Complete Nonsense: David Loya’s May 23 Staff Report on Ownership Opportunities
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Contents
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Preface – The reason for this article
Introduction
David Loya’s staff report – A summary of the report and what’s wrong with it
How to benefit from this article
Background
The original staff report – Three paragraphs on home ownership
The translation of the staff report
1. Rents will fall, houses will not be good investments, and owners will sell those rental houses.
A translation into readable English of what David Loya wrote
A critique
2. The Gateway Plan’s community benefit program gives points for condos.
A translation into readable English of what David Loya wrote
A critique
3. Rezoning will allow single-family homes and townhouses to be built.
A translation into readable English of what David Loya wrote
A critique
Conclusions
Arcata has a problem here – and David Loya’s theories are doing nothing to solve it.
This is a lengthy article. To save time, you can read just this section: David Loya’s staff report – A summary of the report and what’s wrong with it. The remainder of this article provides background and explanation of that section.
You may also want to read: The translation of the staff report — so you can see just how obscure and difficult to understand David Loya’s writing is.
Providing housing for people is the key purpose of the Gateway Area Plan. If the plan does not provide housing that the citizens of Arcata can actually afford to rent or buy, then we need to think this through more. And we need to find solutions.
“Home ownership opportunities” is defined in the Draft Plan as owner-occupied housing that’s affordable to people of all income ranges, including middle-income and even lower-income households. Home ownership can give people the security of stability – no rent raises, no possibility of being asked to leave, and the solid feeling of owning a home. Plus, of course, the ability to build equity in one’s own home.
In today’s financial climate, creating housing with home ownership is not easy to do. As such, it deserves thought and consideration on our part.
Community Development Director David Loya has provided three paragraphs to us on Home Ownership Opportunities as part of his staff report for the May 9, 2023, Planning Commission meeting. That’s it — a year and a half into the Gateway Plan and all we get is three paragraphs. Despite the clear importance, the creation of home ownership opportunities in the homes of the Gateway area has been put on the back burner again and again.
This article discusses the contents of those three paragraphs. And it explains the theories behind David Loya’s thinking, and how what he says will happen cannot possibly be true.
Introduction
Home Ownership Opportunities have been talked about ever since the Draft Gateway Area Plan was first released, back in December 2021.
The Gateway Plan promises “a broad range of housing densities and types, including rental and owner‐occupied options.” The October 2022 draft calls for “deed‐restricted owner‐occupied housing affordable to middle and lower‐income households.” There is “Encourage new home ownership opportunities affordable to households of all income levels” and “Encourage a range of ownership opportunities including condominiums, townhouses, and other alternative ownership models” and “Provide strong incentives through community benefits program for owner occupancy.”
But there was nothing from the Plan or from the Community Development Department to tell us how all this home ownership opportunity is supposed to take place.
The Planning Commission spoke of home ownership opportunities from time to time, and considered having a sub-committee to research this. The former Chair, Julie Vaissade-Elcock, promoted meeting with people in the real estate, home-loan, and insurance fields, to determine the practicality of actually providing owner-occupied housing. But, again, nothing ever happened.
Affordable Housing and Home Ownership Opportunities are important goals of the Gateway Plan – and of crucial importance to the success – or failure – of this plan for the people of Arcata.
And after a year and a half, all we get on home ownership opportunities is three paragraphs in a staff report. No discussion, no presentation from experts in the field, no study group, no dedicated agenda item. Just three paragraphs. And, as I will show here, they are three paragraphs of nonsense and impossibility.
For more on the difficulties of creating for-sale apartment condominiums, see the article on Arcata1.com: “The Housing Market Needs More Condos. Why Are So Few Being Built?”
David Loya’s Staff Report – May 9, 2023
A summary of the report and what’s wrong with it.
David Loya gave us three theories on how to achieve Home Ownership Opportunities in the Gateway area, as part of his staff report for the May 9, 2023, Planning Commission meeting. He wrote three paragraphs, with each paragraph outlining a theory about how home ownership might be achieved.
- Rents will fall, houses will not be good investments, and owners will sell those rental houses.
The theory: As apartments are built, the cost of rents will fall. Eventually the cost of renting a new apartment will be comparable to renting a bedroom in a single-family house. After that happens, people will rent apartments more, and houses will become vacant. The investors who own those houses won’t like that situation, and they will sell the houses. This is a “reasonable market prediction” of how there will be more houses available for sale.
