How this new second unit is working out for homeowners and tenants in Sacramento
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Sacramento has long billed itself as the affordable alternative to the astronomical rents in the Bay Area. That boast is now hollow.
A Sacramento Bee analysis finds the typical apartment rent here soared 45 percent adjusting for inflation in the last seven years as the region emerged from the Great Recession. That vaulted Sacramento rent levels from 25th to 11th among the nation’s largest metropolitan areas, according to Zillow.com, a national real estate listing firm.
It’s left local leaders scrambling for solutions, including the passage earlier this month of a controversial rent control ordinance in the city of Sacramento.
“We have had a good quality of life and we have been affordable, but we are in danger of becoming a place where our young may leave and not come back,” said planner James Corless, head of the Sacramento Area Council of Governments.
Sacramento rents are still considerably lower than San Francisco’s. But they’re now higher than those in Denver, Chicago, Portland, Minneapolis, Baltimore, Houston and Atlanta.
Are Sacramento rents past the tipping point?
For Karen Beach, the answer is yes. A former computer engineer, Beach lived in the San Francisco Bay Area, but moved to Seattle as illness depleted her savings. When that city’s rents proved too steep, Beach came to Sacramento. Now her landlord’s plan to raise the rent on her Natomas condominium to $1,350 has her headed to Medford, Ore., in search of subsidized housing.
Sacramento “used to be the cheap option,” she said. But, “everything just keeps going up and up.”
From July 2015 to July 2016 alone, typical rents here jumped more than 13 percent. For a renter of a $1,000 unit, that would mean an additional $1,580 pocketbook hit over the course of one year, amid a string of several years of rent increases.
City of Sacramento data show that one out of four renters are spending more than half their gross income to keep a roof over their heads.
It’s changed renter habits, causing many to move to suburbs far away from job centers and to room at times with strangers. Nineteen-year-old Caitlin Peterson, a full-time instructional aide at a local school district, just posted an ad on Craigslist looking for several roommates to share a house in North Natomas in hopes of keeping her share at $500 a month.
“It’s kind of nerve-wracking,” she said. “We’re totally anxious about it.”
Are landlords gouging?
Interviews with renter activists and economists suggest complex reasons behind the region’s rent surge. Some of it is because many rents stalled from 2007 to 2012, during the Great Recession and its aftermath. Some of the sharp increases stem from Sacramento’s recent discovery by Bay Area emigrees who are escaping Silicon Valley rents.
Louis Mirante, a Sacramento renter and housing activist, says Sacramento’s rising rents are “the communicated disease” of the Bay Area’s housing crisis that leaders there have been unable to tame.
Post-recession, jobs and population increased in the Sacramento region, but housing construction lagged. The regional vacancy rate is only 2.7 percent, considerably lower than what is considered a healthy 5 percent rate, according to a SACOG analysis.
“The economy was finally starting to rebound and come out of the recession,” said Jeffrey Michael, an economist at the University of the Pacific. “Many years of extremely low (housing) production caught up with the marketplace.”
Are landlords gouging? Glenn Wong, who owns 15 rental buildings in Sacramento, says the rent increases in fact have been long overdue.
“I’ve been behind the curve for the last 10, 15 years,” he said. But, he acknowledges “there’s a real fine line” between an appropriate rent hike and a gouge. One of his duplexes in the Newton Booth section of midtown was advertised last week for $1,950. But he sees other landlords with similar properties charging $2,500.
Wong said landlords are more confident about raising rents now in popular neighborhoods, including central Sacramento, where there is a new basketball arena, restaurants and jobs that don’t require long commutes.
“Now, when somebody moves out, you might raise it a couple hundred bucks, whereas before you might make 25 or 50 bucks,” he said.
61,000 new units needed
A new state “regional housing needs assessment,” released this month, has given Sacramento a big number to contemplate: 153,514.
That is the number of new houses and apartments the region is supposed to zone for in the next 10 years. About 40 percent of Sacramento-area residents are renters. That suggests leaders should set aside enough land to build 61,000 new rental units in the next decade.
Sacramento housing advocate Cathy Creswell, a former state housing official, is hopeful. She said she senses a governor and legislature that will push cities to get serious about finding ways to build housing.
“It’s a watershed moment,” she said.
As more apartments are built, UOP economist Michael said rents should naturally stabilize. In the last two years, the Bee analysis shows apartment rents have moderated a bit. From July 2017 to July 2018, they were up about 3.9 percent in the four-county area, according to Zillow. From July 2018 to July 2019, they were up 4.5 percent.
