Bond-Financed Apartments Offer Little or No Rent Break for ‘Poor’
Orange County’s current apartment building boom was triggered by a $1-billion-bond-financing program aimed at boosting the county’s meager supply of lower-cost housing.
But, as advocates of affordable housing at the county’s Human Relations Commission recently discovered to their chagrin, many who are moving into the new apartment complexes are getting little or no break on rents.
And though efforts are being made to fix that problem, changes in federal income tax rules are likely to destroy the bond program before it can really begin to help those it was designed to aid.
A key requirement of the bond programs has been that at least 20% of the units in each apartment complex must be set aside for lower-income renters--defined as those whose annual incomes are 80% or less of the county median family income.
But Orange County’s median income is extraordinarily high--the “lower-income” tenants eligible to rent the specially reserved apartments can earn as much as $29,440 a year.
No Rent Ceiling Before
And, until this year, the federal bond program administered by the county did not impose a rent ceiling on the so-called “affordable” apartments. Developers simply were required to find lower-income tenants to rent the units.
Many developers found that in Orange County, people designated as “low income” under the federal program are often able to afford market rate rents.
With a few exceptions--such as in Irvine, where the city enforces its own rent ceilings and requires the construction of three-bedroom units--there is no need for developers who benefit from the bond program to design apartments for the truly poor or for large families.
“All the affordable (apartment housing) is targeted for professional people, not those in blue-collar and service jobs,” said Peter Hersh, the county Environmental Management Agency official who administers the affordable housing program.
Jean Forbath, a member of the housing committee of the Human Relations Commission, said that when the commission last spring conducted a survey of bond-financed apartments, its members were “horrified” to learn that at many apartment complexes the rents charged for the “affordable” units were only slightly less--and sometimes exactly the same--as the rents for the other apartments.
“It was not a very good use of taxpayers’ money,” Forbath said of the 4-year-old program, which gave buyers of the bonds tax-free income.
Program Link Denied
“Most people think the bond program has something to do with low-income housing, and it doesn’t,” said Donna Hayden, property manager for River Oaks, a Newport Beach company that builds and manages apartments.
Hayden said River Oaks hasn’t felt it necessary to give rent discounts to fill its “affordable units.” Instead, she said, in order to keep the affordable units occupied, the company sometimes has relaxed its normal requirement that tenants pay no more than 30% of their gross income for rent.
In some instances, Hayden said, tenants in “affordable” apartments are paying almost half of their income for rent at the River Oaks complex in El Toro, where the least expensive unit rents for $675 a month.
One result, said Hayden, is that tenants in these units represent a disproportionately large share of the company’s rent collection problems at the complex.
Sandra J. McClymonds, a senior staff analyst with the county administrative office, said that of the last 491 affordable units built under the county’s bond program, 43% were rented to households earning 50% or less of the median income and the rest were rented to households earning between 50% and 80% of the median income.
McClymonds said she was “surprised . . . considering the high rents” that so many of the apartments were being rented by the lower-income category of tenants. She said she is mystified as to how the renters afford the payments.
McClymonds said she had no idea what part of the tenants’ incomes is being spent on rent for the affordable units.
Jeff Stone, executive vice president of Orange-based Western National Properties, a major local apartment developer, said that in Orange County, “the bonds have provided us with very attractive interest rates and today we have been able to charge market rates on those units.” But if market rents soar in the future, Stone said, owners of bond-financed apartments may have to charge markedly lower rents on the “affordable” apartments to keep them filled with tenants who qualify under the federal income restrictions. The bond program requires such units to be rented to lower income tenants for at least 10 years.
Responsible for Boom
In defense of the bond program, county officials and developers say that its low-interest construction and mortgage loans are responsible for most of the apartments being built this year. A total of $857 million worth of bonds was issued by the county alone last year.
Under the law of supply and demand, they argue, the infusion of new apartments will tend to help prevent rent hikes throughout the county to the benefit of all renters, who make up about 42% of the county population.
Modifications of the bond program recently enacted by the state--and other changes proposed by the Human Relations Commission and in federal legislation--would impose reduced rents and require developers of future bond-financed apartments to provide housing priced for families earning less than 50% of an area’s median income.
However, city and county administrators of the apartment bond programs say they expect that the pending federal tax reform legislation, which would severely limit the size of future bond sales and impose other restrictions, will emasculate the program. Jeff Niven, manager of fiscal services for the City of Irvine, predicted that the federal legislation “will virtually eliminate” further bond issues.
