A single housing project received a deadline break from the Morgan Hill City Council Wednesday, following a lengthy discussion on whether or not setting such a precedent was fair to other developers or consistent with the city’s philosophy.
But council members also noted that developer Bethany Liou’s inability to begin construction on Diamond Creek by the previous deadline of Sept. 30 was beyond her control, as the 114-unit condo, rental and townhome project is awaiting environmental review approval from outside agencies including the U.S. Army Corps of Engineers. Plus, the project, which will add new rental housing units, is “badly needed” in Morgan Hill, according to Mayor Steve Tate. The rental unit vacancy rate in Morgan Hill is currently below 1 percent.
The council voted 3-2 Wednesday night to grant a six-month retroactive extension of the affordable housing reduction program for the Diamond Creek project. The affordable or below-market-rate reduction program was started by the city in 2008 and allows developers to opt out of their BMR housing requirements if they pay the city $150,000 per affordable unit they would otherwise have been required to build.
In the case of Diamond Creek, which is proposed on a property near the intersection of Monterey Road and Village Way in southwest Morgan Hill, the developer wants to pay the fee to opt out of seven affordable units in the first phase. The first phase of the project includes 68 total units, including market-rate condos and townhouses.
The vote was taken after a lengthy discussion, and prompted council members and city staff to wonder if the city should schedule another discussion or a workshop to determine how to continue the BMR reduction policy without giving the appearance of offering special treatment to certain parties.
Tate and Councilman Rich Constantine voted against the extension Wednesday.
“I’m trying to make sure we make consistent decisions so we don’t send mixed messages, not only to developers but to anybody that comes before us,” Constantine said. “This opens up a can of worms to have anybody make up any excuse (for a deadline extension).”
Others, including the mayor, agreed the developer had no control over the delay. The developer is awaiting for approval from the U.S. Army Corps of Engineers to disturb a dry creek bed on the property, according to former mayor Dennis Kennedy, a consultant for the developer.
City staff and council members also noted that the property owner has been working fiendishly on preliminary plans, pre-leasing and other specifications in order to proceed as soon as the federal office signs off on the environmental issue.
“I believe there were circumstances beyond the developer’s control, being held up by (the environmental review process),” Councilwoman Marilyn Librers said. “They have gone as far as they could without that approval, and it’s wrong to penalize them for something that was out of their control.”
Tate added that even though the council “shouldn’t violate the deadline,” he is still excited about the project.
“The project is badly needed, but we need better guidelines on how much – or not – we’re going to impose limits on things like deadlines,” Tate said.
He now wonders if other developers who have run into similar problems might request deadline extensions from the council, and he suggested the elected body hold a workshop to discuss how to deal with other possible upcoming requests.
Kennedy added that the project will provide more than 100 rental housing units for Morgan Hill residents, and no market-rate apartments or rental project has been built in Morgan Hill in 14 years.
The project has been in the works since 2004, according to the developer. After repeated questioning by council members Wednesday, the developer said that denying the waiver extension would not necessarily kill the project, but would increase the builder’s costs.
At least two other developers – Dividend Homes and City Ventures – have requested similar BMR-reduction deadline extensions in recent months, but those were denied.
“I don’t want to go back to the city council and ask for an extension or special treatment if at all possible,” said Dividend Homes president Dick Oliver, who has two projects that are currently held up by the environmental study process though he admits he has more work to do on his end for one of the projects, and another is not yet close enough to the deadline to file an extension request.
When City Ventures requested an extension of their BMR opt-out deadline earlier this year for a residential project on West Dunne Avenue, developer Phil Kerr said it was the city’s planning and permitting process that was holding him up. His request was denied, but city staff and consultants fast-tracked the approval process in time for him to meet the Sept. 30 deadline.
Oliver, who addressed the council in favor of the Diamond Creek extension Wednesday, added that in general the environmental study process for projects has been taking an increasingly long time to complete as building activity has picked up in recent months. That issue will likely result in more projects being delayed at no fault of the developers or city staff.
City staff noted that there are three other residential projects in the works in Morgan Hill that are currently being held up solely by the environmental review process, and the owners of those projects might request similar deadline extensions now that the council approved the one for Diamond Creek.
The city first implemented the BMR waiver program in 2008 as an incentive for developers to start building when the housing crash brought construction to a halt. City staff and developers reasoned it would be easier for developers to pay the $150,000 opt-out fee than to build and try to sell affordable homes.
State law requires cities to ensure an adequate supply of affordable housing is available for the populace. The city uses the $150,000 in-lieu fee to fund other programs that promote affordable housing in Morgan Hill, such as down payment assistance and construction loans.
City staff recommended the council deny the deadline extension Wednesday, but foresaw a potential conundrum if they approved it. A memo from associate planner Steve Golden asked the council to advise city staff on whether or not other projects facing similar delays should be considered for a deadline extension, and if there are any other factors besides environmental delays that would make a project eligible for an extension.
The council has extended the BMR reduction for all developers who meet the criteria three times since 2008, and the last time it was extended in June 2011 the council said, “No further BMR program extension shall be granted,” Golden’s memo said.
