Good News, Bad News - Affordable Housing

Yesterday we started a mini-series “Good News, Bad News” and we began with a look at senior services. Today we look at affordable housing which is a big issue for those of us who live in Orange County. Sunday the OC Register reported that “OC has nation’s fourth least affordable market.” The household with median income would spend 64% of their income on housing in the median priced home. That doesn’t include food.

Affordable housing took a small step forward last week when Families Forward closed escrow on the 4-plex owned by the City on Saguarro Street in Lake Forest (Click here for the full background story). Construction started on the building and is expected to finish before the end of the year, leading Families Forward to adopt the motto “Home for the Holidays”. The project represents a joint effort of several groups to support the Families Forward effort, and shows just how generous the people of Lake Forest can be when they get behind a good cause. That’s the good news.

Now for the bad news…

The 4-plex was purchased in 2011 for $935,750 as part of the City’s plan to increase affordable housing and part of a theory that by improving one building on this block the whole neighborhood might be rehabilitated. Fast forward to 2015, and the City sold the property (now worth well in excess of $1 million) for $200,000, with a mere $100,000 down and a promise to pay $2,000 a year for the next 50 years. As if losing more than $1 million on the deal were not sufficient enough cause to implore the City to stay out of future ventures in affordable housing, the City also agreed to spend more than $500,000 fixing up the unit and relocating the occupants. That’s $1.5 million of taxpayer money.

During the ceremony, Families Forward director said that if they continue to go as planned, the City might get back as much as $150,000 as a result of the generous contributions of the various groups supporting the effort, and the good job that Families Forward has been doing managing the project. So getting back 10% of the total costs is a good thing, but what about the other $1.3 million?

(FWIW - this deal was put in place long before I joined the Council. I delayed the deal while asking the staff to pursue ever possible option because of what a poor deal this was for the City. But in the end, the City had painted itself into a corner from which there was no real exit, and this was the best deal that could be achieved)

One would think that a project like this would teach the City staff and officials to steer clear of any future ventures in buying, owning, and/or managing affordable housing. Yet only a few months ago my developer-friendly colleagues on the City Council (Voigts, Robinson, and Hamilton) voted to endorse this process by accepting “in lieu” fees instead of requiring developers to build affordable units on site. The differences are enormous.

For the $1.5 million we spent to create 4 units of affordable housing on Saguarro, requiring a developer to build affordable units when they build new residential housing could result in as many as 30 affordable units. IOW, the “in lieu” fees create considerably fewer units than does the normal requirement of asking developers to build affordable homes as part of the overall development plan.

Allowing developers to pay “in lieu” fees instead of building units is a big bonus to the developers and raises their profit considerably, thus giving them money to contribute to the campaign committees of my colleagues. It’s a victory for the developers and for my colleagues, but a terrible loss to the taxpayers and for the people who could benefit from affordable housing.

BTW – this is the same policy the Council adopted a few years ago with the Brookfield and Trumark developments. Council members Voigts and Robinson were supported by those developers, voted for those “in lieu” fees, and this year voted again for the latest “in lieu” fee schema.

The latest wrinkle suggests that it may be illegal for the City to use the “in lieu” system. A recent U.S. Supreme court case found that this type of “in lieu” affordable housing project the City engaged in was unconstitutional because it resulted in de facto segregation. Building affordable housing in low income areas, instead of building them as part of an overall development plan, has been found to be unconstitutional and thus may impact the City’s future plans.

And rest assured that with developers hungry for more profits and City council members looking to finance their next campaigns, we will be asked to adopt the “in lieu” schema again, maybe before the end of the year.

For now we should put aside the past circumstances and rejoice that Families Forward has done a good job moving forward and that the City will have 4 more affordable units before the end of the year. But there is a cautionary tale here for future government policy, and hopefully a cautionary tale for voters.

ABOUT THE AUTHOR

Dr. Jim Gardner is on the City Council for Lake Forest. You can check him out on LinkedIn and/or Facebook and you can share your thoughts about the City at Lake Forest Town Square on Facebook. His comments are not meant to reflect official City Policy.

Dr. Gardner has office hours every Tuesday from 3 pm to 5 pm at the City Hall. In addition, he holds a Town Hall meeting every quarter. The next meeting will be on Dec 12 at 2 pm at the Foothill Ranch Public Library.