Santa Cruz County changes in housing rules on Tuesday agendaJune 11, 2018
Economists say regulations are a factor in stifling development and raising prices, worsening the housing crisis, and a package of reforms to incentivize developers to build more smaller units is headed to the Santa Cruz County Board of Supervisors.
On Tuesday, supervisors will consider six reforms designed to encourage building of affordable housing and decide whether to direct planning staff to draft code changes that could return for their approval in the fall.
Three proposed changes were applauded by housing advocates and members of the business community:
• Allow more residential square footage in a mixed-use development with retail space, as the city of Santa Cruz does. Currently, the county requires a 50-50 ratio, with a higher percentage of housing allowed only if all the units are affordable, and retailers willing to sign leases have been scarce.
• Charge fees by square foot to make smaller units less costly; current charges are by number of units or bedrooms.
• Allow up to 50 percent more dwelling units in exchange for affordability restrictions; the current cap is 35 percent.
“It’s fantastic list of recommendations,” said Sibley Simon, founder of Santa Cruz-based New Way Homes, noting the 50 percent requirement for commercial space has been a negative. “Very few mixed-use projects get done because of that.”
He suggested borrowing a best practice from Sonoma County.
Developers there can double the density of their project if they devote 40 percent of the units to people earning 50-60 percent of median income. The more density, the lower the per-unit cost, creating affordability.
John Swift, a Santa Cruz developer, said San Diego shaved 1 percent off building costs by not requiring fees up front but allowing payment when the certificate of occupancy is issued.
“Building can take a year, maybe two,” he said. “You’re paying interest.”
Neither the double density or fee deferral are part of the Santa Cruz County reform package.
The reforms came out of a discussion in March, county supervisors raised the impact fee on new commercial development from $2 to $3 per square foot to fund future affordable housing and asked for steps to encourage affordable housing “in the near term.”
The median price for a single-family home in Santa Cruz County hit a record $935,100 in March, and median rent for a two-bedroom home in Santa Cruz was $2,450 a month in May, up 4.7 percent from a year ago.
Construction of multifamily housing plummeted with the 2008 housing crash to 100 or fewer permits a year across Santa Cruz County.
Now the economy is up, jobs at a record high and unemployment at a record low, but not enough new housing has been built to meet demand.
Employers say housing costs make it difficult to recruit and keep employees.
Multifamily development can be seen in Watsonville, Scotts Valley and the city of Santa Cruz. Dozens of town homes, condos and apartments are under construction.
In unincorporated Santa Cruz County, the biggest multifamily projects are Aptos Village, 69 homes, mostly town homes and condos, and Pippin Lane, 46 apartments, a development championed by nonprofit MidPen Housing.
Accessory dwelling units, known as ADUs, are a key strategy for affordable housing in the county, but relatively few permits have been issued.
The county approved 28 ADU permits last year and had 25 in the pipeline in January; first-quarter figures were not available.
To compare, the city of Santa Cruz got 62 ADU applications and issued 48 ADU building permits last year. For the first quarter this year, the city issued 14 ADU permits and is processing 28 more.
Last month, the county posted an online guide to help homeowners figure out if they can legally build an accessory dwelling. An example showed an ADU could cost $206,000, assuming $127,000 for construction, $27,000 for design, $40,000 in fees paid to the water district, sanitation district, fire district and school district, and $12,000 for county planning, building and public works fees.
Residents said costs were a concern.
To address that obstacle, the county is offering financing up to $40,000 to homeowners who agree to rent to tenants earning no more than 80 percent of median income at affordable rates, with the loan forgiven after 20 years. For one-bedroom ADU, a two-person household earning up to $64,550 would pay $1,235 a month.
Traffic jams on Highway 1 in the morning as people head from Watsonville to Santa Cruz and then traffic jams in the afternoon from Santa Cruz to Watsonville as people drive home.
Santa Cruz is where the jobs are, but Watsonville is where people can afford to live.
The high cost of housing is one of the top three issues for the Santa Cruz County Business Council, a organization created by the largest employers in the county.
“Most of our employees come out of Watsonville,” said David Heald, president and CEO of Santa Cruz County Bank. “Housing and transportation, you can’t separate the two.”
He said 29 bank employees live in Watsonville, but only 10 employees work in the Watsonville branch. The rest commute on Highway 1.
Some live as far away sas Salinas or Aromas, and some live with their parents, according to Heald.
“It’s difficult with entry-level jobs to afford housing on the Westside if a two-bedroom home rents for $3,500,” he said. “The competition for a (rental) unit is really fierce — you can be one of 25 applying.”
To ease the stress for employees, the bank converted a conference room in its Watsonville branch into work stations so employees would not have to drive Highway 1 to the Santa Cruz office.