Reader: When do you think the cost of renting a new apartment will be “comparable” to the rent of a bedroom in a house? Do you think maybe Never?
Houses may become less attractive as an investment, but it won’t be for that reason. A house will become less attractive to an investor as the selling price increases and the net income from the rent becomes less attractive, relative to what the investor could be earning elsewhere.
- The Gateway Plan’s community benefit program gives points for condos.
The theory: Condominiums are “highly likely” to be built in the Gateway area – so it is said. The taller buildings will have high-priced condos on the upper floors. The Gateway Plan’s community benefit program gives credit for the development of for-sale housing.
Unfortunately, this theory bypasses the fact that the community benefits system awards just 4 points for a building that is all condos or just 2 points for a building that is over 20% condos. That same 2 or 4 points could be granted by such things as a 10×10 community garden (2 points), using wood for at least 15 percent of the building materials (2 points), renting a space to a restaurant or convenience store (4 points), putting in a micro-grid solar system (5 points), putting in greater than required bike lockers (2 points), or exceeding the minimum building energy efficiency required by the California Energy Code by 5% or 10% (3 or 4 points). All of those means of obtaining community benefit points are far less costly to the developer than
- Rezoning will allow single-family homes and townhouses to be built.
The theory: Large portions of the Gateway area are currently zoned Industrial Limited. Rezoning all of this to mixed-use means that single-family homes and townhouses can be built on parcels that had been Industrial Limited. Many of the parcels are too small for a multistory apartment building. With the new rezoning, these parcels can have homes and townhouses built on them that will be available for sale.
There are 188 parcels in the Gateway Area, give or take a few, with the largest being 8.37 acres — where Wing Inflatables is, along Samoa Boulevard. There are about 101 parcels that are 1/4 acre or less. A multi-story apartment building can be built on a 0.20 acre parcel, as pretty much a minimum.
By rezoning the small parcels that are currently zoned Industrial Limited so that houses and townhouses can be built, we can have owner-occupied homes – right?
All good in theory — but there’s this: How many of these small parcels to be rezoned exist? Ones that are vacant, where a single-family home or a townhouse could be built.
Do you want to take a guess?
The number of parcels is: One. There is one small parcel that is vacant and currently zoned Industrial Limited, where a house or small group of houses could be built. That is the parcel used by Eureka Glass as a parking lot, on 7th Street adjacent to their building at 7th & K Streets.
How to benefit from this article
One of the difficulties in understand what Director Loya is trying to get at in these theories involves his writing style and word choices. His writing is so convoluted and the language so vague that it often takes quite a bit of analysis just to discern what he is saying.
To assist the reader, I have “translated” his words into easier to understand standard English. This translation is placed side-by-side with the staff report paragraphs so you can compare the original staff report with the “translation.” I have taken great trouble to not modify the intent or meaning of what David Loya initially wrote.
But before you read that, I encourage you to read those three paragraphs as they appeared in the staff report, to see if you can make heads or tails out of what he wrote. And after reading that, then read the side-by-side version. These are clearly noted in the Contents, below.
Following the side-by-side translation, I go into the factual inaccuracies of this statements, and how, in our world here in Arcata, a world based more or less on economic reality, David Loya’s theories cannot possibly work.
There are ways to encourage and actually create home ownership in a plan for growth in Arcata. But what the Gateway Plan proposes is not feasible, not grounded in reality, and not based on fact. There is no basis for believing that Director Loya’s theories will give the people of Arcata any home ownership whatsoever.
Background
For their May 9, 2023, Planning Commission meeting, Community Development Director David Loya was tasked with providing a Staff Report on the topics of “Affordable Housing” and “Home Ownership Opportunities.”
Both are keystones of the Gateway Area Plan. Without actual workforce affordable housing and without home ownership opportunities, the housing built in the in Arcata as part of this massive Gateway Area Plan is destined to be nothing more than ordinary “market-driven” and “market-priced” housing. This does not help the people of Arcata.
Market-driven housing will result in a whole lot of studio and one-bedroom rental apartments with rental costs that only those with out-of-town income sources can afford. And by out-of-town income sources I mean those people who work remotely, and Cal Poly Humboldt University students.
