SANTA BARBARA COUNTY GRAND JURY 1997-1998
AFFORDABLE HOUSING PROCESS IN THE COUNTY OF SANTA BARBARA
Submitted to Affected Agencies May 20,1998
The lack of affordable housing has received state and nationwide attention. Santa Barbara County is a desirable location, and so has a severe shortage of affordable homes. The median price of a three-bedroom house in Santa Barbara’s south county is about $400,000. This is well beyond the reach of many families.
The County’s Affordable Housing Program addresses this problem. Affordable income levels have been classified by the County into three categories: very low, low and lower moderate. Price and income guidelines, updated as of February 1998, are shown in the table below for a family of four in a three-bedroom house.
Very Low Low Lower Mod
Income Levels $25,700 Max $41,100 Max $51,400 Max
Purchase Price $77,100 $123,360 $154,200
There are certain county-imposed restrictions applied to the ownership of affordable houses:
Due to large demand, there are more people applying for houses than there are houses available. In order to fairly distribute available houses, the county uses a lottery system to establish priority. Lottery subscription is handled by the housing project developer. The county screens applicants to insure that potential buyers of affordable houses meet the established guidelines. The county was advised by an outside consultant that the process needs to be monitored more carefully.
The Grand Jury received complaints from potential buyers, developers and real estate people regarding difficulties encountered in carrying out the affordable housing purchase process as specified by the County. Individual county supervisors have suggested that the affordable housing process needs investigating. Several newspaper articles also suggested that the purchase process was cumbersome and confusing (See Attachment A). The Grand Jury decided to investigate whether the process was indeed too difficult and whether it could be improved.
The Grand Jury reviewed county documents and regulations regarding the affordable housing processes:
Several interviews were conducted with people involved in the affordable housing process:
Grand Jury members visited a number of housing developments currently under construction to inquire about the availability of affordable houses in their development, and how to apply. At one development there was no sales office at the site. Members of the Grand Jury visited the remotely located sales office where we obtained a lottery enrollment form that, when filled out, places the applicant’s name on a list of potential purchasers.
The Grand Jury was taken through the steps that a developer must follow during project approval.
In reviewing the documentation, we learned that the state requires that each county have an affordable housing plan. However, there is no mechanism to verify implementation of the plan. Santa Barbara County’s Housing Element of the General Plan is a response to the state’s requirement. This document lists average housing prices for various "Housing Market Areas" in the county, average incomes, number of houses available, number of houses needed, and more. The supplementary volume, Housing Element Implementation Guidelines, describes how the county will implement the state requirements. These volumes discuss definitions, terms, conditions, goals, etc., but nowhere is the required number of affordable houses actually specified. The County of Santa Barbara has found it difficult to accommodate everyone’s needs for affordable housing. If economic conditions do not support housing construction, no houses are built Although all new construction must comply with the county’s affordable housing program, the developers may still opt not to build affordable houses by paying "in-lieu" fees, which are maintained by the county.
According to the Housing Element Implementation Guidelines, "The County encourages affordable units to be dispersed within development projects and architecturally
integrated with the market rate units." This guideline means there is no such thing as a development consisting entirely or mainly of affordable houses, with the accompanying economies of scale. Often, about five percent of the total units are affordable, which in one development surveyed, worked out to two houses. The free-market price of the non-affordable units in this development was $400,000-$600,000.
Inclusionary Affordable Housing
Cathedral Point Winchester Commons
Developers have at least three choices of how to proceed with respect to affordable housing. First, they may elect to participate in the "Affordable Housing Overlay" (AHO) program or the "Inclusionary" program. If they elect the AHO program, they provide between 30% and 50% of the units in his development as affordable, depending on the level of affordability. Developers receive certain "perks" in this case, such as
increased allowed density and expedited processing of the development application. If they choose the Inclusionary program, there are two separate options. They may either provide 5% affordable units, or pay "in lieu" fees to the county, so that they do not have to provide any affordable units at all. The in-lieu fees are kept in an affordable housing account by the Treasurer-Tax Collector and are used to a large extent to subsidize the building of new affordable rental housing and renovation of existing rental units by the county.
According to County requirements, developers are responsible for marketing affordable houses. This leads to confusion among prospective buyers. In cases where the developers choose to provide affordable houses, they are largely responsible for finding buyers. They are required to maintain a list of applicants until it grows to three times as many applicants as there are houses for sale. Developers submit the list to the County Planning and Development Department. It then goes to the County Housing Authority which places the names in a random order via computer program. When the randomized list is returned to the developers, they are required to contact the applicants in the prescribed order and tell them they are the lucky winners. One developer informed the Grand Jury that literally hundreds of hours were spent by personnel working in his development to place a total of two people into two affordable houses.
Before applicants actually take possession, they must be certified by the county to have sufficiently low income to qualify for the program. Also they must be certified by a loan company to have sufficiently high income to qualify for the loan. Often applicants are unable to satisfy both these conditions. One developer indicated he had to contact about 30 people to sell two houses. This process has to proceed serially; applicant number two can not be notified that he is a winner until it has been determined that applicant number one has failed to qualify.
There are two "terms of affordability" established by the county: the ten-year term and the 30-year term. "Inclusionary" houses generally have ten-year terms. Under this arrangement, if the house is sold before the ten years have expired, it is sold at the market price with the owner and county splitting the profits. The owner gets a percentage that is equal to the percentage of the ten years he has owned the house. The county’s portion of the profit is placed in the affordable housing account. Affordable Housing Overlay houses generally have 30-year deed restrictions during which time the house may not be sold for more than the original price plus median income adjustment over the period of ownership which is determined by the county. Also, it is required that the houses be owner-occupied. But these restrictions are apparently not always preserved at title transfer. The "private study" commissioned by the planning department says, "At a minimum, County staff should be monitoring that the original Restrictive Covenants and subsequent Assumptions are being recorded, so that the affordability requirements continue for the full 30-year term." A loan association officer said that maintaining the deed restriction is left up to the buyer and seller.
