Laguna Beach Helps City Officials Buy Homes

Laguna Beach is investing in real estate to help two city officials buy homes as part of a program to help key public safety and health officers live locally in a town with ever-rising housing prices.

The home-buying program, which is costing the city more than $1 million, is believed to be the first of its kind in Southern California, following--and rivaling--a trend more common in Silicon Valley, where the once-booming dot-com industry pushed real estate prices through the roof.

To be sure, an affordable-housing crunch stretching south from Los Angeles has put a strain on many property markets besides Laguna’s. But to date, even well-heeled cities such as Beverly Hills, Pasadena and Newport Beach offer no such deals to their staffs.

As Laguna Beach officials put it, the landscape alone--there are only three access roads into the city and mudslides, floods and sewer spills are constant threats--creates unique challenges that would be better met if the right people are on hand when emergencies arise.

“In our case, it’s just hard to get here, which exacerbates the problem of responding” said City Manager Ken Frank. “With our history of natural disasters, we just have to have key emergency people here.”

The first two beneficiaries are Jeff LaTendresse, appointed months ago as the new fire battalion chief, and John Pietig, recently hired as an assistant city manager in charge of the sewer system and water quality.

While other municipalities have helped employees buy homes in tight markets, the Laguna Beach program is unusual because the city acts as a co-investor in the properties, purchasing half the equity.

In LaTendresse’s case, for example, the city paid about $320,000 for a half share in the $639,000 home he found in Arch Beach Heights. On top of that, like a bank, the city then lent him an additional $300,000 for his equity share.

Pietig will get $400,000 from the city to help him relocate from Chino Hills, about half of what he expects to pay for the home he will need for his growing family. But unlike LaTendresse, Pietig will pursue a traditional bank mortgage for his equity share.

Empty-Handed in the Hunt for a Home

But first, Pietig has to find a place. He and his wife are looking for a four-bedroom home with a backyard for their two young boys. Their search, already two months running, has been fruitless.

“We’re just trying to find something comparable to what we have now,” said Pietig, who estimates his one-way commute can take up to 90 minutes. “However, we don’t expect to be able to get everything we’re looking for. . . . We’re floored by the prices.”

Pietig’s experience, city officials say, underscores why the loan program is so critical.

For the past five or six years, Laguna’s housing market has been booming, with prices increasing annually up to 20%, pushing the average price to about $650,000.

City Councilman Wayne L. Baglin, a local real estate broker, said the starting price for a three-bedroom, two-bath home in reasonable condition is on the plus side of $500,000.

“As you look around, it’s hard to find any property in the $400,000 range now,” he said.

Government salaries have not kept up with the real estate trend. For example, top scale for a battalion chief, which LaTendresse has not reached, is about $94,000. The maximum for assistant city manager is $114,000.

For the investment in LaTendresse’s home, Laguna borrowed money from a $1.5-million fund set aside to buy new firetrucks, reserves the city does not expect to need for the next five to 10 years. For his loan, monthly payments are being automatically deducted from his paychecks. The interest rate will range between 5% and 8%, and be half a percent higher than the average return on the city’s investment portfolio.

For Pietig’s home, the city will dip into a $1.5-million insurance fund designated for fighting legal battles.

In both cases, property taxes, insurance and closing costs are shared. Profits will be split down the middle if the homes are sold.

If the real estate trends over the past 20 years are any indication, the risk Laguna is taking is minimal, and in fact, may be more prudent than other investments, Frank said.

Eventually, Frank said, he would like to make the program available to the head lifeguard, police and other workers expected to be on call 24 hours a day. But he estimates it will always be limited to a maximum of 10 workers at a time due to financial constraints.

In the meantime, he is researching rental assistance programs.

“It’s just very difficult to be able to afford to live in the city,” Frank said. “I don’t know how people do it.”

Laguna modeled its program after the pioneering cities in Bay Area cities of Palo Alto, Milpitas and Cupertino. There, cities were forced to offer relocation bonuses just like the private sector as the Internet’s rise sent housing prices to unprecedented levels.

In Palo Alto, for example, the city manager was lent $900,000 when he was hired, according to Jay Rounds, the city’s director of human resources.

“It sounds like a lot of money but it doesn’t get you that much,” Rounds said.