The issues surrounding workforce affordable rental housing will be discussed in a subsequent article.
David Loya on Affordability and Home Ownership
from the May 9, 2023, Planning Commission meeting Staff Report
Ownership Opportunities
Three paragraphs, as presented in the May 9, 2023, staff report.
This is the original language, as written.
David Loya wrote:
Ownership Opportunities
The Gateway Area Plan has three primary means for increasing ownership opportunities. First, as the unit count in the area increases to meet the housing needs of the rental sector, new units with comparable rents to bedrooms in single-family homes that are older will attract the current market sector renting single-family homes. The single-family housing stock currently in the student housing market will become less attractive as an investment asset, and those homes will open to the for-sale market. While this is not a guaranteed outcome, it is a reasonable market prediction.
Second, the developments within the Gateway will provide ownership opportunities in a variety of multifamily settings. Townhomes are likely to enter the market ahead of full airspace subdivision condominiums. But the for-sale market is highly likely to be built directly in the gateway area. This is particularly true of taller buildings that will take advantage of providing high-income housing on the upper floors of buildings. The higher sales prices will help these projects pencil. To encourage this type of development, the City is proposing a community benefit that credits development of for-sale housing.
Third, the redesignation of the Gateway Area from primarily Industrial Limited to effectively a mixed-use designation will allow single-family and townhouse development on small parcels. While the Plan principally permits high-density development for projects that meet the objective standards, provides housing, and provides community benefits, many of the parcels in the plan area are too small to build multistory buildings. These properties will allow for smaller scale housing development opportunities where currently they do not exist. While the majority of units will likely be developed for the rental market in the near term, the plans allow for and incentivize a range of ownership models.
Original:
The Gateway Area Plan has three primary means for increasing ownership opportunities.
First, as the unit count in the area increases to meet the housing needs of the rental sector, new units with comparable rents to bedrooms in single-family homes that are older will attract the current market sector renting single-family homes.
The single-family housing stock currently in the student housing market will become less attractive as an investment asset, and those homes will open to the for-sale market.
While this is not a guaranteed outcome, it is a reasonable market prediction.
Translation:
The Gateway Area Plan has three primary ways for increasing ownership opportunities.
The number of rental apartments and townhomes will increase to meet the number of people who want to rent. At some point, these newer apartments will have rents that are as low as the cost of renting a bedroom in a single-family home. When that happens, people who are renting in single-family homes will choose to rent an apartment instead.
The single-family houses that are currently rented by students will become less valuable to the owners as an investment. (Perhaps because of vacancies in the single-family homes.) Those homes will be put on the market as houses for sale.
While this is not a guaranteed outcome, it is a reasonable market prediction.
What’s wrong with this paragraph?
1. Let’s be clear. The number of housing units that are built will not “meet” the number of people who want to rent. The number of housing units that are built will never meet the number of people who want to rent.
That statement assumes that the Supply (the units that exist now and will be built) will equal or exceed the Demand (the number of units that are wanted). That has never happened in the past in Arcata (at least not in the past 50 years) and is not likely to happen at any time in the future, barring some national or global catastrophe.
2. Tell us, David. Let’s assume for conversational purposes that it is actually possible to see 300 or 500 or even 1,000 rental apartments or townhomes built in the Gateway Area. Do you really believe that this would “meet” the demand? The demand from Cal Poly students alone is in the thousands — and growing. Cal Poly’s enrollment growth is scheduled to greatly exceed the construction of new dorms. In 2025 Cal Poly’s estimates are for 4,100 university-supplied housing (including the new Craftsman dorms) and 9,100 students — a shortage of 5,000 people… plus faculty and other Cal Poly employees.
The existing demand of non-students who want to rent and live in Arcata is likely in the thousands also. And new people will be coming here in addition to that.
Reader: Do you think that new construction in Arcata will “meet” this demand?
No possible interpretation of the facts suggests that this is possible.
3. “New units with comparable rents to bedrooms in single-family homes….” This says that the monthly rental prices of the new rental apartments will become “comparable” to the rent of a single bedroom in existing (i.e. “older”) single-family homes. David Loya is saying that as more rental apartments and townhouses are built, the rents will drop.
