Is Affordable Housing in the City of San Diego an Oxymoron? – Part 3

The City Needs to Build and Own More Affordable Units

By Katheryn Rhodes and John Lawrence

According to a recent Zillow report: “Denver, Los Angeles, San Francisco, San Jose, and San Diego are unaffordable for both renters and buyers. … Looking forward, the picture doesn’t look bright for renters.

Rents will likely keep rising at roughly their current pace for at least the next few years, which will lead to a continued affordability crunch unless wage growth significantly improves.”

Enter the San Diego Housing Commission (SDHC) whose job is to redress the balance of unaffordable rents to make it possible for San Diego to be inhabited by other than rich folks.

The San Diego Housing Commission (SDHC) does a variety of projects to assist low and moderate income folks. From their website, it would seem that they are doing a lot, but is it merely tokenism or are they using all available resources to build affordable housing as quickly as possible? After all, there is a declared emergency in terms of the increasing numbers of the homeless population that aren’t being taken care of.

In addition, rents are skyrocketing to the point that teachers, police, firefighters and other government workers cannot afford to live in the City or County of San Diego. To the extent possible they, especially the police, are taking jobs elsewhere.

According to the SDHC Annual Report they have three major program areas:

1) Providing Rental Assistance to Low-Income Households – 15,455 housing vouchers for families, seniors and veterans;

2) Addressing Homelessness – $55.8 million invested in programs;

3) Creating and Preserving Affordable Housing – $675 million partnership developments.

In this report, Mayor Faulconer declares that “over the next three years the SDHC will award up to $30 million to create permanent supportive housing rental units for homeless individuals and families.” This is all well and good except for the fact that $30 million doesn’t go very far in building rental units, and “awarded” means that a big cut of this money will be taken by developers and various business interests as opposed to the SDHC building and owning the units themselves.

There is much more than $30 million available for affordable housing as outlined in Part 1 of this series.

Credit: City of San Diego

According to the San Diego Affordable Housing Fund Fiscal Year 2015 Annual Report, the SDHC has access to two funds — the Housing Trust Fund (HTF) and the Inclusionary Housing Fund (IHF). HTF revenues for FY15 totaled $2,623,540, and IHF revenues for FY 2015 totaled $16,354,345.

It may seem like a lot of money, but it’s a pittance compared to what’s needed and the monies that are available and being hoarded by the City in various unaudited funds. And when the Mayor says “over the next three years” up to $30 million will be made available, that’s 10 million a year, folks. Politicians are always upping the amounts and then spreading them over the next 3 to 10 to 30 years to make the amounts sound more impressive. Case in point — the minimum wage increase to $15 an hour is spread over 6 years!

According to City Council Policy 600-13 last amended 24 years ago, the former 20% Affordable Housing set-aside, now the Low-Moderate Income Housing Asset Fund (LMIHAF), was to be put into the Housing Trust Fund (HTF) under the control of the SDHC. This happened for FY-1993 and FY-1995, then stopped, and the 20% set-aside was given to Centre City Development Commission (CCDC) instead.

And what did the CCDC do with it? Build luxury high-rise condos in downtown San Diego instead of affordable housing, tearing down Single Room Occupancy (SRO) units in the process and destroying the homes of many low-income individuals who subsequently became homeless. This led to the accusations of corruption and the termination of the CCDC.

The Effective and Timely Use of Funds

The relevant City Council Policy is City Council Policy 600-13 Housing Trust Fund (HTF). Policy 7:

“It is further the intent of Council to provide for the contribution of the San Diego Redevelopment Agency housing set-aside funds in addressing the affordable housing issue in San Diego and to require the Redevelopment Agency to coordinate with the Housing Commission to ensure the effective and timely use of these funds.”

The City of San Diego is violating their own Council Policy by letting Civic San Diego be in charge of the Low-Moderate Income Housing Asset Fund (LMIHAF) instead of the Housing Commission.

The County of San Diego’s Mental Health Service Act (MHSA) program also states that the City will be using LMIHAF through the SDHC to house the Severely Mentally Ill (SMI) Urban Homeless within city limits. However, nothing happens in town for these humans. The SDHC has stated they do not want to step on the toes of Civic San Diego.

Programs involving the County of San Diego are administered by the Board of Supervisors, a majority Republican, all white, all San Diego State graduates group with a $5 billion budget. These guys and gals, as true Republicans, have shorted health and human services for years with only 7% of their discretionary budget going thereto. No wonder County administered programs like food stamps, Medi-Cal, In-Home Supportive Services (IHSS), CalWORKS and other programs are understaffed and poorly managed with huge wait times for services.

I noticed a few things from the San Diego Affordable Housing Fund Fiscal Year 2015 Annual Report that lead me to believe that the SDHC could be doing much more than they are doing right now to build affordable housing. The Affordable Housing Fund (AHF) which comprises the HTF and the IHF has five goals:

1) Meet a portion of the need for housing that is affordable to households with very low to moderate incomes;

2) Leverage every $1 of City funds with $2 of non-City subsidy capital funds;

3) Support the Balanced Communities Policy by fostering a mix of household incomes in projects assisted by the AHF and dispersing affordable housing developments throughout the City;

4) Preserve and maintain renter and ownership affordable housing; and

5) Encourage private sector activities that advance these goals.

How about meeting more than a portion of the need for affordable housing. THINK BIG.

