Cities Cut Parking Space Demands in Bid to Boost Transit-Friendly Projects

Cities Cut Parking Space Demands in Bid to Boost Transit-Friendly Projects

San Diego Is the Latest to Make Change Aimed at Raising Affordable Apartment Supply

BY LOU HIRSH  (via CoStar Group)

San Diego officials have passed development-related rule changes aimed at boosting affordable multifamily housing along transit corridors. Photo: Toshi, via flickr

San Diego officials have passed development-related rule changes aimed at boosting affordable multifamily housing along transit corridors. Photo: Toshi, via flickr.

A growing number of apartment developers and cities across the country are betting renters would choose having cheaper rent over space to park a car.

The thinking is, fewer parking spaces mean room to build more units. That larger number of units lets landlords reduce rent and still boost profits, but they need to build near trains and buses.

As a result, San Diego is now the latest of several U.S. cities to reduce demands for parking spaces placed on future apartment developments built near public transit so tenants can forgo cars, all in a bid to make more apartments affordable to more people.

The San Diego City Council on March 4 voted 8-1 in favor of new rules — similar to those already enacted in cities such as San Francisco, Sacramento, Seattle and Portland, Oregon — that eliminate the minimum requirements of parking spaces in apartment and condominium projects built within neighborhoods designated as transit priority areas.

Under recently passed California laws, those areas are defined as properties located one-half mile or closer to an existing or future public transit stop, serving light-rail, bus and other transportation systems.

Pushed by San Diego Mayor Kevin Faulconer as well as previously approved by city council committees and the planning commission, the change was spurred by skyrocketing apartment rents and single-family home prices, while delivery of relatively affordable units has lagged far behind demand for the past several years. Local officials estimate the nation’s eighth-largest city is now short about 35,000 multifamily units relative to demand for workforce-affordable housing, and parking requirements are seen as one element among several that drive up the cost of new projects.

Consultants at Chen Ryan Associates, which advised San Diego officials in crafting the new rules, recently estimated that parking costs apartment developers between $35,000 and $90,000 per unit to construct, with underground parking costing more than above-ground spaces. These costs usually are passed on to renters.

“We need to get government out of the way and make it easier and faster to build housing,” Faulconer said at the recent council meeting, noting the parking measure is part of a larger program to increase workforce housing supply. “We need 35,000 (more units) to house San Diegans, and we’re not going to get there by nibbling around the edges.”

Reasons cited for the region’s chronic housing underproduction have included limited land availability, high builder fees and restrictive government regulations. CoStar analytics data as of March 4 showed the San Diego region’s apartment vacancy rate at 4.4 percent, below the national rate of 6 percent, and the average monthly rent of $1,782 was well above the overall U.S. average of $1,318.

San Diego County now has about 8,400 apartments under construction, relatively high by post-recession standards according to CoStar data, but the bulk of those are in downtown San Diego and most are considered high-end product rather than what’s actually affordable to most local working households.

Fewer Spaces Required

To get more moderate-priced housing into more places, while encouraging transit-oriented development, San Diego officials have now eliminated current parking space requirements only for zones already designated as transit-oriented. Parking space minimum requirements for those areas — now being set to zero under the new city rules — previously ranged from 1 space per unit for studios to 1.25 spaces per unit for three-bedroom apartments.

In most other neighborhoods, where standards for now won’t change, developers are required to provide between 1.25 spaces per unit for studio apartments and 1.5 spaces per unit for apartments with three or more bedrooms.

Proponents of the changes said eliminating parking space requirements in certain areas will help make projects less costly to develop, while allowing builders to devote larger portions of those projects to revenue-generating units that can be rented at lower rates. The measure also serves to “unbundle” parking from the cost of residential units in the affected transit neighborhoods, letting renters decide whether they need parking spaces.

The lone no-vote on the measure, Councilmember Jennifer Campbell, said it doesn’t do enough to boost the citywide stock of affordable housing, in part because it doesn’t more seriously tackle the fees and regulations that discourage development of affordable units. Even some council members who supported the measure said it was simply just a start in addressing a much larger long-term housing affordability problem.

“Just because we reduce the cost of parking, that doesn’t mean that developers will build what gets to the need,” said City Council President Georgette Gomez, who voted yes. “But I’m hopeful.”

Similar removals of parking requirements, aimed at reducing apartment development costs in transit-oriented neighborhoods, are increasingly being done by cities in and beyond California, a list that now also includes Oakland, Santa Monica in the state and Minneapolis and Austin, Texas, outside. Some cities, like Los Angeles, have enacted other measures with similar goals, like letting developers build apartments higher and more densely near transit stations if their projects contain a certain level of affordable units.

Local real estate economists deem the San Diego measure a good start toward addressing what’s become a housing affordability crisis. But they also caution that it could take years to show actual impact, even as urban consumers in particular move more toward ride-hailing apps, bike-sharing and eventually self-driving cars, and away from vehicle ownership.

For one thing, San Diego remains far from getting rid of its car-dependent culture. The city consultant’s report, issued earlier this year, noted that San Diego’s public transit ridership — as a percentage of the overall metropolitan area population — was 8 percent as of 2017, well below Seattle’s 15 percent and Portland’s 13 percent.

Other States

Portland and Seattle have both seen general declines in household vehicle ownership since eliminating or reducing apartment parking requirements during the past two decades, a trend that makes local proponents hopeful, though consultants at Chen Ryan acknowledged that parking spaces are just one of many factors impacting public transit usage.

Alan Nevin, director of economic and market research at development consulting firm Xpera Group in San Diego, said cutting apartment construction costs by eliminating parking may not be enough to boost affordable projects, even in transit-friendly zones.

Other parties, such as traditional lenders, may be wary of financing projects that don’t have parking, possibly perceiving them as being disadvantaged from a competitive standpoint compared with other nearby apartment properties. “No matter what you do with the parking requirements, developers still need to get their projects financed,” Nevin said.

Economists also point to a persistent mismatch between where local apartments are being built, and where the region’s job growth is taking place. Nevin noted that downtown San Diego, the region’s most transit friendly neighborhood in terms of light-rail access, currently accounts for just 83,000 of the region’s 1.3 million total jobs.

Most of downtown’s current 36,000 residents commute northward on local freeways to job-creating neighborhoods that now have limited or non-existent public transit, such as Sorrento Mesa, Carmel Valley and University Town Center, though the light-rail trolley system is slated to serve UTC starting in 2021.

Gary London, senior principal in the real estate consulting firm London Moeder Advisors in San Diego, said he’s encouraged to see state and local officials making efforts to boost affordability. However, one potential unintended consequence of making transit areas more conducive to development is that the pricing on that land will rise over time, working against efforts to lower apartment project costs.

London said it would be better to let developers, under existing laws, decide what mix of apartments and parking makes their projects most feasible in a given location. The city, meanwhile, could focus its apartment development incentives in a different direction.

“I really don’t think there should be any new regulations with regard to how much parking you put in a development,” London said. “The focus should not be on proximity to public transit, but rather on proximity to jobs.”