Last Thursday, the Davis Redevelopment Agency became the owner of the homes in DACHA. The foreclosure auction finally occurred after legal hurdles were breached when a judge dismissed efforts by Neighborhood Partners to declare involuntary bankruptcy.
A long series of events led to this outcome. The city of Davis had previously decided to lower the cost of shares and monthly payments to the members of the Co-Op. Included in that was a refinance by the city of Davis, meaning that the Redevelopment Agency became the effective bank for DACHA.
There will be lengthy debates as to what happened and what went wrong. There are some that believe that the model was flawed from the beginning, that a limited equity co-op was never feasible. Certainly the original carrying charges and buy-ins made it difficult. $20,000 to pay into a limited equity situation along with $1800 monthly charges, higher than comparable rent made it difficult for the average person to buy-in and difficult to justify the limited equity that they would get out of leaving.
By lowering the carrying-charges and the buy-in, it could perhaps be argued that there was not enough capital to maintain the integrity of the organization. Or one could perhaps argue that had NP simply not sued, the fragile Co-Op could have survived. Or perhaps had the Co-Op continued to expand as originally planned. It is difficult to know. Difficult to figure out what happened from the city’s standpoint and whether all of this could have been avoided.
Both sides will and do point the finger at each other, and perhaps there is something to be said for everyone to share in some of the blame.
Not all is resolved. Ultimately the council now in ownership through the RDA will have to decide how they can re-structure the affordable housing program. The city is now the landlords and now maintaining that affordability will be the key. However, it will not be an easy road as the lawsuit filed by Twin Pines Cooperative Foundation remains, Twin Pines maintains that the co-ops board members were seated in violation of the bylaws and made self-dealing transactions of public funds. There are also questions as to whether or not DACHA still owes the remainder on the June 2009 arbitration judgments.
Some are convinced that this model was never viable, that it required either ever-expanding size of the co-op or unsustainable carrying charges to be solvent.
Regardless of whether this is the appropriate model, Davis faces a serious problem as it goes forward. In an era of slow growth and an age of flagging real estate markets, one of the key challenges the incoming council faces is how to create and increase a stock of affordable housing both in terms of for sale units and rental units.
Davis is increasingly becoming a city where only people making over $100,000 can afford to live. In the Vanguard’s study of the city’s affordable housing program released last November, Davis’ program fails to provide housing at an acceptable level for people making less than 36,000 dollars per year. Subsequently except for Federal Section 8 Vouchers, the core of the city’s affordable housing program is aimed people making between 36,300 and 58,100 dollars per year. Even for those residents, we might question as to how “affordable” the rental housing is.
The city’s affordable housing ordinance requires that roughly 25% of the units be set aside in perpetuity as affordable units, with 15% set aside for low income households and 10% set aside for very low income households. Last year the city suspended their middle income affordable housing requirements. Based on our most recent calculations, low income is $58,100 and very low income is $36,300. To get 30% of median income, extremely low income, it would be $21,800.
The astonishing fact is that there are less than 300 units in the city of Davis that serve incomes lower than $36,000 and 245 of these are Section 8 Vouchers. New Harmony which was approved in 2009 will provide an additional 25 units for extremely low income households.
One of the key questions that remains is how many affordable units does the city of Davis need? What do we want this town to look like? And perhaps the most difficult of all, how do we provide that housing in a city that is unlikely to grow beyond its current boundaries in the foreseeable future. What models can we use to create affordability?
Davis in fact has a long history of scandals and misappropriations of affordable housing stock. DACHA is just the latest incarnation.
The new council will have to decide how much of a priority this is. With the current affordable housing requirements, the city is only required to provide 15 percent of their housing for those making as low as $58,000 while another ten percent goes to those making $36,000. Much of the housing that has been developed in recent years have produced huge homes that are costly.
There are other factors as well. We know that from the standpoint of profits, smaller homes increase the costs to developers. Affordable homes cost both the city and the developer. Grants and subsidies have often been a way to get the cost down, but that creates stringent requirements and also creates limits on the type of housing and type of people that can utilize the housing.
The other issue that does not get enough attention is the lack of rental housing, affordable rental housing in Davis. One of my hopes has been that the campus can could develop more on-campus housing for students. That would free up rental housing in the city. That is one approach. The majority of residents in Davis however are renters. We have a number of people that work in this town, that cannot afford to own a home or rent in Davis and that is another issue that needs to be addressed.
Creativity is going to be a key, because there are few margins for error at this time. In addition, newly elected councilmembers Joe Krovoza and Rochelle Swanson have talked about partnerships, this is an area that we need the most help with. The university is developing West Village to address some housing needs, but we are still talking about a fraction of the housing for students on campus. There is a need for additional rental housing, and workforce housing for university employees, city employees, and school district employees. This is an area where interagency cooperation might be very fruitful.
