Funding Affordable Housing in Santa Cruz

Artists rendering of the new Riverwalk Apartments in Downtown Santa Cruz

Artists rendering of the new Riverwalk Apartments in Downtown Santa Cruz

Last week the Santa Cruz City Council weighed in on the draft Housing Element for the City, a section of the General Plan that outlines how the City hopes to meet the Regional Housing Needs Allocation (RHNA) over the next seven years. The RHNA numbers are the projected total number of units that will need to be built in order to accomodate expected population growth, as estimated by the regional state governing authority, the Association of Monterey Bay Area Governments (AMBAG).

Beyond the alphabet soup, a Housing Element is essentially a seven year plan for accommodating new growth. This can take many forms, from rezoning specific parts of the City for greater density, to partnering with nonprofit developers to build affordable housing. The former option is easy enough, and the City is evaluating zoning changes accordingly, and even above what is required to meet the RHNA numbers because of the dire housing crisis affecting the region. However, partnering with others to build real affordable housing (available to someone earning less than 50 percent of the Area Median Income) is much harder, mainly because the City no longer has access to millions of dollars of Redevelopment funds.

As with many programs and policies during the 2008-2012 State budget crisis, Redevelopment was severely cut in order to cover the 30 billion plus deficit. These funds were typically awarded on an annual basis and were used not only to fund affordable housing, but also for general redevelopment and economic development purposes (think repairing sidewalks and street lamps, or providing micro loans to new businesses, etc.). However, without these funds Cities and Counties all across the state have had to cut back their efforts and make up the funding elsewhere, usually coming nowhere close to what they previously had.

In Santa Cruz the situation is no different, and last Tuesday’s meeting focused heavily on new funding sources for affordable housing. The good news: there are some things the City can do to generate a substantial amount of money, such as apply for one time housing grants and direct City lobbyists to pursue the adoption of new state legislation aimed at providing more consistent state funding. The bad news: neither of these new sources are guaranteed, nor available right now, meaning the City needs to explore other options, of which there were really only two that were discussed at the meeting. There are both listed below, feel free to vote and comment on each one.

Adopt a Real Estate Transfer Tax

A transfer tax would place a small percentage tax on the sale of all property within the City limits. There is already a transfer tax of half a percent levied on all property sales as governed by the state, however chartered Cities (Cities who predate the California Constitution) like Santa Cruz can increase this amount. Other Cities have already done so for the explicit purpose of funding affordable housing, like San Francisco and Berkeley, but such taxes are often fiercely opposed by property owners looking to sell and the real estate community. Santa Cruz could increase this tax, but it would be required to go before the voters in a ballot measure. The threshold to pass would be a simple majority, unless the city earmarked the funds for a specific purpose, in which case it would require two thirds approval.

Increase the City Transfer Tax to 5 PercentA transfer tax is a tax levied on the sale of real property within the City limits. The current tax rate is set at half a percent (.005). This initiative would increase the rate to 5 percent (.05), and place the measure on the City ballot for 2016 as it requires voter approval. The money generated from the tax would not be earmarked for any purpose so as to only require a simple majority vote, but the suggested allocation would be for affordable housing.

Increase the Transient Occupancy Tax

Transient Occupancy Taxes (TOT), also known as hotel taxes, are a specific tax levied on the cost of renting a non-permanent room. They apply explicitly to hotels, lodges, bed and breakfasts, and other vacation rentals, and are usually adopted in tourist communities to help fund projects that mitigate the impact of those tourists, like transportation infrastructure for instance. The argument to be made for TOT going to affordable housing is that short terms rentals do take permanent rental units off of the market. Santa Cruz currently has a TOT rate of eleven percent. Any move to increase the tax is likely to be strongly opposed by the hospitality industry.

Increase TOT rate to 13 Percent for Affordable HousingTransient Occupancy Taxes (TOT) are taxes levied on short term rental rooms, like hotels and lodges. Santa Cruz currently has a TOT rate of 11 percent. This initiative would increase that rate to 13 percent, with the new funds going toward affordable housing.



  1. Margaret McCuu says:

    I’d be fully supportive IF the vision included real homes for the homeless a la Salt Lake City to stabilize lives and enable them to become full members of the community. It makes good economic sense, and if the businessmen of Salt Lake can see the wisdom surely Santa Cruz should get with it.

  2. Margaret McCulley Casper says:

    Id be fully supportive IF the plan includes real housing a la Salt Lake City for the homeless to stabilize their lives. We need to get past the stuck thinking to see that providing attractive permanent homes to the homeless makes economic sense. If the conservative businessmen of Utah were able to open their minds to see the wisdom of such action, surely Santa Cruz can learn from them. It’s working in a way that our approach is not. We need imagination to create not just housing but neighborhoods where people want to live affordably.

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