HomeMy WebLinkAbout92-063 - Analysis of Assisted Housing DevelopmentsAMENDED BY:
RESOLUTION NO. 92-063
REL:6/5/92
387
A RESOLUTION OF THE CITY COUNCIL OF THE
CITY OF SANTA ANA AMENDING THE HOUSING
ELEMENT OF THE GENERAL PLAN TO ADD AN
ANALYSIS OF ASSISTED HOUSING
DEVELOPMENTS (GPA 92-1)
WHEREAS, the State of California, by 1989 Statutes, Chapter
1451, required cities and counties to add to the housing elements
of their general plans an analysis of existing assisted housing
developments that are eligible to change to non-low-income housing
uses during the next 10 years due to termination of subsidy
contracts, mortgage prepayment, or expiration of use restrictions,
as more fully described in section 65583(a) (8) of the Government
Code of the State of California; and
WHEREAS, the Planning Commission of the City of Santa Ana,
after noticed public hearing, approved such an analysis of assisted
housing developments as an amendment to the Housing Element of the
General Plan; and
WHEREAS, this Council has reviewed and considered the initial
environmental study and negative declaration prepared for such
proposed General Plan amendment; and
WHEREAS, this Council, after duly noticed public hearing,
concurs in the Planning Commission's approval of said General Plan
amendment;
NOW, THEREFORE, BE IT RESOLVED BY THE CITY COUNCIL OF THE CITY
OF SANTA ANA AS FOLLOWS:
1. The adoption of the said General Plan amendment will not
have a significant effect on the environment, and the negative
declaration prepared for said amendment is hereby approved.
2. That certain document entitled "City of Santa Ana,
Preservation of Assisted Housing: Analysis and Programs, Draft
Housing Element," draft date May 25, 1992, as presented to this
Council on this date, is hereby approved and adopted as an addition
to the Housing Element of the General Plan, and the Clerk of the
Council is authorized and directed to attest to the same on the
document.
RESOLUTION 92-063
Page 2
ADOPTED this 15th day of
ATTEST:
J~ce C. Guy
Clerk of the Council/
COUNCILMEMBERS:
Young A~e
Pulido
Acosta
Griset
McGuigan Absent
Norton
Richardson 2ky~_
June , 1992.
Mayor
APPROVED AS TO FORM:
CERTIFICATE OF ORIGINALITY
State of California
County of Orange
I, JANICE C. GUY, Clerk of the Council, do hereby certify the
attached Resolution ~- O ~ 3 to be the original resolution
adopted by the City Council of the city of Santa Ana on
City of Santa Ana
Date
391
CITY OF SANTA ANA
Preservation of Assisted Housing:
Analysis and Programs
Draft Housing Element
Prepared By
COMMUNITY DEVELOPMENT AGENCY AND
PLANNING AND BUILDING AGENCY
20 CIVIC CENTER DRIVE
SANTA ANA, CALIFORNIA 92702
(714) 667-2200
(714) 667-2700
Draft as of May 25, 1992
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TABLE OF CONTENTS
Section P_agg
Introduction ................................................. 1
Inventory of Units at Risk ........................................ 3
Cost Analysis/Comparison ........................................ 7
Resources for Preservation ................ ....................... 9
Quantified Objectives for Preservation ............................... 12
Programs for Preservation ....................................... 12
Quantified Objectives by Target Income Group .......................... 14
393
GENERAL PLAN AMENDMENT 92-1
PRESERVED HOUSING PROGRAM AND
QUANTIFIED OBJECTIVES
INTRODUCTION
This report amends the Housing Element of Santa Ana's General Plan
which was adopted on June 9, 1989, and subsequently determined by
the California Department of Housing and Community Development to
be in compliance with State law. The purpose of this amendment is
to bring the Housing Element into compliance with a recent
amendment of Government Code Section 65583. Under this law,
jurisdictions must evaluate the potential for currently rent
restricted low-income housing units to convert to non-low-income
housing and propose programs to preserve or replace those units.
