Sunday Commentary: Should the District Be Able to Reserve Affordables for District Employees?

Last week a reader pointed us toward a potential issue of controversy.  On Sunday, Davis Enterprise columnist Bob Dunning wrote a column on the 41-unit development at Grande Village.  Given its history, it should not be surprising that the district surplus property turned housing development should continue to generate discussion and controversy.

At issue are 14 units that are set aside as low-income or middle-income homes, priced between $261,936 and $508,881.

Mr. Dunning writes, “The catch here is that under the terms of a three-way agreement between local builder Fouts Homes, the school district and the city of Davis, the first 29 spots in the lottery were reserved exclusively for qualifying employees of the Davis Joint Unified School District.”

Mr. Dunning argues, “If that strikes you as unfair to every other hard-working citizen in Davis who would love to have a shot at an affordable home, it’s because it is unfair. Dramatically so.  Assuming that all 29 households who were given lucky lottery numbers qualify and are serious about buying a home, it’s a virtual guarantee that every affordable home available will go to a school district employee.”

He adds, “Such folks are certainly worthy candidates to own an affordable home, but so are thousands of others in our super-smart and super-expensive town. Everyone who qualifies, district employee or otherwise, should have an equal shot at this extremely scarce commodity.”

Bob Dunning did his research here, and the reality is that “the development agreement between the district and the city was drawn up when the district owned the property. The district subsequently sold the property to Fouts Homes.”

The development agreement states specifically, “The city and developer acknowledge and agree that they both have a significant interest in providing affordable housing for the teachers and school district staff within the community.

“In order to help satisfy this need,” the agreement goes on, “the city and developer agree that DJUSD employees will be granted a preference in purchasing the affordable and middle income units to be developed in the project. The initial lottery will be held only for school district employees.”

Bob Dunning again argues: “At this point, just about every non-DJUSD employee in town is probably feeling as if they’ve just been body-slammed, which they have.  Somehow, because the school district once owned this property, the DJUSD brass figured it was OK to make sure its own employees were the only ones in line to grab an affordable home.”

Mr. Dunning writes, “The last time I checked, the DJUSD was not a private corporation responsible only to itself and its shareholders. The plain fact is that anything the district owns belongs to everyone living within the district. As such, everyone should have an equal shot at these homes.”

Mr. Dunning is completely wrong here.  The district does have assets, there are laws by which they are allowed to “discard” public assets and to net profits from the sale.  The sale proceeds from those surplus properties goes to the school district, it doesn’t go to the general community.

“I understand the district’s self-interest here, unfair as it is, but I can’t understand why the city would ever agree to these terms,” he writes.

Could it be because they didn’t really have a choice?  The district could have continued to hold onto the property until they saw fit to sell.  But this ends up being to everyone’s advantage.

The problem here is that we are trying to have things all ways.

There is a constant complaint that teachers do not live in town.  That teachers cannot afford to live in town.  That city employees do not live in town.  That city employees cannot afford to live in town.  Heck, we hear the same problem with UC Davis employees.

As we know, UC Davis has twice in recent memory built staff and faculty affordable housing.  First at Aggie Village and then at West Village.

Why should the school district not get to do the same for their employees, who otherwise would not be able to afford to live here and would have to commute to town?

Mr. Dunning writes: “What if the city decided to sell Central Park to a developer with the provision that only city of Davis employees would be eligible to own the affordable homes to be built on the site? That is exactly what has happened with the Grande property.”

I believe that, under the law, the city would be entitled to do that – and maybe they should do that, given how few city employees live in town and therefore are stakeholders in this community.

That is the key issue – is this an issue of affordability?  Of reduction of carbon footprint?  And there is the practical need to have people who work in our city and in our schools be part of the community and be stakeholders in its success.

This led one of the commenters to argue: “This of course begs the question of why have affordable housing at all? Why not just sell the houses and fix the streets which benefit everybody instead of subsidizing houses for a few people?”

Another commenter pointed out: “When you distort the market for housing and drive up prices by restricting supply with Measure R you can expect half baked attempts at solutions. The real shame is that 112 families who want to be part of this community still can’t buy a home here.”

That is the other reality – we have all contributed to a restricted market, and then we complain when the school district acts in the best interest of their employees as they dispense with surplus property?

In the meantime, the district used its property to generate assets for the school district, while helping a few employees be able to live in Davis.  To me at least, they acted in the public’s best interest by doing so.

—David M. Greenwald reporting

About The Author

David Greenwald is the founder, editor, and executive director of the Davis Vanguard. He founded the Vanguard in 2006. David Greenwald moved to Davis in 1996 to attend Graduate School at UC Davis in Political Science. He lives in South Davis with his wife Cecilia Escamilla Greenwald and three children.

