Pismo Beach has $3.5 million for affordable housing, but developers aren’t biting

As Huntington Beach prepares for a lengthy battle with the state of California over its affordable housing goals, the city of Pismo Beach is preparing for a battle of its own as it tries to attract more low-income housing to the traditionally wealthy area.

The path ahead isn’t easy: City manager Jim Lewis said the city faces some unique challenges to adding more affordable housing for workers and low-income families — namely, that the affluent area hasn’t attracted developers interested in building affordable housing.

The majority of builders instead focus on building intricate second or third vacation homes for wealthy visitors, or more retail and restaurant developments, Lewis said.

“We collect money to support affordable housing, and I can’t get someone to take it,” he told The Tribune in a phone interview on Thursday. “What we have to do now is be very aggressive. Every time I meet with developers, I let them know I’m sitting on $3.5 million in affordable housing funding. ... And nobody is taking me up on it.”

That $3.5 million is made up of in-lieu fees the city collects from developers who choose to either add affordable housing units to their projects or pay a fee of either 2 or 5 percent the total value of the project to the city to encourage other affordable developments.

This is partly why the city was recently called out as the only San Luis Obispo County city to be non-compliant with the state’s affordable housing push, Lewis said, the banner under which Gov. Gavin Newsom is pursuing legal action against Huntington Beach.

Pismo Beach has not submitted a required housing element to the state for this cycle — from 2014 to 2020.

That prompted a letter from the state Department of Housing and Community Development in December 2018, notifying the city that it is out of compliance with California law. (A housing element is expected to outline how California cities expect to add more affordable housing during that timespan.)

Lewis said the city has since been in contact with the state and has an extension to submit its new housing element by June.

“Yes, our housing element has not been certified through in a timely manner,” he said. “But we’re not challenging the state’s housing policy. We are trying to put together a thoughtful housing element that actually builds housing.”

Lewis noted that another challenge for the city is a lack of available area.

Pismo Beach is mostly built-out and landlocked between the Pismo Preserve and the Pacific Ocean — meaning that there are no large swathes of land for massive residential projects with a mix of commercial units, affordable housing and higher-end homes, as other local cities have pursued in recent years.

Those sort of projects tend to be more appealing for developers because they balance the lower returns of affordable units with commercial and higher-profit units.

Lewis did note that the city specifically has four vacant lots in mind that could be the future home to some much-needed affordable housing units. Two of those are on Fourth Street, he said, and the others are on Price and Cypress streets.

He also said the city is in the midst of discussions with a developer on a micro-apartment project that is expected to be announced in the next six weeks. That project could add dozens of new affordable units.

There are other ways the city is upping its stake in affordable housing, Lewis said.

He said part of the city’s new plan to bring in more affordable housing includes cracking down on short-term vacation rentals to help keep the market from being clogged with larger, expensive homes that sit empty most of the year, and encouraging the building of secondary dwelling units, colloquially known as granny units, that could house new college graduates or young professionals looking for a starter home.

In all, Lewis said he expects the city will make large steps toward more workforce housing in the coming months.

“We want people in Pismo Beach to be able to live in Pismo Beach,” Lewis said. “We want to get the message out: We’re ready to go, so let’s do it.”

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Kaytlyn Leslie writes about business and development for The San Luis Obispo Tribune. Hailing from Nipomo, she also covers city governments and happenings in the South County region, including Arroyo Grande, Pismo Beach and Grover Beach. She joined The Tribune in 2013 after graduating from Cal Poly with her journalism degree.