Inside the $100 million plan to finally solve Sacramento’s affordable housing crisis

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The city of Sacramento this week launched its biggest push for new housing in recent history, essentially setting local government up as a financier for cutting-edge builders.

Faced with a dearth of affordable housing for low-income workers, California’s capital city will offer $100 million to developers willing to spark what the mayor and others at City Hall say is a sorely needed renaissance in housing construction.

But not just any kind of housing.

Mayor Darrell Steinberg says he wants to create a “Silicon Valley moment” in Sacramento, using city money to help developers mass-produce new types of “efficiency” housing that cost less to build than traditional housing.

The goal is to jump start housing for the city’s legions of service workers, college students, lower-income state workers and young coastal emigres, while turning the city into an incubator for new, fast and less expensive housing types that have not yet been produced on a broad scale.

That may include dense micro-unit apartment complexes with no parking or modern versions of shared rooming houses, and possibly even units made out of metal shipping containers converted into modular apartments or “tiny homes” built out of wood pallets.

“We’re not talking about shacks here,” Steinberg said. “Everything must be quality. We’ve seen quality products that have not yet gone to scale. It’s time the city put skin in the game. To put real money towards these models gives us the chance to spark a brand new market.

“If we can seed the right products, we can see thousands of these quality units.”

Sacramento to offer ‘gap’ financing for housing

The City Council on Tuesday agreed to sell $50 million in bonds this summer, backed by future Measure U sales tax revenue. It likely will bond for $50 million more next year. Steinberg said his office is in talks with potential investors who would add private funds to that pot.

The mayor this week publicly invited developers to submit housing proposals to the city at its online “Measure U Portal.” The city would not build the housing. Instead, it would offer “gap financing” to help finalize budgets for projects that will be built by private developers with mainly private money. That could include loans or direct subsidies.

The initiative follows a trend in California and other high-priced West Coast urban areas where cities are allowing and even encouraging experimental housing, typically smaller units at lower costs.

Steinberg cited as an example a planned apartment project at 14th and O streets, a few blocks from the state Capitol, where units would be only 270 square feet, the smallest yet in Sacramento. The lowest rents in that building would be $586 a month for qualifying extremely-low income renters, far below downtown’s recently soaring average of $1,600.

The project, proposed by the Capitol Area Development Authority, is not yet fully funded. CADA will look to the state for more funding, but its executive said the city program is the type of potential source that could fill the funding gap for projects like this.

“The city’s proposal is awesome, especially with urban infill projects,” CADA executive Wendy Saunders said.

Housing built for the rich, not low-income workers

If successful, the plan, which was devised last year by Councilman Steve Hansen and Steinberg, could mark a turnaround for the city after years of failing to produce anywhere near adequate housing for lower-wage workers. That’s despite repeated talk about adding more downtown housing and turning old commercial corridors in neighborhoods around the city into vibrant mixed-use villages.

“This is our chance to put our money where our mouths are,” Hansen said. “We know this is an investment that the public wants.”

According to a city analysis, apartment construction is strongly tilted to higher-end projects, leaving poorer workers on the sidelines. In a recent five-year span, the city issued permits for just 210 apartments for extreme or very low-income tenants and 427 units for low-income tenants. At the same time, the city issued nearly 8,000 permits for renters with moderate or higher incomes.

The city has hired several economic development officials who will focus on housing. That’s notable given that an existing branch of local government, the Sacramento Housing and Redevelopment Agency, already is tasked with financing new housing for low-income tenants.

Steinberg and other city officials criticized SHRA last year, saying the agency was not adequately meeting the city’s affordable housing needs. Officials have since backed off those criticisms, acknowledging that SHRA is hamstrung to a degree by a lack of funding to invest in new housing. SHRA has focused much of its efforts lately on rehabilitating its existing older affordable housing units, rather than building new housing.

SHRA has also recently committed to opening roughly 100 cabins for homeless people in north Sacramento – the first large scale tiny home/efficiency project the city could see. Steinberg wants to expand those communities from homeless to also house college students and low-income individuals.

Will city partner with SHRA?

Steinberg said the city likely will partner in some way with SHRA, which has process expertise that the city’s new stable of housing employees does not. But the city will administer its own housing grants with its bond money. Steinberg said the city hopes to avoid the type of higher-cost development SHRA and other traditional housing authorities typically deal in.

The first phase of SHRA’s current biggest project involves spending an estimated $472,000 per newly constructed unit, according to a September City Council report. It involved tearing down a World War II vintage housing project called Twin Rivers near Richards Boulevard north of downtown. In its place, SHRA and private developers will build a new community to be called Mirasol Village that includes mixed-income levels, a community garden and light rail station.

Speaking to the Bee recently, SHRA head LaShelle Dozier said she looked forward to cooperating with the city on its new housing initiative, but did not detail what that would involve.

The Hansen and Steinberg-led city effort, in contrast, will seek to invest about 30 percent of the $100 million into projects that will not require more than $100,000 per unit in government assistance.

The city’s $100 million bonding plan will be financed by future Measure U revenues. That measure was first approved by city voters in 2012 and increased the city’s sales tax by one-half cent for every dollar consumers spend. Voters in 2018 added another half-cent to the tax.

Measure U does not specifically say how the new revenue will be spent. Steinberg, however, said during the ballot measure campaign that he wanted to use the money to uplift disadvantaged neighborhoods, including spending some on housing for low-income workers and the homeless.

The city last year spent about $10 million in original Measure U reserve funds to open a temporary homeless shelter at Capitol Park Hotel downtown.

Council members disagree, though, on how much of the Measure U funds should go to “community-building” projects, such as the planned housing program, and how much should be held onto to bolster a general fund that is struggling under the weight of heavy pension payments the city has negotiated with employee unions.

Sacramento approves $50 million housing bond

The City Council voted Tuesday night to move forward with a $50 million bond sale this year. But it has the discretion next year to decline to add another $50 million to the program, based on the state of city finances.

The initial $50 million this year also is predicated on a city budget “stress test” to be conducted by the city treasurer this spring to determine whether the bond sale would put the city general fund – its main annual operations bank account – under undue stress.

According to state officials, California has lagged for years in construction of housing for all income levels, but most notably for people with mid-range and lower income levels. It’s forced some young people to live with parents into their 30s. State housing formulas indicate Sacramento ideally would build 17,000 new units in the next decade to keep pace with the needs of lower income wage earners.

Faced with a housing crisis, the state legislature in the last two years has created several new funding programs for lower-income housing. But to compete for those funds, cities and counties typically have to put up matching local funds.

Cathy Creswell, board president at the Sacramento Housing Alliance, said her group is pleased with Sacramento’s initiative, saying it puts the capital city in a good leveraging position for that state money.

“Sacramento has not had sufficient local funding to ensure our city gets its fair share of those state funds, but issuing a $100 million bond will help address that problem and ensure the skilled and experienced affordable housing developers in Sacramento get the funding needed to build safe, accessible and affordable homes,” she wrote in an email to The Bee.

Steinberg, who has led city efforts to put some Measure U money into emergency homeless housing, said the new housing trust fund initiative, though focused on working Sacramentans, has a tight connection to the homeless effort.

With more available housing units, fewer people would become homeless in the first place, officials say. In Sacramento County, the typical apartment rent soared 45 percent in the last seven years, adjusting for inflation, putting more pressure on lower-wage workers.

“The best homeless reduction strategy we can have in Sacramento is to prevent homelessness in the first place,” Steinberg said.

This story was originally published January 30, 2020 at 5:00 AM.