Who should pay for SLO County affordable housing — new homebuyers or taxpayers?

Every morning, Angela McCormick wakes up in her own house with a smile on her face.

The single mother of two lives in Templeton, in a stucco home with a red-tiled roof she built herself — a fact that fills her with pride.

“I loved it — I loved building,” McCormick said, standing outside near a cluster of freshly pruned rose bushes. “I just felt like I was rebuilding me, too.”

A Peoples’ Self-Help Housing home ownership program helped McCormick build her home. The program requires low- and moderate-income homeowners to contribute construction labor, also known as “sweat equity,” to reduce the cost of their future houses.

For McCormick — who earns about $48,000 a year working in the San Luis Obispo County Clerk Recorder’s Office — the home meant she and her children no longer had to live at her parents’ house in Guadalupe after her divorce.

“We’d either still be at my mom’s, squished in there, or we’d be in really bad housing in Santa Maria,” McCormick said.

Part of the money used to build McCormick’s development was generated by the county’s Inclusionary Housing Ordinance, which the Board of Supervisors passed in 2008. To comply with the ordinance, developers must build affordable housing units into their complexes, pay an in-lieu fee or donate land.

Nearly a decade later, however, this ordinance is in jeopardy — the Home Builders Association of the Central Coast’s Board of Directors recently voted to push for its repeal. And the San Luis Obispo County Board may review it as early as November.

Jeff Eckles, the trade organization’s outgoing executive director, said the county should look for different ways to fund affordable housing, such as bond measures, special parcel and sales taxes — ways that don’t involve levying additional fees on home builders.

“Every fee matters,” he said. “Every fee adds to the cost of a home.”

Background on inclusionary housing

All San Luis Obispo County cities — except for Paso Robles and Grover Beach — have some version of an inclusionary housing ordinance, according to a county planning staff report. Morro Bay’s ordinance is the oldest — it’s been in place since 1994.

San Luis Obispo County’s ordinance — which applies to homes and commercial buildings constructed in unincorporated areas — started out requiring developers to make 4 percent of units in a complex affordable for workforce-, moderate- or low-income families or pay in-lieu fees of 75 cents per square foot.

Originally, the county’s ordinance was to be phased in over five years. During the fifth year, 20 percent of units were to be designated as affordable, with in-lieu fees to reach $3.75 per square foot.

But the affordability requirements and in-lieu fees remained unchanged for eight years as the county recovered from the Great Recession. It wasn’t until December 2016 that the Board of Supervisors voted 3-2 to raise in-lieu fees to 40 percent of the ultimate amount, or $1.50 per square foot — still far shy of the original intent.

The city of San Luis Obispo’s 1999 ordinance requires more in-lieu contributions and, as a result, may be the most effective countywide. It’s resulted in 260 deed-restricted units — those with affordability restrictions written into their ownership contracts — and $8.7 million in fees, which are paid into a fund and allocated to various developments.

According to San Luis Obispo’s ordinance, 3 percent of units in a development must be built for low-income residents, or 5 percent for moderate-income residents. At least one unit in a complex must meet these requirements.

If developers choose not to build affordable units, they must pay in-lieu fees equal to 5 percent of the building’s value.

To compare the city’s and the county’s ordinances, a San Luis Obispo developer building a 2,100-square-foot, $543,500 house — the county’s median price — would pay $27,175 to the in-lieu fund. A county developer paying in-lieu fees on the same size home would be charged just $3,150— less than 1 percent of the home’s value.

In the county, most developers have opted to pay into the in-lieu fund, which raised $456,641 from 2009 to 2015. That money was used to help local nonprofits build 242 units of affordable housing around the county. Funds raised are to be spent in the areas they came from.

In 2016, the in-lieu fund received its biggest contribution — the Monarch Dunes development in Nipomo paid $614,531 in fees after building 90 market-rate homes. Thanks to that fee and some other smaller contributions, the county allocated $682,405 to build 32 units of affordable housing this year.

More money was used to build fewer units last year because the funds are awarded only to agencies or organizations that apply for them. The money is distributed depending on the projects presented for consideration each year — if more groups apply, they may all get less.

Inclusionary housing opposition

The Board of Supervisors’ December vote showed the political divisions the ordinance continues to create.

At the time, Supervisor Frank Mecham voted with Bruce Gibson and Adam Hill to raise the rates, with Lynn Compton and Debbie Arnold voting against the measure. Gibson and Hill cited a need for affordable housing funds, while Compton and Arnold argued increasing the fees would hurt homebuyers.

“People leave when their taxes are too high,” Compton said. “Taxes discourage a sale.”