In addition local jurisdictions must also quantify their existing
objectives to reflect targeted income levels.
Recently a great deal of attention has been focused on the existing
stock of subsidized affordable housing and the potential loss of
these units through the expiration of their affordability
restrictions, or the prepayment of federally backed mortgages. In
recognition of this threat to federally subsidized affordable
housing, the Federal Emergency Low-Income Housing Preservation Act
was enacted in 1988 and the Low-Income Housing Preservation and
Resident Homeownership Act was enacted in 1990. These laws permit
prepayment only in accordance with an action plan approved through
the U.S. Department of Housing and Urban Development. The threat
to affordable housing developed with state and local resources is
a matter of significant concern as well. This report has been
prepared with the specific purpose of quantifying the inventory of
units at risk, analyzing the cost of replacing this housing or
extending the term of affordability, identifying resources for
preservation, and establishing objectives for local efforts and
programs to facilitate the preservation of the affordable housing
in Santa Ana.
Background On Subsidized Housing
The enactment of the Housing Act of 1949 established as a national
goal the provision of "a decent home and suitable living
environment for every American family". Through the late 1950's
the Federal government worked to accomplish this goal, acting
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primarily through public housing authorities to build and operate
housing for low-income families. In the early 1960's the Federal
government, while maintaining its commitment to public housing,
also established new housing programs that were intended to
encourage private developers, owners, and managers to provide
affordable housing. The National Housing Act of 1968 created
federal mortgage insurance, below market interest rate loans, and
operating subsidies under the Sections 221 (d) (3), 221 (d) (4), and
236 programs which were very effective at encouraging the
development of new affordable housing. Since 1961, nearly two
million privately owned federally subsidized units of housing for
low-income households have been constructed nationally.
More recently a myriad of state and local financing tools have been
established to finance affordable housing. As was the case with
federal subsidies, owners participating in these programs agreed to
use restrictions which limited the amount by which rents could be
raised for a specific period of time. The duration of the use
restriction varied depending on the type of subsidy received, type
of project owner, and the underlying mortgage financing. Many of
the federal incentives provided established 40 year mortgages that
prohibited prepayment without HUD's consent for 20 years and
regulatory agreements that were coterminous with the mortgage.
Many state or local programs had affordability requirements of as
little as fifteen years.
Impact Of The Termination Of Housing Subsidies
Many of the privately owned affordable housing units constructed
with public subsidies in the 1960's and 1970's will be eligible for
conversion to market rate rentals or sale as condominiums in the
1990's. Four primary factors threaten the continued operation of
this low-income housing stock:
Increased numbers of owners will become eligible to
prepay their federal mortgages as their loans reach their
twentieth anniversary with the largest effect being felt
between 1990 and 1994.
Rental assistance contracts provided through the Loan
Management Set Asides (LMSAs) are expiring with the
largest effect being felt between 1997 and 1999. As a
consequence, owners will experience a drop in rental
income and tenants will no longer be assured that they
can afford the rents.
Second notes on many older properties in the inventory
will mature. Ownership will revert to the second note
holders if the current owners are unable to pay off the
second note at maturity.
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The housing supply is aging. Given the change in tax
benefits and the possible expiration of rental subsidies,
owners face diminished after-tax returns and reduced cash
flows with which to meet repair and maintenance needs.
In addition, the Tax Reform Act of 1986 now disallows the
use of passive losses to offset income from such sources
as salary, interest, dividends, and reduces other tax
advantages for investors of low-income housing.
The conversion of a significant number of formerly subsidized low-
income rental units to market rate housing will have an impact on
tenants as follows:
Limited income households will be subjected to tremendous
rent increases or displaced as the buildings are
converted to market rate or sold to investors.
Alternative housing at affordable rents is not readily
available for those who are displaced.
A number of the residents of units in questions are
elderly for whom a move or eviction may be especially
difficult.
Due to the high cost of new construction, it could be
prohibitively expensive to replace this source of low-
income housing once it converts to market rate rentals or
condominiums.