However, those increases continue to put strain on renters whose paychecks have not kept up. Given that, the near future looks like a stalemate.
Micro-units to the rescue?
So what’s the answer?
Nikky Mohanna, the 29-year-old daughter of a longtime downtown Sacramento property owner, went to school in London where apartments were tiny, and where neighborhood cafes, restaurants and parks served as urban-dwellers’ extended living rooms.
When she returned to Sacramento a few years ago, she found friends struggling to afford apartments near downtown jobs, or even to find rentals. Her response is being heralded as a potential game-changer in Sacramento.
Mohanna Development is about to open the first micro-unit apartment project in Sacramento. It’s called 19J. The 11-story building, at 19th and J streets, will offer units as small as 275-square-feet with rents beginning at $995.
“I think we can grow in a unique way to ourselves,” Mohanna said when she launched the project. “A sense of community can still exist here. We have a unique opportunity to deal with the housing crisis. The way we handle affordable housing is going to hopefully take our city to the next level.”
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The studio apartments have beds that tilt up into the wall during the day, leaving a couch underneath. The kitchens have two burners, a microwave and mini-fridge, but no oven. There is a communal kitchen in one of the building’s common areas.
Notably, the city approved the 175-unit project with only 39 parking spaces on site, to reduce construction costs.
Among the first renters will be Gabriela Chavez, 30, a first-generation immigrant who moved here after college in Berkeley. Rents there were too high. She has a $60,000-plus annual state salary. But she carries student and credit card debt and pays orthodontist bills.
Chavez just sold her car. The walk to work is eight minutes. She will meet friends on Friday nights at Federalist or other neighborhood restaurants. On Saturdays, she’ll buy produce at the 20th Street farmer’s market and relax at The Mill cafe around the corner.
When she hosts book club, she’ll do it in one of the communal lounges. “I don’t need much space,” she said. “I’m more on the savings side. I want to have money for emergencies. And anything outside of $1,000 was going to be a struggle.”
Next up, developer Mohanna plans a dorm-like, communal-living apartment at 10th and K streets for young state Capitol workers who don’t make much money.
Granny flats make a comeback
The dearth of rental housing has caused city planners to rethink at least one housing model they once discouraged: granny flats, also known as second units or accessory dwelling units (ADUs) and sometimes reconstructed out of garages. The initial fear was over-densifying single-family neighborhoods.
Now, Sacramento is looking to ADUs as part of the answer to the city’s lack of housing, especially lower-cost housing. The city soon will offer homeowners the chance to pick among several pre-approved floor plans for ADUs, saving time and money.
Dov Kadin and Tawny Macedo recently bought an Oak Park home, and spent $140,000 extra to have an 825-square-foot ADU built at the back of their backyard, with its entrance on a side street. They just rented last week to a couple for $1,500 a month.
The city required them to build a retention basin to soak up storm water from the roof, adding cost. But he is pleased the city didn’t require him to build extra parking on his lot and that it is beginning to encourage the ADU housing type.
Their renters are delighted. Newly married and tired of living in apartment complexes, Kristina and Steven Dake are relieved to find a place that feels like a home at a price they can afford. “I was at my wit’s end trying to find a place,” Kristina said. “I posted on social media. Anybody know of anything? We need help.”
Sacramento’s rent control
The most dramatic reaction to recent rent hikes occurred earlier this month at Sacramento City Hall. After a year of debate and negotiation, the City Council passed the Tenant Protection and Relief Act. Mayor Darrell Steinberg calls it an anti-gouging ordinance.
The ordinance is tightly circumscribed. It lasts five years, and applies only to multi-unit apartments built before February 1995. Landlords of those properties are now limited to issuing annual rent increases no higher than 6 percent, plus that year’s inflationary cost of living, with a total 10-percent cap.
The new law also prohibits landlords from evicting tenants without a reason and creates a process where tenants can report landlords who violate the act.
Councilman Steven Hansen, one of the ordinance authors, said the council heard from many renters and advocates that they are being priced out and sometimes tossed out of their apartments.
“The city wanted to help people right now while we try to get more housing built,” he said. “We recognize the real answer here is more multi-family and single-family housing.”
The ordinance set off immediate debate. Landlord and builder groups contend it could have a negative effect on construction of new rental units and renovation of old units.
“I am very concerned we will enter a period where old apartments will not be renovated, just maintained to housing codes,” said Jim Lofgren of the California Apartment Association, a property owner group. “I think that undermines the efforts to renovate this city.”
Wong, the landlord who owns 15 buildings, said he is not overly concerned. The rent control measure may reduce income some landlords would have gotten, but it still allows them to raise rents nearly to double digits many years, if they choose. “It’s not bad. It’s doable.”
