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David Loya on Affordable Housing – May 9, 2023 staff report to the Planning Commission

See also:  What are the definitions of “Affordable Housing” ?
And other articles here on Affordable Housing

The most pressing need in Arcata today is housing.

But not just housing of any kind. Specifically:

  • The need for mid-range housing — at rental prices that people can actually afford.
  • The need for home-ownership opportunities — housing that people can buy, feel secure in, and build equity with.
David Loya: 
“Staff anticipates that the full range of restricted and unrestricted affordable units will be developed in the Gateway Area.”
 
Affordable Housing, Home Ownership, and Gentrification were featured topics for discussion at the May 9, 2023, Planning Commission meeting.  But there was no discussion of affordable housing or home-ownership opportunities at that Planning Commission meeting.  No discussion at all — just the staff report on these absolutely crucial topics.
 
The staff report has about 2-1/2 pages on “Affordable Housing and Gentrification” and about 3/4  of a page on “Ownership Opportunities.”  A year and a half into the Gateway Plan and this is all we get.
 
The information on how the government looks at what is affordable housing — with income level percentages and total housing costs that are considered — is good, needed information. Unfortunately the staff report omits here the actual figures of what Arcata or Humboldt County “Area Median Income” actually is. Without actual figures, the staff report has little real-world significance. 
 

This article is about the section of the staff report that is on Affordable Housing and Gentrification
 
What David Loya wrote in the May 9, 2023, staff report about Home Ownership Opportunities can be seen on Arcata1.com here in a full version (the article is lengthy but very much worth reading) and here in a more condensed form.
 
Other material from David Loya on the economics of housing includes David Loya on Supply and Demand and High Density Apartments will cause vacancies in Houses.



 

Workforce and Missing-Middle Housing

David Loya: 
“This has produced a plethora of one-bedroom and smaller Accessory Dwelling Units and apartments, or income restricted units.

 

This development pattern is currently excluding sectors the community needs to thrive.

 

Comment:
One of the few truthful and to the point statements in this entire staff report.

The terms “workforce housing” and “missing-middle housing” are used to define certain segments of housing that are at a particularly acute crunch. Housing that is designed for people in the low-income and very-low-income categories has a variety of State and Federal incentives that make construction of that housing possible. Housing for high-income people doesn’t seem to be a problem — because high-income people can afford the prices or rents. 

It is the “missing middle” segment of the population that is hit the hardest by higher rents. This group can include people earning, say, $20 to $35 per hour — about $40,000 to $70,000 per year. An hourly wage of $20 per hour is a gross monthly income of $3,500 — or about $2,700 a month after taxes and deductions. At $35 per hour, that’s about $4,300 after taxes and deductions.

For a two-income household, renting is feasible. For a one-income household including single-parents, if your take-home pay is $2,700 to $4,300 that can be pretty slim. June, 2023, costs for rent plus utilities are in the $1,300 low side / $1,800 upper side for a one-bedroom apartment. Three-bedroom house rents, with utilities, are around $2,000 low side / $2,600 upper side. In other words, this is along the lines of 40%-50% — or more — of take-home income — and this is not, by anyone’s definition, affordable.

How to read this article

David Loya:
When a market excludes you on cost, it is unaffordable. When it does not, it is affordable.

 

The term “affordable housing” is perhaps one of the most enigmatic of the terms of art that we use.

 

1.  Just the main points, and my comments.
Here are 20 bullet-point statements from David Loya on Affordably Housing and Gentrification, selected from the May 9 staff report. I have added my comments, in blue and clearly separated. Click or press here to go to bullet-points and comments on Affordability.  Click or press here to go to bullet-points and comments on Gentrification.  
If you do not want to read the commentary, you can skim it or skip it and just read the 20 bullet points.

2. In shorter paragraphs, with highlights — no commentary.
David Loya’s writing style is dense, and in many ways overly complex and obscure. To help the reader, I separated paragraphs into shorter pieces, and added highlights to accentuate some sentences and phrases. This is done for clarity, to enable you to better follow the thread of what David Loya is expressing. All of it is there, just in easier-to-read segments. You can read what David Loya wrote in this format here.