INVENTORY OF UNITS AT RISK
State law requires that the housing element identify at risk
affordable housing for the planning periods of July 1, 1989 through
June 30, 1994, and July 1, 1994 through June 30, 1999. The
following table of the City's assisted housing projects contains
information on assisted affordable housing projects for these
planning periods. The format of inventory includes data for project
ownership, financing, unit configuration, level of affordability,
tenant type, earliest date of subsidy termination and term of
affordability. The intent of the housing element amendment is to
focus preservation efforts on the initial five year planning
period.
.......... ~ SEC I KEG AG~'T
1991 .................................................................
TABLE 1 (Cor~'d)
CITY OF SANTA AlVA
AFFORDABLE HOUSING PROJI.~TS
399
ANALYSIS AND COMPARISON
REPLACEMENT COSTS
OF PRESERVATION AND
The following analysis has been prepared pursuant to the statutory
requirements concerning local cost estimates for the production of
new rental housing comparable in size and rent levels to replace at
risk affordable units. Santa Aha lacks abundant vacant land
suitable for residential development as it is over 97 percent built
out. This condition requires that new residential development in
the city be primarily focused on a mixture of duplexes and low
density residential development. The following are cost estimates,
excluding land, for the development of duplexes for a range of unit
configurations:
DUPLEX - 2 Studio Apartments
@ 540 square feet
$103,150.00
DUPLEX - 2 One Bedroom Apartments
@ 660 square feet
128,850.00
DUPLEX -
2 Two Bedroom Apartments
with 1.5 bathrooms
@ 1,022 square feet
191,295.00
DUPLEX -
2 Three Bedroom Apartments
with 2 bathrooms
@ 1,206 square feet
223,035.00
DUPLEX -
2 Four Bedroom Apartments
with 3 bathrooms
@ 1,396 square feet
251,035.00
DUPLEX -
2 Five Bedroom Apartments
with 3 bathrooms
@ 1,546 square feet
271,035.00
These cost estimates are based on recent development expenses for
comparable projects. An aggregate estimate of the total cost
excluding land, for the production of new rental housing to replace
the inventory of at risk affordable units is as follows:
Planning Period of July 1, 1989 through June 30, 1994
423 One Bedroom Apartments $27,251,775
56 Two Bedroom Apartments 5,356,260
32 Three Bedroom Apartments 3,568,560
TOTAL
$36,176,595
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Planning Period of July 1, 1994 through June 30, 1999
9 Studio Apartments $ 464,175
313 One Bedroom Apartments 20,165,025
168 Two Bedroom Apartments 16,068,780
26 Three Bedroom Apartments 2,899,455
14 Four Bedroom Apartments 1,757,245
2 Five Bedroom Apartments 271,035
TOTAL
$41,625,715
While these estimates are indicative of the cost associated with
producing replacement housing, the figures represent total
necessary capital, a portion of which may be financed through
available lending sources. The targeted level of affordability and
form of ownership will greatly influence that portion of the
replacement cost which may not be financed and must instead be
advanced in the form of deferred loans and grants. A complete
analysis of the financial feasibility of producing this replacement
housing is beyond the scope of this housing element amendment.
At this time it is also not possible to reliably estimate the costs
associated with preserving all of the at risk housing rather than
producing replacement units. All three housing developments
included on the inventory for the July 1, 1989, through June 30,
1994, planning period are considered HUD assisted projects, and
most of the assistance necessary to preserve these units is
anticipated to be made available by the federal government. The
City of Santa Ana is prepared to assist in preserving these units
as well, through the advance of predevelopment funds, equity
contributions, and deferred loans for rehabilitation expenses.
The availability of land and costs associated with new construction
in Santa Ana greatly influence any comparison of public policy
options with respect to producing new housing units or working to
preserve the existing affordable housing. Costs associated with
preserving the existing affordable housing units are anticipated to
be significantly less than for new construction. During the July
1, 1989, through June 30, 1994 planning period, a total of three
housing developments containing 511 affordable units are at risk.
