Crunch Arrives in Orange County : Budget Cuts Closing Door on Affordable Housing

About 5,000 prospective buyers have placed their names on waiting lists for $80,000 to $200,000 homes in Rancho Santa Margarita, a community designed for first-time buyers.

About 12,000 low-income households are logged on the Orange County Housing Authority’s waiting list for government assistance with rent payments. And thousands more languish for years on separate lists in Santa Ana and Garden Grove.

The crunch in “affordable” housing has arrived. In Orange County’s overheated real estate market--where only 20% of residents can afford the $211,038 median-price resale home--residents are expressing uncharacteristic support for government intervention to help people cope, a poll for The Times Orange County Edition has found.

At the same time, however, many programs designed to help people cope with high housing costs are ending or undergoing significant budget cuts. The already short supply of low-cost housing is shrinking, due primarily to the phase-out of the county’s mandatory affordable housing program, escalating land prices and a severe cutback in federal housing subsidies.

The Orange County Housing Authority alone stands to lose subsidies for 6,220 of 6,712 households it serves, or about $27 million a year in federal funding, in October, 1990.

Jim Woods, 64, a retired civil engineer and Dana Point homeowner, said he “feels” for the younger working generation and believes government should require builders to produce lower-priced housing. “Something has got to be done,” said Woods, who was surveyed in the poll. “People who do the work have to find someplace to live.”

In the poll of 606 adults conducted by Mark Baldassare & Associates, 59% said local, state or federal governments have primary responsibility for taking care of the homeless; 63% said local governments should fund programs to help people who can’t scrape together enough money to get into rental housing, and 61% said they support rent control in Orange County.

Support for Aid

Moreover, 64% of all respondents supported “affordable housing” programs requiring builders to include units for various income groups in their new developments. Among renters, 70% favor such requirements. But even 61% of homeowners expressed their support.

“Typically, Orange County residents’ emphasis on civil liberties and fiscal conservatism means an automatic opposition to government spending and intervention,” Baldassare said. “But the escalating costs of owning or renting a home in Orange County have left many residents feeling vulnerable and supporting the concept of government safeguards.

“Many new homeowners are saddled with high bills in a home that is less than ideal, worrying that something could go wrong, such as the loss of one salary in a two-income household,” Baldassare said. “Even those who are happy in their current housing fear that their children or someone close to them might suffer hardships in this overheated housing market.”

The poll showed that renters, in particular, experience financial strain in Orange County, where the median monthly rent is $715. Half said they need more than one income to make ends meet, and 40% have to cut back on luxuries.

In the next five years, about half of the 4,535 affordable apartments that were built in the county under special federal mortgage and rental subsidy programs are expected to be converted to market-rate units. The rest may be converted by the year 2008. During the same period, Orange County would need an additional 24,000 low-income housing units to accommodate the needs of its residents, the Southern California Assn. of Governments estimates.

Much of the existing affordable housing was created under a program adopted by the county in 1979. The program required builders in fast-growing unincorporated areas to set aside 25% of their housing units for households earning less than 120% of the county’s median income level. Some of those units had to be reserved for households earning no more than 100% and 80% of the median.

Builder Opposition

Builders strongly opposed the mandatory requirements, which included limits on the profits that could be reaped from resale of affordable homes produced under the program.

In 1983, the Board of Supervisors voted to begin a three-year phase-out of the mandatory program, contending that free-market forces would address adequately the needs of low- to moderate-income groups. In place of the mandatory program, the board asked the building industry to meet the county’s housing affordability goals on a voluntary basis. The effectiveness of the voluntary program is uncertain because the reporting process has been incomplete.

A total of 9,014 houses and apartments were built under the county’s mandatory affordability program. An additional 17,566 affordable homes approved by the county before the law was changed still may be built in developments such as Aliso Viejo and Rancho Santa Margarita.

But that backlog of affordable housing should be exhausted in about five years. And builders say they no longer can produce single-family houses for first-time home buyers because of soaring land costs and government fees for roads, schools and other services that are passed on to the new owner. More builders instead are producing larger, more expensive and more profitable houses for the move-up buyers.

Critics complain that the county has made it too easy for builders to meet affordable housing quotas without really serving the poor, especially minimum-wage earners. They note that the mandatory program was based on the county’s exceptionally high median income, which the U.S. Department of Housing and Urban Development currently estimates to be $44,400.

Under that formula, a developer can provide housing for “low-income” households, defined as those earning up to 80% of the median income, by building bachelor apartments renting for as much as $915 a month.

Condo Life Style

For households earning $50,000 a year or less, apartments and condominiums are rapidly becoming a permanent life style, said Dale Dowers, president of Barratt Irvine, which builds single-family houses mostly priced from $300,000 to $600,000.

Nor are condominiums and apartments an inexpensive alternative. According to a recent survey of new condominium developments in Orange County, the average condo price is $169,154.

