City to Back Investors Who Will Buy, Repair Buildings : Recovery: Cheap loans for quake work will be limited to those who set aside some units for low-income tenants.

The Los Angeles City Council created a loan program Friday for investors who want to buy and repair quake-damaged apartment buildings, after a protracted wrangle over whether the rebuilt structures should include low-income units.

Under the program, investors who take a zero-interest loan from the city must reserve 40% of the repaired units for low-income tenants.

If the investor wants to set aside only 20% for low-income tenants, the interest rate is 3%.

But some council members objected to the requirement, saying it may scare off some investors and slow the city’s quake-recovery efforts.

“The purpose of this money was to help rebuild buildings,” said Councilman Hal Bernson, whose district, which includes Northridge, was hit hardest by the Jan. 17 temblor. “It was not intended for social engineering.”

Councilman Zev Yaroslavsky also questioned the requirement, saying low-income housing may not be appropriate in every reconstruction project.

“It’s a public-policy land-use issue as well as a political issue that needs to be reviewed,” he said.

But other council members supported the concept, saying the low-income requirements will provide more affordable housing in a city where dwellings are notoriously expensive.

“I think that is good public policy,” said Councilwoman Jackie Goldberg, who added that the demand for inexpensive housing is high in Los Angeles. “You find anything that is affordable in the city and there are no vacancies.”

Councilman Mike Hernandez agreed. “The reality is, people cannot afford to live in the city,” he said.

The loans will be made from $330 million in local and federal housing repair funds managed by the city’s Housing Department. The program will provide a maximum of $35,000 per unit. City housing officials could not estimate how many units it would benefit.

The $330-million pool is also funding zero- and low-interest quake loans to owners of damaged mobile homes, single-family homes, condominiums and apartment buildings.

To qualify for the low-income units, tenants must earn less than 60% of the median household income in Los Angeles County, or about $21,000.

As originally designed, the program offered loans with 4% interest for investors who set aside 20% for low-income tenants.

But after the council squabble, Gary Squier, the Housing Department’s general manager, offered to lower the interest rate to 3%.

The lower interest rate appeased critics of the program, which was approved unanimously.