Two of these developments are eligible for extensions to existing
Section 8 rental assistance contracts, and in the current housing
market are considered unlikely to opt out of the program. In
addition, one project is ineligible to prepay the federally
assisted mortgage prior to the year 2017. The inability of this
property owner to prepay their mortgage will assure that the
affordability of these units is maintained well into the future.
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One family housing development, Fairview Green Apartments, is
eligible for mortgage prepayment in May 1994, and has been
identified by the City of Santa Ana for a concerted preservation
effort. This 112 unit housing development, affordable to families
earning 50 percent of the county median income was developed
through the FHA Section 236(J) (I) Program.
RESOURCES FOR PRESERVATION
Resources for the preservation of subsidized housing include both
public and nonprofit organizations that have the legal and
managerial capacity to acquire and manage assisted housing
developments, as well as direct financing and subsidy programs
through federal, state, or local sources.
Public Agency and Non profit Corporation Resources
The City of Santa Ana's Preservation Program includes the following
activities:
1. Evaluation of legal and procedural framework for
preservation.
2. Identification and monitoring of threatened projects.
Analysis of factors that influence an owner's decision to
terminate the operation of subsidized housing.
o
Determination of the feasibility of an entity acquiring
and preserving subsidized housing.
Analysis of federal, state, and local financial
incentives to deter conversion and assist with
acquisition and preservation of subsidized housing.
6 o
Provision of technical assistance to developers,
nonprofit corporations, and resident councils interested
in negotiating the acquisition of subsidized housing.
In order to ensure the effectiveness of this program, it is the
intent of the City to identify all interested public agencies and
nonprofit housing corporations that have the legal and managerial
capacity to acquire and manage assisted housing developments. The
following groups have been included on the State Department of
Housing and Community Development's List of Entities interested in
Right of First Refusal Program for Orange County.
H.O.M.E.S. Inc.
Twelve Pack Enterprises
HomeAid
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Southern California Presbyterian Homes
Golden State Mobile Home Owners
Ralph Carrico ,
Flory, Olson and Van Osdel
st. Vincent De Paul
Zucker Systems
In addition to these groups, there are presently three community
based nonprofit housing development corporations operating in Santa
Ana that have the interest and capacity to acquire and manage
subsidized housing. These groups include:
Civic Center Barrio Housing Corporation
Orange County Community Housing Corporation
Santa Ana Neighborhood Housing Service
While the City of Santa Aha operates an independent Housing
Authority, this organization does not currently own or operate
housing. Contacts will be initiated however with other public
agencies that may have an interest in acquiring and managing
subsidized housing.
Financing/Subsidy Resources
Under the provisions of the Low-Income Housing Preservation and
Resident Homeownership Act of 1990 (the Act), the owners of
federal, mortgage subsidized affordable housing interested in
continuing to operate the housing, are entitled to incentives
sufficient to yield eight percent of the preservation equity of the
project, limited by the federal cost limits and subject to
appropriations. Incentives available include rent increases,
increases in Section 8 contract rents, additional Section 8
certificates, access to excess reserves, and residual receipts,
flexible subsidies, or Section 241(d) insurance for capital
improvements, equity take-out loans under Section 241(f), and
possible redirection of Section 236 interest reduction payment to
a second mortgage. These incentives are negotiated by the owner
and the U.S. Department of Housing and Urban Development and must
be sufficient to cover the annual authorized return, debt service
on any rehabilitation loan, debt service on the HUD mortgage,
operating expenses, and adequate reserves.
Owners of federal mortgage subsidized affordable housing interested
in a voluntary sale to a priority purchaser i.e.; tenant council,
nonprofit corporation, or state/local agency can trigger the
availability of HUD financial assistance subject to appropriations.
Through this approach HUD must provide assistance sufficient to
enable acquisition at a purchase price not greater than the
project's preservation value, to pay the debt service on the
mortgage, and debt service on any rehab loan, to meet project
operating expenses and adequate reserves, and to receive an
adequate return on any cash investment made to acquire the project.