3. The original document.
Community Development Director David Loya wrote 2-1/2 pages on “Affordable Housing and Gentrification” for the May 9, 2023, Planning Commission meeting. The PDF of the actual staff report can be seen below, click here.

 

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1. Selections from the staff report plus Commentary

From the original document in black or red.
Comments are in blue and are indented.

a)  Affordable Housing

David Loya:  “It is important to note that all of these definitions and programmatic applications lose sight of the way we experience affordable housing at the household level.”

 

Comment:
It is not the “definitions and applications” that lose sight of the way we experience affordable housing.

 

Definitions and applications don’t lose sight of anything. It is the humans behind those definitions and applications.

 

It is Arcata’s Community Development Director who has lost sight of what affordable housing is.

  • David Loya:  First, folks have been confused about what we mean when we use the term affordable housing. In particular, when the term “market rate affordable housing” has been used.

One reason people are confused is because there’s been a lack of definitions. For a discussion on this, see the article:  What are the definitions of Affordable Housing?

The term “market rate affordable housing” that David Loya uses is another one of his phrases that does not make sense, at least not for us here in Arcata. In theory, in some locales, “market rate” housing can be affordable. But here in Arcata, what is being charged as market rate is not considered affordable to typical working people. So the reason that “folks have been confused” by David Loya’s use of the term “market rate affordable housing” is simply that this does not exist, and David Loya keeps maintaining that it does exist, or will exist. Housing is either “market rate” or it is “affordable” — but not both, at least not around here.

  • David Loya:  The term “affordable housing” is perhaps one of the most enigmatic of the terms of art that we use.

Yes, the phrase “terms of art” is in the original document. Definition of “enigmatic” as:  Difficult to interpret or understand; mysterious.
This sentence can be re-written as: 
“The term “affordable housing” is perhaps one of the most mysterious and difficult to understand of all the terms of art that we use.”

Well, how about making affordable housing less mysterious for us?

  • David Loya:  It is important to note that all of these definitions and programmatic applications lose sight of the way we experience affordable housing at the household level.
    [Affordable Housing] means something different at the programmatic level than it does at the household level. At a personal level, the programmatic determination of rent may or may not be affordable.

What David Loya seems to be saying is that on the one hand we have the “programmatic level” of how affordable housing is designated. That’s the bureaucrat’s version of how life is supposed to be — the statistician’s version, the bean-counter’s approach.

A discussion of the “programmatic level” is necessary, so we can understand how funding and subsidizes come from the State and Federal government. But if indeed “all of these definitions and programmatic applications lose sight of the way we experience affordable housing at the household level” as he says, then how about creating a real and honest version of “affordable housing” for the people living in Arcata?

And, by the way — it is not the “definitions” that lose sight of the way we experience affordable housing. Definitions and applications don’t lose sight of anything. It is the humans behind those definitions and applications. It is Arcata’s Community Development Director who has lost sight of what affordable housing is.

  • David Loya:  When we use terms such as market rate affordable, we generally mean that the units will be on the lower cost end of the spectrum based on their size or configuration. This term is not intended to imply that there is a restriction on rent, nor is it intended to imply that it equates to 30% of a household’s income.

So: “Market rate affordable” means that the units will be on the lower cost end of the spectrum, according to David Loya. In the real world, this does not seem to be the case necessarily. Market rate will essentially be what the market can bear. Market rate apartments may well be at the higher end of the spectrum, as they represent newer additions to the rental marketplace.

  • David Loya:  Staff anticipates that the full range of restricted and unrestricted affordable units will be developed in the Gateway Area, as well as in other areas of town that will be more attractive for housing development with the updated General Plan.

We are told that staff “anticipates” this. But there is very little proof offered in the Gateway Plan. And I have zero confidence that this will indeed occur. The “full range” of affordable units? There is no mechanism to provide workforce housing. None.

  • David Loya:  Housing cost either impinges on your ability to meet your other budget obligations, such as food, utilities, health care, and the like, or it doesn’t. When it does, the housing is less affordable. When a market excludes you on cost, it is unaffordable. When it does not, it is affordable.

