Hypocrisy of Workforce Housing

Why would a developer not pursue the best use of the land?

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BY SEAN WHELAN

We can all agree there is a shortage of housing for the people that keep our economy going, but are there any programs or actions being taken to house the workforce? The Mountain Housing Council often refers to the missing middle as those making good wages but unable to purchase a house, and long-term rentals have mostly turned into the more lucrative short-term rentals using the Airbnb and Vrbo platforms. The growing pressure from the Bay Area further drives the prices of housing up and the pandemic has only accelerated the existing problem.

The best use of a property from an economic standpoint is not going to be rental units for the missing middle in the face of affluent buyers looking for vacation homes. Buyers are able to pay more for the vacation home when they consider the short-term rental income they will earn when not using their vacation home. If you agree with that analysis, then you understand the drive of a landowner, builder, developer, or second home-owner. The use of real estate is largely driven by evaluating best use from an economic perspective, and that simply excludes the notion of workforce housing.

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How do we increase the inventory of workforce housing? There have been plenty of news stories following reports by the MHC, and Placer County even sent out postcards encouraging long-term rentals. Yet these efforts do not change the analysis of the best use of real estate. I have developed or am in the process of developing 95 units since 2014 in the Truckee/Tahoe area, and just completed a 17-unit project in Tahoe City known as Dollar Hill Apartments (dollarhillapartments.com). I have come to learn firsthand what it takes in both Nevada and Placer counties to develop workforce housing and where the problems exist.

Whether building in Placer County or the Town of Truckee, a developer should expect to pay large amounts of money to fee chargers such as Placer County, Town of Truckee, NTPUD, TTSA, TDPUD, TRPA, and others. They collect hundreds of thousands of dollars, often as much as 20% of the construction budget. One could argue that it is all necessary to maintain our infrastructure.

But here is the catch and the hypocrisy: the fee chargers impose much less for the same square footage of construction for large vacation homes (Martis Camp, West Shore lakefronts, for example) than they do for a project consisting of small workforce housing units. The fee chargers talk about the need for workforce housing but have done little, if anything, to actually influence a solution. In fact, given their fee structures, they are doing more harm by making it even more attractive to build lavish vacation homes driving the workforce to Reno to find housing. It is not just the local service workers that I am referring to, but also the employees of the fee chargers themselves, who rarely live locally. Firemen, building inspectors, PUD field workers, and county and town employees including those of police and sheriff departments, generally live in Reno, Auburn, or Sacramento.

Are there possible solutions? The best use of real estate will always be driven by value creation, and right now, selling or renting vacation homes creates the most value. That is true for real estate owners and Placer County and other fee chargers alike.

Balancing this equation by creating housing for the workforce keeps the economy functioning and it lessens the environmental impact (traffic) of workers traveling a great distance to work.

Workforce housing can be encouraged by the use of grants, fee reductions, or at a minimum, the introduction of fee proportionality based on value. This is simple and should have been done long ago, but does not change the question of best use. What if the fee chargers modified the fees to assess higher ones to the higher value real estate (our lakefront and Martis homes) and distributed the increase to workforce housing projects? Using this logic, the newly found tax revenue windfall received by Placer County for the lakefront and Martis properties could be used to provide direct grants as an incentive for a landowner to consider building workforce housing.

When a lakefront property sells again next year for $25 million, does that mean Placer County is providing more services to that same house? There will not be an increase in services provided the owners will not be fulltime residents using the little league fields, schools, parks and recreation, and likely will not occupy the house for much of the year.

That money should be used as an incentive to change the best-use equation where properly zoned. In exchange for the grant to balance the best-use equation, the property owner should be prepared to commit to long-term rentals for a period of years.

~ Sean Whelan started his second career as a real estate developer in 2001 building homes for first-time buyers in San Francisco. Seventy homes later he saw a greater need for workforce housing. He recently completed 17 workforce housing units in Tahoe City and is developing a 65-unit project in Truckee. Sean lives in Tahoe City with his two kids, and serves as the president of the governance board for Creekside Charter School in Squaw Valley.

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