvious sense” due to its existing infrastructure. While he didn’t want to reduce the 25% affordability requirement or the project labor agreement to lower costs, he applauded staff negotiating to reduce the Excess Housing Unit Fee, saying, “If [the Navy is] willing to go for $40,000 or $50,000, I think you grab that.”  He thought it unrealistic to get rid of the Fee altogether.

Mayor Marilyn Ezzy Ashcraft disagreed, saying, “Why would we pay another agency for the privilege of housing people and helping solve a crisis?” She acknowledged that officials had negotiated an agreement in the past but argued for revisiting it as an equity issue. She added, “I don’t think the Navy wants this land on their books either, because they’re going to have to deal with it.”

Councilmember Trish Herrera Spencer argued for creating homes at different price points so people at varying income levels can build equity. She expressed concern that housing for purchase would be aimed at higher income levels, leaving middle-income residents with only rental options. She noted that building equity is often an important factor in planning for retirement.

Councilmember Malia Vella expressed concern about the City missing its housing targets, noting that though projects have come before the Council, “we’re still working on actually getting them built.” She worried about project delays increasing costs and wanted to ensure the Site A developer could move forward expeditiously when the time came to restart work. If budgets get squeezed, she did not want to decrease the number of housing units but acknowledged that the type of housing might change. She did not want to roll back the project labor agreement, saying she hoped “the folks building these units can also afford to live there.”

Building 41 lease

In other business, Council unanimously voted to authorize the City Manager to execute an 18-month lease with DOER Marine Operations for part of Building 41 at Alameda Point with a six-month extension option. DOER is a long-standing Alameda business specializing in the design, engineering, and fabrication of equipment for undersea exploration. It is the current occupant of Building 41, but its lease expired on September 1.

Building 41 is a highly desirable building adjacent to new infrastructure. However, while it is a desirable asset to sell, the Navy’s conveyance of the property to the City is on hold until the City and Navy negotiate how to handle the presence of per- and polyfluroalkyl substances (PFAS) near the property . The new lease will support DOER’s maritime uses at Alameda Point while the City finalizes a formal plan for Building 41’s disposition.

Contributing writer Karin K. Jensen covers boards and commissions for the Alameda Post . Contact her via karin@alamedapost.com . Her writing is collected at https://linktr.ee/karinkjensen and https://alamedapost.com/Karin-K-Jensen .

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