California Affordable Housing Project May Hold One Answer to Worst US Housing Crisis
Incoming Gov. Gavin Newsom Hopes to Overhaul the Economics of Building Low, Medium-Income Housing
AMG & Associates and its partners are scheduled to break ground this spring on a 552-unit affordable housing project in Santa Ana, California. Photo: NAI Capital
Three developers are preparing to build a 552-unit apartment complex in Santa Ana, California, that’s set to be one of the largest affordable housing projects in a state with America’s worst housing crisis. The project used some of the same techniques proposed by Gov. Gavin Newsom as part of his goal to create 3.5 million homes over six years.
Developers of affordable housing have built several projects in Santa Ana, which has suffered disproportionately during the state’s worsening housing crisis as rapidly swelling rents have forced out lower-income residents. Hundreds of homeless people live in tent cities around the civic center just steps from City Hall.
Rents have surged in densely populated Santa Ana, which traditionally has among the cheapest rates in wealthy Orange County, prompting community groups to propose a ballot measure that would have made the city the first in the county to implement rent control. The initiative fell short of making the ballot, while a statewide ballot measure failed in November, and housing advocates around the state have vowed to bring a new measure to voters.
California, the nation’s most-populous state, also has the biggest U.S. homelessness problem, based on federal data. Almost 130,000 struggle with homelessness in the state, which accounts for 24 percent of the nation’s homeless population, according to the 2018 Homeless Assessment Report from the U.S. Department of Housing and Urban Development. About 89,000 of those people go without shelter, making up almost half of the country’s unsheltered population.
A trio of companies will break ground in April on one of the state’s largest affordable housing projects, a development on East First Street near the Costa Mesa Freeway. The companies led by Santa Clarita, California-based contractor and developer AMG & Associates recently signed a ground lease with private owner Broomell Commercial Properties to build twin six-story buildings and 10,000 square feet of ground-level retail.
AMG, Eagle, Idaho-based apartment developer Pacific Companies and nonprofit housing company Jamboree Housing Corp. of Irvine, California, signed a 99-year ground lease valued at $287 million over its full term. Once built, the project now called First Point will be one of the largest affordable housing projects in the state, according to executive vice president David Knowlton of NAI Capital’s Irvine, California office.
Knowlton, who negotiated the ground lease with colleague Kirby Greenlee, said the development is “an important project that will help alleviate the chronic shortage for affordable housing in Santa Ana and the surrounding communities.”
Jamboree Housing has experience in the city, recently breaking ground on Santa Ana Veterans Village, a $30 million development on West First Street for veterans struggling with homelessness. The 76-unit community is part of $300 million in affordable housing projects under way across the state by Jamboree, which has built or has an interest in more than 8,500 residences valued at $1.1 billion.
Developer and investor interest has risen statewide in affordable housing, generally defined as rental or owner-occupied housing that costs 30 percent or less of the median household income in the surrounding area, as California housing prices have spiked in recent years.
With most California renters spending more than a third of their income on shelter, households had to earn about $68,000 last year, the equivalent of three minimum wage jobs, to afford the average fair-market rent of roughly $1,700 for a two-bedroom apartment, according to the National Low Income Housing Coalition.
In San Francisco, where housing costs are among the highest in the nation, a renter must make $125,000 a year to afford the average two-bedroom apartment that rents for $3,100 a month. The same dwelling in Orange County averages $1,876 a month, requiring $75,000 in annual income, the coalition reports.
Housing prices have skyrocketed because construction has fallen short of demand at least a dozen years. Of the estimated 200,000 units a year needed just to keep up with California population growth, only 113,000 units received permits in 2017, and the state has produced less than 750,000 units since 2007, enough to meet just 40 percent of the projected need.
The previous governor, Jerry Brown, preferred to talk about climate change more than the housing crisis, but Newsom this month proposed a state budget that mentions housing more than 180 times and includes $7.7 billion to develop affordable housing and address homelessness. Newsom set a goal during his gubernatorial campaign of building 3.5 million new residences by 2025.
The new governor’s record $209 billion budget would use a carrot-and-stick approach to combating the state’s anti-development or NIMBY, for not in my backyard, tendency to oppose lower-cost housing.
The proposal expands state tax credits and financing for housing, rewards cities and counties that change zoning to greater density and seeks to slash bureaucratic red tape to speed up construction of low- and moderate-income housing, some of the same aspects such as the density bonus and tax credits that were part of the Santa Ana project. Newsom also threatened to withhold transportation dollars and other funding from municipalities that fail to produce “their fair share” of housing.
“Affordability is no longer a problem unique to the state’s major urban centers,” Newsom said in his budget summary, insisting during a presentation of the budget that “we’re not playing small ball on housing.”
“Throughout the state, renters struggle to pay for housing, often doing so at the expense of other basic needs such as food, health care and transportation,” Newsom said.
The budget also seeks to restore economic development tools lost by local governments when Brown effectively dissolved the state’s redevelopment agencies in 2011 because of concerns about school funding and well-documented abuses of the redevelopment process. Newsom wants to step up the creation of so-called enhanced infrastructure financing districts, financing vehicles used to collect and spend tax revenue on affordable housing, transit-oriented development and a wide variety of sustainable and public works projects.
Only three of the districts have been formed since the state legislature created the financing vehicle in 2014, mostly because the districts require 55 percent voter approval to issue bond debt. Newsom would scrap the 55 percent approval requirement, allowing longer-term public financing of housing projects similar to the role formerly played by local redevelopment agencies.
The governor would also pair the infrastructure districts with new federal opportunity zones, which are designated economically distressed areas where new investment can receive preferred tax treatment. Newsom would also conform California state law with the federal tax code to decrease taxes on capital gains from lower-term opportunity zone investments.
Affordable housing advocates applauded Newsom’s proposals as a bold step toward increasing housing production, but cautioned that they’re waiting to see the details.
Nonprofit Housing Association of Northern California Executive Director Amie Fishman said the governor’s plan for a $500 million expansion of the low income housing tax credit, a key incentive that has helped create 18,000 units of affordable housing since 2011, has great potential to encourage new investment.
Fishman also lauded a Newsom proposal to work with developers to build housing and emergency shelters on vacant or underutilized state properties, including 30 parcels of Caltrans land in Oakland and San Jose, California.