My View: Re-examining the Middle-Income Housing Requirement

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The city of Davis is clearly in need of more middle income housing, especially what might be termed workforce housing.  In previous articles we have looked toward policies which aimed at people with middle incomes, 80 to 120 percent of median but mainly with rental housing rather than for-sale housing – which has had associated with it a host of problems.

In 2005, the city created middle income housing requirements with preferences for local employees.  In the recession, for a variety of reasons, the council suspended the ordinance and has not reinstated it.  While this has been mentioned at times as a possible remedy, our evaluation suggests otherwise, as will be explained shortly.

The staff report from May 19, 2009, explains: “In March, 2003, the City Council identified a priority to ensure adequately priced housing options for members of the local workforce. The goal was identified and pursued for the many beneficial effects of having local employees live locally.”

Thus on December 13, 2005, the city council adopted the middle income ordinance, whereby for-sale developments with more than 25 units are required to provide between ten and 20 percent of the units as “middle-income” units.

Wrote staff, “These middle income units are targeted at households of 120 to 180 percent of area median income, with an average affordability level required for households at 140 percent of median income.”

The middle-income requirement only applied to ownership housing projects and the affordable units were ownership rather than rental units.  They came with deed restrictions requiring the owners to occupy the unit as their primary residence for the entire period of ownership, the appreciation was capped to 5 percent annually, and the unit had a “right of first refusal” to allow the city to purchase the unit upon resale.

As it turns out, only one project, Grande, ended up including the middle-income requirement.  Grande was approved in 2008 and had six middle-income units.  Even had the measure continued, it would have been limited to projects with 25 or more units.  And only those with ownership affordable units rather than rental units.

Most ownership projects now in Davis are small infill projects that are below 25 units and go the in-lieu fee route.

Cannery is a larger project, but with dedicated land and construction of affordable apartments.

The city in recent years, while not precluding ownership deed-restricted affordable housing, has clearly moved away from that model.

In addition, the middle-income requirement did not actually expand the amount of affordable units, it simply required that a certain percentage of them have to be set aside for middle-income residents.  The city has since focused on low and very low-income residents, and in some projects an even more restrictive category of “extremely low.”

Using the 2009 figures from the staff report, an individual at 120 percent of median would have to earn at most $60,000 but that number goes to $90,000 at 180 percent and for a family of four as high as $130,000.

The housing costs ranged between $300,000 and $500,000 with the average for 140 percent being between $318 and $355 thousand.

By 2018, that floor would about $73,000.

Finally, while I agree with the need for housing for people who can afford the $300 to $400 thousand range, the deed restrictive appreciation capped model probably is not the best model to help those in the middle-income range.  That’s a big reason the city has moved away from ownership affordable models to rental housing affordable models.

The bottom line here is that this program was a very small item in the big picture.  It only applied to ownership deed-restricted housing, of which the city has clearly moved away from.  The project would have focused on people making at least $73,000 in today’s world and up to 180 percent of median income – which would be people making upwards of $100,000 today and perhaps as much as $150,000 for a family of four.

I spoke with some of those who opposed the ordinance at the time and their feeling was if they are going to have to pay the price for affordable housing, they would rather it be for those truly in need.

As they put it, “Selling someone a $350,000 home and calling it affordable housing is a money loser for the builder but more importantly we are helping people that are not desperate.”

Suspending this ordinance neither ended nor reduced the amount of housing that was set aside as affordable.  Rather it shifted that affordability to the categories of extremely low, very low and low income.

As we have seen in recent years, even providing for 35 percent of the units at an affordable rate is problematic.  The city, following the lead of the state, has reduced the requirements to about 15 percent.

There is a continuing debate here as to whether that is good enough.  Given the loss of redevelopment money, funding for affordable projects has become more and more scarce and the city has had to be creative to find ways to increase the amount of affordable housing.

This has also become a statewide emphasis as well, with the state legislature finding additional ways to fund local affordable housing.  There seems to be a reasonable chance that the state will reintroduce the tax increment funding for affordable housing, which could once again shift the game.

That is not to say that having some sort of middle-income requirement would be a bad idea.  My preference, however, would be to provide it for the 80 to 120 percent range and for rental rather than ownership housing.

—David M. Greenwald reporting


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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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49 thoughts on “My View: Re-examining the Middle-Income Housing Requirement”

  1. Ron Glick

    “My preference, however, would be to provide it for the 80 to 120 percent range and for rental rather than ownership housing.”