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Priority purchasers have access to the following assistance, some
of which is unavailable to other qualified purchasers: 1)
Insurance for financing up to 95 percent of the preservation equity
under the Section 241(f) program; 2) Grants up to the present
value of the total of projected published fair market rents for
Section 8 existing housing for the next ten years; and 3)
Reimbursement for certain transaction expenses.
The Low-Income Housing Preservation and Resident Homeownership Act
of 1990, does not cover Section 8 opt-outs, and expirations, and
owners retain the decision whether or not to remain in the program,
after receiving an offer from HUD to increase the contract rents up
to the Section 8 existing fair market rent.
Additional federal, state, and local resources available to assist
in preserving federal. State and local subsidized affordable
housing include the following:
Home Investment Pa~ne~hip Act (HOME) - The City of Santa Ana
expects to receive $1,600,000 in HOME funds for fiscal year
1993. To the extent permissible under federal regulations the
City is prepared to allocate a portion of this resource
towards preserving affordable housing.
Community Development Block Grant (CDBG) - of the $10,600,000
anticipated to be available to the City of Santa And in fiscal
year 1993, only a portion is designated to the Housing
Division for housing related activities. The city has been a
Community Development Block Grant (CDBG) Entitlement Community
since 1974. Every year approximately 12 to 13 percent of the
CDBG allocation is directed toward meeting affordable housing
objectives. Additionally, all program income received from
the CDBG revolving loan program for the rehabilitation of
existing housing is reused to fund additional rehabilitation
projects. With program income included, the city allocates
approximately 20 percent of available CDBG funds to meet
affordable housing objectives.
Rental Rehabilitation Repaymenls-The Rental Rehabilitation Program
provides below-market rates to investor/owners of apartment
buildings. To the extent permissible under regulation, the
City is prepared to apply a portion of repayment funds towards
preserving affordable housing.
Rental Ce~ificates And Rental Vouche~ - Through the city's Housing
Authority (a Housing and Urban Development program)
certificates and vouchers are provided for low-income families
and individuals. The city is prepared to direct rental
certificate and voucher assistance towards preserving
affordable housing.
Tax Increment- Six redevelopment projects within the City of
Santa Ana have been formed in response to the physical and
economic deterioration of those areas. Affordable housing set
aside funds generated from tax increment may be available to
assist in preservation efforts.
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Low-Income Housing Tax Credit(LlHTC)-The availability of federal
and state low-income housing tax credits will assist with
future preservation efforts.
QUANTIFIED OB.IECTIVES
For the planning period through June 30, 1994, it is the objective
of the city of Santa Ana to retain as affordable housing all 112
units threatened due to the possible prepayment of the federally
insured mortgage for the Fairview Green family apartments. After
an evaluation of this project, the City has determined that
preservation of these at-risk units is feasible.
PROGRAMS FOR PRESERVATION
Evaluating Legal And Procedural Framework For Preservation
Federal law in the area of affordable housing preservation
establishes significant restrictions upon an owner's ability
to terminate the affordability restrictions on housing
developed with a federal subsidy. The intent of federal law
in this area has been to preserve and retain subsidized units
to the maximum extent possible, minimize displacement of
tenants in residence, and continue partnerships between all
levels of government and property owners. Addressing the
challenges to long term affordability for units developed with
state and local resources has become a matter of increasing
concern in California was well.
Santa Ana's efforts to preserve affordable housing will
include an ongoing evaluation of the legal and procedural
framework established through regulatory mandates imposed by
all levels of government. In the area of federally assisted
housing, evaluation will be conducted of the Notice of Intent
process, Plan of Action procedure, availability of federal
incentives in exchange for extended low-income use
restrictions, modification to regulatory agreements, and
Section 8 contractual obligations of covered projects. In the
area of state or locally assisted affordable housing, while
there are currently no overriding regulations imposed, Santa
Ana will review the regulatory agreements of each development
to ascertain which preservation approach will be most
appropriate, especially in regard to locally assisted, bond
financed, and density bonus projects.
