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Oceanside raises developer in-lieu fee to $20 per square foot

OCEANSIDE — The city is raising its in-lieu fee from just under $9 to $20 per square foot for developers who want to opt out of building affordable housing over the next two years.

The update to the in-lieu fee cost was part of a general update to the city’s inclusionary housing policy, which serves as a tool for the city to help meet its regional and state housing goals.

The policy will continue to require developers building residential projects with three or more units to reserve 10% of those units for low- or moderate-income residents; however, developers can opt to pay an in-lieu fee as an alternative.

In-lieu fees can be used by the city to build affordable housing projects like Greenbrier Village or Mission Cove.

City staff originally recommended raising the fee to $15 per square foot through a phased-in process by first raising the fee to $10 beginning next year then jumping to $15 in 2024. However, the Housing Commission recommended raising the fee to $25 per square foot.

Consultant David Paul Rosen & Associates also recommended raising the in-lieu fee to $25; however, its analysis justified increasing the fee to between $32 and $48 per square foot.

At the Dec. 7 council meeting, Councilmember Peter Weiss suggested a phased-in approach increase to $20 as a compromise.

According to Housing and Neighborhood Services Director Leilani Hines, staff chose the $15 figure as a means to keep the inclusionary housing policy flexible plus considering that it adds to many other fees that developers pay, such as park, water, wastewater, traffic signal and developer impact fees.

“We are mindful that it’s really a doubling over the current fee that we’ve had over the years,” Hines said, noting that raising the fee higher could adversely impact future housing development.

In comparison, Carlsbad has a $15 per square foot in-lieu fee, Encinitas has a $20 fee and Del Mar has a $32 fee.

Kelly Batten of the Building Industry Association of San Diego praised staff for its efforts to maintain a flexible inclusionary housing policy. The senior public policy adviser noted that the fee falls back on Oceanside homebuyers, raising costs and making it even more difficult to afford to buy or even rent a home.

Batten said that a $25 per square foot in-lieu fee is an additional $315 per month for homebuyers for an average-sized home. With typical interest rates, that adds up to about $113,000 over a 30-year mortgage.

“At a time where housing is critical and people are struggling to make ends meet, those fees are a real significant cost to families,” Batten said.

Batten also noted that the cities with high in-lieu fees aren’t building “any housing,” let alone affordable housing.

But several Oceanside residents spoke in favor of raising the fee to $25 per square foot.

“We don’t need to give away all the cookies,” said Arleen Hammerschmidt.

Housing Commission Chair Inez Williams also defended the commission’s reasoning behind recommending the $25 figure, especially considering that the consultant the city hired recommended the same price.

“The consultant has told you $25, and staff has said, ‘Yeah, I hear you but we’re going to  incentivize the builders and we’re going to do $15,’ ” Williams said. “I don’t think that’s the direction the council should go in and as your housing chairperson I’m hoping you go with the recommendation of your Oceanside Housing Commission as well as the recommendation from your consultant.”

Mayor Esther Sanchez said she was “very disappointed” by Hines’ presentation and suggested that the city is not doing enough to build more affordable housing.

“Our housing department is failing us in not getting out good policy,” Sanchez said. “Now it’s just building more and more luxury — we need to do better than this.”

Deputy Mayor Ryan Keim pushed back against the mayor for criticizing a staff member during a council meeting. Sanchez justified her comment by pointing out her 22 years of experience on the City Council.

“You bring up your 22 years but you vote against almost every housing project and then complain that we’re not building housing,” Keim told the mayor. “You can’t have it both ways.”

The mayor denied voting against every housing project.

Council voted 4-0 to approve the in-lieu fee increase to $20 per square foot. Councilmember Kori Jensen left before the discussion.

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