    Now that is a policy preference worthy of examination. The notion that our focus should be on keeping people in rent servitude because we have failed to build enough to balance our housing market for people making the median income is about as far away from the Jeffersonian Democracy ideal of people having an ownership stake in civil society as you can get.

    1. David Greenwald

      There is nothing written into it that keeps someone in rental housing.  It simply provides that housing at an affordable cost which could then allow them to save to purchase their own home.

      1. Ron Glick

        Sure, sure,  but renting makes saving up to be able to afford buying harder. See this quote from your other article on rent control:

        “’The high cost of housing and rising rents are preventing California families from getting ahead. These steep housing costs drive inequality and threaten to erode California’s economic growth,’ the group that includes Governor Gavin Newsom, Senate President pro Tempore Toni Atkins, Assembly Speaker Anthony Rendon and Assemblymember David Chiu said in a joint statement on Friday.”

        Davis is a microcosm of California’s huge inequality problem. The fact of the matter is that we are so far behind the curve that we should be having an all of the above strategy on housing where we build as much as we can for as many needs as exist. This means all types until housing becomes a utility instead of a profit center for the already wealthy. In my mind advocating for a policy goal of having a renter class and a rentier class by keeping the supply of ownership housing tight and unaffordable is rent servitude.

        1. Bill Marshall

          True story… when in the  Bay Area,, what we managed to save was basically erased by increased house market costs…. the Sisyphus thing…

          Moved to Davis when rental vacancy was 0.25%… same, but not quite as bad… needed a loan from both set of parents to swing the down payment… we had provided both sets their first grandchild…

          Going from a 2 bdrm 1.5 ba. townhouse to a 3 bdrm, 2ba. house, @ a 12+% mortgage rate, we actually paid slightly less per month in housing costs.  1980.

      2. Bill Marshall

        Actually, David, in a “seller’s market”, 5% per annum, with the addition of inflation, is a pretty high bar for middle-income folk to absorb, AND save to purchase a house, the price of which goes up at least at the rate of inflation.

        And that IS written into the law.  With ‘caps’, there are strong incentives for landlords to ‘go to the max’, lest they forgo an ‘opportunity’… the ‘cap’ tends to become the ‘floor’, as well.  A two-edged sword…

        1. David Greenwald Post author

          That could be. On the other hand, let’s say you rent a three-bedroom for $1200 because it’s “affordable” instead of $1800 to $2400, it would seem relatively simple to take that savings and then use it to purchase a home down the line. That would be a reasonable way to look at this anyway. It is too bad the conversation veered off one of my chief objections to the previous policy – the idea of providing subsidized housing for people potentially making $150,000 a year.

  2. Richard McCann

    Two points:

    – Davis has a substantial amount of existing “middle income” housing that is being used by students. Increasing opportunities for students will allow them to free up the many 3 bedroom houses and duplexes around town for the intended middle income families. We must recognize that targeting housing for a specific group is not needed if another group is already residing in existing housing stock that matches that requirement. The same can be said about the many seniors still living in the houses that they raised families in. Offer them opportunities to stay in the community but live in smaller places.

    – A significant mistake in U.S. policy is to encourage too much home ownership. If a household moves more often than once every 7 years, renting is often more cost effective. In addition, owning an illiquid asset like a house locks in a worker into a specific community. That in turns lowers wages because those workers require a bigger pay increment to induce them to move to a new job. Labor mobility is important for workers to gain higher wages. And as we’ve seen in places where economic activity has declined, that liability has created huge problems in retraining the workforce and unwinding industries such as coal mining that are no longer useful.

    Based on data from Shiller and Case, housing has not been a great investment over the last century. It’s only been the bursts after World War II and starting in the early 2000s that brought in big returns. And many found that they suffered large losses after the Great Recession.

    1. Bill Marshall

      Unless things have changed from the late ’70’s, students, particularly seniors, and grad students value SF rentals… more privacy, less noise, an outdoor area where they can have a dog, other pet… I suspect more MF will take some pressure off the SF market, but to expect an exodus of students from SF rentals to MF rentals is probably not a happening thing… other factors at work…

      I base this observation on a lot of folk I’ve known (so, can not point to a “source”, but it could be considered ‘intuitively obvious’)… I was one who preferred the MF scene… no pet, no yard work, no problem.  Students, particularly Grad students are far from ‘monolithic’ as far as ‘needs’ and ‘wants’…

      &, often a 3 bdrm  SF rental is ~ same rental cost as a 3 bdrm MF unit.  At least in 2019… (was also true ~ 1976-77).

    2. Ron Oertel

      – A significant mistake in U.S. policy is to encourage too much home ownership. 

      I strongly agree with this, for the reasons you discussed.

