Killing the Queen

As rising rents force Midtowners out, the city continues giving “affordable housing” money to high-end projects

The Big Squeeze: Residents of 1304 Q St. are being forced out of their homes, and out of downtown.

The Big Squeeze: Residents of 1304 Q St. are being forced out of their homes, and out of downtown.

Photo by Larry Dalton

There’s a funky, blue-gray ’70s-style apartment building on the corner of 13th and Q streets in Midtown Sacramento. The building is really unremarkable as seen from the street. But it is what you might call affordable housing, if that’s what you’re looking for.

Inside, about a dozen people live in seven apartments. Most are in their 20s or early 30s. Many are just starting their careers, like Tom Shaw and Jennifer Watkins, new schoolteachers who are saving up to buy a house.

Jennifer Epps is a veterinary technician. She and her partner Mike MacAfee are also saving up for a down payment on a house. Mike Healy is a student at Sacramento City College, who works evenings as a sound engineer at the Sacramento Theater Company.

Everybody here loves their building, which they have collectively nicknamed “Queen” after its Q Street location. It is not because the building is beautiful or luxurious.

“Let’s face it, we live in boxes,” explains Healy. “It’s not about the building. It’s about the community. We live in this great community of friends. We’re always out here together, fixing it up, trying to make it a nice place to live.”

But Queen is in trouble. A couple of weeks ago, Healy and another resident learned, with very little warning, that they are being evicted. The building was sold on October 3. The notice to move out within 30 days came on October 4, sometime between midnight and 6 a.m., when Healy awoke to find the notice on his doorstep.

“It was literally done in the middle of the night,” Healy said.

It took several days to track down the new landlord, a man named Curt Perata, who explained to Healy and the other evictee, Jessica Mayhew, that their apartments were to be remodeled and that the complex’s other units would follow next. Both were told that they were welcome to apply to move back in afterward. Healy’s rent for his two-bedroom apartment, now $420, would jump to $925 a month. Mayhew’s one-bedroom apartment would leap from $360 to $800.

They also learned that they are only the first on the block. Every apartment is to be vacated, remodeled and put back on the market at double the rents. Across the street, a cluster of new town houses is being built. They will likely sell for about a quarter of a million dollars.

As the residents of Queen look around, they see fewer and fewer opportunities for working people with modest incomes, the teachers and artists and veterinary technicians who were once a welcome part of the downtown community.

“It has really changed down here. We just can’t stay in this area. If we have to get an apartment, we’ll have to look at something out on Marconi,” said Tom Shaw.

Resident Mike MacAfee put a finer point on it: “This is a perfect case study in the gentrification of downtown.”

Just about everyone agrees that more housing is needed downtown if the region is to counteract suburban sprawl, urban blight and regional air pollution.

Downtown has traditionally had more than its share of low-income housing. Meanwhile, middle-class and upper-income folks have tended to move farther and farther away from the urban core.

This has led to sprawl and a sort of de facto economic segregation that has been bad for communities, bad for transportation and bad for the environment. So the city has funneled millions of dollars of redevelopment money into jump-starting the downtown housing market, particularly high-quality, high-rent housing.

And the market has responded. New housing downtown is selling well, and with the help of city loans, developers are making a handsome return on their investments. The problem, say affordable housing advocates, is that the market is now forcing out low- and moderate-income people, and the city is doing little to replace affordable housing lost as landlords realize they can jack up rents, just as Perata has.

Worse, some housing advocates say the city is misusing money set aside to create affordable housing to subsidize luxury apartments and condos.

The Sacramento Housing and Redevelopment Agency (SHRA) has many ways to spend money to promote housing downtown.

One of the main ways is through “tax increment financing,” which is basically all of the property tax paid from new development within the redevelopment area of downtown Sacramento. According to state law, 20 percent of tax increment money must be put aside to produce affordable housing. It isn’t uncommon to hear government officials and housing experts talk about “20 percent money” and “80 percent money.” The agency has a great deal of latitude when it comes to how it spends the 80 percent money. It could be used for housing, economic development, riverfront development or K Street Mall.