Other factors lead to loss of affordability in either the AHO or inclusionary plan:
No central county agency handles affordable housing. This can lead to inefficient processing. Presently, there are three separate County departments
responsible for the following three aspects.
The Treasurer-Tax Collector’s Office (1) maintains the affordable housing fund and makes decisions about how the money in the fund is disbursed. The Planning Department (2) is responsible for determining the percentage of affordable units a developer must construct, and has first-level development approval/denial power. The County Housing Authority (3) determines eligibility of home-buyer applicants, and conducts the lottery.
There is a lack of coordination between these three departments because there is no single person or department who is clearly in charge of the affordable housing programs. Also, the duties of each department with respect to affordable housing are not clearly defined.
The Grand Jury was informed that both a consistent affordable housing policy and a permanent affordable housing organization are needed, which should be defined by the Board of Supervisors. To date the Board has not addressed these needs, thus the various functions have been assumed by individual departments as they see fit. What policy there is changes when new supervisors are elected to the Board.
The county’s income certification period of 60 days maximum has resulted in prospective buyers having to renew their certifications when there are construction delays. When buyers are notified that they have won the lottery, they must obtain certification from the county that their income is sufficiently low to qualify for an affordable house. The county has a maximum of 10 days from receipt of application to perform this certification. Applicants are charged $70, non-refundable. Usually the lottery is held well in advance of the completion of the houses. There have been instances where the certification has expired prior to close of escrow due to construction delays. Re-certification is possible if the applicant is still eligible, but there is another $70 fee plus additional delay.
There is wide disagreement about how the county should administer affordable housing programs. There were conflicting recommendations from the material reviewed and people interviewed. The Real Estate Board suggested that the 30-year affordable term should be eliminated. The private study by the Planning and Development Department recommended that the 30-year term be applied to all new construction. This study also recommended that a single county office be established to handle all affordable housing matters. A Planning and Development Department employee recommended that a budget be established to allow after-market follow-up and closer monitoring to ensure that affordable housing practices are more closely followed. Developers recommended that county involvement in affordable housing sales be minimized because it results in delays and inefficiencies. Developers also said that the county development review processes should be conducted in a manner that is better defined and more equitably applied.
The Planning and Development Department is currently implementing the recommendations of the private study. The Grand Jury received a draft copy of the Department’s Affordable Housing Program Action Plan, which lists the private study recommendations individually, with action that has either already taken place, or is planned. There are 25 action items total. All the recommendations except one have been implemented or are under consideration for future implementation.
In the discussions with owners of affordable homes, there were no serious complaints. No one said there was too much red tape, even though the process of buying an affordable house involves the following steps:
expensive to the county and to the developer, since the process must be restarted following each disqualification.
of affordable housing. For this reason buyers and developers frequently feel they are getting the run-around when attempting to comply with county procedures.
1. In the South County area, the number of very-low-income houses for sale should be minimized as is done by the City of Santa Barbara. This restriction would limit the market to prospective buyers whose incomes better fit the cost of the affordable houses, and so produce fewer disqualifications. [Finding 1]
2. The county should require buyers to show evidence of pre-qualification for a loan in the amount necessary to purchase the affordable house at the time they enroll in the
lottery. This requirement will discourage casual enrollments and reduce the number of disqualifications. [Finding 1]
3. Coordination should be improved between the various affordable housing functions by the establishment of an Affordable Housing Director to control the county affordable housing functions in the Planning, Tax Collector and Housing Authority offices. This office would serve as an interface between all members of the community (buyers, developers, financial institutions, etc) and the county. [Finding 2]
4. The duties of the Affordable Housing Director should include the tracking and monitoring of affordable units to insure that affordable status is maintained after a resale or foreclosure. The county should require that escrow officers notify the Director when a title transfer of an affordable is taking place. Random checks should be made to insure that affordable units are owner-occupied. There should be sufficient staffing to perform these functions. [Finding 3]
5. The income certification term for prospective buyers should be extended from 60 to 90 days. This extension would allow more time in case the housing project was delayed for any reason. [Finding 4]
County Housing Authority
Findings 1 and 4
Recommendations 1, 2 and 4
Findings 2, 3 and 4
Recommendations 3,4 and 5
Planning and Development Department
The Grand Jury commends the Planning and Development Department for recognizing the existing difficulties in the affordable housing purchase process, and for taking steps to correct them. In particular:
Attachments may be found on published Final Report
We want to advise you that California Penal Code Section 933.05 requires that responses to Grand Jury Findings and Recommendations must be made in writing to the Presiding Judge of the Superior Court and the Grand Jury Foreperson within 90 days (Governing bodies) or 60 days (Department heads) of the issuance of the report
Therefore the Grand Jury requires that you respond to each of the Findings and Recommendations that applies to your agency.
Please send your response to:
Honorable Judge Frank J. Oachoa
Presiding Judge, Santa Barbara County Superior Court
1100 Anacapa Street
Santa Barbara, CA. 93121
Grand Jury Foreperson at the same address.
Responses to the Grand Jury should be submitted on a 3 ½ inch computer disk (preferably in Word) along with the printed response.