Wednesday, Aug. 1, 2007 | For residents in affordable housing units, the kind mandated by redevelopment law in areas such as San Diego’s downtown, the balance of housing costs is especially tricky to strike.

That’s why participants in homebuyer assistance programs downtown aren’t allowed to finance their homes with adjustable-rate mortgages. The goal is to establish a predictable housing cost per month that won’t suddenly skyrocket in a matter of years.


  • The Issue: Owners of affordable housing could be priced out of their units if homeowners association dues increase. As CCDC gears up to add for-sale units to its affordable stock in the next few years, planners are seeking ways to deal with such challenges.
  • What It Means: Though rising costs affect every homeowner, agencies like CCDC focus especially on helping participants in affordable-housing programs hang on to their homes.
  • The Bigger Picture: A flood of market-rate units shrank downtown’s ratio of affordable-to-market-rate units to 18 percent from 24 percent in 2004. In a slow real estate market for the development of market rate, planners hope to “play catch up” with that ratio.

But changing mortgage terms aren’t the only latent threat to homeownership. In housing developments such as condo towers, every owner pays hundreds of dollars each month in homeowners association fees to cover expenses from window-washing to earthquake retrofitting.

But what happens in five years or a decade if the building needs major work, or the building’s residents decide to renovate the front lobby and vote to increase each neighbor’s share of the cost? Many residents in the building might have the money to handle that cost increase. But the affordable-unit owner might suddenly see the carefully struck income-to-housing cost balance dashed, potentially losing the home in foreclosure if the HOA payments pile up.

But if redevelopment agencies don’t want anyone to lose a home to foreclosure, the sentiment multiplies for homeowners who used their programs to get into the home in the first place.

As the Centre City Development Corp. gears up to include for-sale units in its affordable housing stock in the next few years, planners at the downtown redevelopment agency are examining issues like HOA fees for that reason. Currently, downtown affordable housing exists only in the rental market, and issues such as this one might keep the balance tipped in favor of for-rent units. But six new projects plan to bring more than 150 for-sale affordable units to the downtown core in the next few years.

Nancy Graham, CCDC president, recently called HOA fees the “No. 1 challenge” to developing such for-sale units in downtown.

“The problem is later when the HOA fee goes up,” said Dale Royal, senior project manager for CCDC, downtown’s redevelopment agency. “That could really start to squeeze the homeowner’s budget.”

Planners are working on other options, such as making some amenities, and their accompanying charge, optional to residents of the affordable units. Another idea would see a project develop two types of housing, some low-rise and some high-rise, with the affordable units in the cheaper-to-maintain low-rise section. But one of the goals of inclusionary housing is to so mix a development that residents don’t know their neighbors earn less money than they do. Making amenities optional or physically separating income levels could distinguish the haves from the have-nots.

The issue is the gist of a bill, AB 952, under discussion by state lawmakers that would restrict resident associations from imposing major increases to HOA dues for residents who have purchased units saved for households at low and moderate incomes. Nothing’s worse, proponents of the bill argue, than helping someone own a home only to see them lose it when they can’t weather their HOA payments.

In response to regulatory pressure to build more affordable housing, developers downtown have elected overwhelmingly to pay a fee rather than include price-restricted units in their projects. CCDC and other government agencies collect those fees for investing in affordable housing opportunities.

After a development boom, downtown’s ration of affordable housing-to-market rate units shrunk to 18 percent from 24 percent in 2004. As a redevelopment area, CCDC must maintain a 15 percent ratio.

Now, a slow real estate market may give the agency a chance to “play catch up,” Graham said.

Six proposed development projects in the area seek to take advantage of a CCDC program that allows developers to build taller, bigger buildings in exchange for including price restricted units.

If all six projects are completed as planned, downtown could hold about 165 units designated for sale to moderate-income households by the end of 2009, Royal said. Those units would sell to households earning up to 120 percent of the area’s median income, about $75,000 for a family of three.

Before developers complete the for-sale affordable units, Royal said his agency is looking closely at the example of other cities with inclusionary housing.

The potential for an increase in the dues is just part of the issue, Royal said. Even at the time of purchase, the dues might be the straw that breaks affordability’s back.

CCDC prefers to offer bonuses to developers so the agency doesn’t also have to financially subsidize the purchase of the unit. The builder then offers a certain number of units at lower prices than the other, market-rate units in the building.

But for an affordable unit, housing costs — including mortgage, homeowners insurance, HOA dues and property taxes — can’t exceed 35 percent of the household’s income. That means a three-person household earning $68,750 per year can spend just more than $2,000 per month on housing. The higher the HOA dues, the lower the builder must price the affordable unit.

In that scenario, a typical $425 monthly charge for HOA dues on a two-bedroom condo means the developer cannot sell the unit for more than $215,000.

Last year, a homeowner in San Francisco who had used a homeownership assistance program received a $4,000 one-time bill for unforeseen building maintenance. And then she learned her $355 HOA dues would soon jump to $630 to take care of other building issues.

Gabe del Rio, director of homeownership for nonprofit Community HousingWorks, said on new construction, that type of massive one-time bill is unlikely, since HOA dues are calculated in line with projections for future maintenance costs. And, he said, between CCDC, the San Diego Housing Commission, and organizations like his, the charges are scrutinized carefully from the outset.

“We’re extra conservative on your housing ratio,” he said.

First-time homebuyers learn quickly that owning is not the same as renting, Royal said.

“Some advocates say that rental gets a bad name and a bad reputation,” he said. “And it’s especially important when you think about how these expenses in a homeownership scenario could really hurt a household. So, rental’s not so bad.”

Despite the issues inherent with homeownership versus renting, Royal said for-sale unit development is worth the agency’s attention. If all 165 affordable for-sale units are built, that would represent about 6 percent of downtown’s current affordable rental stock. The numbers may be small, he said, but he said developing such housing “sends an important message” about downtown.

“Homeownership is, like it or not, one of the key measures of affordability,” he said. “And downtown, just like all other neighborhoods, we want to show that we are accessible and attainable as a place to choose to purchase a home.”

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