When a developer builds a subdivision project with two or more units, there are two choices: Provide affordable housing units, or pay a fee.
It’s known as a housing in-lieu fee, and the revenue from it is used by the city on its own affordable housing projects. Since 1993, Coronado’s has been $7,000 per unit, which is lower than that of other coastal cities.
At an April 15 meeting, the Coronado City Council voted to increase the fee to $59 per square foot. Several developers, however, say that the increase will render development projects impossible.
As an example, a current, approved project in the works in Coronado comprises 12 units on Orange Ave. None of them are designated as affordable housing. Under the old fee schedule, the housing in-lieu fee would be $84,000. If the developer were charged the new fee, it would cost $1.3 million.
Developers say that they understand the need for the fee, and the need for more housing in Coronado. But their concern was that, by making the fee prohibitively expensive, investors who cannot make money would simple build elsewhere, or build only single-family homes, which are not subject to the fee.
Because of the concern, the City Council on May 20 agreed to revisit the matter at the next feasible council meeting – tentatively in July or August.
In the meantime, the council voted to pause the implementation of the new fee until it has a more robust conversation on the matter. This provides relief in another concern developers brought forward: That some projects that are already in the planning and permitting phase were about to receive an unexpected, steep bill.
Council Member Mark Fleming was the one to bring the matter back to council. He said he worried the fee might discourage the development of multifamily housing and encourage single-family housing. He suggested that the city explore extending the fee to single-family homes, which the rest of the council was amenable to, though its members recognized that there may be significant legal hurdles involved in doing so.
The rest of the council agreed to revisit the matter, but they all seemed in agreement that the fees needed to increase. Even developers said they felt that $7,000 per unit was too low. The conversation lingered on challenges Coronado faces: Its limited space, its built-out nature, its high cost of real estate.
Mayor John Duncan suggested a phase-out approach to make the fee more digestible. He also cautioned that by moving too slowly, it might become too late for the city to build its own affordable housing.
Councilmembers Carrie Downey and Kelly Purvis both noted that, due to the reality of developing in Coronado, most developers will not be including affordable units in their projects and that, likely, it would be up to the city to do it. And to do that, the city needs money.
Coronado, like all cities in California, is assigned a Regional Housing Needs Allocation (RHNA) in eight-year cycles. Under the current cycle, the city was mandated to rezone for 912 units of additional housing.
The current cycle is now halfway over. Coronado spent the early years of the current housing cycle fighting its allocation in court, but ultimately lost. After a failed appeal, the state’s Supreme Court declined to hear the case, and the state Department of Housing and Community Development (HCD) in 2022 warned Coronado it would face litigation if it did not comply. It ultimately passed a compliant housing element and rezoned last year.
However, Coronado does not need to build the units; it simply has to rezone for them. A chief criticism of the RHNA process is that it consumes time and money with no promise of units built.
A RHNA progress report published in 2023 by the San Diego Association of Governments (SANDAG) shows stunted progress for many jurisdictions, particularly in the “very low income” designation of housing. Downey said there was a conversation at a recent SANDAG retreat about potential future consequences from the HCD.
“(The HCD) is not happy that affordable housing is not getting built, and they have already told us that things are going to happen,” Downey said. “They might make penalties for people who have too many vacation homes, or too many vacant homes. We don’t want any of that to happen either, so we have so much incentive to try to do something that will comply.”
Meanwhile, a conversation about RHNA cycles cannot exist in Coronado without discussing the city’s undeniable charm as a walkable city with a small-town feel against the backdrop of the San Diego skyline.
“Everybody ran (for office) on, ‘retain the charm of Coronado,'” Councilmember Amy Steward said. “Well, how charming is it if we have all these high-rises, with all of these small apartments that are being sold for $2 to $3 million, and all of them come with at least two vehicles? I feel bad that maybe the developers won’t be making as much money, but I really think that, in order for us to do what we’re required to do by the state, we need to have a fee.”
The council voted unanimously to revisit the conversation later this summer. A date has not been set yet, but will be publicized once it is.
“We are in a rock and a hard place,” Councilmember Kelly Purvis said. “We are trying to balance low-income housing in one of the highest real estate markets in the country, and it’s tough.”
