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Rents May Rise Without Redevelopment, Builder Says

Removal of funding for low-income housing projects could increase demand for rental units, developer says.

A whole section of local government disappeared in February, and that could drive up the price for rental housing, according to one developer.

The South Orange County Economic Coalition met Friday morning in Aliso Viejo to discuss the elimination of redevelopment agencies and how it affects businesses and consumers.

When an estimated 400 California municipal redevelopment agencies were dissolved by the Legislature and a court decision Feb. 2, it trapped about $4 billion in city loans statewide, much of which cities may never recover.

About a fifth of that money would have been used as incentives to developers to build affordable housing units, said Sean Rawson, project manager for developer St. Anton Partners.

"The development climate has changed dramatically over the last six months," he said.

St. Anton specializes in mixed-income developments, and has relied on redevelopment money to help finance its projects.

Rawson predicts a wave of lawsuits against the state, like the one .

What that means for consumers is likely higher rent, Rawson said. The demand for rental homes, already strong, will increase without government incentives to build more, he said.

Every year, renters need 14,000 to 15,000 new homes in California. Over the last two years, developers have built about half that number, of which 5,000 were financed through redevelopment, he said.

That leaves renters scrambling for housing, Rawson said.

"Those people are still going to be forced to find other housing," he said, "whether that means roommate situations [or] household combining.”

St. Anton now has two projects affected by the redevelopment crunch, including a 150-unit project in Fullerton. Rawson counts his company as lucky, and said some developers have as many as 10 projects left in financial limbo.

The state requires local governments to provide affordable housing, but killing redevelopment agencies leaves them without a way to pay for them, said Michael Houston, a lawyer who advises both companies and governments in development and regulation.

He said the elimination of redelopment agencies has "significantly inhibited local governments” to provide state-mandated services.

Rawson said the state will probably fix its affordable housing funding policy, but it could take two to three years.