      I’m surprised that the recent reduction in tax benefits (regarding mortgage interest and property taxes) hasn’t had a larger impact.

      Having said that, the 107-unit Chiles Ranch development will consist of 77 detached homes, and 30 attached units.  Not sure what the decade-long delay has been, regarding this infill development intended for middle-income households:

      https://cityofdavis.org/city-hall/community-development-and-sustainability/development-projects/chiles-ranch-project-information

       

        1. Bill Marshall

          Some approvals… not all…

          Some approvals, previously given, may have expired/lapsed, due to passage of time.

          There are also some technical issues yet to be resolved, as I understand it.

    3. Ron Oertel

      In reference to Richard’s and my comments above, I’m also wondering if/when the Internet will finally reduce buying and selling costs, as “promised” a long time ago.  (Perhaps “never”?)

    4. Bill Marshall

      Richard… your second point is indeed clear… and valid… if you’re still looking for a place to land, long term, rental is the best strategy… a tale of two siblings… one born in 1919, the other in 1923… one never owned a house… always rented apartments… worked great for her… one bought a house when he was 32, so he could have a place to raise his child, have a dog, garden (verb) and have “space”… when he retired, with SS and a small pension, his house was paid off, had no rent, just utilities and property taxes… worked great for him and his spouse.

      One size does not fit all… my aunt moved several times while I knew her… it fit her lifestyle… Dad bought a house and stayed there just short of 50 years…

      I bought one house, lived in it for 14 years… raised our family… bought a second, and have lived in it for 25 years… finished (?) raising our family… house is fully paid off… life is good.

       

  3. Ron Glick

    “In addition, owning an illiquid asset like a house locks in a worker into a specific community. That in turns lowers wages because those workers require a bigger pay increment to induce them to move to a new job.”

    We are not a community that needs to worry about housing as an illiquid asset. This is true in Davis for two reasons. First we are hosts to a major growing UC campus in the state’s fastest growing region and near the Capitol of the state. In addition we have a major rail line and interstate highway. For all these reasons our economy is well insulated from the business cycle. Second, even if the economy takes a dive, the shortage of housing will keep houses from becoming illiquid. Of course in a bad economy housing prices can go down but in such a scenario only the late buyers are likely to end up upside down.

  4. Ron Glick

    “…needed a loan from both set of parents to swing the down payment…”

    Pretty good explanation of why there are so few families moving to Davis. Not everyone can tap mom and dad. I suspect from much anecdotal evidence that the tapping of parents to make it into the Davis market is widespread. Perhaps lacking that privilege is why I has consistently, over the years, advocated for more supply as a way of moderating price.

    1. Ron Oertel

      Allowing market forces (and well-connected development interests) to dictate development decisions is the very reason that places like Los Angeles and San Jose exist.  (And yet, are still expensive.)

      The Sacramento region is on the same path, albeit not as desirable of a place. All the traffic and dysfunction, but none of the good weather or coastal access.

      Maybe more like Phoenix or Las Vegas. (Perhaps with weather to match, as the planet continues to warm as a direct result of such development decisions.)

      1. Alan Miller

        Allowing market forces (and well-connected development interests) to dictate development decisions is the very reason that places like Los Angeles and San Jose exist.

        RO, you are confusing market forces, which is just *what happens when you DO STUFF*, with zoning.  Zoning is something I believe in (so cities can be planned and shaped – and not become gelatinous LA/SH blobs) , though extreme capitalists do not (i.e., do so a lot less)

        1. Ron Oertel

          In order to “add supply” – there’s two choices:  infill, or sprawl.

          Another choice is to avoid taking steps which create a “need”, such as vast amounts of new jobs (which always seem to “under-pay”).

  5. Alan Miller

    Possibly the middle income requirement was eliminated because government market manipulation never works and always has unintended consequences.  The same elimination should be done for all ‘affordable housing.  Limiting rent increases only dis-incentivizes investment in new housing stock, leading to higher rents.  Where anyone gets the idea that government can successfully manipulate a market without consequences that are worse than the intention is beyond me.

    First we had low-income housing, then we had very-low-income housing, then extremely-low-income housing.  What is next, f*cking-ridiculously-low-income housing?  But we can’t subsidize work force because these people aren’t really needy?  Don’t you realize was market manipulation does?  When you have all the lowest-income people getting subsidized housing (that’s what affordable housing is – except for few non-subsidized models that do work – another subject), then all other units go up in price, cutting out — WHO? — those that can least afford it, usually lower-middle-class working-class blue collar workers are just above qualifying for the subsidy, i.e. the work-force.