The question in the post-DACHA era is how can Davis produce housing that is affordable for its citizens in an era that is also not likely to see expansion outside of the city’s current boundaries. That along with the budget and long-term sustainability of this community is a huge question that the new council will be forced to grapple with.
—David M. Greenwald reporting
What will happen to the homes that the City now owns? Will they be sold? Or forever rented to the existing “tenants?” What happens if they don’t pay their rent or need something fixed? Is the City going to evict them or send someone over to make repairs, etc., just like a landlord? Will the City sell the homes to recoup the money spent? How does the City becoming the landlord for these people make sense?
DMG: “However, it will not be an easy road as the lawsuit filed by Twin Pines Cooperative Foundation remains, Twin Pines maintains that the co-ops board members were seated in violation of the bylaws and made self-dealing transactions of public funds. There are also questions as to whether or not DACHA still owes the remainder on the June 2009 arbitration judgments.”
Is the suit by TP against DACHA, and also against the city? Is DACHA still alive, or has it effectively been dissolved, so that the judgment against DACHA is moot?
Ryan: It sounds like the city intends to keep them as affordable housing.
Elaine: Good questions, my impression is that the city has become landlord and therefore DACHA still have to respond to the lawsuit.
“There is a need for additional rental housing, and workforce housing for university employees, city employees, and school district employees.”
I am not convinced this is true. I see “For Rent” signs all over town.
That’s almost, stress on the almost, akin to Reagan saying that we didn’t have an employment problem because he saw help wanted ads in the classified section of the paper. We have a three percent vacancy last stats I saw, that’s better than it’s been, but still considered a seller’s market.
Are the tenants who have not paid their “rent” and are months behind still required to catch up or is there a new rental agreement with the City and the past is washed away? How are the rents set – 30% of income or what rate? Is it appropriate for a single person to remain in a two bedroom house and receive a subsidy from the City indefinitely? Does the Redevelopment Agency really have millions to spend this way?
If we are interested in creating low income housing, this is definitely the wrong way. It smells like just another bail-out of a poor real estate deal. Who made money here?
Dr. Wu:
There are lots of rental units in Davis. There are lots of renters in Davis. There are always For Rent signs up, because there is high turnover in rental units here. Landlords do compete for the renters’ business by putting up signs, offering free WiFi, etc. The one thing they rarely do is reduce rents.
The key question is what is the vacancy rate. It is less than 5%. It has often been less than 1%. 5% is considered the industry standard for a healthy rental market. Davis has never had a 5% vacancy rate in my memory.
Here is a key statistic: rents have gone down in every community in the Sacramento area in the last year, because of the downturn in the housing market. Except Davis. Rents have not gone down in Davis. That is because landlords have no incentive to reduce rents, since there is an increasing supply of students (enrollment continues to increase at UC Davis), and there is not an increasing supply of rental housing.
West Village, when it is complete, will help to cover some of the difference between the increase in enrollment over the last decade and the lack of increased rental housing available. But it won’t even cover the entire past difference, much less anything that will occur as UC Davis continues to increase enrollment. UCD enrollment is up again this year.
Davis needs more rental housing units. Until more are built, students will continue to compete for duplexes, mobile homes, and lower-priced houses, reducing the pool of lower-cost housing available to young families, employees of local businesses, the children of local residents who choose to leave their parents’ homes and remain in the area. There are lots of people living and renting in Davis who are not UCD students. Currently they pay a premium because of the low vacancy rate. UC Davis cannot provide enough housing for its student population. More needs to be built in the city. Until then, the housing price squeeze will be on those who can least afford it.
Unfortunately, development proposals that have been brought to the city by developers have almost entirely focused on high-price homes and townhouses. What is good for a housing developer is not necessarily what is in the best interests of the city or of lower-income residents. Thus housing policy needs to encourage more lower-income units, even if that means discouraging high-end units for the time being. I hope that the new council will look at the current housing policies, ask whether they are leading to the intended outcomes, and perhaps establish a top-to-bottom review that will lead to an effective policy.
Limited Equity Housing Cooperatives Work
Fast forward California, from the 1950’s with 10 million people to 38 million in 2010. The outcome by the 1990’s – high demand, low supply and housing prices jumping from low cost to high cost. Californians now have the highest housing costs in the nation and the lowest home ownership rate. The poor get subsidized housing and the rich get substantial tax breaks. However, the moderate income families in between get neglected.