But rather than use its affordable housing monies to produce only affordable housing, the agency is using the funds to help developers build high-end projects. For example, two projects by downtown developer Sotiris Kolokotronis have commanded major subsidies from the SHRA.

The just-completed Fremont Building, at 16th and P streets, got $1.2 million in affordable housing money from SHRA. When the project was first approved, all 69 of the units in the building were to be designated “affordable,” mostly to moderate-income people.

But Kolokotronis later got the city to amend the deal because of greater-than-expected construction costs. Now only 13 of the apartments will be affordable, and while those rents will be lower than originally planned, most of the units will be rented at whatever the market will bear. Kolokotronis, however, was allowed to keep the entire subsidy intended for affordable housing. That works out to about $95,000 per affordable unit, hardly an efficient use of public money, says Brian Augusta with the Sacramento Housing Alliance.

“That money is set aside for affordable housing and they are using it to subsidize market rate housing,” Augusta said.

If not outright illegal, said Augusta, the policy certainly violates the spirit of state housing law. SHRA officials say that nothing illegal has been done. The city got a good deal, they say, and was able to leverage much-needed affordable housing in the process.

“Without that public money, that project just wouldn’t have gotten done,” said Cassandra Jennings of SHRA.

That’s the wrong way to look at affordable housing money, says Augusta: “It’s clear that they think this money can be used to subsidize the whole development.”

In other words, the money is being used as a general-purpose loan, to help developers fill their gap in financing. Augusta believes the number of affordable units is being negotiated, almost as an afterthought, to justify the subsidy. He added that housing groups are investigating the loans, and are contemplating a lawsuit if they find evidence that affordable housing money has been used illegally.

Another project by Kolokotronis, at 18th and L streets, will get about $4 million in affordable housing money. Of the 152 units, 51 will be designated as “affordable.” But the majority of those, 33 units, are for moderate-income families, those earning up to $67,550 a year. The rest of the apartments will go for anything from $875 up to $2,500 for the higher-end penthouses.

Kolokotronis said the loans are justified. After all, they will be paid back within 30 years, with 12 percent interest. And he said that until the market is proven, developing downtown just isn’t feasible without help from the city.

“Until we get the first 1,000 or 2,000 units built, we need help,” explained Kolokotronis.

That’s fine, say affordable housing advocates. They aren’t opposed to the city helping developers build market rate housing, but they shouldn’t be using money set aside for affordable housing to do it.

They would also like to see the city expand its mixed-income housing policy to downtown, which require developers to set aside a certain number of units as affordable in any new project. And when the city does give out affordable housing money, it should only be used to provide housing at the lowest income levels, not to subsidize development for moderate-income people.

“The policy now isn’t encouraging enough affordable housing, which in turn increases demand, which in turn drives up rents,” said Sacramento Housing Alliance director Arlene Krause.

Krause noted that rents in Sacramento have increased almost 13 percent in the last year. And just as the city has committed itself to encouraging more high-end housing, affordable units are being lost because landlords can raise rents or opt out of government housing programs.

City policies and SHRA aren’t directly responsible for the residents of 13th and Q streets being unceremoniously turned out of their homes by a landlord looking to exploit the superheated rental market.

But to the extent that public money is being used to stoke that market, and not effectively being used to create housing for people at lower income levels, the city is exacerbating the problem, housing advocates say.

“The city has made it clear that it wants to ‘prove the market.’ Well, the market is taking off. And the city’s infusion of money has helped that,” explained Augusta, adding that the very reason for the setting aside of affordable housing money is to ensure that redevelopment doesn’t result in mass gentrification.

The city is now considering how it will spend the last big pot of redevelopment money for downtown, some $52 million.

Councilman Dave Jones, who has long been an advocate of affordable housing, has suggested that the SHRA adopt some reforms. He wants to see affordable housing money reserved for housing affordable to the lowest income levels, and maybe some of the “80 percent money” as well.

“People are really up against the wall. They’re getting slammed because of the increased rents,” Jones said. “We need some policies that allow people with low and very low incomes to live downtown.”