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41 thoughts on “Sunday Commentary: Should the District Be Able to Reserve Affordables for District Employees?”

  1. Keith O

    I see this differently.  The school district is a public entity, not a private one.  It’s owned by all of us through the high taxes we’re forced to pay including local parcel taxes.  Why should the school district be able to then take public land and sell it off designating that only its employees will be eligible for affordable units.

    Mr. Dunning writes: “What if the city decided to sell Central Park to a developer with the provision that only city of Davis employees would be eligible to own the affordable homes to be built on the site? That is exactly what has happened with the Grande property.”I believe that under the law, the city would be entitled to do that and maybe they should do that given how few city employees live in town and therefore are stakeholders in this community?

    I don’t know the law but I believe this would also be ethically wrong.  Once again we all own Central Park, we as taxpayer residents are the city.  Why should a city employee, or a DJUSD employee, have more rights to purchace afforadale housing than someone else who lives in Davis, is bustng their ass waiting on tables trying to save money in order to move from an apartment to an affordable house?

    A better solution would be to have affordable housing lotteries restricted to ALL people who already work in or live in Davis.

     

    1. David Greenwald Post author

      It is perfectly legal and frequently practiced. I don’t have a problem with it, because part of the crisis now for DJUSD is attracting good teachers and part of that problem is cost of living. I’m sorry but if we want to have restricted growth policies in Davis, entities are going to take steps to find ways to house their employees.

          1. Don Shor

            When UCD did it, it was on a limited-equity basis.
            But it’s still a form of housing discrimination.

          2. Don Shor

            Per Zillow: “The median home value in Davis is $604,400. Davis home values have gone up 5.7% over the past year and Zillow predicts they will rise 4.0% within the next year. The median list price per square foot in Davis is $330, which is higher than the Sacramento Metro average of $214. The median price of homes currently listed in Davis is $593,000.”
            So an astute DJUSD employee should just buy this home they won in the lottery, flip it in a year, and then go buy the same value, lower-cost house in Spring Lake, Woodland that has a bigger yard. Ten minute commute. Nice gift of equity by the school district.

          1. Don Shor

            You are making strenuous arguments on behalf of housing discrimination based on place of employment.

        1. David Greenwald

          At least I’m not posting incorrect information about the ability to flip the housing when there is a provision that limits resale to 3.75% appreciation per year.

          1. Don Shor

            So at 3.75%, that $500,000 home is worth $600,000 in six years.

            At least I’m not posting incorrect information about the ability to flip the housing

            Where was that information about the equity cap in your article? I must have missed it.

        2. Howard P

          Don…you point out a real flaw with ‘affordable’ ownership housing (SF) policies… easy to “game”… the key to ‘affordable housing’ is MF rentals…

          Paid $65/sf for a fixer-upper in 1980… pd $100/sf in 1994 for a new home… SF rents are ~ $21/sf/yr

    2. Howard P

      Yet, you found it scandalous, as I recall, when City employees ‘won’ lotteries for affordable housing in So Davis, Mace Ranch, and Wildhorse… don’t know enough about how to search the archives, but pretty sure it’s there…

      1. David Greenwald

        If I recall correctly I think the scandal was that they did not reserve those houses and has limited equity. So basically somebody could come in purchases at a below market rate and then be able to sell it at full market value and therefore make a profit. It’s a big difference from what’s happening here

        1. Mark West

          The scandal was that the City Staff were supposed to put deed restrictions on the homes so that the City would recover a portion of any appreciated value. The Staff failed to do so, so when the properties were flipped the lottery winners walked off with the ‘gift’ of hundreds of thousands. Rumor had it, some of those receiving this equity ‘gift’ were City employees or close relatives of same.

  2. Colin Walsh

    Is there anything to stop a district employees who buy a home at a deep discount at Grande from quickly reselling it at a huge profit? By Quickly, I mean even with in 5 years.

        1. Don Shor

          “The appreciation of the unit is restricted to a maximum of 3.75%, compounded annually and prorated daily. “

          What is your source for this?
          Also, here’s 3.75% growth:
          http://davismerchants.org/vanguard/equity%20growth.jpg

          1. Don Shor

            So you just uploaded this? The quote you cite was not in your article.
            And my statement about flipping the properties was not “incorrect.” Current Zillow forecast for housing cost growth in Davis is 4%. They are equity-limited per your new information at 3.75%. That grows a $500K house to $600K in five years. There may be better investments out there, but 3.75% isn’t bad and certainly allows the lucky lottery winner to take a nice increase in equity and apply it elsewhere.
            Per your new information, will the lottery winners be limited as to who they can sell these houses to?

