This is part 3 of a series of articles on affordable housing in Redwood City. Part 2 can be found here. Part 1 can be found here.

After my first two articles on affordable housing in Redwood City, the next logical step—in my mind, anyway—is to understand how such housing is subsidized. This third article has taken me a while to write due to the amount of background material I had to go through, and because much of the source material is written in “legalese” (and I’m no lawyer!). Of course, I can’t actually claim to understand it all and I can’t say that I’ve actually read everything there is on the subject. While there undoubtedly are people more expert than I in this area, I have learned a lot and hope to impart some of what I learned in this, the third article in my “How Low Can You Go” series.

If the phrases “assisted living” and “subsidized housing” cause you to think that some outside entity is helping pay the rent, you would be correct! There are indeed programs that help both renters and homeowners pay for housing. But it goes much farther than that: much of the assistance that has brought Redwood City’s assisted living projects into being is applied much earlier, at the project’s inception or during its construction.

When either constructing or converting an apartment building, group home, or for-sale house to low-income housing, there are a number of city, state, and federal programs that can help mitigate costs. Most assistance seems to come in the form of a low-interest or deferred-payment loan; this money can be used to purchase land, purchase an existing building, refurbish an existing structure, or build a new one. There is some private funding, out there, of course (Habitat for Humanity, for instance, is one well-known organization that not only helps with financing but actually builds single-family homes using some donated materials and some volunteer labor) but most of it comes from one governmental entity or another. When the costs associated with the creation of an assisted-living building are reduced, the savings can be passed on to the future residents, making things more directly affordable. Rent subsidies can then be used to fill in any remaining gaps.

As I said, there are a number of city, state, and federal programs that can be brought to bear on any given project. Most projects, in fact, seem to employ multiple such programs, weaving them together to make the project cost-effective, even in an expensive area such as ours. After looking over the various low-income projects within Redwood City, I put together a rather long list of programs that are being employed. In no particular order, here is a sampling (most, but not all of those I’ve listed are from HUD, the U.S. Department of Housing and Urban Development):

