Real Estate News

Sacramento approved 5,500 housing units. Fewer than 100 were for low-income residents

A stylish new apartment building opened last month in downtown Sacramento with the lowest rent prices for new units in years.

The Hardin, a block-long building in the shadows of Golden 1 Center, offered studios at $650 a month and one-bedroom apartments for $712 when it opened in June. The project's 84 most affordable units were gobbled up before doors even opened.

"We could have rented hundreds of units literally at those (lower) rent levels," co-developer Cyrus Youssefi said. "The appetite for affordable housing units is insatiable."

Why isn't the city building more places like it?

Eight years in the making, the apartments at 8th and K streets represent the last housing in the city built with government subsidies from the state's old redevelopment program, which was eliminated in 2012 as a California budget solution. The defunct program allowed cities to funnel local property taxes into blighted areas. The $60 million Hardin project was built with $12 million worth of redevelopment loans.

Meanwhile, Sacramento leaders, desperate in 2015 to meet soaring demand for new housing, relaxed a requirement that builders set aside 15 percent of any new development for low-income residents. To spur construction in the central city, the City Council went further by waiving fees for high-density, infill housing - funds that would otherwise have supported affordable housing.

Critics say the past three years have been particularly dismal for affordable housing in Sacramento, a city that had previously distinguished itself from affluent suburbs by requiring developers to accommodate low-income residents.

Of the 5,500 housing-unit building permits issued by the city between 2015 and 2017, only 98 were for apartments or houses that people with salaries in the minimum wage range or a little higher could afford, according to a city review. And none of those 98 got any city help.

That leaves the city less than 10 percent of the way toward its 2021 housing target for low- and very-low income households, based on goals set by the Sacramento Area Council of Governments.

At the same time, Sacramento rent hikes have topped the nation among large cities. The average rent in downtown and midtown Sacramento now stands at $1,786 for an 848-square-foot apartment, according to Colliers International research.

By government "affordable housing" standards, a Sacramento resident earning $33,660 can afford to pay about $900 a month to rent a one-bedroom apartment. People with that income level or lower include students; retail, restaurant and service industry workers; some health care employees; and state workers.

Builders contend they can't build projects with rents that low without some type of government subsidy or breaks on taxes or fees.

Veronica Beaty, the policy director of the Sacramento Housing Alliance, is among those critical of the city's affordable housing efforts. A recent study by her group determined that Sacramento County as a whole is 58,000 units short for people with low incomes, forcing people to pay more than 30 percent of their income in rent. Statewide, a legislative housing analysis estimates 1.4 million low-income households are forced to pay more than is financially healthy for them.

"It means they don't have money for transit, for health care, for healthy food. It's a real loss for the local economy," Beaty said.

If it weren't for The Hardin apartments, that group would likely include Junnida Siribounthong, 25, a downtown bartender who left UC Davis and is saving up to go back. She just rented a $712 one-bedroom apartment, and is delighted she can walk or bike to work, have a little extra money to enjoy downtown culture and live in an apartment by herself.

"This exceeded my expectations," she said. "I don't feel like I'm living in an affordable unit. You're going to have pull me out of this apartment. I'm never leaving!"

By comparison, market-rate apartments in the 137-unit Hardin building go for $1,300 to $2,600 a month.

Sacramento Mayor Darrell Steinberg acknowledges the city hasn't stepped up on affordable housing. "You can’t say with a straight face that we're doing all we can, because we're not," he said.

Sacramento housing officials say the city has been focusing instead during the last few years on a bigger housing problem: The recession in the mid-2000s caused almost all home construction to stop, further dampening the economy and creating a crisis of lack of housing of all types.

As part of its effort to kick-start housing construction, the City Council in 2015 eliminated its requirement that 15 percent of housing units in new developments be set aside for lower-income residents. Instead, the city now requires most housing builders to pay a fee into a fund for affordable housing.

The council, however, exempted developers of dense, infill-style projects from paying the fee to encourage them to build housing, especially in the downtown and midtown areas where construction costs typically are higher.

City officials say they believe those moves have helped replenish the overall housing stock. Last year, the city issued 2,881 permits for new housing units, a high-water mark since the recession.

But the fees set in place in 2015 have produced only meager revenues for investment in affordable housing.

Sacramento Housing and Redevelopment Agency officials estimate they had accrued only $3.7 million for new housing at the start of 2018 from those fees and a few other income sources, and have gathered $3 million more since then from various sources, mainly federal funds. That's far below the $16 million they say they typically had at their disposal annually during the state redevelopment era.

LaShelle Dozier, head of SHRA, said her agency gets formal requests from developers who want financial help to build affordable housing, but said her agency doesn't have much money to offer. Instead, SHRA has been focusing on rehabilitating existing affordable housing units that it manages.

"That is where our challenge is, the responsibility to preserve and maintain our housing stock," she said. "If we don’t put money into preservation we start losing housing."

That includes one project that has drawn criticism from some council members as overly costly, a $300 million effort to remake the 218-unit Twin Rivers housing complex into a mixed-income community, leaning on funds being cobbled together from private developers and various government grant programs.

To raise more money, Steinberg is proposing a November ballot measure to create a permanent one percentage point city sales tax that would bring in an estimated $100 million a year. He says he wants a chunk to be used to help finance affordable housing projects.

"I will fight for housing dollars," he said. "There is a huge gulf between our ambitions, our real needs and our literal capacity to do more."

Dozier said her agency will entertain developer requests for funding this summer, but she declined to say if the agency will invest in new affordable units or continue its emphasis on rehab work.

That leaves some developers waiting. One of those is Hardin apartments co-developer Cyrus Youssefi.

His CFY Development company is teaming with the Capitol Area Development Authority in looking for funding to build a $64 million apartment at 17th and S streets that would have 32 apartments with affordable rents for very low wage earners, 15 for low wage earners, 35 for moderate earners and 75 for higher wage earners.

They've lined up most of their financing, but are $5 million short and have asked SHRA for help.

Besides Steinberg's tax plan, there are two possibilities for increased affordable housing funds:

  • Sacramento and other cities could get some help later this year from voters on the November ballot. If passed, Proposition 1, the Veterans and Affordable Housing Bond Act of 2018, authorizes the state to sell $4 billion in bonds to distribute to the state's existing housing programs.
  • The city plans to consider amending its fee program, specifically looking at whether it should begin requiring developers of urban infill projects to chip in. That discussion, however, is tentatively set for October 2019, more than a year away.

Michael Strech of the North State Building Industry Association said his group opposes a fee expansion. The city needs all kind of new housing, he said, but it's wrong to focus fees on just one group.

"If you just hit the builders with this," he said, "the people solving the problem are the ones hurt the most."

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