And then about the leveraging. Instead of non-City capital funds, why not go to the capital markets the way it is proposed for the new Convadium and leverage 5 to 1 instead of 2 to 1? If the City can borrow $1.15 billion which is proposed by the “People’s Initiative” (in reality the Chargers’ Initiative) to build a new stadium for the Chargers along with an extension to the convention center, then the City can get more mileage out of leveraging whatever money it can get its hands on to build affordable housing and not just a paltry 2 to 1 ratio.

So what’s the leverage on the proposed $1.15 billion for the convadium? They are going to leverage a few million in hotel taxes to get over a billion from Wall Street. That’s some leverage, friends.

But then the establishment of a public bank would obviate the necessity of going to Wall Street at all, and the interest would accrue to the general fund saving the taxpayers money.

Low-Income People Need Rent Assistance, Not 30 Year Mortgages

Another thing — why is the SDHC involved in supporting home ownership for low-income families? Low-income families need affordable rents not home ownership. Money is squandered on purchasing single family houses when many more units of apartment-style housing could be built for the same money. Low-income families are precisely the ones who are likely to be foreclosed on as they were during the 2008 housing crisis. They don’t need to be on the hook for 30-year mortgages. These houses would be obtained at market rates which are ridiculous for low-income families in San Diego and represents a waste of money for the SDHC.

The SDHC needs to build and own apartment style affordable units for low-income and homeless people, not developer built units that revert to market rates after so many years. That is a good investment for developers but not for the SDHC which will then have to build more housing to support the same number of subsidized units.

The SDHC doesn’t need to worry about building market rate houses and apartments. Let the “free market” take care of that. However, it does need to step up to the plate and build apartments for low-income and homeless people. That’s the business it should be in, and it needs to cut out all the middlemen, the developers, the underwriters and in particular the Wall Street financiers. How many cities have been snookered by Wall Street from Milan, Italy to Birmingham, AL? If the SDHC isn’t up to the task, another City agency which is more hands on should take over — something like a San Diego Building Commission whose job would be to simply let contracts to build affordable housing. IMHO, they would just say to a contractor, “Here are the plans. Get to work.” It’s the KISS principle — Keep It Simple Stupid — and eliminate as much bureaucracy as possible in the process.

One of the solutions is for the San Diego Housing Commission to buy older run down motels and apartments and fix them up. Instead of new public/private construction where developers get rich, a more sustainable solution is to buy and rehabilitate.

This is what they did at the Lighthouse at 3880 Rosecrans for homeless people who were getting out of jail. No Conditional User Permit (CUP) or public hearing was required because the Lighthouse is located in an area where Emergency Shelter and Transitional Housing is allowed Ministerially by Right on the same map that includes downtown. The Midway-Pacific Highway Planning Board was upset with the change in use from Run Down Motel to Housing for Felons without recourse by the community through the CUP process. My advice to the community: suck it up. According to SB-2, Cedillo, a CUP is not required.

Affordable Housing is a Good Deal for Developers

Sorrento Tower at 2875 Cowley Way in the Clairemont area provides 197 low-income housing units, and a contract was let in 2011 to rehabilitate the aging project. “Here at Sorrento Tower, what we’re doing is preserving senior housing for decades to come, while at the same time preserving its affordability as well,” San Diego Housing Commission President and CEO Richard C. Gentry said at a re-opening ceremony.

Rent protections in the original federally assisted Sorrento Tower mortgage were due to expire by 2016, allowing the property to convert to market-rate rental housing. The units had been restricted to people earning 50% of the Area Median Income (AMI) — $33,050 for a 2 person household.

Instead, the owners sold the building to a new development team under terms that maintained affordable housing and incurred another developer fee of over $2 million as well. At the time of the rehab, all units were renting for $335 a month. Developers for projects such as these receive substantial fees for their services in rehabbing old projects. For this project, their fees represented almost 12% of total costs. And then there’s all the interest on the $13.6 million in bonds paid to Goldman Sachs and other Wall Street firms. In the end, the developer also ends up owning the project and has the option of cashing out after the affordable time period expires. Not a good solution except for developers, Wall Street financiers, underwriters, lawyers and realtors. Is this is the best use of funds to provide permanent low-income housing? I don’t think so.

Sorrento Tower is now owned by Sorrento Tower Housing Partners, LP, a limited partnership, not the City of San Diego. What this means is that, after a certain time period (55 years in this case), the project will revert to market rate housing and the City will have to go through this merry-go-round all over again. If the City owned it, that would not be the case.

There need to be housing units built to replace all the old Single Room Occupancy (SRO) hotels that have been torn down. It doesn’t need to be El Primo with a kitchen and bathroom in every unit. Communal kitchens and bathrooms like those found in most college dorms should be sufficient, thus saving money. Hostels usually have just communal facilities.

The main thing is a lockable room or rooms with sufficient social services for people with handicaps, physical or mental, services for children, provisions for pets, communal laundry facilities and whatever it takes to get people off the streets and into affordable housing. Once this basic purpose has been accomplished, more extensive units can be added or market rate units with rental assistance can be built. This would be the best use of limited funds. Make sense? OK, let’s get to work.

The housing crisis for poor people is worse now after the financial crisis of 2008 than it was previously according to Jed Kolko, a senior fellow at the Terner Center for Housing Innovation at the University of California at Berkeley who said:

“U.S. housing markets are more unequal today than they were before the housing bubble. The spread in home values has gotten bigger. The spread in incomes has gotten bigger. America’s cities today are less like each other on these measures than they were before the bubble.”

Part 1 can be found here and Part 2 can be found here.