As Market Competes with Affordable Units, Agencies Stress Rental

Thursday, March 20, 2008 | When a private condo developer, Intracorp San Diego, bought a piece of land in 2004 at Imperial Avenue and 14th Street on the far edge of downtown’s East Village, it planned to build market-rate condos there.

But the market turned before the redevelopment envisioned for that part of the city could be realized. The developer switched gears on the project, presenting a proposal to the Centre City Development Corp., the downtown arm of the Redevelopment Agency, to build 57 for-sale condos on the site as part of the city’s affordable housing program. The proposal included a request for a subsidy of $12.3 million, or $216,000 per unit. That’s about $80,000 per unit more than the agency’s average subsidy for for-sale condos.

“We used to think we had a site that was in the middle of a redevelopment area,” said John Lewis with Intracorp San Diego. “Now it’s kind of on the periphery.”

CCDC rejected that subsidy request last year, deciding instead to focus subsidies on for-rent units, said Eri Kameyama, CCDC’s associate project manager for redevelopment.

“We are not funding those for-sale projects right now — not officially, but we didn’t get any requests after that,” Kameyama said. “It’s too expensive. Since then, we haven’t really had that discussion again.”

In the meantime, as the market for houses and condos descends from its dizzying peak, the debate here over government’s role in this type of affordable housing has escalated, with attention turning to money government pumped into these kinds of programs in recent years to try and tamp down prices for those of low and moderate incomes.

The discussion comes after a period in which housing prices rose so quickly units that came with a government-guaranteed reduced price could bridge an affordability gap of hundreds of thousands of dollars. Now, with signs the market is tugging prices back toward what those families might soon be able to afford, the need for such for-sale affordable units appears to have dwindled.

But only a portion of San Diego’s housing money goes to these types of subsidies. Instead, the lion’s share goes for rental units for those households earning below the median income.

City redevelopment officials emphasize their top priority is the production of apartments for the region’s poorest families. Then comes first-time homebuyer assistance programs, including down-payment assistance or no-interest loans that are repaid whenever the home is sold. And then, third, is the type of subsidy that typically draws the sharpest critiques, where the agency cuts a check to a private developer in exchange for selling a unit at a limited price to a low- or middle-income buyer.

In one 2006 development where the city gave a private developer $3 million to keep one-fifth of the condos price-restricted, a market-rate condo in the development has been listed for sale at a lower price than the last couple of “affordable” units the developer has left to sell.

And while some advocates of the for-sale “affordable” housing concept dismiss the case, at D.R. Horton’s La Boheme project in North Park, as an isolated attention grabber, the situation has heightened the debate around the way the region approaches affordable housing.

The rankings of these modes of developing affordable housing have not changed with the shift in the housing market’s fortunes, officials said.

But their order bears illuminating, especially now.

This decade, thousands of San Diegans were caught up in a societal frenzy that championed homeownership at nearly any cost. That fever, enabled by practices in the private sector that allowed borrowers into homes at prices they couldn’t afford, drove prices skyward even as demand dried up from buyers who could afford the mortgages to buy such houses. And meanwhile, policymakers here jumped on the issue of for-sale affordable housing, identifying government-subsidized units as a hope for making homeownership available to a broader swath of the population.

But while a significant gap remains between what many would-be homebuyers could afford and the cost of a for-sale unit here in San Diego, the gap is even wider for those households struggling to find a place to rent for a manageable monthly cost. Close to 285,000 households in the county earned less than $75,000 in 2006, according to the U.S. Census. Affordable housing programs are based on the median income, $72,100 for a family of four in 2008.

“Part of the philosophy behind how we prioritize rental housing is that we can do more with our investment,” said Erika Rooks, spokeswoman for the San Diego Housing Commission, the city agency charged with bridging the affordability gap. “We can help more people, in terms of number of units.”

Between 2000 and 2007, the city’s Redevelopment Agency issued $8.6 million worth of subsidies for the development of for-sale affordable housing. The La Boheme subsidy was the highest among the six projects in that category in that time, followed closely by a $2.8 million subsidy to Renaissance at North Park for its 14 affordable units.

In that same time, the agency disbursed $78.1 million in subsidies for the development of that first priority, reduced-price rental housing. Those subsidies created 1,795 for-rent units, which counted for 92 percent of the total number of affordable units created in those years and 87 percent of the agency subsidies given. Comparatively, for-sale affordable unit development accounted for 8 percent of the units created and 13 percent of the subsidy pie.

The prices on such units are typically restricted to be affordable to a buyer at or around the area’s median income. In San Diego, land-use policies have been crafted to require developers building projects in particular areas to either include price-restricted units in their projects, or pay into a fund for subsidizing such development, called an “in-lieu” fee.

On top of that, market-rate developers test their plans in rigorous economic forecasting formulas, which sometimes yield advice to seek a government subsidy and to turn at least part of what was planned as a market-rate project into one with price-restricted units.

The government agencies dole out the in-lieu fees — and in redevelopment areas, some of the new tax money generated — to developers to build either for-rent or for-sale units

Intracorp San Diego sought such a subsidy for the 57 for-sale units it hoped to build at 14th and Imperial after it was clear the market wouldn’t sustain the construction of expensive condos in that neighborhood. Intracorp was the developer behind some of the most well-known condo projects in Little Italy, including Portico, Porto d’Italia and Porto Siena.

In neighborhoods like Little Italy, Intracorp could charge enough for the condos to cover the in-lieu fee and not worry about building the mandated affordable units itself, Intracorp’s Lewis said.

“In other areas, like the far East Village, the revenues aren’t so high, and you’re better off from a financial standpoint and a social one to build affordable units,” he said.

Lewis said the company is “trying to decide what to do” with the land.

The focus on developing rental units doesn’t mean these city agencies shy from touting homeownership as the ultimate goal. The second-prioritized program is down-payment or closing-cost assistance — the fill-in-the-gap money a household needs to get into a first home.

“We certainly don’t want to abandon homeownership,” said Janice Weinrick, executive director of the city’s Redevelopment Agency. “Homeownership has been identified as something that helps stabilize a declining neighborhood.”

And Rooks said the idea behind funneling more money to rentals is to help stabilize families’ finances so they, too, can buy homes.

“If we do rental versus for-sale, it’s a stepping stone,” she said. “If you get a family into an affordable rental unit, get that family stable financially, we can get more to the next step. But it isn’t necessarily a viable option for everyone.”

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