The ordinance already has capped at least one landlord’s rent increase plans. TransCapital Property Management recently sent out a notice that it was raising rents 3 to 10 percent, depending on the lease term tenants choose. The company then sent out another notice backtracking after the landlords realized that higher amount runs afoul of the new ordinance.
TransCapital area manager Lyn Ivans said the company is trying to do right. “Landlords nine times out of 10 want to have a good, long-term relationship. It shouldn’t be adversarial.”
Homeless college students
College students are those most struggling with rising rents. Nearly 5 percent of Sacramento State University students were homeless at some point during a recent study period, according to university research led by Lynn Hanna, a nutrition science professor. Some students reported they slept in cars. Some live out of storage units. A few even have slept in tents by the river.
“It is a double-edged sword – all this great development happening in Sacramento, the increase in condos and new restaurants, but that’s also increasing the cost of living,” Sacramento State social work professor Arturo Baiocchi said.
Students at the University of California, Davis, struggle similarly in one of the region’s most expensive cities. In the 2017-2018 academic year, nearly 7 percent of UC Davis students described themselves as homeless at some point.
Both universities are trying to create more on-campus housing. Davis university officials say that includes housing for third year students, calling it a new housing model. “We need more control of our own destiny and build enough housing for those students so that if they want to, they can stay on campus,” said UC Davis official Matt Dulcich.
Sacramento State has a $164 million Hornet Commons housing project in the works, but that is still a drop in the bucket. Several national developers have expressed interest in building several thousand dorm-style apartments along Folsom Boulevard, near 65th Street just outside the campus gates. University officials are working with landlords to accept financial aid disbursement letters in lieu of proof of income, and are looking into signing master leases with landlords to get below-market rental rates for students.
“We’re starting to look at things that we haven’t looked at before because we really just need our students to be housed,” Sacramento State Dean of Students Beth Lesen said. “None of us ever expected to be in the business of finding affordable housing for students when we got into higher education.”
‘There isn’t a magic bullet’
How does Sacramento take the air out of its upward rent spiral?
For one, builders say, cities and counties could reduce construction fees and other costs, and reduce regulatory steps. They contend they already are faced with increased costs for materials, labor and land, and need more understanding from governments.
Some builders are starting to push cities to allow duplexes and even quad-plexes on empty lots in historically single-family areas.
Mayor Steinberg, perhaps the most assertive housing advocate among regional leaders, is pushing to turn a $100 million chunk of the city’s Measure U city sales tax revenue into an investment fund to help subsidize more affordable housing for lower income workers.
But he says he wants the city and perhaps the state to push new types of “efficiency” housing units. The goal is to lower the cost of small units for lower-income earners and people coming in from homelessness.
“We need more variety,” he said. “It cannot just be one size fits all. We have the ability to help so many more people if we get creative.”
The timing is good. Gov. Gavin Newsom and state legislators this year have placed several billion dollars in housing grant funds in the state budget, but local governments are more likely to win some of that money if they show they have local funds to match.
Barry Broome of the Greater Sacramento Economic Council joined with the city of Rancho Cordova last week to set up funding to attract technology companies to that city’s employment center. Broome’s theory is that the region’s rent issues can be softened if more companies locate outside the higher-priced urban core.
“By placing a tech community in Rancho Cordova, it’s a good way of keeping the balance of housing and jobs,” Broome said. “You can still go to Golden 1 Center for fun. But these rents and homes are more affordable. We don’t want what happened in Seattle where the urban core gets so hot, people can’t afford it.”
Mark Friedman, one of the area’s most innovative developers, is among those who see the solution as regionally based. He has begun building smaller apartments in West Sacramento, much like Mohanna in midtown. The answers are everywhere, he said.
“We got here through 1,000 different decisions,” he said. “There isn’t a magic bullet. We have to tackle this by nipping and tucking everywhere.”
BEHIND OUR REPORTING
How we did this story
Sacramento has seen some of the fastest rising rents in the country in the last few years. Recently, the city of Sacramento imposed a controversial rent control ordinance. This story looks at the roots of Sacramento area’s rent hikes, and what the region can do to return to affordability.
Much of the data used in this story relies on Zillow.com’s rent index for multifamily homes. This index tracks the mean of the middle quintile of multifamily homes in an area. The article compares current rent prices to rent prices in years past. For multi-year comparisons, The Bee used federal data to adjust rent prices for inflation. Year-to-year price increases mentioned in the article are not adjusted for inflation.