And here we have David Loya’s definition of affordable housing: When a market excludes you on cost, it is unaffordable.
This is an entirely circular statement. Other ways of saying this — and I’m being silly here, because the David Loya statement is silly:

      • If you cannot afford to live in Arcata, that is because the rents are unaffordable.
      • Housing is considered to be unaffordable if you’re not able to pay it.
      • If you cannot afford to pay rent because it is too high, that’s because it is not affordable.

Could we please have a definition that is not self-referential? Please. I am asking for a definition of affordable housing that does not rely on its own definition in order to define itself. 

  • David Loya:  The feasibility of higher density projects will rely in part on providing higher cost options that are affordable to moderate- and above moderate-income families.

What is being said here is that the feasibility — that is, the likelihood that they will happen at all — of new apartment buildings will rely on providing “higher cost options.” That means the higher-cost apartments will allow a blend of apartments to exist.

That may well be the case. But let’s be honest. Those “higher cost options” will not be affordable to moderate-income families. 

To say that the higher-cost apartments will be affordable to moderate-income families is misleading, unbecoming of a Community Development Directory, and quite simply false.

  • David Loya:  While there are many ways to consider which real estate investments are financially feasible, if the projects do not have a reasonable capitalization rate, which considers the revenue generated in relationship to the market value of the project, and the return on the investment does not net positive, the projects will not be developed.

We’ll ignore the grammatical issues within this sentence. What is expressed is certainly true.  If a developer cannot make an appropriate profit on constructing an apartment, that project won’t get built. That’s simple and known. 

What is left out of this equation, however, is whether it’s possible to build workforce affordable housing and have the project be profitable. In today’s economic realities, with all the very many high costs of developing and constructing a new apartment building, it seems that it is not possible — or not without a “thinking outside of the box” approach.

David Loya has described the problem. But he has not offered solutions.

.

Selections from the staff report plus Commentary

From the original document in black or red.
Comments are in blue and are indented.

b)  Gentrification

  • David Loya:  Gentrification theoretically raises rents on existing housing as investment in an area increases the desirability of that area.

No, gentrification does not “theoretically” raise rents. It actually raises rents. That the area becomes more desirable is one cause. Another is that area landlords, once they see that higher rents are possible, will raise their rents. Why? Because that it is how “the market” works, as David Loya has told us. And it’s true. In Arcata, when rents have gone up with one landlord or with one project, rent prices in general have also gone up. And we can fully anticipate that tendency to continue.

  • David Loya:  The reasoning goes, the provision of new units that are unrestricted and built for higher income families combined with the area affect on existing rents [Ed. note: should be “effect”] forces existing households out as they are priced out of the market.
  • David Loya:  There have been several studies trying to assess the relationship between housing development and gentrification.

    A study by Stanford University researcher recently found gentrification disproportionately affected minorities. 

“There have been several studies” ?  More like several thousand studies on the relationship between development and gentrification. One Internet article found close to 9,000.

Studies about gentrification tend toward its effects in larger, more urban areas — and in cities where there may be distinct lower-income neighborhoods where people can move to if they are forced out. People who want to live in Arcata do have some options of instead living in Eureka, McKinleyville, Fortuna, etc. — and not have walking or immediate biking access Arcata and the university. 

David Loya likely did not read the article that is connected to this link of the study by the “Stanford University researcher.” The link goes to an article about the study and not the study itself, and the study was done with a co-author from the Federal Reserve Bank of Philadelphia. The information in the article is not particularly relevant to our situation in Arcata. The study was of residents of non-Black gentrifying areas versus Black gentrifying areas in the city of Philadelphia. 

  • David Loya:  But the causes of mobility among lower-income households is difficult to link directly to new investment, and policy decisions can impact the effect of new investment on lower-income populations. While some studies have found a weak relationship between housing production and displacement caused by increase rents, most research reveals myriad related policy factors that have an impact on the outcomes of new development.