Determined to find another path to affordability, co-op housing activists pushed for new legislation. The first law on limited equity housing cooperatives in the nation was passed in California in 1978 and it has been copied by a number of states. The law was written so that the family that owns a share in a co-op can have the same tax breaks as the owner of a single family home. The co-op member gets a housing cost lower than renting and usually a 3%-7% return on their $10,000-$20,000 share when they leave.
The law was updated in 2010 and can be seen at http://www.community.coop/tpcf. AB 1246 authorized the creation of “workforce housing cooperative trusts.” A workforce housing cooperative trust would allow an employer or employee group to create housing cooperatives to provide permanently affordable housing for employees.
Research has shown that limited equity housing cooperatives increase affordability relative to the market and affordability relating to median income. An ongoing study of Dos Pinos, a 60 unit limited equity housing cooperative in Davis shows that in its first year, 1985, a family of four needed to earn 111% of median income to afford a three bedroom unit at Dos Pinos. By 2009 that same family of four needed to earn only 59% of median income to live at Dos Pinos. No other “shared equity” or ownership model becomes more affordable over time.
On an annual basis Dos Pinos generates substantial wealth building opportunities for the families that live in the cooperative. In 2009, a household in a 3 bedroom unit had an economic savings of $10,742 over the equivalent 3 bedroom market rate apartment in Davis. See http://www.community.coop/davis/ryca for a study of Dos Pinos. Later this year, a national study by the Urban Institute will feature the most extensive ever economic review (1985-2010) of Dos Pinos.
The recent tough economic times have allowed us to see how different affordable housing models in Davis are weathering the storm.
Let’s test Southfield Park, a 60 unit limited equity condo community (founded 1993) against Dos Pinos.
The 5.5% maximum gain allowed annually on the sales price at Southfield Park has allowed the condo units to get close to market value. On May 1st, Southfield Park had four empty units (highest number of vacant units since it started) some vacant since January and not many potential buyers. Recently, over $200,000 in subsidy was used to help just two families move into Southfield Park. City policy in Davis originally placed income restrictions on Southfield Park condos, but lacking buyers, the City recently removed them. So in a down market this limited equity condo model is no longer working effectively, does not presently meet full city requirements and appears to need extensive per unit subsidy.
However, at Dos Pinos, there are no vacant units and a stable waiting list. Even in this down market Dos Pinos has had to make no changes to any of its rules. Every year Dos Pinos grows less expensive relative to the market. And in its 25 year history, Dos Pinos has never needed one penny of government subsidy and still doesn’t. Dos Pinos works.
Throughout California, there are limited equity housing cooperatives providing many types of housing (family and senior apartments, single family homes and mobile homes) to about 5,000 families. The new cooperative housing legislation encourages sponsors (church’s unions, schools, employers, etc) to play a role. We look forward to seeing these new housing cooperatives bring stability, affordability and home ownership tax benefits within reach of moderate income California families.
David Thompson, Twin Pines Cooperative Foundation
[quote]Everything will stay status quo’ for the time being, Steiner said.
‘We now have ownership of the homes – we become landlords, in a sense,’ City Manager Bill Emlen said, following the auction.
Maintaining the affordability of the homes, which are part of the city’s affordable housing program, is a key priority moving forward, Steiner said.
Cat Huff, president of DACHA’s board of directors and one of several residents who attended the auction: ‘The residents can breathe a sigh of relief.’ (From Enterprise story by Crystal Lee [url]http://www.davisenterprise.com/story.php?id=101.40[/url] July 2)[/quote] This can’t be an very effective way for the City Council to get back the $1.4 million plus interest DACHA owes the city. Looks like the only thing that changed was the City apparently was able to eliminate the debt of $.25-million that DACHA still owed Neighborhood Partners.
[quote]“Last year, an arbitrator determined that DACHA owed over $300,000 to Neighborhood Partners, the group that had originally set up the co-op. As a result, Neighborhood partners put a lien on DACHA and seized $57,000. That left DACHA unable to make their loan repayments to the Redevelopment Agency.”[/quote] Seems like $57,000 is less than two months’ of tenant fees. What if the city had allowed DACHA to reduce/extend fees while DACHA paid off the judgment?
Is anyone else wondering why not one single bidder wanted to pick up a 2-3 bedroom home in Davis for only $100,000-$120,000?
[quote]“The astonishing fact is that there are less than 300 units in the city of Davis that serve incomes lower than $36,000 and 245 of these are Section 8 Vouchers.[/quote]” Or only 55 not subsidized by Section 8, or only 35 is we sell the DACHA foreclosures to recoup our $1.4-million. What record of unsuccessfulness for two decades or more of well-intentioned, poorly conducted affordable programs! Why not eliminate the expensive builder/low income resident programs that repeatedly have failed and focus on the Section 8 program?