Currently (May 2023) typical prices for a studio apartment in Arcata are around $1,000, and for a one-bedroom it’s around $1,250 plus utilities. And typical per-bedroom prices for single-family homes are around $650-$850 plus utilities — with the per-person cost of utilities in a shared situation being around half of those in a single situation.
David Loya, can you tell us when or how exactly the cost of stand-alone apartments becomes “comparable” to a bedroom in a single-family home? The answer is Never and No Way. A rent for an apartment being comparable to a bedroom? Not possible. This portion of David Loya’s sentence is factually invalid in Arcata — and just about anywhere.
4. So: If it were at all possible that enough rental apartments are built so that the rents go down and then approach the cost of living in one bedroom of a single-family home — by itself a statement not based on any reasonable reality… then what?
This statement continues that the “current market sector” — that is, the people who want to rent housing — will want to rent the new apartments. (“new units…. will attract the [people] renting single-family homes.”)
Under what circumstances would people who want a yard, a garden, a space for their dog, perhaps a two-car garage, a patio, no common-wall or upstairs/downstairs neighbors, etc etc — Under what circumstances would people these renters want to live in an apartment? And: Older is always worse, and newer is always better? I don’t think so. In some instances and for some people, newer is better. For other homes and other people, an older larger home is so much better. For me and many many other people, I’d rather live in a 70-year-old house than a brand-new apartment.
5. “The single-family housing stock currently in the student housing market will become less attractive ….” What does this mean? That there are single-family homes that are only rented to students? That homes rented to non-students will not become less attractive?
The homes that are for rent in Arcata are available to every person who is looking for a rental, regardless of age, family type, or profession.
6. In this theory, the investor-owner wants to sell because why? Because the apartments will be more attractive, and there will be vacancies in home rentals? Because the rents for homes will go down?
As stated above, houses may become less attractive as an investment, but it won’t be for that reason. Houses will become less attractive to investors as the selling prices increase and the net income from the rents become a lower return on equity. That is, the net rental income becomes proportionally lower as a percentage of equity – because as prices rise, the equity is higher. Relative to what the investor could be earning elsewhere, house become less of a good investment.
Yes, in Arcata there’ll be houses that are currently rental houses coming on the market. And when they sell, they won’t be cheap.
7. “While this is not a guaranteed outcome, it is a reasonable market prediction.”
No, it is not. It is not a reasonable market prediction at all. What David Loya has presented here is false.
2. The Gateway Plan’s community benefit program gives points for condos.
Original:
Second, the developments within the Gateway will provide ownership opportunities in a variety of multifamily settings.
Townhomes are likely to enter the market ahead of full airspace subdivision condominiums.
But the for-sale market is highly likely to be built directly in the gateway area.
This is particularly true of taller buildings that will take advantage of providing high-income housing on the upper floors of buildings.
The higher sales prices will help these projects pencil.
To encourage this type of development, the City is proposing a community benefit that credits development of for-sale housing.
Translation:
Second, the townhouses and apartments that are constructed in the Gateway Area will provide ownership opportunities in a variety of types of townhomes or apartments.
It is likely that there will first be townhomes built before we see “airspace” condominiums. Townhomes are side-by-side units of typically 2 stories (sometimes 3 or 4), with one owner for that unit on that piece of ground. They do not have units above or below them. Each unit has its own exterior front door and there are no elevators or shared lobbies. “Airspace” condominiums meaning (in this paragraph) condos on a multi-floor apartment, with condo owners sharing lobby and elevators. The airspace above the surface of the land is, legally speaking, carved up into vertical blocks and the block of air (the “airspace”) is sold individually.
But these condominiums are highly likely to be built in the Gateway (capitalized) area.
This is particularly true of taller buildings [i.e. 6 or 7 stories] where the developer can build condos for high-income people on the upper floors of buildings. [Because they will have a view, we assume.]
The high prices of these upper-floor condominiums will help create enough income so that the project will “pencil” – that is, for the project to make sense financially, to generate the return on investment (i.e. profit) that the developer needs in order to build the project in the first place.
To encourage condominium development, Arcata is offering credits to the developer if they make an apartment building that has condos for sale.
And what is wrong with this second paragraph?