My take on studies and articles is that, while interesting, they just are not relevant. First, the studies are on cities that are large and with their own set of issues and difficulties. The pressures on growth and gentrification here in Arcata are unique:

      • A combination of Cal Poly Humboldt growth (more than doubling)
      • The increasing ability for higher-paid workers to work from remote non-office locations.
      • What we call “climate-change refugees,” as people leave areas to the south of us that are more prone to fires, need for air-conditioning during hot spells, and water shortages from drought.
      • Very high housing costs in other parts of California, making a $600,000 house here seem cheap by comparison. This has been going on for decades here. In contemporary prices, if a person can sell a home in San Jose for $1.3 million and buy here for half of that, it’s a viable economic retirement option.
      • Our beaches and outdoor activity attractions.
      • Fewer people. More relaxed lifestyle. Theoretical less susceptible to a pandemic.
      • The recognition that it is nice here!  We know this, and now other people are finding out too.

David Loya’s staff report on Affordable Housing and Gentrification does not discuss any of these acknowledged pressures. He’s mentioned some of these in the past. But in this staff report for an actual Planning Commission agenda item on these hugely important issues — he says nothing.

  • David Loya:  The Gateway Area Plan addresses the possibility of displacement in several ways. First, there are policies to protect existing residents.

What policies are in place to “protect existing residents”? I don’t see any. David Loya says that they are there, but does not call them out or specify them. Where is there a single policy that protects existing residents? 

  • David Loya:  These policies are backed up by programs to assist relation [Ed. note:  relocation?] where necessary.

There is talk of programs. But who wants to get money to relocate … as opposed to being able to stay where you are? Reader, I ask you: If you were a renter whose rent went from $1,200 to $1,800, thus forcing you to leave the city of Arcata, would a sum like $4,000 help with your dislocation?  Of course it “helps” — but the overall result is the same. You are not living where you want to live. Relocation assistance is a poor substitute for proper planning and consideration of existing residents.

  • David Loya:  These are best practices recommended by the research to prevent the negative impacts of new investment.

Forget “best practices recommended by the research” done in Philadelphia, San Francisco, Los Angeles, cities in the Mid-West. We are here in Arcata, with our unique set of circumstances. We can anticipate the trend of housing costs, based on the factors currently at play here. In my view, if this the “best” that our Community Development Director can come up with, then we need a different Community Development Director.

David Loya: 
“This has produced a plethora of one-bedroom and smaller Accessory Dwelling Units and apartments, or income restricted units.

 

This development pattern is currently excluding sectors the community needs to thrive.

 

Comment:
This statement is one of the few truthful and to the point statements in this entire staff report.

  • David Loya:  The current supply of housing units is not able to meet the current demand.
    We are lacking in a range of housing types, but the missing middle workforce housing is hit particularly hard, as is higher end offerings.

Yes, we know.
To say that “higher end offerings” are hit particularly hard — is that really the problem we’re looking to solve here in a staff report on Affordable Housing?

  • David Loya:  The City has predominantly seen production of low-cost, low-investment, market rate affordable housing for small households and subsidized affordable housing projects over the last ten years. 

If by “low-cost, low-investment, market rate affordable housing for small households” David Loya means the 182 one-bedroom apartments on Foster Avenue built by Kurt Kramer and Steve Stombeck” — these are market rate, and not necessarily affordable. They are indeed “low-cost, low-investment” for the developers. And I guess “for small households” is the current euphemism for a one-bedroom unit.

  • David Loya:  This has produced a plethora of one-bedroom and smaller Accessory Dwelling Units and apartments, or income restricted units. This development pattern is currently excluding sectors the community needs to thrive. 

“This development pattern is currently excluding sectors the community needs to thrive.”  This statement is one of the few truthful and to the point statements in this entire staff report.

This statement is one of the few truthful and to the point statements in this entire staff report.

  • David Loya:  Furthermore, the policy decision balances that fear the future investment will displace current residents against the reality of the extant and very real housing crisis.

This is more of gobbledygook from David Loya. The “policy decision”?  What policy decision? What balance?

  • David Loya:  Staff suggests the risk of future gentrification pales compared to the dire current housing need. In particular because there are policies and programs to prevent wholesale gentrification in the draft plans.

David Loya is saying that supplying apartments for the housing crisis is more important than the risk of displacing current residents because of rising housing costs.

And — these policies and programs to prevent gentrification:  Where are they? Can we see them?

 


.

