Next Stop, Your House
Twenty years ago, transit-oriented development was a minor planning concept, limited to academic and theoretical discussions. Today, the number of transit-oriented developments in California remains small, and each project takes the proverbial pulling of teeth to get done. However, promoting transit-oriented development is the subject of recent state legislation, and over the past few years, several state funding sources have been established for transit-oriented development implementation. Further, the markets for transit-oriented development housing in California may be changing because of shifts in gas prices, the "green" ethos and reduced credit availability.
In the 1990s, two state laws sought to encourage transit-oriented housing through encouraging density bonuses for such housing and through the creation of transit village planning districts.
In 1991, state Sens. Quentin Kopp, I-San Francisco, and Leroy Greene, D-Sacramento, wrote the High Density Housing/Mass Transit, Housing Development Siting Act (SB 2559), which rewarded municipalities for increasing the residential densities within a one-half mile radius of a transit station. By agreeing to a density bonus of between 25 percent and 100 percent, a municipality would be considered for various discretionary housing and transportation funds. As originally written, SB 2559 gave the municipalities "priority" in state funding, but this was watered down to "consideration" for state funds. As a result, municipalities were not spurred to act.
In 1994, Assemblyman Tom Bates, D-Berkeley, wrote the Transit Village Development Planning Act (AB 3152), which enabled a municipality to establish a "transit village development district" within a one-quarter mile radius of a transit station. In establishing a district, the municipality was to zone for mixed use projects of higher density housing and retail/commercial. At the time that AB 3152 was enacted, its proponents expected that creating a district would result in state funding to the municipality, but no funding was forthcoming. Three transit village plans were developed by Lancaster, Milpitas and Oakland, but, without funds, generated no significant transit oriented development.
After 2000, state Sen. Tom Torlakson, D-Antioch, put forward several approaches for financing transit-oriented development housing. These centered on enabling municipalities to form tax increment districts at transit stations without the necessity of existing "blight" and without the requirement of voter approval. In the recently completed legislative session, AB 1221 by Assemblywoman Fiona Ma, D- San Francisco, built on Torlakson's financing ideas and enabled municipalities to utilize tax-increment financing for station area infrastructure without a finding of "blight" and without the two-thirds voter requirement. AB 1221 was enacted by the Legislature but not signed by the governor.
SB 375, written by Sen. Darrell Steinberg, D-Sacramento, is the much-publicized bill from this past legislative session on greenhouse gas emissions and land use planning. It was signed by the governor, and offers potentially the most significant impact on transit-oriented development housing. SB 375, building on AB 32, requires California to reduce its greenhouse gas emissions to 1990 levels by 2020. The state Air Resources Board is to give each region greenhouse gas emission reduction targets for automobile and light trucks. A good portion of state transportation funding, about $5 billion a year, is to go to municipalities and projects that assist in meeting greenhouse gas emissions. Transit-oriented development housing, in theory, is a prime strategy for reducing greenhouse gas emissions by reducing automobile trips.
Under SB 375, transit-oriented development proponents foresee housing and other compact development being given priority by municipalities seeking transportation funds. However, it's too early to say. The experience of transportation funding in California over the past three decades indicates these decisions are influenced heavily by the political weight of the region's elected officials and congressional representatives.
New Funding Sources
The most direct impact in spurring transit-oriented development housing has been through new state funding sources. Chief among these have been the $300 million Transit-Oriented Development Implementation Fund and the $850 Infill Housing Fund, both established by Proposition 1C, the $2.8 billion housing bond fund enacted by voters in November 2006.
The Transit-Oriented Development Fund provides grants and loans to multifamily housing projects within a one-quarter mile radius of a transit station.
In the first funding round in spring 2008, about $150 million for 16 projects was distributed. Most went to station area infrastructure funding grants for off-site housing improvements and infrastructure, such as structured parking. A second round of funding is under way and is to be completed in May 2009, and with a possible third round in 2010.
The Infill Fund targets more broadly multifamily projects in urban areas of California, though in the project scoring, bonus points are given to projects near transit stations. In the first funding round in spring 2008, about $340 million was awarded to 46 projects. Like the Transit-Oriented Development Fund, the Infill Fund has a second round of funding in progress, and a possible third in 2010.
An example of a transit-oriented development project that received funds from both programs is San Leandro Crossings, a potential 700-unit project, with a first phase of 300 units at the San Leandro BART station. With the Prop. 1C funds, the first phase is moving forward, with entitlements expected in spring 2009. The funding will be used mainly for the BART replacement parking garage (cost of about $10 million or $30,000 per space), as well as for sewer capacity upgrade and station-area pedestrian improvements.
Beyond Prop. 1C, there are several other state and regional sources with funds available for transit-oriented development projects, including:
$200 million Prop. 1C Housing-Related Parks Program: Prop. 1C contains $200 million to create or rehabilitate park or recreation facilities. AB 2494, enacted this past legislative session, sets out program guidelines and has called for projects in 2009.
$90 million Prop. 84 Urban Greening/$70 million Prop. 84 Land Use and Planning Incentives: SB 732, enacted this past legislative session, establishes a strategic growth council, overseeing infrastructure spending to meet climate and sustainability goals. The council will distribute these Proposition 84 funds, whose goals include linking land use and transit.
$60 million Metropolitan Transportation Commission Transportation for Livable Communities: The regional Transportation for Livable Communities program focuses on building housing near transit and the pedestrian linkages of neighborhoods to transit.
People have speculated about the demand for transit-oriented development housing in California for the past 20 years, with transit-oriented development advocates frequently predicting significant untapped markets for transit-oriented development housing that are not apparent to developers or development consultants. At the same time, several major projects in the Bay Area, including the 132-unit MetroWalk project by the Olson Company at the Richmond BART station, the 77-unit City Walk, 192-unit Pinnacle City Centre and 235-unit Grand Terrace Apartments projects at the downtown Hayward BART station, and the emerging 550-unit project at the Pleasant Hill BART station, all are proving economically viable.
Further, the current efforts of state and regional government to promote transit-oriented development may benefit from three potential long-term economic shifts. The first is the increase in gas prices. While the Bay Area has had significant traffic congestion for more than two decades, transit ridership was relatively flat until the gas price hike earlier this year. Transit ridership in the first quarter of 2008 jumped a dramatic 6-8 percent among the major transit operators, with BART ridership increasing by about 17,000 daily trips over the previous year (up to 366,200 average daily trips). Whether this increase will continue if gas prices keep decreasing needs to be tracked.
The second shift potentially benefiting transit-oriented developments is the economic/cultural emergence of the "green" consciousness, and concern about reducing fossil fuel use. With a rush in the past few years, a sensitivity to reducing energy consumption and greenhouse gas emissions has swept across the state. Transit-oriented development is a part of this green consciousness that may well influence housing location choices in the next decade.
A third factor is the recent tightening of the credit markets for housing. The loose credit market of the 2000s was not the primary driver of the housing boom in the outlying areas of the Bay Area and Interstate 80 corridor to Sacramento. The desire of Californians for home ownership and open space was the primary force. However, the loose credit market did provide an impetus to this boom. Tighter credit may well drive more compact development.
Transit-oriented development is one of several strategies needed in the next decade to achieve goals of mobility and sustainability in California. The transit-oriented development legislation, and more importantly, the transit-oriented development funding sources emerging this year from Sacramento, should provide an impetus not present in the previous 20 years.