Paying for infrastructure is expensive, and Mountain View is going to need a lot of cash to build out new areas of the city poised for massive growth. But as city officials look to increase fees on development to pay for these upgrades, it's looking increasingly infeasible to build new homes.
Mountain View City Council members grappled with the difficult question, ultimately voting 4-1 Tuesday to increase so-called development impact fees on future projects in the East Whisman area of the city. East Whisman is a low-density industrial district, but was rezoned in 2019 to accommodate 5,000 new homes and 2 million square feet of additional offices.
The ambitious plan means transforming East Whisman into an urban mixed-use area with a rich network of bike and pedestrian improvements, along with the less glamorous upgrades like water pipelines that would serve a more populous area of the city. All told, it's going to cost about $151.5 million to pay for all the infrastructure needed for the 412-acre area as developers forge ahead on new office and residential growth.
The city conducted a study and found that developers should be on the hook for $53.1 million of those costs, opening the door for the city to set an additional layer of fees – beyond the baseline already imposed on projects throughout the city – in order to pay for these upgrades. That means developers will be charged an additional $10,750 in fees per 1,000 square feet of additional offices; each hotel room would cost $6,567; and housing would range from $2,888 to $6,223 in fees per unit depending on the number of bedrooms.
The fees do not extend to affordable housing projects and certain commercial uses and will only cover just over a third of the city's capital costs, and even with these fees it's going to be tough to fully fund and build this infrastructure as development begins, said Dawn Cameron, the city's public works director, at the May 24 meeting.
"As this growth occurs, there's an expectation we're going to deliver this infrastructure, and we're going to need a funding strategy to do so," Cameron said.
But can residential developers take the additional financial hit? According to a memo from one of the city's consultants, many housing developments already may not be financially feasible, due to things like sky-high land costs, park fees and construction costs. The margin may be simply too small to be worth the risk of investment, the study found.
Mountain View is also grappling with these barriers to housing growth as it updates the Housing Element this year, which must provide evidence to state officials that fees and other regulatory hurdles haven't killed the potential for housing growth.
Despite the appearance that the city is passing additional fees on projects that already seem too costly to build, city officials describe the situation as less bleak for housing growth. The fee structure is roughly competitive with Sunnyvale in the case of a hypothetical 262-unit condominium project, according to Planning Manager Eric Anderson, and the impact fees in East Whisman reflect only a small fraction of the overall costs of building in Mountain View. A 340-unit apartment complex, for example, would get hit with fees of $24.4 million instead of $22.6 million.
What's more, East Whisman has an unusual feature built into its zoning plan in which office development cannot proceed in the district without a commensurate increase in housing, with a goal of maintaining a careful balance in jobs and housing growth. The hope is that office developers will team up with residential developers to ensure both projects pencil out in the aggregate, in effect subsidizing the construction of new homes.
"Part of the East Whisman Precise Plan strategy to address that feasibility issue was to adopt the jobs-housing linkage strategy, which is intended to shift costs from residential to office," Anderson said.
But some residents weren't so optimistic, raising concerns that the city's fee structure could stand in the way of housing growth. Salim Damerdji told council members that the impact fees, even if small, are going to stack on top of costs that are already making it difficult to build, and the linkage to offices is not an ideal solution. The city is trying to dig itself out of a jobs-housing imbalance, he said, yet it's baking in an assumption that housing cannot be built without getting subsidized by office development.
"It's pushing us further and further into this corner of relying on offices to pay for housing," Damerdji said. "So when staff says we're solving this problem because we have this linkage, that's basically admitting there's no way we're going to resolve our jobs-housing balance because we're banking on more jobs in order to build more homes."
An attempt by Councilwoman Pat Showalter to waive the fees for residential construction fell short, as other council members worried about the city failing to pay for infrastructure deemed necessary for East Whisman. Councilwoman Sally Lieber said she did not want to end up in "financially unstable" territory, and that she didn't feel compelled to give a handout to developers building expensive market-rate homes.
"I would be leery of putting ourselves in a financially risky position to underwrite more expensive housing ... which we know is so out of reach for the individuals that we must need to serve in the community," Lieber said.
Councilwoman Margaret Abe-Koga said she would rather consider ratcheting down fees on retail and hotel development, and that these are the kind of land uses that should be encouraged in order to provide services for future residents and help the city's bottom line. But she said it's important for the city to roll out the fees, including residential impact fees, to ensure East Whisman is built out responsibly.
"We can't just build houses, we have to build neighborhoods and infrastructure and services to support those houses," Abe-Koga said. "Otherwise we just have houses, and not a community."
Council members Abe-Koga, Lieber, Lisa Matichak and Lucas Ramirez voted in favor of the fees. Showalter voted against, and Councilwoman Alison Hicks had to recuse herself due to a financial interest in the East Whisman area.