2.  Affordable Housing and Gentrification

Below is the section of the May 9 staff report on “Affordable Housing and Gentrification.” What is shown here has been altered from the original in these ways:

  • Paragraphs have been split into smaller pieces. This is done for clarity, to enable the reader to better follow the thread of what David Loya is expressing.
  • Highlights have been added in bold and in red. Again, to assist the reader.
  • A small number of editorial notes have been added where there is what appears to be a typographical or wrong-word usage error. 

The Staff Report:

Staff has heard two themes regarding affordable housing during engagement on the General Plan update.

First, folks have been confused about what we mean when we use the term affordable housing. In particular, when the term “market rate affordable housing” has been used.

The second issue relates to gentrification and the concern that the new development will exacerbate, not relieve, the tension in our local housing market.

The term “affordable housing” is perhaps one of the most enigmatic of the terms of art that we use. [Ed. note:  The word “art” is in the original document.]

First, the term means something different at the programmatic level than it does at the household level. Programmatically, affordable housing is determined at a County level based on median income for family size. At a personal level, the programmatic determination of rent may or may not be affordable.

Second, there are multiple Federal and State definitions that are program dependent. The HUD, Tax Credit Allocation Committee, CA Health and Safety Code, and Housing Element Law have similar definitions with slight variations that end in different definitions of affordable. Furthermore, different programs allow different proportions of rent or debt to income ratios to be considered affordable.

The Department of Housing and Community Development (HCD) publishes annual tables of official federal and State income limits for determining these maximums for a variety of programs, including most of those on the web site. State statutory limits are based on federal limits set and periodically revised by the U.S. Department of Housing and Urban Development (HUD) for the Section 8 Housing Choice Voucher Program. HUD’s limits are based on surveys of local area median income (AMI). The commonly used income categories are approximately as follows, subject to variations for household size and other factors:

Acutely low income: 0-15% of AMI
Extremely low income: 15-30% of AMI
Very low income: 30% to 50% of AMI 3.4
Lower income: 50% to 80% of AMI; the term may also be used to mean 0% to 80% of AMI
Moderate income: 80% to 120% of AMI
Above moderate income: >120% of AMI

“Affordable housing cost” for lower-income rental households is defined in State law as not more than 30 percent of gross household income with variations (Health and Safety Code Section 50052.5). The comparable federal limit, more widely used, is 30 percent of gross income, with variations. “Housing cost” commonly includes rent or mortgage payments, utilities (gas, electricity, water, sewer, garbage, recycling, green waste), and property taxes and insurance on owner-occupied housing.

California State Income Limits apply to State and local affordable housing programs statutorily linked to HUD income limits and differ from income limits applicable to other specific federal, State, or local programs. Health and Safety Code (H&SC) Section 50093 require the California Department of Housing and Community Development (HCD) to publish updated State Income Limits for acutely low, extremely low, very low, low, and moderate-income categories when the U.S. Department of Housing and Urban Development (HUD) updates its Section 8 program income limits. HUD released updated FY 2022 income limits on April 19, 2022. HCD updated its 2022 State Income Limits (effective May 13, 2022) when requesting the Office of Administrative Law (OAL) to publish 2022 Income Limits in the California Code of Regulations (Title 25, Section 6932 ).

A project that qualifies as a multifamily tax subsidy project will have special income limits. These limits result in higher rents than those for the standard HCD basis using the HUD methodology. And HOME, CDBG and our local funded homeownership program considers housing costs up to 37% debt-to-income affordable. Most banks use a similar ratio for underwriting private loans.

When staff use the term “affordable housing” with reference to a formal agreement limiting sales price or rent, a regulatory agreement, we are generally referring to the income and rent or subsidy limits set by the HOME Program or the Tax Credit Committee. The specifics are identifies [Ed. note:  identified] in the Regulatory Agreement.

When we use terms such as market rate affordable, we generally mean that the units will be on the lower cost end of the spectrum based on their size or configuration.

This term is not intended to imply that there is a restriction on rent, nor is it intended to imply that it equates to 30% of a household’s income.

When staff refers to the affordability limits set in the Housing Element, we are referring to the terms as defined in Health and Safety Code Secs. 50052.2, 50053, and 50093. These are used by HCD to measure progress meeting the City’s share of the Housing Allocation.

