Sacramento’s central city is experiencing its first housing boom in generations, but the surge is not benefiting all renters, an analysis shows.
The new apartments and town homes on the rise in midtown and downtown are almost exclusively aimed at workers with higher incomes. While a few apartments are being built with low-income earners in mind, almost none of the new housing is priced for workers with moderate incomes, such as entry-level state workers and those in the burgeoning service industry, an analysis finds.
“It’s what people refer to as ‘the missing middle,’ ” said Wendy Saunders, head of the Capitol Area Development Authority, a city and state housing agency. “Nobody builds for that group because it’s expensive to build and the rents don’t support it, so the moderate-income household can’t afford to live here.”
The study, commissioned by CADA and the city, found solid pent-up demand among workers for all types of housing in the central city, from high to low. But only about 4 percent of the 5,900 new housing units in the core’s pipeline over the next five to 10 years are expected to be affordable for middle- and lower-income workers.
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Most will be rented by households with paychecks in the $64,000 and up range, leaving many workers on the outside looking in and forcing others to spend well beyond 30 percent of their monthly income.
Currently, only 6 percent of downtown’s estimated 87,600 workers actually live in the central city, the grid area between the two rivers, Highway 50 and the Capital City Freeway. That figure is several percentage points lower than in comparable midsize cities like Portland and Minneapolis, according to the CADA analysis, which was conducted by BAE Urban Economics.
Saying downtown needs more residents to become a full community, city officials announced in 2015 that they would push for 10,000 new housing units in the next decade in the central core.
Progress has been modest, but is gaining steam. The city expects to have issued 1,150 housing construction permits for central city housing between 2015 and the end of this year.
Community Development Director Ryan DeVore said projects like the 142-unit Ice Blocks on R Street and upcoming construction of 250 apartments at 21st and Q streets are creating momentum the city hasn’t seen in generations. “If you look at everything coming online, these are transformational-type projects coming at the same time,” he said.
The developer of the 21st Street project, Sotiris Kolokotronis, calls it a drop in the bucket compared to Sacramento’s needs. With supply limited and construction costs mounting, central city rents have been among the fastest-rising in the country the last few years, hitting an average of $1,487 a month for a 781-square-foot, one-bedroom apartment late last year, according to Colliers International and MPF Research.
D.J. Stephan, 32, co-founder of SkySlope, a downtown software company, who moved back to Sacramento from the Bay Area, is among the fortunate ones. He has a six-figure income, which allows him to easily rent an $1,800 studio in a new apartment building and pay $250 a month for parking. But he estimates that fewer than a quarter of his employees can afford to live near work.
“We’re stuck in this conundrum,” he said. “Demand is high, driving up rents. You have to be closer to the six-figure income range to feel comfortable renting any of the new buildings.”
Emily Glueckert, 29, who works for Stephan’s company, is among the many young workers who forgo the expensive new apartments, instead searching for lower rents among midtown’s existing stock of older apartment buildings. She feels lucky to have found a $975-a-month unit with free parking in an older fourplex. It’s affordable on a $50,000 salary.
“I was scavenging through Craigslist every day, through the spam and the scams and all that,” she said. “I called immediately and was ready with a check and references. I knew it was going to go fast.”
The only projects currently under construction with units for lower-income earners are the 700 Block of K Street, which will provide 83 units for people who make in the $20,000-plus range, and the just-launched 19J apartment building, which is expected to provide a couple dozen “micro-units” in the 300-square-foot range at rents below $1,000 a month.
Other low-income projects, like the Lavender Courtyard senior housing proposed at 16th and F Streets, have not yet finalized their construction financing.
CADA and developer Ali Youssefi are planning to build an apartment complex at 17th and S streets that will have some subsidized housing for people earning roughly less than $30,000, as well as rents expected to be affordable for people earning above $64,000. But Saunders said it will be hard for CADA and its development partners to finance apartments affordable for people in the middle because midrange rents don’t cover construction costs.
Central city projects typically face higher construction costs than suburban development, which in turn push rents up. Those costs include higher land purchase prices, site cleanup costs, added expenses for steel framing instead of wood for midrises and parking garage construction costs.
State legislation on the governor’s desk could bring some financial help to downtown Sacramento, city officials and housing advocates say, but the amount is likely to be small.
Darryl Rutherford of the Sacramento Housing Alliance said the city needs to re-institute an old ordinance that required housing developers to make 15 percent or so of their project affordable to lower-income earners.
The city currently requires some developers to pay a fee that goes into a fund for low-income housing, but officials decided to exempt infill developments from paying into the fund for now. City officials say that is because they are trying to encourage more downtown housing and don’t want to put extra burdens on builders that force them to charge higher rents or discourage them from building at all. The city plans to review that policy in 2019.
Louis Mirante, 26, a midtown resident, state worker and member of House Sacramento – a group that advocates for more central city housing at all price points – said one important way to make housing less expensive is to allow developers to build projects that don’t require costly parking garages. For that to make sense, however, Mirante said, the city and transit officials have to invest more in making biking safer downtown, walking easier and public transit more robust.
City officials and builders say the apartment project that just broke ground at 19th and J streets may prove to be a test case for moderate-income housing development in the central city. Developer Nikky Mohanna has promised “micro-unit” studios below $1,000 a month. The project also will limit resident parking.
“You are going to see more of this,” Ioannis Kazanis, spokesman for the North State Building Industry Association, predicted of the Mohanna micro-unit experiment. Millennials are willing to forgo both space and amenities to have the urban experience.
“They’d rather be out and about doing things,” he said. “From that perspective, there needs to be a new kind of approach to housing.”