• HOME Investment Partnership Program. This federal program provides funds for a variety of purposes, all with an aim towards assisting low-income households obtain housing. For instance, the funds can be applied towards the down payment for a home purchase by a low-income buyer, reducing the outstanding loan amount and thus the monthly mortgage payment. Or, they can be used to fund the construction or renovation of housing intended for low-income households. Or, they can be used to fund the purchase of property that will either be built upon or rehabilitated into low-income housing.
• “Section 8” programs. So named because they are spelled out in section 8 of the Federal Housing Act of 1937, these authorize the payment of rental housing assistance to landlords on behalf of low-income households. HUD HAP (Housing Assistance Payment) contracts are part of Section 8; they provide rental subsidies for eligible families or individuals who live in newly constructed, rehabilitated, or existing rental and cooperative apartment projects. HAP contracts apply to a specified number of units within a project and make up the difference between the HUD-approved rent for a particular unit and the tenant’s household monthly adjusted income.
• Section 202. This HUD program provides interest-free capital advances to private nonprofits with an aim towards financing the construction of supportive housing for the elderly. As long as the project serves very low-income elderly persons for a term of at least 40 years, the advance does not have to be repaid.
• Section 236. This HUD program uses an interest rate subsidy to make rents affordable to low-income households. In this program, the property owner makes mortgage payments based on a 1% mortgage interest rate. HUD then makes up the difference between what the owner pays and the market interest rate.
• Section 221(d)(3) and 221(d)(4). These HUD programs provide mortgage insurance for rental and cooperative housing. Section 221(d)(4), in particular, insures mortgage loans to encourage the new construction or substantial rehabilitation of multifamily rentals, cooperative housing, or SRO (Single Room Occupancy) projects for moderate-income families, elderly, and the handicapped.
• CDBG (Community Development Block Grant). Funds local community development activities such as affordable housing, anti-poverty programs, and infrastructure development. Unlike categorical grants, CDBGs are subject to less federal oversight and are largely used at the discretion of the state and local governments and their subgrantees (such as Redwood City). CDBG projects must benefit low- and moderate-income people, must prevent or eliminate slums or blight, or must be applied toward other community development activities that attempt to address an urgent threat to health or safety.
• State HCD RHCP. The California Housing and Community Development Rental Housing Construction Program provides loans for new multifamily developments, funded through Propositions 84 (passed in 1988) and 107 (passed in 1990).
• Land write-down: A redevelopment agency can encourage specifically defined and controlled new development in a redevelopment area by offering land at a lower-than-market value. The lower price (the “land write-down”) results when the redevelopment agency assumes part of the acquisition, demolition, and improvement costs and then imposes more stringent development requirements on the land.
• Redevelopment Agency (RDA). Perhaps the primary mechanism that cities (including Redwood City) have used in the past to directly support low-income and special-needs housing. Redevelopment agencies were supported by state and federal statutes and had the authority to acquire real property and to develop and sell property without bidding; they also had the power of eminent domain. A redevelopment agency gave a city or county the ability to capture a larger percentage of property taxes: once the controlling agency (such as Redwood City) defined an area as a “redevelopment project area”, the share of property taxes that went to schools and other local agencies was frozen at the current level. Any growth in property taxes from that point until the redevelopment agency expired (usually, after 50 years) went to the redevelopment agency. Those funds could then be used to build or fund low-income housing or to combat blight. Unfortunately, as of Feb 1, 2013 California redevelopment agencies were dissolved. Governor Brown argued that California, which was undergoing a budget crisis, couldn’t afford redevelopment. He wanted the extra funds to go to schools, fire and police departments, and other core city and county services. And given that the state was mandated by Prop 98 (enacted in 1988) to maintain a minimum level of funding for education, in some cases the state had to make up for some of the redevelopment funds that otherwise would have gone to the schools. Thus, the dissolution of California’s redevelopment agencies.

Over the years the redevelopment agencies had accumulated a pile of tax money dedicated for public housing. The State Assembly passed AB 1585, which required that any amounts on deposit in the Low and Moderate Income Housing Fund (L&M Fund) of a former RDA (redevelopment agency) be transferred to the successor housing entity and used for affordable housing rather than being distributed as property tax revenue. Redwood City had some $10 million in this fund when the agency was dissolved; as of last June this fund has assets of just under $11.5 million, and liabilities of $500,000.

When redevelopment agencies were eliminated, the City of Redwood City became the legal successor to the redevelopment agency, assuming control over the agency’s remaining assets (and ever since that time, our City Council meetings have been “Joint City Council/Successor Agency” meetings). As a successor agency, the city is focused on the disposition of the former RDA’s funds which were earmarked for below‐market housing. However, the control of these funds has been in dispute with the State of California Department of Finance since the RDA was dissolved. The City filed suit against the State, challenging the State’s position that these funds are unencumbered and must be handed over to the County Controller. Although the State prevailed in Superior Court, the City has filed an appeal; the appellate court should render a decision in the next six to twelve months.

While they had them, Redwood City seems to have put its redevelopment agency powers to good use. In its financial statements for the fiscal year ending June 30, 2014 [pdf link], the city listed the following housing-related redevelopment agency projects (this may not be the whole list; these are the ones that had outstanding financial activity when the financial statements were put together):

