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What is Affordable Housing?

Cyndi Dawson - 06.07.2021
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If we are going to push Santa Cruz to build truly affordable housing, then we first need to understand what affordability is and what it is not.

In these polarized times, building affordable housing seems to be one thing we all can agree on. You will hear city staff, elected officials and developers proudly proclaiming the developments springing up around Santa Cruz are helping affordability by producing lots of market-rate units and are providing enough affordable units to meet the need in Santa Cruz. But have you ever wondered what “affordable housing” actually means? 

Due to its favorable climate, stunning landscape, and world-class university, Santa Cruz is a highly desirable location to live. Unfortunately, the current housing-affordability crisis determines who gets to access all that is great about Santa Cruz. The system to define and require affordable housing is opaque and complex. A suite of intertwined federal, state, county and city laws, ordinances, and processes makes it nearly impossible for an average community member to know whether or not a new development is providing the affordable housing a community needs. 

The first piece of the affordable-housing puzzle is the Average Median Income (AMI). This is determined on a county-wide basis by the Housing and Urban Development Department, which is a federal agency that uses census and other annually collected data to determine income brackets each year (although HUD has published 2020 numbers, the Santa Cruz County Housing Authority has not yet adopted updated income limits). The official 2020 AMI in Santa Cruz county for a family of four is $98,000 according to the most recent numbers from May of 2019 (Table 1). Income is further broken down into categories based on the percentage of AMI adjusted for household size.

Table 1: Santa Cruz County Income Limits for State Programs as published by the Santa Cruz County Housing Authority on May 6, 2019
Number of Persons in family Extremely Low 30% of Median Very Low 50% of Median Low 80% of Median 100% of Median 120% of Median (moderate)
1 25800 42950 68900 68600 82300
2 29450 49100 787500 78400 94100
3 33150 55250 88600 88200 105850
4 36800 61350 98400 98000 117600

The city of Santa Cruz uses those annually published numbers in defining not only different levels of housing-unit affordability, but also defining “affordable rent.” It currently defines affordable rent as the maximum monthly rent, including utilities and all fees for housing services, which does not exceed 35% of household income. There are three levels of housing unit affordability defined in the City’s municipal code: Extremely Low Income (households with incomes at 30% of the median income); Very Low Income (households at 50% of the median); and Low Income (households at 80% of the median income). 

Santa Cruz used to focus its affordable housing efforts on the lowest income categories (Extremely Low, Low, and Very Low). Recently, they have expanded the definition of affordable housing to include the Moderate Income category, thereby allowing units with much higher pricing to count in meeting affordable-housing requirements. Affordable rent for the Moderate Income category was not defined in the city of Santa Cruz code until the Planning Commission defined it on October 15, 2020. This means that when someone describes a unit of housing as an “affordable rental,” that unit may now be in the Moderate Income category. A single person in Santa Cruz needs to make $82,300 a year or about $40 per hour, with “affordable rent” defined as about $2200 a month for a Moderate Income rental unit based on the current income limits.

A recent 2020 study by the California Housing Partnership says a renter in Santa Cruz needs to make $41.37/hr to afford the average monthly asking rent of $2,151. A teacher working at Santa Cruz City schools for 10 years can max out their salary at about $72k; if they use their own time and money to earn 75 units of professional education classes, they can make at most around $80k per year. A barista or bartender in Santa Cruz working downtown earns about $35 - 40k annually. An average, year-round Seaside Company employee who works at the Boardwalk makes $50 - 60k. A Graduate Student Advisor at the University of California, Santa Cruz makes $45-50k annually. The majority in Santa Cruz are well below the Moderate Income affordable rent threshold (according to an average median income range between $68,600 and $82,300). The average, everyday worker in Santa Cruz, however, pays much more than 35% of their income if they are living in a rental priced at or above the Moderate Income level.

Way back in 1969, the state of California passed the State Housing Law requiring all cities and counties to plan for the housing needs of their residents regardless of income. This law is administered locally through the City of Santa Cruz General Plan Housing Element, which is linked directly to the Regional Housing Needs Assessment (RHNA). The Association of Monterey Bay Area Governments prepares the Regional Housing Need Assessment (RHNA) plan for Monterey and Santa Cruz Counties based on state projections of future population growth distributed to the different regions. The RHNA plan establishes the total number of housing units that each city and county must plan and zone for within an eight-year planning period for different income categories. Santa Cruz did not meet their RHNA goals in the Very Low and Low Income categories during the 2007 -2014 period. Because the RHNA is based on a forecast of future conditions, there is debate about whether these numbers accurately reflect the housing needs in a community, but they certainly are an important benchmark that most believe should be achieved at a minimum. Santa Cruz has already met the RHNA requirements for all categories except Very Low Income for the 2015 - 2023 period (Table 2).

Table 2. Summary of the City of Santa Cruz Regional Housing Needs Assessment Requirements and progress through 2019.
RHNA Goals 2015-2013 Built Units 2015-2023 Percent Built Units 2015-2023
Very Low-Income Deed Restricted 180 24 13%
Very Low-Income Non Deed Restricted 0
Low-Income Deed Restricted 118 214 230%
Low-Income Non Deed Restricted 57
Moderate-Income Deed Restricted 136 0 154%
Moderate-Income Non Deed Restricted 209
Above Moderate-Income 313 365 117%
TOTAL 747 869 FILL

This leads us to the question at hand for all Santa Cruz residents: Is all this building popping up around town producing the type of units we need to meet our community's housing needs? The answer really depends on the type of development. Generally, for-profit developments have a much lower rate of affordability than non-profit developments or developments where the land does not need to be purchased (as on city-owned parcels). In addition, a community's inclusionary requirement, meaning the amount of units in a new development required to be affordable, plays a big role.