When the ordinance was created, the Home Builders Association and the county Housing Trust Fund were both involved in the process, according to Tribune articles in 2007 and 2008.

But today, the two groups don’t see eye-to-eye.

Eckles, the Home Builders Association executive director, said the group has always opposed the ordinance. He said members became involved in crafting the ordinance only because it was clear some version of the legislation would pass.

And they began lobbying for its repeal after supervisors voted in December to increase the in-lieu fees and Gibson and Hill pushed a last-minute $5 million affordable housing budget proposal in June that didn’t pass. Their plan would have used $1 million that was to go toward county housing studies, a budget item the Home Builders Association wanted included, Eckles said.

The organization is now advocating alternative funding sources, including bond measures, special parcel and sales taxes and title transfer fees. Inclusionary housing fees, in addition to the other ones home builders must pay, create a burden that’s passed on to homebuyers, Eckles said, calling the situation “death by a thousand cuts.”

“We’re all for affordable housing,” Eckles said. “We’re just not for how it’s being funded.”

What supporters say

Ordinance advocates — including John Fowler, president of Peoples’ Self-Help Housing — say none of the proposed alternatives would be successful in San Luis Obispo County.

Nearly all of them would require a special election and two-thirds voter approval, which didn’t pan out for Measure J, a transportation funding measure that appeared on the November 2016 ballot. The special tax needed 66.67 percent of the votes to pass — it got 66.31 percent.

“You have to have political support and a pretty robust campaign,” Fowler said. “A broader fix, we support — it’s just the timing of it.”

He said the Home Builders Association should work harder to campaign for a better funding mechanism before getting rid of the one that’s already in place. Housing costs are determined by supply and demand, not additional fees, Fowler said: “That’s not how the market works.”

Even though nonprofits don’t get huge chunks of funding, they can leverage local dollars to tap into larger sources of state and federal funds, Fowler said.

In some cases, this money is critical to developments, and in others, it buys things that would’ve been difficult for nonprofits to afford.

McCormick’s Terebinth Lane development in Templeton — which includes 33 North County just behind Twin Cities Community Hospital — received $12,773 in inclusionary funds. The money was used to landscape the neighborhood’s frontage road and entrance, which saved residents from having to borrow additional dollars.

But the Housing Authority of San Luis Obispo badly needs inclusionary fund money to build a 20-unit Halcyon Road low-income apartment complex in Arroyo Grande. HASLO was awarded $635,322 in Monarch Dunes fees to help pay for the development, which will reduce the amount the agency needs to borrow for construction costs, said Scott Smith, the organization’s president.

“It’s completely impossible to build without it,” he said of the money.

Determining policy

County supervisors continue to have differing opinions on the ordinance, although none committed to voting against it.

Supervisor Debbie Arnold said she has “not supported that approach to affordable housing,” but wouldn’t vote to repeal the ordinance unless another funding mechanism was put in place.

She said she’d like to see areas of the county zoned for higher-density affordable housing, instead of requiring fees or the construction of less-expensive homes among market-rate ones.

“I’m hoping to provide something that works better,” she said.

Supervisors Adam Hill and Bruce Gibson have both been vocal supporters of the ordinance. They both called the Home Builders Association’s move to repeal the ordinance “cynical,” with Hill saying the group is counting on the board’s new conservative majority to pass its agenda.

“Jeff Eckles wants to tell poor people in this county that they don’t get to live here,” Hill said.

“In the end, it’s really about their profit margins,” Gibson said.

Supervisor John Peschong, a conservative, said he’s “listening to all kinds of people” and isn’t leaning one way or another yet. “I’m going to continue to evaluate it and listen to the community,” he said.

Lynn Compton, who voted against raising in-lieu fees in December, said she’s not sure how she would stand on such a measure, either. But she said she resents the implication that those who may not support the ordinance are against affordable housing.

“We just disagree on how to accomplish it,” she said.

Low- and middle-income families displaced

As the debate over affordable housing in the county continues, local residents like McCormick — who grew up on the Central Coast — now struggle to live here as an adults.

McCormick said she didn’t move away because she and her children — a son who since graduated from Cal Poly and a daughter about to begin her sophomore year at Templeton High School — wanted to remain close to her parents, who also live in a Peoples’ Self-Help home they built in the 1980s.

In the five years since she completed her home, McCormick has helped out with other Peoples’ Self-Help building projects, and even served on the organization’s board. But without more affordable housing, she said she’s not sure how residents like her can stay on the Central Coast.

“They’re profiting us out of here,” said McCormick of real estate developers.

This story was originally published August 12, 2017 at 5:27 PM with the headline "Who should pay for SLO County affordable housing — new homebuyers or taxpayers?."