Bay Area Cities Struggle to Finance Affordable Housing in Wake of Redevelopment Funding Halt

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By Nancy Amdur

A healthy economy and soaring rents and home prices are spurring demand for more affordable housing in the San Francisco Bay Area, but barriers, including cuts in government funding, are making it tough to meet that need.

[contextly_sidebar id=”e44bb89b97a147a192cba84e289acc48″]“Funding is extremely difficult,” said Chris Neale, vice president of The Core Companies, which has developed more than 2,000 affordable housing units in the South Bay.

State and federal investment in affordable homes in California over the last six years dropped by more than $1.5 billion annually, according to a February 2014 report by the California Housing Partnership Corporation, a San Francisco-based affordable housing advocacy group.

Much of this decrease occurred in 2012 when the state eliminated redevelopment agency funds, which was a primary local funding source for affordable housing. Local governments are now seeking ways to replace that funding.

“One of the things we’re evaluating is how to get below-market units created without [redevelopment agency funding]. What new tools can we create to help stimulate that?” said Dan Zack, the downtown development coordinator for Redwood City.

Most affordable housing underway in the Bay Area began before the agencies were eliminated, Neale said, so the “damaging impact to supply” will not be realized until those projects are complete.

“Developers have to be creative. They’re looking for different kinds of financing,” said Jeff Nishita, an accountant at San Francisco-based Novogradac & Company LLP, whose clients include low-income housing developers.

Typically, several funding sources are needed to complete an affordable housing project. A Core Companies development planned for Menlo Park carries seven funding sources, including tax credits and city and county financing, Neale said. The project, slated to begin construction late this year at 605 Willow Road, will be on two acres of land leased from the Veterans Administration. It will comprise 60 studio and one-bedroom units for very low- and extremely-low income veterans.

In August, The Core Companies expects to complete 94 one- and two-bedroom units for low-income seniors at its Buena Vista Midtown project at 1535 West San Carlos St. in San Jose.

No other projects are in the works, and because finding funding is so challenging, the San Jose-based company is looking to build outside its Santa Clara County base for the first time in 20 years, Neale said.

“We’re looking throughout the entire Bay Area,” he said, adding that all communities have different funding resources.

But funding is not the only hurdle for affordable housing developers. Residents protesting low-income housing in their neighborhoods—the so-called “not-in-my-backyard” groups—also can stagnate or sometimes even dissolve projects.

The Palo Alto Housing Corporation ran into a roadblock last year when voters rejected its plan to build 60 units of local affordable senior housing due to concerns about density and traffic in the area. The corporation, which has 700 affordable housing units in Palo Alto, has since sold the land and so far no other new developments are planned, said Candice Gonzalez, executive director of the housing corporation.

San Francisco developers also face that issue. “We have a civic culture where people say, ‘No, no, no, the neighborhood character is more important than housing affordability,’” said Tim Colen, the executive director at the city’s Housing Action Coalition, which advocates for well-located and well-designed housing.

While housing for all income levels is needed, affordable housing for middle-income residents is especially lacking in many communities, industry experts said.

“We’re not building housing for people that are in the workforce,” Colen said.

Bay Area rents have risen steadily since 2010, reaching all-time highs in the first quarter 2014, according to Novato-based Real Facts, which tracks apartment trends. The average rent in San Francisco, for instance, was $3,057 through March 2014.

Some residents blame an influx of young, highly-paid workers for driving up housing costs, but “chronic underproduction of affordable housing” across the Bay Area is the larger issue, said Peter Cohen, co-director at the Council of Community Housing Organizations, a San Francisco-based nonprofit that represents affordable housing groups.

San Francisco Mayor Ed Lee in February announced a goal to build or rehabilitate 30,000 homes in the city by 2020, including 10,000 affordable housing units for low- to moderate-income families.

Among new affordable housing in San Francisco is L+M Development Partners’ Candlestick Heights, a 196-unit project at 859 Jamestown Ave. in Bayview-Hunter’s Point. Demand for the units was strong, with 2,100 applicants for the 130 one-, two- three- and four-bedroom apartments that opened last month, said Robin Zimbler, the L+M development director. This is the New York-based company’s first California property but L+M is looking to expand in the Bay Area, Zimbler said.

Other local companies are finding more innovative ways to build affordable housing. For example, the Housing Land Trust of Sonoma County maintains affordable single-family homes for low- to moderate-income residents by acquiring land—by donation or purchase—working with partners to develop a house (if the property is vacant), then leasing the land under the house to a qualified family. Families purchase homes at a price suited to their income level, and the property is on a 99-year renewable ground lease “so it acts and feels like ownership,” said Devika Goetschius, executive director of the Petaluma-based land trust.

When homes are sold, the price of the next lease remains at an affordable level, so “no matter what happens to the land around it, there will always be homes that are affordable on that land,” Goetschius said.

The trust has created 44 homes and is working on 21 more in Sonoma County. Residents have included school teachers, healthcare professionals and city employees, she added.

Demand for affordable housing likely will not end soon as units are leased almost immediately and carry long waiting lists, industry developers said. Navigating a path toward financing will help keep more units in the pipeline.

“Without more local public funding across the whole region, we’re going to continue to have this tepid pace of affordable housing development,” Cohen said. “It’s not going to be enough. [Local governments] need to put more money in to increase [housing] production and at least chip away at that crisis.”

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