• Wyndham Place First Time Homebuyer Loan Program: the city has first right of refusal for units being resold at Wyndham Place. When a unit comes on the market, the city purchases the unit and then sells it to a qualified buyer. Back in 1995, when this program was first put into place, the city made 0% loans to buyers. Nowadays, the city works with each buyer and, based upon their needs, provides assistance. Depending upon the buyer’s ability to secure a first mortgage through a private lender, the city loans additional money based upon the buyer’s income. Typically the buyer has five years from the date of purchase before they have to begin repaying the city’s loan.
• City Centre Plaza Loans: in 1996 our redevelopment agency sold the land for the City Centre Plaza project to the project developers for $1.7M. The developers constructed City Center Plaza, which, among other things, contains 81 affordable housing units and a childcare facility. The city loaned $1.445M to the project which is being repaid from surplus revenues generated by the housing project along with accrued interest at 3%.
• First Time Homebuyer Silent Loan Program: this program was established in the year 2000. It grants 30-year loans with the following terms: the loan is deferred for the first five years, and then amortized at 4% interest over the remaining 25. Equity is shared between the homebuyer and the city based on the amount of the original loan.
• Loans with Non-profits and For Profit Organizations: in 2003 the city and the former Redevelopment Agency loaned $500,000 to MP Redwood Court Associates for the repair and rehabilitation of housing units. This was a 55-year, 0% interest loan. Another loan, in the amount of $650,000, was granted to Hallmark Apartments LLP. Interest on this loan is deferred for the first 30 years, after which, until the loan matures in 2058, it bears interest at a rate of 3%.
• Housing Rehabilitation Loans: the city and former Redevelopment Agency made a number of loans for the purposes of housing rehabilitation. Currently there is $1.6 million in outstanding loans.
• First Community Housing Loan: Villa Montgomery (located on El Camino, at Vera Avenue) was constructed partly with a loan of $2.6 million from the city. This loan has a rate of 3% and a term of 40 years.
• Kainos Home and Training Center Loan: in 1997 the city loaned $57,500 to Kainos Home and Training Center so that they could acquire the property for their center. The loan is deferred and payable only upon sale of the property, at which time the city would receive not only the loan amount but a prorated share of the equity. A second loan was made to Kainos in the amount of $450,000 to acquire additional property for special needs housing. This loan is deferred for a term of 30 years at 0% interest.
• HIP Housing Development Corporation Loan: The city loaned some $92,000 to HIP Housing Development Corporation for the rehabilitation of a 12-unit apartment building located on Willow Road in Menlo Park. The loan is deferred for a term of 30 years, at 3% interest.

The redevelopment agency was a powerful tool that cities such as Redwood City could use to combat urban blight. Whether or not we win the lawsuit to retain control of the millions that the redevelopment agency had been managing, without the agency’s ability to accumulate additional tax monies the City Council has to rely on other mechanisms—such as those programs I listed near the beginning of this post—to help with the low-income housing problem. It is working to come up with new programs, as well: the Partnership Redwood City “Community Benefits” Program that is currently being developed is one such program. This program seeks to ensure that developers provide specific benefits or amenities to the city as part of their future development projects.

Finally, a brief word about the new housing projects that are being built. Radius Apartments (at 640 Veterans Blvd.; formerly this was the Dodge dealership) includes 22 rental units (out of 264) for qualified low-income households. They actually put out a flyer just for these; it can be found here [pdf link]. Of the 132 units in Township Luxury Apartments, at 333 Main St. (behind the In ‘n Out Burger on Veterans), 17 are moderate-income rental units. Their affordable housing information sheet is here [pdf link]. And The Lane on the Boulevard (the site formerly occupied by Mel’s Bowl, on El Camino) has set aside 5 of its 141 units for qualified median income households. See this page for income limits and rents. From what I can tell, none of the others—including the 469-unit Indigo—have any below-market-rate units for low to moderate income households. At least, none of these others are listed on Redwood City’s Affordable Housing web page, and none of their websites seem to list any sort of affordable options.

It is encouraging to know that there are some programs in place—and, possibly, new ones coming—to provide assistance with our astronomically high housing costs for at least some of those folks who truly need it. But the number of subsidized units, and the level to which they are subsidized, is woefully inadequate given the number of low-income households in Redwood City. We still have a very long way to go before many of the people who provide many of our basic services can actually afford to live in our community. Our City Council appears to be in support of low-income housing, but the loss of our redevelopment agency makes their job much more difficult. I for one am keeping my fingers crossed that they come up with some creative solutions to this very serious problem.