Earlier this week, Mayor Ron Nirenberg put the brakes on a city policy that has lead to an influx of market-rate apartments in the downtown area — which many San Antonians would consider luxury because of the high cost of living there. In making the order at the Governance Committee on Tuesday, he also raised several questions regarding the city’s role in subsidizing its own growth.
Can a growing city remain an affordable place to live? Or does city growth belong only to the rich? San Antonio is facing this dilemma now more than ever — and its housing policy for downtown development is one of the key pressure points.
Even before San Antonio’s incentives policy for downtown housing took shape in 2012, the city offered subsidies to developers. Three years earlier or so, under former Mayor Julián Castro, and on a case by case basis, a handful of projects received an assortment of incentives. Perhaps the most well-known is the 14-story Vistana apartments, near El Mercado, which for San Antonio ushered in the modern period of urban housing construction.
Sometimes the incentives packages back then included cash. The negotiation process took up to 10 months in some cases, and ended with a City Council vote.
The Center City Housing Incentives Policy (CCHIP) of 2012 was designed to add predictability, transparency and brevity to the process. Under the CCHIP, a scorecard is used to gauge the amount of incentives each project is eligible for — usually a combination of tax breaks, fee waivers and forgivable loans. Projects located in the core received more points than those on downtown’s outskirts, for example. And no more stopping by the Council for approval, was the way it was designed.
That changed, at least temporarily, on Tuesday, when Nirenberg put a moratorium on CCHIP.
At the Governance Committee, which he chairs, Nirenberg told City Manager Sheryl Sculley and others in the room that he’s benching CCHIP until May. That’s when city staff are scheduled to present an evaluation of the incentives program to the Council. However, developers can still receive incentives from the city; they’ll just have to go through the City Council for approval, like in the pre-CCHIP days.
Nirenberg said the influx of more market-rate — or luxury — apartments in the center city “absolutely” played a role in his decision.
“Those are case in points of a policy created with [the] great intention of revitalizing downtown, but that left out affordability so that only certain portions of our community can actually benefit from that revitalization,” Nirenberg said after Tuesday’s meeting. “That’s not what we want. We want downtown to be a place for all San Antonians, especially, when its (growth is) coming with public dollars.”
How incentives helped raise prices
It’s important to note that CCHIP does not discriminate against affordable housing. Any housing project — and they’re usually apartments — that is proposed for the downtown area is eligible for these incentives. It’s just that developers aren’t proposing mixed-income or affordable housing.
One only needs to look at Silver Ventures, the developer of the Pearl, and how it has used incentives to build out that community.
In a recent investigative report, the Express-News showed that the average rent in the Pearl area is $2.08 a square foot, “well above the local market’s overall average of $1.13,” the article read. Express-News reporter Richard Webner’s analysis of the data shows that occupancy rates for that area are at or above 90 percent, indicating a demand for this type of housing. The most expensive apartment to rent there is the Cellars, which commands an average of $3.07 per square foot, according to the Webner’s research. It’s 76 percent occupied six months after its opening.
Just a few years ago, rents priced at $2 per square foot and above were considered a rarity. Now the downtown housing market has reached a point where these exorbitant rents are in high demand. They’ve become the norm.
To fully understand the impact of this market shift, you have to look at where these projects are being built.
While some apartments and condos have been added to the downtown core, the majority of the new housing has been built around downtown’s edges. The result is the gentrification of these urban neighborhoods. Market-rate rents a decade ago weren’t dirt cheap, but they were still attainable to a decent portion of San Antonians. Now, the downtown market has reached the point where “market-rate” in areas like the Pearl to the north and Southtown means $2-a-square-foot rents. In other words, Austin prices.
As they continue to receive public dollars, newly-built apartments aren’t getting cheaper.
Change of policy
Nirenberg’s edict came just four days after a public workshop, hosted by his newly-formed Housing Task Force, where some participants railed against CCHIP, and demanded that more incentive dollars be used to help finance more affordable housing. Nirenberg said he had been consulting his task force, city staff and the development community for at least two months before announcing his decision on Tuesday.
The move is intended to slow the process down, “so that anything that moves forward, we can determine is worthwhile, knowing that what we would consider worthwhile are those projects that have more affordability built into them,” he said.
A week ago, District 4 Councilman Rey Saldaña echoed this sentiment when the Council was discussing the 343-unit Heritage Plaza project on Dwyer Avenue near East César E. Chávez Boulevard. The council had to give the go-ahead on a Bexar County subsidy — a 10-year, 40 percent tax abatement worth a maximum of $672,129 — because the project rested in one of the city’s tax increment reinvestment zones.
“Let’s just not lose sight of the fact that if we continue to do ‘as of right’ . . . that we’re just going to turn into the city of Austin,” he said on the dias.
On Tuesday, at the Governance Committee meeting, Saldaña repeated a lot of the same concerns, especially after Houston told him and the rest of the board that rents at Heritage Plaza would be in the range of $2.50 per square foot.
“This is another example of a development that is going in 100 percent market-rate that isn’t taking a look at the larger picture, which is the affordability of San Antonio’s rental and housing units,” he said.
Houston told him that the developer, San Antonio-based Landbridge Partners, looked into including affordable housing at the beginning of the process, but that land prices and other factors made it “very difficult to subsidize an affordable component for this project.”
Is affordability downtown even possible?
Ask developers, and most will tell you that San Antonio’s downtown market has not reached the point where they can build without incentives.
On Tuesday, Houston reminded the mayor and others that much of the prime real estate for downtown is priced for a hotel.
“So how do we address that balance? Because if every project or parcel is priced for a hotel development, it makes it very difficult for housing projects,” Houston said. Other factors include construction costs, demolition requirements in some cases, and the requirement of structured parking, which was the case, she said, with Heritage Plaza.
It begs the question: Is Nirenberg and Saldaña’s wish for more affordable housing even possible considering market demands and the cost to build? Some developers would say that the way you bring downtown rents down is to build even more market-rate housing.
But Houston said Nirenberg’s direction fits perfectly with the SA Tomorrow planning process, which is looking at how San Antonio should plan for an estimated one million more residents by 2040. In this process, planning for the Midtown area (around the Pearl) and for the downtown core are currently underway.
As the process to develop these master plans continues, the community will be able to identify land uses — whether they need more infrastructure or for-sale housing or affordable housing. Houston said from the feedback, CCHIP will be aligned with what those communities want, and that that tweaked version of the policy is what the Council will consider in May.
Running parallel to that process is Nirenberg’s Housing Task Force, which is scheduled to recommend changes to San Antonio’s housing policy that will result in more affordable units, among other housing needs, in May, as well.
“It’s good timing given everything that’s happened with SA Tomorrow,” Houston said. “The fact that we’re already looking at those two regional center plans, it makes sense that we proceed with caution as we’re really trying to align with what the community wants to see in those areas, and also align with the Mayor’s Housing Task Force.”
One idea for how to add more affordability downtown would be to rezone certain properties, she said. Houston hypothesized that perhaps the zoning code be changed to require all hotels to have their own parking. This could make it more difficult for developers to build smaller hotels that rely on a third party for its parking, and therefore lower the demand for hotels and ultimately land prices.
“The regional center plan will allow us to look at some of those things to see how we can position it better for more affordability,” she said.