          2. David Greenwald Post author

            When I wrote the article, the issue hadn’t been raised. I simply googled the city site, found the .pdf and uploaded it.

            Yes, they will be limited to a (slightly) below market rate appreciation of home values. That seems to be fairly standard for limited equity “affordable” purchases and what the city didn’t do 20 years ago when they bundled affordable housing.

          3. David Greenwald Post author

            Don:

            That sounds like a “nice increase in equity” – but if you consider this: “Resale Restriction/Appreciation Cap on the price of the affordable unit, restricting the appreciation of the unit to 3.75% (3% based on the average increase in Yolo County Area Median Income plus 0.75% as a maintenance credit for upkeep of the unit.) This restriction shall be compounded annually and prorated daily when calculating the resale price for the unit.”

            If median income is increasing by 3 percent annually and you are putting in maintenance on your property, as explained about, it might not be a real increase in equity.

          4. Don Shor

            Yes, but the investment is just the down payment. The monthly mortgage payments are probably not that different from what one would be paying for rent — especially in a city where rents just went up 5% in one year (again).
            So the hypothetical $100,000 increase in equity that I cited is based on a $100,000 down payment (plus closing costs). They get a mortgage interest tax deduction, which renters don’t get. So this is a great return on investment, any way you look at it, all thanks to winning a lottery due to your place of employment.

          5. David Greenwald Post author

            Are you opposed to any kind of affordable housing (big a)? Because going below 3.75% would probably depreciate the home value in real terms over time. So you have a choice of either not doing this type of affordable housing or people are going to experience some gain. Theoretically they are not buying this as an investment, they are buying it as a place to live which if they flip this for another house, will likely get them into a market level home. I would consider that a success, not a failure, although my guess is most people are not going to do that.

          6. Don Shor

            I am dubious about Affordable Housing programs in general, especially given the sordid history in this community. More important, though, I don’t think that Affordable Housing should be made available in a discriminatory manner. People who want to live in Davis because they work at DMG Mori or Schilling or the USDA are not of lesser or greater need or value than those who work for the school district.
            The district can directly subsidize housing costs if they wish to help staff members live here.

        2. David Greenwald

          If your goal is to invest then you probably want to market rate house. This kind of threads the needle between a zero equity affordable home  which I don’t think really helps the individuals to get into the market and the zero limitation model that was a complete disaster 20 years ago. Is it perfect? No. But I don’t think there’s gonna be a lot of abuse with this.  And certainly not windfall profits.

        3. Howard P

          Don… your 9:44 post (you are on the right track!)… the 3.75%… enforcement is questionable at best, and the remedies, if caught, are nearly non-existent… i.e., a ‘joke’…

  3. John D

    David/Don,

    If a certain number of affordable units were set aside for local employees only, presumably these would not be considered as part of our community affordable housing stock – which by definition must be available to anybody from anywhere who otherwise meets the economic criteria – and who wants to live in Davis.

    Would that be a fair statement?

  4. Ron

    David:  “You have a problem with UC Davis doing it?  Create housing for staff and faculty and students?”

    When UC Davis does this, it retains ownership of the land.  Big difference.

    I’m concerned when publicly-supported school districts sell off land, with no benefit to the public at large.  It’s a situation that’s ripe for corruption.

  5. Delia M.,

    Hopefully they have a better process than the DACHA debacle. And no, school district employees aren’t any more important than other struggling middle class families.

  6. Carson Wilcox

    Maybe they never sell it if they arent able to advance this goal of DJUSD employee residency…  so in the end it is kind of moot.

     

    The bigger issue is the continual restriction of, and  pathetic efforts at tweaking with the housing market in this town.  Solving affordability in this way, is just more of the same.  Build more houses, then the cheaper ones will be GASP… CHEAPER!

  7. Matt Palm

    As someone who does qualify for home ownership for being on the brink of the LI and MI categories but who isn’t a school teacher: I am 100% comfortable with them doing this.

    When everyone only looks at their own narrow interest vis a vis housing, everybody loses.

    1. Howard P

      Not disputing a single word, but wanna’ ask… do you own or rent?  Feel free to ignore the question.

      We ‘own’, but chose to, as soon as we were able to…. other family members have decided that renting (SF or MF) is their best strategy… either can be be “best decisions”…

  8. David Greenwald

    Howard P:

    I asked the city about your point that there are a lack of enforcement for the limited appreciation: “There are deed restrictions on these properties, so if someone goes to sell, the City is notified and has 60 days to bring an income-qualified buyer and approve the price cap.  I would say it’s difficult to skirt that particular requirement, since City is involved in the escrow process.”

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