    No matter what, this manipulation of the market takes a bureaucracy to move around and attempt to enforce the requirements, all money now taken out of the system and raising rent further.

    Rent a unicorn, it’s cheaper than buying and you can get out of it — usually by setting your leased unicorn on fire (fraud) and claiming someone else did it.

    1. Ron Oertel

      “dis-incentivizes investment in new housing stock, . . .”

      New housing stock is not needed, to stabilize prices for existing residents.

      Nor is it needed in the absence of factors which encourage it, such as vast amounts of new jobs. (Which always seem to “under-pay”, regardless.) Employers are the primary beneficiary of under-paying, while shifting housing costs to taxpayers.

      (See Los Angeles example, above.)

      1. Alan Miller

        New housing stock is not needed, to stabilize prices for existing residents.

        yeah, OK . . . cuz the world of possibility is limited to ‘existing residents’ . . . isn’t that the dictionary definition of closing the door behind you, sticking your fingers in your ears, and yelling ‘la, la, LA!’     ???

        1. Ron Oertel

          A lot of it depends upon whether or not a locale makes decisions to encourage development, such as pursuing vast amounts of new jobs.

          There are many places in the world that aren’t growing at all.  Some are losing population, and would welcome a reversal of that trend.

          There are areas where there’s virtually “no” human population, and no one to complain about a lack of housing.

        2. Mark West

          “A lot of it depends upon whether or not a locale makes decisions to encourage development, such as pursuing vast amounts of new jobs.”

          Not really. Davis has a shortage of appropriate housing with or without commercial development. Denying that reality is not a winning proposition.

          There are many places in the world that aren’t growing at all.  Some are losing population, and would welcome a reversal of that trend.

          That is not the situation in Davis or the surrounding region, so what is the relevance?

          “There are areas where there’s virtually “no” human population, and no one to complain about a lack of housing.”

          I don’t see how this point impacts the discussion at hand.

           

        3. Ron Oertel

          “That is not the situation in Davis or the surrounding region, so what is the relevance?”

          If you cannot already see the reason for that relevance, I’m not sure I can help you to see it.

          In short, demand is “created”, as a result of decisions made – such as increasing the number of students, pursuit of economic development, etc.

        4. Ron Oertel

          Davis certainly has the ability to make its own decisions regarding whether or not to pursue growth-inducing developments, and to make agreements with UCD.

          Regarding “mega-trends”, the state is attempting to force those upon communities that aren’t likely willing to accept them.  Many of those communities have outright “ignored” the reporting requirements in the first place.  Regardless, housing starts are down significantly across the state, and it seems ever-more likely that the state’s efforts will fall short.

          Hence, the renewed interest in rent control.

          I recall reading an article to this effect.

          There are areas in the state (including in the Bay Area) that have chosen to keep private lands from being zoned to accommodate housing, despite obvious “market demand”. And yet, no one seems to be “wringing their hands” about that. It’s simply accepted, without much fuss.

        5. Ron Oertel

          And yet, no one seems to be “wringing their hands” about that. It’s simply accepted, without much fuss.

          Probably more accurate to state “appreciate and support” such policies and efforts. However, that’s not to say that there wasn’t tremendous opposition, at first. (Such as the type that we often see on this blog.)

    2. Bill Marshall

      No matter what, this manipulation of the market takes a bureaucracy to move around and attempt to enforce the requirements, all money now taken out of the system and raising rent further.

      VERY true story, particularly if you accept the modifier(s) “very expensive” and/or, “marginally (if at all) effective” to the term, ‘bureaucracy”.   Not fully convinced about raising the rents more, but am convinced it will not significantly mitigate rent increases, nor lower them (rents)… same as to “for sale” increases…

      Just look @ salaries and benefits expended for Davis “affordable housing” employees over the last 20 years… and their PERS, OPRB’s… look at their effectiveness.

  6. Ron Oertel

    I’ve never understood why some folks want Davis to pursue what every other town in the valley pursues.  Why not just move to one of those other towns, instead?

    Then again, even Sacramento is pursuing rent control.

    1. Mark West

      “I’ve never understood why some folks want Davis to pursue what everyother town in the valley pursues.

      Do you mean the desire to have a fiscally sustainable City that meets the needs of its residents?

      1. Ron Oertel

        That’s what development activists put forth, when all other arguments fail. Grow some more – since it’s worked out so well in the past. This time, it will be “different”. 😉

        1. Mark West

          Ron – You don’t want a fiscally sustainable City that meets the needs of residents? Is that really your position?

