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Developer threatens lawsuit against city

Original post made on Dec 30, 2009

The city of Mountain View is bracing for a lawsuit from developer John Mozart after his lawyers sent a letter in October protesting the city's below-market-rate housing fees. A similar letter was the precursor of a lawsuit recently filed against the city of Palo Alto.

Read the full story here Web Link posted Wednesday, December 30, 2009, 10:20 AM

Comments (17)

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Posted by Pete
a resident of another community
on Dec 30, 2009 at 2:51 pm

You are incorrect in the statement that a "majority of the City Council in recent years" supports inclusionary zoning. I remember in 2004/2005 when the majority of the city council was ready to do away with inclusionary zoning but Martello made a council member recuse himself and the vote was tied, so it remained.

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Posted by Dominick
a resident of Waverly Park
on Dec 30, 2009 at 3:07 pm

There is no such thing as affordable housing. The correct name is subsidized housing. The land is not cheaper, the materials are not cheaper the labor is not cheaper. The loss the builder is forced to take on such subsidized housing is added to the other housing in the development so that the buyers of the market priced housing are subsidizing the below market prices of such housing. When robbing Peter to pay Paul it always is easy to get Paul to vote yes.

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Posted by Daniel DeBolt
Mountain View Voice Staff Writer
on Dec 30, 2009 at 3:12 pm

Daniel DeBolt is a registered user.

Your assertion that there was support on the council in 2004-2005 to end the city's BMR policy seems questionable. Other than council members Matt Pear, Tom Means and Greg Perry, I am not aware of any council member at the time who would have voted for that.

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Posted by Steve
a resident of Old Mountain View
on Dec 30, 2009 at 4:11 pm

Subsidized housing is socialism plain and simple. If you can't afford to live in a given community/city, then move somewhere you can afford. It is kind of how a free market works.

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Posted by Daniel DeBolt
Mountain View Voice Staff Writer
on Dec 31, 2009 at 9:50 am

Daniel DeBolt is a registered user.

My mistake, apparently there was majority council support in 2006 to end the city's inclusionary zoning, or BMR policy. Matt Neely promised the fourth vote. The motion by Greg Perry didn't pass after Matt Pear recused himself, even though it was not apparent that he was forced to by the city attorney.

The 2006 story is here:
Web Link

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Posted by Old Ben
a resident of Shoreline West
on Dec 31, 2009 at 10:11 am

This line made me spit tea out of my nose: "developers are likely to continue to play hardball as housing development resumes after the recession..."

It's not a "recession", it's a depression; furthermore, as there is clearly no accountability whatsoever in government or on Wall Street, and nothing at all has been done to correct the systemic failures that got us here, it is going to get much worse.

Let Mozart sue. He'll be in bankruptcy cpurt before the suit is resolved.

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Posted by interested observer
a resident of another community
on Dec 31, 2009 at 10:46 am

re Steve's comment:

"Subsidized housing is socialism plain and simple. If you can't afford to live in a given community/city, then move somewhere you can afford. It is kind of how a free market works."

The US govt owning GM, AIG etc... is also socialism plain and simple. If you have a poor business plan, you go bankrupt. That's the way a truly "FREE" market works.

So, let's stop being hypocrites. It's only money folks, only money. So let's use it to continue to be a great and diverse country.

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Posted by steve
a resident of Old Mountain View
on Dec 31, 2009 at 5:05 pm

Interested observer aside from your argument being a strawman, I agree that the govt owning GM, AIG etc is socialistic i.e. the state owning the means of production. I don't agree with it. They should have been allowed to fail

What has unfortunately been achieved is the introduction of a tremendous amount of moral hazard (go ahead and be reckless because the govt will bail you out). into the system which will come to bite us in the rear in the future.

At the end of the day free markets and the opportunity they afford the individual are what made this a great and diverse country, not wealth redistribution.

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Posted by Confused
a resident of Old Mountain View
on Jan 1, 2010 at 2:22 pm

I don't understand the comment that the price is 'fixed' upon resale. Does this mean that a person who purchases one of the lower priced home must sell it for a fixed price should they ever want to move?

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Posted by NeHi
a resident of Cuesta Park
on Jan 1, 2010 at 5:36 pm

My simple take is that, at least at one time, the price of a home was determined by what a new home sold for. If the new home's price had to include "below market rate" units, the home's price would be increased to cover that cost. This would then drive up the cost all homes sold. And, this would return revenue to the city in the form of increased property tax for those buying currently. Could the city turn down a revenue source like that??

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Posted by Garrett
a resident of another community
on Jan 2, 2010 at 6:58 am

BMR work but most people are against this type of housing, the other thing, it we want to build more affordable homes lets build on open space, hill sides and fill in the bay, lets build more freeways and go further and further out.

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Posted by Political Insider
a resident of Sylvan Park
on Jan 2, 2010 at 11:58 am

To Confused

Once you buy a a discounted BMR unit the resale price is fixed. You cannot sell at the market price (The resale price can increase at the rate of inflation). BMR units are like rent control, only applied to the actual price of the house. In Palo Alto owners of BMR units failed to update their units after 20 years since there was little equity and no chance to get a financial return from improving your unit.