Shripathi Kamath July 27, 2012 at 07:43 PM
I suspect that this is the beginning of a new trend to move people into rental units. The "housing as a service" model will soon be promoted like "everyone should own a house", and the same blowhards on TV will be saying things like "Why own, and have all those problems of fixing things when they break? Rent, that way you can walk away. No worries if an Earthquake hits, it is not your house..." Someone here once mentioned that insurance companies are getting out of the home insurance business, and into the rental housing business. Even in this economy when people are still struggling with their mortgages, it might be cheaper to own than to step out and find an equivalent place to rent. My own mortgage is 1/3rds what they say renting it would cost. "Workforce housing" I heard someone use the term in a city council meeting once. Sounds like the time has come?
Jim Reardon July 27, 2012 at 09:38 PM
This is the last gasp of a dead redevelopment cartel that was effectively killed by the current Governor and Legislature. May they Rest in Peace, along with the California Redevelopment Association. Good riddance. Will rents rise? The answer to that question has nothing to do with the loss of redevelopment funds. Local land use regulations that restrict the construction of housing are responsible for higher rents. Cities that limit density of housing and take useful land off the market for "open space" and other dubious justifications are responsible for the scarcity of affordable housing. The free market actually works. If land were available and restrictions on entitlements were lower, private developers would be building affordable housing. There are certainly plenty of tax incentives to do so. But so long as entitlements and permits account for $40000 or more in the cost of a single-family home, and so long as useful land is taken off market by government, rents will rise. In California, it takes years to get entitlements for private development. For example, consider the mythical Vista Montana Apartments in SJC. In Texas, building permits aren't even required in many cases. Rents in California are high and rising. Rents in Texas are very competitive -- but rising -- because all the displaced Californians are trying to find a place to live near their new jobs! Many of those displaced Californians are our kids!
Dan Avery July 27, 2012 at 10:29 PM
It would make sense that if you don't have building permits, rents would be lower because the housing would be substandard.
Shripathi Kamath July 27, 2012 at 11:04 PM
Hey Dan/Pete, my understanding is that Mayor Ury and the city council also waived the costs for building permits in MV, but does that mean permits are not needed, or just that the permits fees have been waived? Or something else? I am lazy on Friday, otherwise I'd do that Google thing. Of the top of your head...
Dan Avery July 28, 2012 at 03:27 AM
The permits were needed of course. Who would and to build something without any regulations? But the fees were waived which made a lot of sense. And it generated about $25 million in economic activity over the six months period. It was a brilliant program that even someone as far left as I am could sign off on. Mayor Ury showed real leadership in this and I will be proud to vote for him in November even though we are at opposite ends of the political spectrum.
Tom Barnes July 28, 2012 at 06:07 PM
For an explanation of the redevelopment agency scam go to my BarnesEye View column Redevelopment Agencies: A Government Con?
Tom Barnes July 28, 2012 at 06:14 PM
Please read my BarnesEye View, Redevelopment Agencies: A Government Con? at the following URL? http://sanclemente.patch.com/articles/redevelopment-necessity-or-government-con
Jim Reardon July 28, 2012 at 06:57 PM
Sorry, perhaps I mislead. In TX, you generally need building permits and are rules and inspections. What they don't have is restrictive zoning that keeps housing from being built or imposes massive entitlement costs even before permits are issued. Along the way, let's be careful about use of terms like "substandard". This is the language of exclusion. A progressive attitude that everything must meet a "standard" (reserving the right and power to arbitrarily set that standard) is exactly what drives up housing prices, water prices, vehicle prices, gasoline prices, and insurance prices. A more narrow view is that the government role should be to set community safety and security standards and leave the determination of what is appropriate housing to market forces. For example, in California today, a progressive mandate insures that all public school classrooms are air conditioned -- even classrooms that operated successfully for decades without air conditioning. And we can no long afford to educate kids in these schools. Obviously, air conditioning isn't the root cause of our present difficulty, but we could sure use the millions that were invested in it, not to mention the money spend on ever more expensive electricity. And why are electricity prices rising? Could it be that we've mandated that 1/7 of all new vehicles be electric? The capacity to charge that fleet doesn't exist and has to be paid for by all electricity users.
Peter Schelden (Editor) July 28, 2012 at 08:14 PM
Thanks Tom! I'll add a link to that post in the side bar next to the story.
richard August 01, 2012 at 04:13 AM
That is all we need is for rents to go up. They are already high. http://jokeofthedayblog.blogspot.com
Frieda Wales August 01, 2012 at 05:30 AM
Irvine co is building a huge apartment complex on the old Raging Waters/Lion Country Safari site. I believe it is one of 2 they have planned. They did their "research" and found that rental units were in demand. The housing market is so strangled and dysfunctional right now that the benefits of owning are few and far between. There is a lack of affordable family housing though - which leads families to squeeze into small rental units made for 2 adults. If I were a betting man, I'd put my money into small to medium sized family oriented apartment complexes with 2, 3, and 4 bedroom units and family amenities. I once rented in a complex that touted it's "family play areas" that were little more than a slide and one other toy in sand, far away from the other "amenities".
ktlblk5 August 02, 2012 at 04:19 AM
Wondering question...when does 'development' stop, and 'quality of life' prevail? If we're getting another 3 billiones people by 2050, the planet still does not need to stack families in 2-bedroom plans or even 3-, with no proximate outdoor space for the tots to play, under a watchful eye. There should come a time that says, 'no more room at the inn', and you leave a planned space available in a planned fashion. IrvCo seems to want to do that, but heavenhep Calloff fornya, if we succumb to the crazies likein the San Fernanado valley that took wide street grid boulevards in docile singlefamily housing (w/yards), and to the tune of a mi$guided city council, allowed to permit and plow 10 to 12 unit condopartments where once a single 'home' sat. End result there, against a true sense of quality of life, has been crowded traffic and bigger density probs - what? all for a 'growth' tax base that allows another chick fill a to add a job or two in neighburrhoods that now seem cold and strangled?? Keep the space, grace the quality oflife, and say for some limits. Rents are only going to be pegged on whether somebody has a job or not, not how much you can squash people together before they boil in frogpot communities of the future...no?
Frieda Wales August 07, 2012 at 07:13 PM
Who would be responsible for protecting open space, public space, waterways? The developers want to get in, build, get out. They do not stick around for 20 years to see their mistakes and mis-steps.

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