As the pace of downtown development picks up, Austin leaders might demand more from developers who want to build especially tall buildings downtown.
Currently, developers proposing towers that are larger than city rules normally allow can negotiate with the city over public benefits to provide in return. Some have offered to save historic landmarks, for example, or pay for park upgrades.
New rules the Austin City Council will consider June 27 would do away with that approach, which some have called ad hoc and inconsistent.
The new rules would force developers of downtown high-rises to include some affordable housing, or pay into a fund the city uses to build affordable housing elsewhere. They would then have to choose from a menu of other benefits to provide for the extra square footage they’ve received, such as sustainable features or space for a day care center.
It is called a bonus program — do some public good, earn “bonus” space for your project — but some downtown developers and advocacy groups worry it could function as a penalty that deters downtown’s growth.
“We have such a small land mass downtown and it’s such a high-value tax base that we ought to be encouraging (tall buildings), and I’m not sure this will do that,” said Jamil Alam, managing principal at Endeavor Real Estate Group, which has built one project downtown and is planning another.
Austin has had a program on the books since 2008 that requires specific benefits, including affordable housing, in exchange for extra height and building space on downtown projects. But that program is only an option, and no high-rise developers have used it, preferring to negotiate benefits with the city.
The latter approach “has unclear expectations, and each development has been treated differently. We’ve lost out on millions in funding for affordable housing because of that,” said Heather Way, a University of Texas law professor and affordable housing advocate.
The city has approved about two-dozen high-rises downtown through the negotiated process in the last decade. A few agreed to provide money for affordable housing; the city has no tally of how much. Had the city required developers to contribute $10 for every square foot of bonus space they received, it would have $53 million to use for affordable housing, according to a tally from Austin’s planning department. (Ten dollars a square foot was a formula written into the 2008 bonus program.)
Supporters note that other cities, including Seattle and Portland, have had bonus programs in place for decades that haven’t slowed downtown growth.
Seattle since 1985 has required developers of large commercial projects downtown to pay into an affordable housing fund. The fee is $18.75 per square foot of bonus space. Seattle created a similar program for large condo and apartment projects in 2006.
Developers of two recently completed, 400-foot-tall projects and three more under construction in downtown Seattlewill pay an estimated $2 million for each tower into the affordable housing fund, said Dennis Meier, a strategic adviser in Seattle’s planning department.
Austin already requires a bonus-and-benefits approach in some areas, including near the University of Texas campus and near the stops for Capital Metro’s rail line. Development has boomed near UT, and the bonus program there has generated $1.2 million for affordable housing. But development has been slow near the rail stops, said Charles Heimsath, president of Capitol Market Research, which tracks real estate data in Austin.
If the city makes a bonus program the only option to build high-rises, it must carefully calibrate the fees for affordable housing and other benefits, Heimsath said. (A consulting firm that the city hired is currently trying to determine an appropriate housing fee.)
“The key is to make sure that the bonus fees are an incentive and not a disincentive,” Heimsath said.
Developers have argued for years that dense development downtown is a public benefit in and of itself.
Packing more residents into tall buildings downtown is better than building single-family homes on individual lots in the city’s outskirts, which puts a greater strain on Austin’s resources, utilities and transportation system, they say.
Building especially tall buildings also adds to the property that the city can tax, developers note. That means more tax revenue that the city can spend on a variety of services citywide, including parks, police and affordable housing.
But as Austin rents and home prices have risen in recent years, federal money the city gets to build low-income housing has steadily declined. Austin voters also turned down a ballot item last fall that would have allowed the city to issue $78.3 million in bonds to build affordable housing.
Given those circumstances, the city needs to look everywhere it can to find money for affordable housing, said Mandy DeMayo of the nonprofit HousingWorks Austin.
“Affordability is very hard to achieve, especially in a high-demand market like this one,” she said. “We have so few tools in the toolbox that if we give up on one, we lose out.”
If the city of Austin — and by extension, the public — awards extra building height, square footage and potential profit to a developer, the public should get something back, Council Member Laura Morrison said.
“We have so many community needs that it doesn’t make sense to give away this huge value that the city has of increased entitlements,” she said. “It’s not fair to just go to the taxpayer and ask them to pay for affordable housing (through a bond package) when there’s enormous value being given to a landowner getting hundreds of thousands of square feet more than they are entitled to.”
Developer Perry Lorenz said building tall towers comes with far greater costs and risks than building smaller buildings, including more expensive materials, complex designs and bigger insurance premiums. So adding fees and rules on top of that could discourage the tall, densely packed projects that city leaders have said they want downtown, he said.
“A developer is pressured from every side to minimize cost — from business partners, equity partners, lenders, from a market that is trying to get rents and sales prices down. So any extra, upfront cost is just resisted,” said Lorenz, who has helped develop six large projects in and near downtown.
If the city makes the benefits developers must provide to get extra space too onerous, developers will build shorter, more basic buildings that don’t need any bonus at all, said Charlie Betts, executive director of the Downtown Austin Alliance, a nonprofit that represents downtown property owners.
That means the city will miss out on the things it wants from tall towers: the extra tax base and affordable housing money, Betts said. “If the fees are too high, (developers) won’t do it. That means no community benefits. … It’s a lose-lose proposition.”