As I recall Woodland, Natomas, Roseville, Elk Grove and many other central valley cities also expanded all of their real estate development during the boom, not just rental properties. We now have a glut of commercial real estate that is looming as a huge issue as well as a glut in owner occupied housing in many areas of the central valley. Many of these cities also have severe fiscal issues–those two are not unrelated.
Davis has been more conservative (with a small c) in terms of development and is better off for it. If there really is a need I’d like to see the evidence. I am skeptical. Does someone have actual data?
[url]http://www.news.ucdavis.edu/search/news_detail.lasso?id=9343[/url]
What exactly are you skeptical about?
Thanks for that post Don, I remembered the number around 3%.
Here’s the key quote:
[quote]Economists and urban planners consider a vacancy rate of 5 percent to be the ideal balance between the interests of landlord and tenant. During the last 10 years, the vacancy rate has varied from as low as 0.2 percent in 2002 to as high as 4.2 percent in 2005.[/quote]
So there’s the data. Students are treated pretty poorly by the landlords in part because of the lack of vacancy and therefore the landlords have all of the power.
3.2% is indeed low though it sounds like it is not out of line given recent history; hopefully the UC Davis housing project will help.
[quote]Until more are built, students will continue to compete for duplexes, mobile homes, and lower-priced houses, reducing the pool of lower-cost housing available to young families, employees of local businesses, the children of local residents who choose to leave their parents’ homes and remain in the area.– Don Shore[/quote]Don, this is a theory of yours that I have never agreed with. When I was a student, I myself and my friends as well always looked for houses to rent because we didn’t want to live in apartments; we simply preferred living in houses for the same reason that non-students prefer to live in houses.
No matter how many apartments were built in Berkeley and surrounding cities, we would have looked for houses to rent. And undergraduates whose parents are supporting them can often pay more per room than young couples and families or even than graduate students on stipends. So there will always be a tendency for single family rentals to go to large groups of undergraduates, as long as most landlords are focussed merely on maximizing profits. Building more apartments won’t change that dynamic in the least.
Approx 6 months ago I ran in to my old Apt manager of a complex we lived in about 8 yrs ago. When I asked her how business was going she stated they were reducing rents by $100/month for all new renters, and that she had spoken with 3 other managers who were doing the same thing.
I for one am a little more than weary of listening to whining under achievers who feel they have some sort of unalienable right to pay what they personally feel is an acceptable amount of rent, or an acceptable purchase price for a house. If you want to live in a community that may be a little nicer, you might just have to pay a little more to live there.
To pay that little extra, you just might have to maybe put that thing you love to do but doesn’t pay well on the back burner, and start looking for something that is not your first career choice but pays more.
Jeez, wesley, that’s cold. “They” aren’t demanding housing because they feel they’re entitled–we’re trying to help the less fortunate have a start on a decent life. A place to live is pretty basic in a country as rich as we are
Our experiments to assist sure have had mixed results. Big housing projects didn’t work. The latest failed try is the “ownership society”: People who can’t afford to buy a house can’t afford to buy a house. (What favors have we done anyone when we foreclose on folks who’ve been encouraged to get in via no-down-payment deals and unrealistic mortgages?)
The very MOST successful Davis affordable program on record, of course, has been the one that let owners sell out at market value after two years (or less) and take their windfalls to Woodland, Winters or Dixon to buy a house and/business. I don’t think we can replicate that success in today’s housing market, however. David Thompson claims a proven formula for moderate income families. Maybe we should give him another chance here.
JustSaying: “David Thompson claims a proven formula for moderate income families. Maybe we should give him another chance here.”
Huh? DACHA was not a success… you might want to think this one through again!
Actually, I was referring to his proud writings about Dos Pinos.
You’re sure right about the DACHA experience, Elaine. As David suggests, it’s difficult to calculate proportional blame yet. Seems at this point that there have been lots of unwise and, maybe illegal, actions from the parties involved in this fiasco. We need to get to the bottom of the episode so we learn from it.
JustSaying: “You’re sure right about the DACHA experience, Elaine. As David suggests, it’s difficult to calculate proportional blame yet. Seems at this point that there have been lots of unwise and, maybe illegal, actions from the parties involved in this fiasco. We need to get to the bottom of the episode so we learn from it.”