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Posted by Seer
a resident of Cuesta Park
on Jan 4, 2010 at 2:12 pm

It's always amazing to me to see those crowing about "Free Market" missing the big picture. The reason that cities put in place affordable housing is to benefit the overall citizenry of the city. For example, many cities in the Bay Area offer affordable housing to their city employees (usually police/fire) in order to have access to a labor force for these functions. If people simply "moved elsewhere" as Steve proposes, there would be no police or fire coverage. Unfortunately, the simpleminded "Free Market" thinking has led to monopolies, which are also consequences of a free market - yet they don't work to provide the economic efficiency that free market advocates like to trumpet. Because resources are not freely mobile in our actual market, pretending that they are with free market policies simply ends up concentrating wealth in the hands of the few.

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Posted by Concerned
a resident of Cuesta Park
on Jan 4, 2010 at 4:17 pm

Wow. As a new homeowner in Classic's Miramonte development (which does not fit into any of The Voice's neighborhood maps, by the way), I am dismayed by this news! Regardless of whether the fee is ultimately determined to have been fair or properly determined, the facts seem to be that Classics agreed to pay a $2 million fee, factored it in to the prices they charged me and my neighbors, and are now demanding a refund and threatening a lawsuit. If I'd known this is how they do business, I'd have bought somewhere else. I certainly didn't intend to subsidize a litigious firm, and I hope that Mountain View can keep its money (which was, until recently, my money!) and uses it wisely.

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Posted by Political Insider
a resident of Sylvan Park
on Jan 4, 2010 at 8:11 pm

Most police and fire employees choose not to live in MV. Seer shows a complete lack of understanding regarding free markets and monopolies. Open markets do not lead to monopolies unless the govt provides protection.

However cities do act like monoplies and restrict the supply of housing?

It is over regulation by the cities that has been responsible for most of the higher prices in the bay area. Research bears this out.

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Posted by Another Developer
a resident of Sylvan Park
on Jan 5, 2010 at 10:22 am

Most everyone here has valid points. But perhaps a perspective from a developer would help. We hope to make 5 to 10 percent profit on a project. Otherwise we might as well put the investment capital in the bank. After all, this is a risky business, and even more risky when you can't count on cities to make clear guidelines or consistent rulings.

The cost of City fees, including BMR fees, is about 6 to 9% of the project. That's about equivalent to the entire profit margin. If we can't make a profit, the project simply does not move forward. As City fees increase, we find fewer and fewer viable projects. Supply falls and demand increases. Housing prices go up and affordability goes down.

In a boom economy, builders rush to get product onto the market regardless of City fees. In a down market they go bankrupt or scale down drastically. The important thing here is that City fees get passed along to the consumer regardless. More importantly but and perhaps less obvious to City officials, the City won't collect any fees unless new housing is being built. If the fees were lower, especially in bad economic times, the City would find that more projects would start and more fees would be collected.

I am a strong advocate of subsidized housing. But it makes no sense to taxes home buyers with BMR fees and unmonitored City fees, only to increase housing prices and decrease affordability. It's like taxing gasoline sales to make a government program to subsidize the sale of gasoline in the hopes of reducing prices. It hasn't worked and it’s a vicious cycle that needs to be broken if affordability is to be taken seriously.

If the City wants to make changes that will improve affordability in the long run, they should:

1. Eliminate BMR fees from new developments and appropriate subsidized housing funds from a source that won't artificially increase housing prices and decrease affordability.

2. Audit City fees for new housing to ensure that the fees are reasonable and competitive. Planning, building, and school fees should not be used to generate profits for the city while artificially inflating the housing market.

3. Provide incentives for new developments in difficult economic times. Discounted City fees and small density bonuses could be all that is needed to green-light new projects, create jobs, and curtail the extremes of the feast-or-famine building cycles which hurt the entire local business sector.

4. Take the politics out of city planning. Although easier said than done, it is an important part of any meaningful reform. Every time a new City Council member decides to put their "special touch" on a new project, developers and City planners alike cringe. Council members take far too much liberty in designing projects for which they were never trained or educated. The City planning staff is very capable of reviewing and contributing to the design of a project. Get City Council members out of the way and let the planning and building staff do their job. Rogue Council members only scare off developers and investment capital.

Supply and demand is still the dominate factor when considering housing affordability. You need only look at Detroit to prove this theory. Demand is a good thing, as Mountain View is a job-rich city in a desirable area. Surprisingly few people ever ask about the barriers that restrict supply. The common misconception is that we have lack of land in this area. That is definitely not true. There are many vacant lots and redevelopment opportunities in all sectors of the real estate market. Simply put, City government is among the largest, or perhaps the largest barrier to supply.

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Posted by Jared
a resident of another community
on Aug 2, 2010 at 2:51 pm

The free market is not free. Just look at how govt. views corporate tax policies to understand this.

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