Alan Aman, chief operating officer of the Palo Alto Medical Foundation Santa Cruz, which employs 1,000 people at 21 clinics, said it’s hard to get medical assistants to staff the new Santa Cruz Westside clinic because it’s the farthest from affordable housing.
“People in South County and Monterey County are driving up here,” he said. “If you have a choice to work in Watsonville, Aptos or the Westside, you choose Watsonville or Aptos.”
Aman said a survey of PAMF’s Santa Cruz County staff found 7 percent spend more than one hour each way commuting to work.
Housing eats up half the earnings for 31 percent of PAMF staff; the federal government advises spending no more than 30 percent of income on housing.
Aman said 47 percent of those surveyed “would prefer to live closer but simply have no choice.”
One optometric technician drives an hour and 45 minutes each way, commuting on Highway 1, after buying a home near Los Banos.
“She loves working here so she does it,” Aman said.
The median price, the midpoint of what’s sold, of a home in Los Banos is about $300,000.
Charlie Wilcox, co-owner at Marianne’s Ice Cream in Santa Cruz, said he’s lost employees who wanted to settle down here with their families but they moved away when they couldn’t afford to live here.
“We can’t keep up with the housing inflation,” he said.
Neither can Cabrillo College.
“We’ve lost a couple of employees,” said Cabrillo president Matthew Wetstein. “The rental cost was too high for them.”
A candidate living in the Bay Area who accepted a job offer called two days later with a change of heart, citing housing costs.
At Santa Cruz County Bank, Heald recalls the plight of an employee who moved here with her husband and three children, living at her mother’s house, then giving up and moving back to Oklahoma.
“There was nothing they could afford,” Heald said.
Apparently she is not alone.
Heald said when bank customers close their accounts, they say they are leaving the area.
In Santa Barbara, Cottage Health bought an old hospital on 6 acres, demolished the building and built 115 Craftsman-style homes as workforce housing.
Could that be an option here?
Palo Alto Medical Foundation bought the Santa Cruz flea market property, 14.5 acres on Soquel Drive, in 2008 to accommodate future growth.
“Every one of our facilities is at capacity,” said Aman, noting that includes a new clinic at 160 Green Valley Road in Watsonville. “Stay tuned.”
Cabrillo’s Wetstein said he is looking into Landed, the startup working with the Community Foundation Santa Cruz County and the Santa Cruz County Office of Education to help teachers get the down payment needed to buy a home.
“You’d have to bank on home prices going up for the investment to pencil out,” he said. “You know the investment you’re making is staying in the community.”
Heald said Santa Cruz County Bank invested $50,000 in New Way Homes Fund to give his employees a first right of refusal on units built.
Advocates at Affordable Housing Santa Cruz County are considering putting a $250 million bond for affordable housing on the November ballot.
The Watsonville City Council is reviewing its inclusionary housing policy, the percentage of units in a development sold at lower prices to people whose incomes are at or below the median.
The policy is designed to create affordable housing but if the developer can’t make up a loss on those units, he may opt to build nothing, according to Robert Singleton of the Santa Cruz County Business Council, who blogs on housing.
To get more multifamily housing, he recommends a “density bonus,” allowing more units in exchange for restricting units to people earning less than the median income.
Building more units is easier from a financial perspective, according to Singleton, and the policy led to a 500 percent increase in the number of affordable units built in San Diego.
The Monterey Bay Economic Partnership is recruiting a full-time staffer to research employer-sponsored housing and help employers identify projects and bring them to fruition.
Larry Abitbol, owner of Bay Photo in Scotts Valley, moved ahead on his own. He bought property at 4627 Scotts Valley Drive, across from his headquarters and printing facilities, in 2015 to build apartments for his employees.
He’s proposing two buildings with 19 rentals. He had to get a traffic study, an arborist’s report and a stormwater control plan.
He wants to build a 40-foot building when the city maximum is 35 feet, among other exceptions, so he’s asked the Planning Commission for feedback.
Would Santa Cruz County Bank finance an employee housing project like this?
Said Heald, “Absolutely.”
MULTIFAMILY HOME PIPELINE
1547 Pacific Ave.: Five stories, 79 condos above commercial space
708-720 Water St.: Four stories, 41 affordable apartments
230 Grandview St.: Two and three stories, 12 apartments
1800 Soquel Ave.: Three stories, 32 condos
1013 Pacific Ave.: Four stories, 18 condos above retail
2415 Mission St.: Three stories, 14 apartments
1024 Soquel Ave.: Four stories, 13 apartments above commercial space
232 River St.: Three stories, 12 town homes
100 Laurel St.: Six stories, 205 apartments above commercial space
190 W. Cliff Drive: Four stories, 89 condos above commercial space
515 Soquel Ave.: Four stories, 51 single room units, two duplexes
1930 Ocean St. Extension: 40-unit condos/apartments
Source: City of Santa Cruz