It’s been said that the definition of insanity is doing the same thing over and over again and expecting different results.
That’s especially true when it comes to what passes as problem solving in Sacramento for affordable housing.
In 11 months California voters will be asked to approve a $4 billion bond to tackle the state’s affordable housing crisis. The game plan is to use the $4 billion to leverage $20 billion in new construction employing tax credits and such.
With the average cost of an affordable housing unit built in California pegged at $260,000 six years ago by the state Department of Housing and Community Development this could yield over 77,000 new living units in the next 10 years or so.
Given that Sacramento leaders have pegged the annual shortfall of needed homes being between 80,000 and 100,000 units, the $4 billion bond won’t make much of a dent. In 10 years we will have an accumulated shortfall of 1 million units. That’ll reduce the housing deficit by less than 8 percent.
If the state could triple the number of housing units built to 232,000 using that $4 billion bond as leverage you’d be covering almost 25 percent of the housing deficit during a 10-year period.
So how can this be done?
Build on an idea by City of Manteca Senior Planner J.D. Hightower.
Hightower’s proposal is simple. Offer California homeowners that have adequately sized lots $80,000 a pop to use the state’s granny flat law that’s been on the books for almost 15 years but has seldom been used. In short, cities can’t block a homeowner from building a second smaller home that is often dubbed as a granny flat on their property. Most developed single family lots are big enough to accommodate an additional 500 to 700 square foot or larger secondary home.
In a city like Manteca the development and connection fees would come in at around $40,000. Land cost isn’t an issue because the homeowner already owns the land. The remaining $40,000 would be used to leverage a construction loan of $100,000 to cover building and design costs.
A $60,000 loan at 5 percent interest (loans on non-owner occupied dwellings can run higher) would cost $322 a month on a 30-year fixed rate mortgage. Figure another $118 a month for property taxes and insurance and you have a monthly loan payment of $450 for the granny flat.
In order to secure the $80,000 grant, the homeowner would have to agree to not charge more than 90 percent more a month for rent than the combined monthly cost of the loan payment, taxes, and insurance until the loan is paid off. That means for the example granny flat the rent could not initially exceed $905 a month for a positive cash flow of $405 a month for the homeowner before taxes. In reality the annual rent increase would be limited to the 2 percent maximum jump in property value under Proposition 13 plus any new approved bonds or increase in insurance premiums.
This would a number other benefits. A large number of homeowners are older and may be retired and living on limited income. Imagine what having $4,870 more a year in their pockets could mean.
In one fell swoop you chip away at the affordable housing backlog while making it possible for others to stay in their homes or at least improve their standard of living.
Long term costs for cities would also drop. Instead of having 10 sewer and water connections every 350 feet or so if just 20 percent of home owners added granny flats there would be 12 connections or every 350 feet. When major replacement of infrastructure has to be done there would be 20 percent more people to pay for the same amount of work.
It would help slowdown farmland conversion to accommodate new homes. It would add new consumers to help support existing retail, services, and restaurants near established neighborhoods to improve the economic vitality of older areas of cities. Increased population density would make transit such as bus service more effective.
Second housing units on existing developed lots would require some rule changes. Garages, for example, would not be required. Given the state law regarding so-called granny flats, zoning issues have already been addressed but they must be incorporated in local ordinances and followed.
The state could go one step farther and allow older homes that are owner occupied be replaced by tri-plexes or built on a vacant lot in an established neighborhood using a similar loan program. It would allow an existing homeowner to downsize and upgrade in place. Besides replacing aging housing stock as the existing homeowner would live in one of the replacement units, it would create two instead of just one more rental units. Creative design and building placement on existing lots would minimize neighborhood impacts. You may end up with smaller yards and smaller living space for the owner but you end up more effectively addressing arguably the biggest ongoing issue for the majority of California — securing affordable housing.