Here in Santa Cruz, the local inclusionary requirement was raised in January of 2020 from 15% to 20%, requiring that proportion of affordable units in each new development with more than 5 units. However, this local ordinance to prioritize affordable housing production is now superseded by recent amendments to the State Density Bonus Law, which have taken effect as of January 2021. The original State Density Bonus Law, passed in 1979 to encourage the production of affordable housing, has met with limited success, as evidenced by the current housing crisis across California. The new amendments include the option for developers to build much denser and higher projects while escaping requirements for parking and outdoor space if the project provides a certain percentage of affordable units. The more lower-income units a developer includes, the more concessions and waivers to local development requirements the project will receive. The density bonus was envisioned as a way to increase the production of affordable housing. However, the way the law is being interpreted results in the opposite outcome.

The Riverfront Project demonstrates clearly how the new density bonus law can increase the size of a project and lower the percentage of affordable units well below the local inclusionary requirement. The project is located along Front Street from the terminus of Cathcart Street to the Downtown Metro Center. The process to develop something like this starts with the developer designing a “base density” that is compliant with all the requirements in the City’s General Plan. In this case, the developer submitted an application for the “base density” of a fully-compliant, mixed-use development with 133 units. They then requested a density bonus which allowed for an increase in building height and the number of units to 175. The 20 affordable units remained the same, decreasing the percentage of affordable units to 11%. (Table 3)

The city inclusionary ordinance required 15% low income units at the time the application was submitted. In order to apply the density bonus, the developer was required to provide 11% of the base density very low income units and was allowed to use whatever affordable income level they want for the remaining affordable units. Meeting this requirement enabled the developer to be granted a 35% increase in the number of project units and a waiver for height and setback limits, while not requiring any additional affordable units. There will be 15 very low income and 5 moderate income units in this 175 unit building. The bottom line is that the developer originally proposed building 20 “affordable” units (required by the local inclusionary ordinance) and is still building 20 “affordable” units, even though the Riverfront Project (thanks to the state density bonus law) jumped from 133 to 175 units. Yet the meaning of “affordability” has completely changed. To be clear, 89% of the units in this development will be market rate (i.e. $2500-4500/month), meaning a tenant would need to be making well above $82k annually to afford this rent.

Table 3. Summary of design elements of the Riverfront Project in Santa Cruz, CA.
Design Element Zoning/General Plan Riverfront Project with Density Bonus as approved
Height 70 ft 77.9
Affordable units 15%*=20 (of base density) 11%** = 20 (of density bonus)
Units 133 175
Setbacks 10 feet over 50 ft Reduce required 10-foot stepbacks above 50 feet on Front Street for 50 percent of the building frontage from 180 feet (50%) to 74 feet (20.5%) based on the combined building frontage. • Waiver of stepback requirements to reduce required 10-foot stepback above 50 feet on the Riverfront frontage to between 0 and 10 fee

*The project application was complete before the city council raised the inclusionary percentage from 15% to 20%.

**The density bonus law applied in this case requires 11% of the units of the base density (14.63 = 15) be made available to very low income households in order to receive up to a 35% density bonus. The five additional required affordable units will be at the Moderate Income level.

The final piece of the affordable-housing puzzle in Santa Cruz is the vacancy rate. The vacancy rate refers to the number of units that are unoccupied but available for occupancy. Focusing on the rental vacancy rates for the area stretching from Santa Cruz to Watsonville, a study from 2019 reported that the rental vacancy rate decreased from 3.5% to 1.9% in 2010. However, when you look at indicators on the ground in the city of Santa Cruz there is evidence that we may be building housing that is sitting empty because it is simply unaffordable. One such indicator is the luxury development at 555 Pacific Avenue. The developer recently asked the city to reopen negotiations of its developers agreement citing “tenancy problems.” At 555 Pacific Avenue, one-bedroom units ranging in size from 420 - 650 ft2 go for $2600 - $2800/month and they are currently offering one-month free rent for a thirteen-month lease. Another recent 79-unit development located at 1547 Pacific Ave. has studios and two-bedroom units ranging from $2,162 - $4,733/month. The average worker at most of the major employers in the city of Santa Cruz does not make enough to pay these market-rate rents. The vast majority of building projects is serving wealthy out-of-towners and the burgeoning tech sector where the number of people employed is relatively low but the wages are very high.

So, Santa Cruz, next time you hear “affordable housing,” or “51% affordable” and the like, here are some questions to keep in mind.

  1. What is the base density/number of units?
  2. What income level are the affordable units?
  3. What are the prices of the non-affordable units?
  4. Who in our community will be able to afford to live there?

State laws limit a municipality's ability to reject new housing, which sounds good on paper. But decades of limited-growth housing policies led by cities like Santa Cruz have exacerbated the current housing crisis. Limitations placed on local government should not, however, limit the ability of the community to demand what type of housing will be built and how affordability will be classified. If it does, it tips the balance of influence in the developer’s favor. If we are going to push Santa Cruz to build truly affordable housing, then we first need to understand what affordability is and what it is not.

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