- “Second, the developments within the Gateway will provide ownership opportunities in a variety of multifamily settings. Townhomes are likely to enter the market ahead of full airspace subdivision condominiums.”
This tells us nothing about how the home-ownership will take place. These sentences only tell us that, in the opinion of David Loya, there will indeed be for-sale housing built. But how will this happen? He does not say.
“Multifamily settings” refers to buildings that have more than one family living there, i.e. they are apartments. A for-sale home in an apartment would be a condominium.
2. “But the for-sale market is highly likely to be built directly in the gateway area.”
Highly likely? Can this perhaps be explained, instead of just stated? To me, this is (once again) an opinion expressed as though it were a fact.
3. A developer may offer higher-cost condos (for higher-income buyers) on the upper floors of taller buildings – that is certainly an option.
There is no implication that there will be moderate-cost condos added to that building, however. The remainder of the building could be rentals.
4. “To encourage condominium development, Arcata is offering credits to the developer if they make an apartment building that has condos for sale.”
A certain number (10) of these credits are needed to build a 4-story building, and then more credits are needed for a developer to build taller than the base height of four stories. In the current proposal, if the entire building is “Owner-Occupied Market Rate Housing” (i.e. condos) are given 4 points. If the project includes both rental and ownership units, if more than 20 percent of the units are owner-occupied, that is given 2 points.
It takes 10 points to build a four-story building (Tier 1). It takes 5 points more — 15 points total — to go to five stories. Another 5 points — 20 points total – will go to six stories. It takes 30 points of Community Benefits to go to seven stories. (Building heights are also limited by the Gateway district that it’s in.)
It can be noted that there are many ways a builder can obtain these credits – most of which give credits in ways that are far easier and less costly to obtain by making condos. A developer can make the sidewalk in front of the building be 5 feet wider for a distance of 100 feet and get 6 points. Or make a sidewalk in front of the building be 5 feet wider for a distance of one foot and get 4 points. This is not a joke – this is what the proposed “Gateway Code Community Benefits Program: Open Space and Recreation” says – 4 points for a distance of under 100 feet. A community garden of under 500 sq.ft. gets 2 points. So that could be a 5’ x 10’ garden – 50 sq.ft. – and it would get 2 points. Or a 5’x5′ — or a 2′ x 5′ planter box could also be called a community garden. This is the way the code is currently written. (May ’23)
A minimum 15 percent of building materials from renewable resources – 2 points. Wood is considered as a renewable resource. So just about every building will have 15 percent wood and pick up 2 points there.
A building can have a 1,500 sq.ft. retail space on the ground floor for a convenience store, restaurant, etc. and get 4 points. A project incorporates 3 or more features identified in the Gateway architectural style guide and gets 2 points. Providing publicly-accessible electric vehicle charging beyond minimum requirements gets 2 points.
Some developers may want to build condominiums as part of their business plan – that is indeed possible. For others, some encouragement is needed. Creating condominiums entails certain legal, design, liability, and lending costs that are higher than those of building for-rent apartments – particularly longer-term liability costs. There has to be a substantial advantage to the developer if there are going to be any condos in a Gateway project.
The Community Benefits program in its current form allots just 2 points if a developer adds condos to the project. Merely including publicly accessible electric vehicle charging stations on the property will give 2 points – at a far lower cost. As the benefits are set up, there is zero advantage to the developer to make condominiums.
3. Rezoning will allow single-family homes and townhouses to be built.
Original:
Third, the redesignation of the Gateway Area from primarily Industrial Limited to effectively a mixed-use designation will allow single-family and townhouse development on small parcels.
While the Plan principally permits high-density development for projects that meet the objective standards, provides housing, and provides community benefits, many of the parcels in the plan area are too small to build multistory buildings.
These properties will allow for smaller scale housing development opportunities where currently they do not exist.
While the majority of units will likely be developed for the rental market in the near term, the plans allow for and incentivize a range of ownership models.
Translation:
The entire Gateway area is being rezoned from what largely (not all) was Industrial Limited — to a mixed-use designation. This new zoning allows a building to have a mix of residential apartments and commercial uses. On smaller parcels, the new zoning will allow townhouses and single-family homes.
The Gateway Plan has “principally permitted” development (meaning that’s the kind of development that’s wanted) of high-density housing that meet the objective standards (that meet the Form-Based Code standards) and also provide community benefits. But many of the parcels in the plan are too small to build multi-story buildings.