          Note that I did not say anything about how we get there, only mentioned the goal. I would be happy to hear your ideas on how we accomplish that goal without commercial development, cost containment, or some combination of the two.

           

           

        2. Ron Oertel

          Of course everyone wants a fiscally-sustainable city.  As do residents of the other cities/counties throughout California, which also also have unfunded liabilities.

          Given the statewide magnitude of the problem, I suspect that the pension/medical benefit system may experience some sort of system-wide collapse, during an economic downturn.  How the state might respond to that remains to be seen.

          I’m confident that Davis is not among the worst-off of the cities (and counties).  But sure – the new hotels, cannibas industry, and other new businesses in town should help, as will renewal of the sales tax.  (I think the city should have examined raising that tax, to match Sacramento’s rate.)

          Prevention of additional conversions of commercial sites within the city would also help.

          Thanks for your interest regarding my input.

        3. Ron Oertel

          One other suggestion I’d have is to not purposefully interfere with key / existing businesses downtown (e.g., when they want to add a solar-covered parking lot for their customers).

  7. Alan Miller

    I’ve never understood why some folks want Davis to pursue what every other town in the valley pursues.

    I don’t want that . . . which is why I believe in planning and zoning . . . such as what the downtown plan could have been . . . but the CITY POOCHED THAT.

    1. Mark West

      “the downtown plan could have been . . . but the CITY POOCHED THAT.”

      Exactly. The ’61 plan would have addressed most of the City’s needs, but we ‘pooched it.’ More’s the pity.

  8. Ron Oertel

    I find it beyond amusing that Los Angeles is “ground zero” regarding recent rent control efforts.

    Given the enormous amount of growth and development in that area, where is their “missing middle” housing?

  9. David Greenwald Post author

    Was laid up recovering from a minor procedure yesterday.

    I wanted to address one point here.  This point was made by a commenter that was removed: “The projects will not change the city’s existing housing programs and requirements for very low, low and moderate income households.”

    This was presumably a line from the ordinance.  I’m not exactly sure what the ordinance is trying to say here.  First of all, “projects” is unclear.  Second of all, clearly the middle-income ordinance is aimed a moderate income households.  So it seems more than a bit ambiguous as to what that exactly means. Third, I checked with the city prior to writing this and the only project that fell under this provision, Grande and it was still at 35% affordable housing.

    It is worth keeping in mind that in 2011, we were still in the heart of the recession. The city was hardly issuing any building permits at this point. And the issue of development was largely off the table until at least 2013. We had two council elections cycles in 2010 and 2012 where there was no talk of development at all. It wasn’t until 2015, when the student housing issue popped up that we started talking about development again. By that point, RDA was off the table and the city was starting to re-think its affordable housing program – removing largely for-sale units and reducing the overall requirements. I don’t think there was any concerted effort in 2011 to avoid the affordable housing – there just wasn’t any discussion of development at all.

    Regardless, I think there is real question and the discussion got lost on this point as to whether the city should be subsdizing housing  potentially for people making $150,000 a year and whether we should be subsidizing ownership housing.  That’s really where I think the discussion should lie – and the reason I brought this forward.

    1. Rik Keller

      [Moderator: edited.
      All of your posts will be pulled unless they are specifically on-topic in their entirety, and contain no attacks on the Vanguard. You can discuss the issues directly without criticizing the Vanguard, its owner, board members, and other participants. We are not going to edit out offending portions. We will just continue to pull them.]

      1. Ron Oertel

        I saw Rik’s comment, before it was pulled.

        One thing he noted was that the requirement was still on the books.  I believe he also suggested that the actual requirement be examined (e.g., via a link to it) – rather than limiting the article to selected passages, or David’s interpretation of it.

        Seems like a good, basic suggestion – for all such articles.

    2. Bill Marshall

      Regardless, I think there is real question and the discussion got lost on this point as to whether the city should be subsdizing housing  potentially for people making $150,000 a year and whether we should be subsidizing ownership housing.  That’s really where I think the discussion should lie – and the reason I brought this forward.

      Wow.  That “point” was well hidden in the article.  Had to read 3 times before I could find it in a single phrase (not even a whole sentence).

      That said, if your main point (which was clearly unclear) is,

      whether the city should be subsidizing housing  potentially for people making $150,000 a year [did you mean households four and under, as stated in article?]

      My short and long answer is “NO”.  Not in 2019.  Same for your second point (embedded)… subsidizing ownership housing… the only folk that ‘subsidized’ our ownership housing were our parents [not the public], and those were short term (3 year) loans, admittedly @ no interest… but both were paid off in full in 3 years, on the principal.

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