Staff anticipates that the full range of restricted and unrestricted affordable units will be developed in the Gateway Area, as well as in other areas of town that will be more attractive for housing development with the updated General Plan. The City will continue to work with partners to bring a range of housing options to the community. And the incentives in the community benefits program will drive mixed-income developments.

It is important to note that all of these definitions and programmatic applications lose sight of the way we experience affordable housing at the household level.

Housing cost either impinges on your ability to meet your other budget obligations, such as food, utilities, health care, and the like, or it doesn’t. When it does, the housing is less affordable. When a market excludes you on cost, it is unaffordable. When it does not, it is affordable.

Even restricted affordable rents may not be “affordable” to the household. Rent limits are set by the State for each income category and family size. HOME High rent is set at 30% of 65% of Area Median Income (AMI). Households earning 80% AMI or less qualify for a HOME High rent unit. If 3.4 Packet Pg. 10 the household earns less than 65% AMI, they will be paying more than 30% of their household’s income in rent. The City needs the full range of affordability options from the highest income earners to the lowest to adequately provide for our current and future community.

The feasibility of higher density projects will rely in part on providing higher cost options that are affordable to moderate- and above moderate-income families.

While there are many ways to consider which real estate investments are financially feasible, if the projects do not have a reasonable capitalization rate, which considers the revenue generated in relationship to the market value of the project, and the return on the investment does not net positive, the projects will not be developed.

 

This leads to the concern that gentrification will result as projects will trend towards the upper end, creating housing that is not affordable to moderate- and lower income households.

Gentrification theoretically raises rents on existing housing as investment in an area increases the desirability of that area. The reasoning goes, the provision of new units that are unrestricted and built for higher income families combined with the area affect [Ed. note:  effect] on existing rents forces existing households out as they are priced out of the market.

There have been several studies trying to assess the relationship between housing development and gentrification. A study by Stanford University researcher recently found gentrification disproportionately affected minorities. [Ed. note:  This is a link to a 2-page article about the study, not to the study itself. There were two researchers, one from Stanford University and one from the Federal Reserve Bank of Philadelphia. The study analyzed gentrification in the city of Philadelphia, specifically of traditionally Black gentrifying neighborhoods. The population of the city of Philadelphia is 1.6 million and the metro area population is 5.8 million.]

But the causes of mobility among lower-income households is difficult to link directly to new investment, and policy decisions can impact the effect of new investment on lower-income populations (HUD – see summary here and full paper here). [Ed. note:  2016, 8 pages] While some studies have found a weak relationship between housing production and displacement caused by increase rents, most research reveals myriad related policy factors that have an impact on the outcomes of new development.

The Gateway Area Plan addresses the possibility of displacement in several ways. First, there are policies to protect existing residents. These policies are backed up by programs to assist relation [Ed. note: relocation] where necessary. The inclusionary zoning and incentives for additional affordable housing further address the concern that all rents will rise, ensuring that a proportion of all new units will be reserved for moderate- and lower-income households. In addition, the City is actively engaged in creation and preservation of affordable housing throughout the City. These are best practices recommended by the research to prevent the negative impacts of new investment.

Furthermore, the policy decision balances that fear the future investment will displace current residents against the reality of the extant and very real housing crisis. The current supply of housing units is not able to meet the current demand. We are lacking in a range of housing types, but the missing middle workforce housing is hit particularly hard , as is higher end offerings. The City has predominantly seen production of low-cost, low-investment, market rate affordable housing for small households and subsidized affordable housing projects over the last ten years. 

This has produced a plethora of one-bedroom and smaller Accessory Dwelling Units and apartments, or income restricted units. This development pattern is currently excluding sectors the community needs to thrive.

Staff suggests the risk of future gentrification pales compared to the dire current housing need. In particular because there are policies and programs to prevent wholesale gentrification in the draft plans.


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3.  The actual staff report

Below are pages 9-12 of the original May 9, 2023, staff report with the sections “Affordable Housing and Gentrification” and “Ownership Opportunities.” The Affordable Housing section starts at around half-way down the first page shown.