Laserfiche WebLink
REDWOOD CITY 9212 <br /> <br />Economic & Planning Systems, Inc. 18 Redwood City Housing Impacts <br />In the event Costa-Hawkins is amended to cover newer construction, new <br />affordable housing developers will need to address these constraints upfront in <br />underwriting. Developers would need to account for both the administrative fee <br />and potential limitations on rent growth relative to AMI assumptions, which could <br />require additional subsidy to close financing gaps. In this context, the proposed <br />Ordinance introduces not only incrementally increased cost but also added <br />uncertainty, which may complicate project feasibility and funding strategies. <br />Impacts on New Construction and Reinvestment <br />Under Costa-Hawkins, the rent control provisions of the proposed Ordinance do <br />not apply to units receiving a Certificate of Occupancy after February 1, 1995. <br />Therefore, while the proposed Ordinance will not directly affect the cash-flow of <br />newly constructed rental units due to existing State law, it may affect incentives <br />to reinvest in multi-family rental properties built before 1995 (39 percent of the <br />City’s rental stock). Additionally, the just-cause provision of the proposed <br />Ordinance applies to both existing and new rental construction immediately. <br />Even without local rent control, new housing development in California is difficult <br />to finance and deliver due to high land and construction costs, lengthy <br />entitlement processes, interest rate conditions, insurance costs, and other <br />feasibility constraints. For-profit developers, who finance most new housing in <br />Redwood City, underwrite projects based on long-term cash flow projections, <br />often over 30 years or more. Given the high cost of land acquisition and <br />construction, projects typically rely on rent growth that keeps pace with inflation <br />to cover operating expenses and generate sufficient returns to attract investment. <br />While the proposed Ordinance would not directly apply rent stabilization to <br />newly constructed units under existing State law, it could compound these <br />broader feasibility challenges by increasing regulatory complexity, affecting <br />investor perception of long-term revenue risk, and reducing incentives for <br />reinvestment in existing rental properties. Because many of Redwood City’s <br />multifamily development opportunities are located in mixed-use zones, the <br />proposed Ordinance could affect how property owners and developers evaluate <br />investment opportunities. <br />For units that are subject to the proposed Ordinance, annual rent increases would <br />be limited to 60 percent of percentage change in CPI, with a maximum cap of 5 <br />percent. To the extent that inflation exceeds this cap, allowable rent growth <br />would fall below inflation, resulting in a decline in real rental income over time. <br />This constraint on long-term revenue growth would reduce projected returns and <br />could make market-rate rental buildings less financially viable, especially if Costa <br />Hawkins were ever to be repealed or amended. As a result, the proposed <br />Ordinance may shift some reinvestment or redevelopment toward alternative <br />uses, such as For-Sale housing, particularly in a high-cost market like Redwood <br />City. <br />8.A. - Page 146 of 168 <br />156