If it has become increasingly difficult for middle-income households to buy or rent, it is worse for low-income families. Many are forced to double up, live in substandard accommodations or sacrifice necessities like food and clothing.

By government definition, the “very poor” are those who earn 50% of the median income or less. In Orange County, that means households with annual incomes of less than $23,000.

To meet the housing needs of that income group, local governments must rely on state and federal subsidies. But the Reagan Administration and Congress have made budget cuts that will steadily reduce assistance programs for low-income households.

The county’s three housing authorities--Santa Ana, Garden Grove and the Orange County Housing Authority, which has jurisdiction over many cities as well as unincorporated areas--report that while they never received enough federal assistance to satisfy the demand for low-income rental assistance, they have been receiving fewer new subsidies in recent years.

Long Waiting List

Garden Grove, for example, has received subsidies for 53 low-income apartments this year. “But when you have 2,000 on a waiting list, 53 doesn’t make a big dent,” said Lynn Bielanski, housing manager for the Garden Grove Housing Authority. “More and more people need (subsidized) rental properties, and there isn’t enough to go around.”

An even greater worry for housing authorities is the pending expiration of 15-year rent subsidy contracts with the federal government.

If the contracts are not replaced and refinanced, thousands of households will no longer receive subsidies. Under the contracts, low-income households pay a third of their monthly income toward their rent, and the federal government pays the difference.

Moreover, the California Legislature’s Senate Office of Research reports that by the year 2008, Orange County may lose up to 4,535 apartment units built with low-interest federal loans for low-income people.

Most apartment complexes in which the units are located were built with a stipulation that after 20 years, the landlords would be free to pay off the loans and raise rents to market rates.

Congress has imposed a moratorium preventing withdrawals of apartments from the federal program until the end of 1989. The moratorium is designed to give legislators time to consider possible incentives to persuade landlords to continue providing affordable housing.

But market rents in Orange County are so high that most housing experts believe it won’t be possible for the federal government to prevent the loss of the county’s affordable apartment complexes, where rents in many cases are expected to more than double.

Bond Programs Cut

As the county loses affordable housing, the probability of replacement housing being built has dwindled. The federal government has slashed bond programs enabling local governments to offer low-interest loans to first-time home buyers and developers of apartments for low-income households.

The amount of bond money raised for affordable housing in Orange County plunged from $915 million at the program’s peak in 1985 to $32 million in 1987. Most of the bond money today is being distributed to moderate-income, first-time home buyers. That’s because builders often find it is not profitable to construct apartments under the federal government’s new definition of low income--50% below the median.

And unless Congress extends the program, no new bonds to raise mortgage money for first-time home buyers will be issued after Dec. 31.

At the direction of the federal government, some local housing authorities are refocusing their efforts on the neediest of the needy. They are reshuffling waiting lists to give preference to people who live in substandard housing or spend more than half their income on rent or are in danger of eviction. The Orange County Housing Authority, for example, previously abided by a policy of first come, first served.

Like private developers, cities seeking to provide affordable housing frequently are discouraged by rising land prices.

For 2 1/2 years, the city of Irvine has been saving up federal block grant funds to buy land to help a nonprofit developer build an apartment project in the city’s new Westpark community. But the appraised value of the property has risen 66%, forcing the city to cut its plans to build affordable housing in half.

Conflicting Priorities

Some housing industry officials say future construction of affordable housing will depend on the extent local government allows high-density development. That conflicts with Orange County’s first priority: controlling traffic.

“What government is doing about affordable housing is ignoring it. Traffic is the No. 1 agenda item,” said Ken Agid, a principal in a real estate consulting firm in Newport Beach.

Agid contends that there are no real solutions to Orange County’s housing dilemma short of halting the county’s economic growth or giving developers free rein to build high-density developments, and both are politically unacceptable.

Gordon Tipple, president of Taylor Woodrow Homes in Newport Beach and president of the Orange County branch of the Building Industry Assn., said he believes that county residents don’t want to give up parks and other amenities to provide more affordable housing.

“I think the population basically wants Orange County to be a low-density, desirable, affluent community,” Tipple said. Caught in the middle are people like Kathy Neher, a clerk who lives with her son in a Huntington Beach apartment built with federal aid. More is at stake for her than greenbelts and traffic snarls.

“You feel like a human being,” she said about being able to live in an apartment. “You have prestige and dignity. You are not homeless.”

AFFORDABLE HOUSING

“Builders should have to provide ‘affordable housing’ for people at various income levels in their new developments.”

All residents Agree: 64% Disagree: 28% Don’t Know: 8%

By Yearly income

Disagree Agree Under $20,000 15% 82% $20,000-39,000 21% 70% $40,000-60,000 28% 65% $60,000-80,000 39% 55% Over $80,000 48% 45%

NOTE: Percentages may not add up to 100% because of rounding.

Source: Times Orange County Poll, June, 1988