[Note: A multi-story building – meaning at least 3 stories — can be built on a lot that’s 0.20 acres, or even smaller. You can see this 4-story building constructed on 0.20 acres here on Arcata1.com at Visualizing Compatible Density.
These smaller properties can have smaller scale housing development opportunities where those opportunities currently do not exist.
The majority of apartments in the Gateway area will likely be developed for the rental market, at least in the near term. The Gateway Plan (singular – not “plans”) allows for a range of types of home ownership. And the Plan does incentivize home ownership as well (just not by very much), which was discussed in the second paragraph.
And what is wrong with this third paragraph?
1. The first sentence says that the Gateway Plan will allow single-family homes and townhouses to be built.
That is good, but that’s a given: It is in fact part of the zoning. Saying that something is allowed is not at all the same as saying that it will happen. The last sentence also says that the Plan (not “plans” as is in the document) allows for “a range of ownership models.” Good! It’s allowable. Now… how is that going to happen?
The sentence also says that that the “plans” incentivize this “wide range of ownership models.” That theory was what the final sentence in Paragraph Two was about: Giving credits for the development of for-sale housing. And as was discussed in the section above, if a developer wanted to pick up some community benefit credits, it wouldn’t be from making condos in that building. Getting just two credits for adding 20% condos to the apartment building is not going to be the ticket for getting more condos in the Gateway area.
2. “…many of the parcels in the plan area are too small to build multistory buildings.”
First off, how many of these “smaller scale housing development opportunities” exist? There are 72 parcels in the Gateway area that are less than 0.20 acres – about the minimum size for a 3- or 4-story building – that aren’t landlocked or de facto connected to an adjacent parcel. And each one of those parcels — except for five existing residential parcels and one to-be-rezoned parcel – has an existing building on it.
Where are all the smaller open parcels, where an owner-occupied home could be built? They don’t exist — except perhaps in the imagination of David Loya.
3. “These properties will allow for smaller scale housing development opportunities where currently they do not exist.”
There are five lots at 13th & O Streets, just north of the Creamery Alley townhouses, currently zoned Residential Low Density. They already exist.
And there’s the parking lot adjacent to Eureka Glass on 7th – that one parcel mentioned earlier that is currently zoned Industrial Limited — that could have housing built on it after the rezoning.
There is one small parcel currently zoned Industrial Limited that is vacant where a house could be built. One.
Now: Is there any guarantee that any small property will be developed with an owner-occupied home? Well, no. There is no guarantee. The parcel could have a rental built on it, or even a small apartment. However, in today’s economic climate, it seems likely that those currently-zoned residential lots will have both an owner-occupied home and one or two additional smaller units built there also. We’ll see.
4. One question is this: The whole notion of this Gateway Plan is to create taller, higher-density housing. To have walkable neighborhoods with improved public transit – which more or less requires more people in a more densely-built environment. Wouldn’t the building of two-story townhouses kind of defeat the purpose of this plan?
Conclusion
David Loya has given us three theories on how home ownership will be provided in the Gateway area. It is my opinion that very little of what he proposes makes sense. Some of it is speculation or opinion; some of it defies any semblance of basic economic understanding; and some of it is simply false or misleading.
If Director Loya cannot be honest and straightforward here, then we need to abandon his theories and turn elsewhere.
We’re trying to solve a problem here. The issue is how to get housing built that people can own. We acknowledge that this is a national problem. It will be difficult to come to a working solution.
My suggestion is to continue with what was proposed a year and a half ago by Planning Commission Chair Julie Vaissade-Elcock. Study the issue. Talk to local experts – banks, lenders, insurers. See how other communities around the U.S. have dealt with this issue. Explore existing State programs such as the Forgivable Equity Builder Loan that effectively lowers the cost of a home for first-time home buyers by 10%. Expand upon methods Arcata has already utilized to bring housing to people who need it, including non-profit management of new housing.
And if you have ideas that you believe may help with this situation, please do contact me: fred @ arcata1.com
The issue of how to create home ownership in the Gateway Area will be an on-going discussion until we are satisfied that we have done what we can for the people of Arcata.
See also: David Loya on Supply and Demand