Opinion: A Tale of Two Cities: Developer Fees in Foster City and San Mateo

By Justin Alley

Two stories featured on the front page of the July 10th issue of the San Mateo Daily Journal closely mirror each other. One talks about how integral developer fees are to Foster City’s budget. Indeed, whether or not Foster City runs a deficit in years to come hinges upon developer fees. The other talks about the San Mateo City Council’s lamentable decision to carve out a 50% exemption from developer fees for several large developers. It is estimated that this will cost the city a staggering $2.9 to 3.9 million in lost revenue. San Mateo Mayor David Lim rightly blasted this as “one of the worst decisions I’ve ever seen the council make.” He was the lone holdout vote against it.

For a city such as San Mateo which has done woefully little compared to many other localities to address the affordability crisis, and which has all but said that it has no other plans for taking on this, the most important issue facing our region, developer fees are one of the few tools it has retained. As a result, San Mateo’s housing (in terms of both median home prices and median rents) is now the most expensive in the Bay Area. Thus it is unconscionable that the city council should take yet another step in the wrong direction.

You will hear some offer the typical arguments that fees and regulations are the problem, that if only we stepped out of the way of the “market,” all the public policy issues we face would evaporate. This is wrong. We know that left to its own devices, the “market” will not provide the affordable housing needed, least of all in a housing market as lucrative as the Bay Area’s. Without proper regulations financing and mandating the allocation of affordable housing, the continuing propensity of the “market” will be to create more lucrative luxury housing. We have seen major transnational corporations, such as UBS (the Union Bank of Switzerland) and Hisense (a Chinese tech conglomerate which has no experience in affordable housing), make substantial plays around the Bay Area. Rest assured, this is not because they are chomping at the bit to provide affordable housing in our region.

There is a further, even more basic economic argument to be made here. When developers build, this produces a number of what economists call “externalities,” that is, costs carried by the public and not the private firm. I’m sure most of us have noticed how construction inconveniences pedestrians, restricts traffic flows, annexes parking spaces, causes environmental impacts, and often places significant economic hardships on nearby businesses. The resultant development may or may not have public benefits down the line. Nevertheless, these costs externalized by corporations and onto the public remain, while the developer in turn reaps the private gains.

None of this is in the least to present an opposition to the sorts of developments we need—far more affordable housing, and far fewer developments of paltry broader benefits. What it is, however, is to demonstrate the unshirkable necessity of developer fees and proper regulations (such as placing higher quotas on the percentage of affordable housing in new developments—but that is another story).

In short, there is no excuse for the city of San Mateo yet again failing to do the basic things necessary to address the housing crisis. Those trying to make a life for themselves in San Mateo deserve better.

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