How hard is it to build in Silicon Valley? Here’s one example

From the San Jose Mercury News 3-12-18

Louis Hansen

PUBLISHED: March 12, 2018 at 5:00 am | UPDATED: March 12, 2018 at 9:36 am

Categories:Business, California News, Economy, Latest Headlines, News, Real Estate

Los Gatos has planned for homes and commercial development on the site of the last orchard in town for more than two decades. But even with willing investors, millions spent in project costs, more than 100 community meetings and a lawsuit by developers, not a single house or shop has been built.

Welcome to some of the hardest ground in the Bay Area to turn.

The saga of building 320 homes and subsidized senior units and a collection of neighborhood restaurants and shops at the entrance to a bedroom community shows the maddening lengths development fights can take in a region desperate for housing.

“Every developer I talk to (says) it’s just impossible,” said Russell Hancock, president of Joint Venture Silicon Valley and public policy lecturer at Stanford University. “There’s no end to the war stories.”

The time-consuming, and entirely legal, local defense of the status quo gives property owners a powerful voice in shaping their communities, but it also limits the region’s already dire housing supply, drives up costs for new construction and, regional planners say, threatens the economic dynamo of Silicon Valley.

“We have a terrible housing shortage in California, especially in the Bay Area,” said state Sen. Scott Wiener, D-San Francisco. “We need to change our approach to housing.”    The 44-acre site in Los Gatos, known as the North 40 and bordered by Highways 17 and 85, is exactly the type of development saga that state lawmakers are tackling in new bills to curb local decision-making over housing.

And it’s not the only protracted fight by Bay Area residents against new development by a long shot. Neighborhood protests over re-development have stalled construction in Berkeley and other East Bay cities. In Lafayette, community protests convinced city leaders and developers to alter a plan to build a 315-unit apartment complex. A community group later sued to force a citywide referendum on the alternative plan — an upscale neighborhood with 44 homes, an athletic field and dog park known as The Homes at Deer Hill.

For decades, the state left housing decisions up to towns and cities, whose elected leaders have spent years lobbying against and ignoring state guidelines for creating sufficient housing.

These missed housing goals have meant little to some cities and towns, Wiener said. Municipalities falling short faced no consequences — until this year, when a new state law went into effect requiring jurisdictions to meet the goals or grant developers streamlined approval for some affordable housing plans that meet state and local requirements. Another new law imposes stiff penalties on cities and towns for rejecting plans that meet local standards.

Initial planning for the North 40 project accumulated new demands from residents — fewer homes, more highway and road improvements — with every public hearing. Residents worried the project would change the town’s character and overcrowd its highly-regarded public schools.   State statistics show the cozy bedroom community, with a population of 30,500 and a median home value of $1.9 million, is one of the hardest Silicon Valley communities to build in. Overall, Los Gatos met about 41 percent of the state-determined housing need allocation goals between 2007 and 2014, trailing all but Saratoga and Palo Alto in Santa Clara County.   An interim state report released this month found 97 percent of cities and counties failed to keep pace with housing needs.

In 2015, Los Gatos issued no permits for low and very low-income housing, and just 2 permits for moderate housing aimed at households making the median annual income, according to government figures. The state goal called for Los Gatos to build about 200 units for very low-income residents by 2023.   Town officials and developers have had their eyes on the North 40 walnut orchard for decades. An early plan for the site was drafted in 1999, but never implemented.

The town went through another 15 years of planning for the site, holding scores of public hearings with residents, developers and property owners. A group of developers selected by owners of the North 40 property, led by Grosvenor USA and including Bay Area builders SummerHill Homes and Eden Housing, joined the process in 2009.

After years of discussion, drafts and revisions, the town council in June 2015 adopted a specific plan for the site, a key public document required before any construction. The specific plan called for a mix of commercial and residential development to suit the look and feel of the hillside town, while minimizing the impact on traffic and schools.  The extended planning process for the North 40 was unusual but not unique in California, according to a McKinsey & Company study. Researchers found the typical single-family residential development in the state took an average of 17 months to win approval, but noted some projects take more than a decade.

In California, those types of delays can tack on 30 percent to the price of a new home, according to the study. The consultant estimated the state could save $1.4 billion a year by streamlining its permitting process.   The North 40 developers submitted an application to the town in early 2016, believing they had met the local standards in the specific plan.

A representative for the developer said the companies spent hundreds of thousands of dollars on the site erecting “story poles” — metal posts laced with orange netting and ribbon representing the outlines of the project — so residents could get an idea of its size.

The first phase of the North 40 plan will bring about 320 homes, including 50 smaller, affordable senior-living units on half of the property. It will include community gardens, bike and pedestrian trails, a specialty market and small shops and services designed to serve town residents. The majority of the homes will be one- and two-bedrooms, with an average size of 1,500 square feet — at least 15 percent smaller than the typical new Bay Area construction. The company expects the smallest condos will start at $800,000.

To opponents, the plan represented a “visual rape” of the Los Gatos hillside and a new collection of “black lung lofts” with a choking proximity to highway pollution. To others, the story was about the coming of a “diverse and sustainable neighborhood” responding to “unmet housing needs” of a bedroom community.   Rod Teague, a long-time Los Gatos resident, founded the group Town Not City, to change the developer’s proposal. He insists the group is not a NIMBY — not in my back yard — but wanted smaller entry-level homes for single tech workers than the planned development will bring. Teague and others believed a less intense development would have better fit the town’s character, easing the burden on roads and schools.

“I get housing is needed,” said Teague, who worked in real estate finance and owns investment property. “Everywhere in the valley has accommodated more growth and more growth.”   Several residents and community groups publicly supported the project. In a letter to Los Gatos council members, a coalition of regional housing advocacy groups wrote, “To alleviate the existing lack of housing, we strongly urge you to approve the Project without delay.”

Katia Kamangar, an executive vice president for developer SummerHill Homes, said builders scaled back commercial development and changed other features after holding about 100 neighborhood and individual meetings in a process that was “lengthier than the norm.”  Town committees held nine public hearings on the proposal over six months in 2016, before the council rejected it on a 3-2 vote. The developers sued — representatives for SummerHill Homes and Eden Housing say it was the first time in decades of building Bay Area projects they had ever taken this step — and won the right to build in August.

Construction is expected to begin this year — about two decades after the initial plans. The town council has put a limited moratorium on the second phase of the project, roughly 20 acres on the remaining property.   Two Los Gatos councilmembers, Mayor Rob Rennie and former Mayor Barbara Spector, declined to speak on the record about the development. Spector voted against the proposal and Rennie voted for it.

Town manager Laurel Prevetti said the North 40 is one of the last, large open spaces to develop in Los Gatos. “Obviously, the community and council want to get it right,” she said.  Linda Mandolini, president of Eden Housing, has been leading affordable housing projects for decades.

“It’s very hard to build new housing,” she said. “It feels like it’s been getting harder.”

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