Even if there were an investigation, I’m not convinced we would ever get the real picture of what went wrong. I suspect the model was flawed from the outset. It doesn’t take a rocket scientist to figure out that low income folks cannot afford to put $20,000 down, then pay $2,000 per month rent, or whatever the exact figures were. Why that model was ever allowed is beyond me to fathom… What was the city thinking? And I don’t want to see the city go down that road ever again…
And I don’t have much faith in the newest model–the City as landlord, taking ownership of the properties to maintain and rent to people unable to pay the going rate. Eating $4.15-million in debt on property valued at $4-$5-million. Adding more legal cost to sort out the judgment issues. Increasing city staff or hiring contractors to manage and maintain 20 scattered homes. Leaving potholes unfilled. And on and on….
“They” aren’t demanding housing because they feel they’re entitled–we’re trying to help the less fortunate have a start on a decent life. A place to live is pretty basic in a country as rich as we are
I don’t get it. Yes, “A place to live is pretty basic…,” but that doesn’t necessarily mean a place to live in Beverley Hills, Palo Alto, the French Riviera or anywhere else. I wanted to move to Davis 20 years ago, but I couldn’t afford a house here. So I bought a small house in Woodland, saved up, and eventually bought a house here. It didn’t kill me. There is plenty of “affordable” housing within a 15-minute drive of Davis. It is not a problem.
JustSaying……. Jeez, wesley, that’s cold. “They” aren’t demanding housing because they feel they’re entitled–we’re trying to help the less fortunate have a start on a decent life. A place to live is pretty basic in a country as rich as we are.
As of July 5, 2010, the Debt Held by the Public was approximately 60% of annual GDP, ($8.6 Trillion) while the Gross Debt (which includes the Public Debt) was approximately 94% of GDP ($13.2 Trillion). California is currently looking at a $19 billion deficit with no solution in sight. Fannie May and Freddie Mac have already chewed through $150 billion in govt bailout money and are now looking at up to $400 billion more with no real end in sight. I think I would call these examples of a culture “living large on the credit card” and not an opulently wealthy society that can afford to provide govt. sponsored home ownership to every family who thinks they should be homeowners.
Prior to moving to Davis 10 yrs ago where we bought a 60 year old “fixer upper” we rented an apt in Vacaville. We were able to purchase a house only after many years of no vacations, keeping a 18 yr old Honda with 250k miles running long after it should have been disposed of, shopping only for items that could be bought used or at a discount, and making other sacrifices. I may be wrong, but I do not think we have suffered or committed any cardinal sins by working a little harder, and by not being outraged that we had to actually experience a little deferred gratification.
Very very few people in this country will ever be wanting for a place to live. It may not be in Malibu or the Peoples Republic, but it will be a safe place with a roof and water and electricity.
The city already has a very difficult time managing basic city services. To expect it to jump further in to the affordable housing business is asking for more DACHA-like fiascoes that every taxpayer will be paying for.
[quote]“Very very few people in this country will ever be wanting for a place to live. It may not be in Malibu or the Peoples Republic, but it will be a safe place with a roof and water and electricity.”[/quote] Except those numbering from 700,000 to 2 million people who, on any given night in America, are homeless, according to estimates of the National Law Center on Homelessness and Poverty. Families with children make up more than one-third of the homeless, notes a 2000 report by the US Conference of Mayors. The situation is a national tragedy and embarrassment. With the foreclosure epidemic, it only can be getting worse.
[quote]“The city already has a very difficult time managing basic city services. To expect it to jump further in to the affordable housing business is asking for more DACHA-like fiascoes that every taxpayer will be paying for.”[/quote] No argument on the city’s failings in in managing basic services and “affordable housing” programs. But, that doesn’t mean our Republic should stop trying to make a contribution toward helping these unfortunates improve their lives. Given the tragic fact that more that two-thirds of the homeless have been found to have problems with alcohol, drug abuse or mental illness, this isn’t an easy task.
The Davis “affordable housing” programs are aimed not the hopelessly homeless, jobless, etc. Instead we target folks who can pay for their housing, if they only get some help getting in. Doesn’t that seem appropriate for our city where everyone is upwardly mobile. If we only could come up with a scheme that isn’t fatally flawed, ripe for fraud, etc….
If you really cannot afford a home in your community of choice, then maybe you should purchase a home in your community of second choice, get a second job, defer some of life’s pleasures, have a smaller family, save some money, and then when the time is ripe, move up the food chain into your community of first choice.
I thinks you will find many people in Davis who are not “upwardly mobile.” There are many people in Davis who are treading water, and even downwardly mobile. Ask the 112 odd families in Davis whose homes are in forclosure if they feel upwardly mobile. Ask any of the Davisites working for the state who have had their paycheck cut by 15%, and are looking at even deeper cuts in benefits if they feel upwardly mobile.