Identification And Monitoring Of Threatened Projects
Identifying and monitoring threatened projects is an important
component of Santa Ana's program for preservation. An initial
inventory of projects has been included as part of this
amendment to the City's housing element. The City is
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**
committed to obtaining accurate information on each at risk
project and maintaining ongoing contact with the respective
regulatory agencies, lenders, and property owners. As part of
Santa Ana's housing element amendment, a determination has
been made regarding the legal status of each threatened
project. Additional information necessary to assess the
feasibility of acquisition in now necessary. This information
includes copies of Promissory Notes, Deed of Trust or
mortgages, regulatory agreements, subsidy contracts, financial
statements, physical inspection reports, agency audits, and
actual rent schedules. This information will be obtained, to
the extent available, as part of the City's preservation
program.
Analysis Of Factors That Influence An Owner's Decision To Terminate The
Operation Of Subsidized Housing
As part of the City of Santa Ana's program for preservation,
each threatened subsidized housing development will be
analyzed to determine the likelihood that the property owner
will repay the mortgage, opt out of rent subsidy programs or
bring rents to market at the conclusion of regulatory
agreements. This analysis while being grounded in the
operating data for each project, such as ownership type,
existing rent structure, net income, and owners's tax
situation, will also include local housing market conditions
and factors such as market rents, vacancy rates, and
appreciated property values. Through this analysis of the
Santa Ana housing market, key factors that motivate property
owners will be better understood, advantages and disadvantages
to terminating the operation of subsidized housing explored
and potential incentives to encourage continued subsidized
housing operation identified.
i)elerndnation Of The Feasibility Of An Entity Acqniring And P,-eserving Subsidized
Ilonsing
The City of Santa Ana's preservation program includes the
provision of careful feasibility analysis to determine; 1)
Whether an owner is willing to sell to a nonprofit developer
or some other entity interested in maintaining the affordable
housing; 2) Whether interested parties have the capability to
own and manage the property and provide quality housing to
low-and very-low income households; and 3) Whether potential
buyers with the city's assistance can raise sufficient debt
and equity funds to cover predevelopment expenses, purchase
the project, make necessary improvements and manage the
property. Preparing a feasibility study can be quite complex
and the city as part of its preservation program is prepared
to assist in the evaluation of the physical, financial, and
management needs of an existing building as well as in
identifying financing to acquire, make improvements, and
manage the project.
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Analysis Of Federal, State And Local Financial Incentives To Deter Conversion And
Assist With Acquisition And Preservation Of Subsidized Housing
Identifying and determining the availability of financial
incentives to deter conversion and assist with acquisition and
preservation of subsidized housing is an ongoing part of the
city of Santa Ana's program for preservation. A summary of
potential resources for preservation are included as part of
this housing element amendment. Even in instances where a
purchaser assumes the existing mortgage and operating
subsidies, significant additional financial support is
anticipated to be required to finance the difference between
the purchase price and outstanding mortgages, as well as for
predevelopment expenses, and to make needed physical repairs
or improvements. Sources of funding for these items are
expected to be quite varied throughout the period of time in
which subsidized housing development may be threatened. The
City of Santa Ana is prepared to track current financial
incentives and analyze their applicability to the preservation
effort.
Provision Of Technical Assistance To Developers, Nonprofit, Corporations And
Resident Councils Interested In Negotiating The Acquisition Of Subsidized Housing
The Federal Low-Income Housing Preservation and Resident
Homeownership Act of 1990, includes a 12 month "Right of First
Offer" period for priority purchasers including resident
councils, nonprofit organizations, and state or local agencies
that agree to maintain the affordability restrictions for a
project's useful life. The City of Santa Ana is prepared to
provide technical assistance to these groups as well as to
other interested parties that seek to preserve affordable
housing developed with federal, state of local resources.
QUANTIFIED OBJECTIVES BY TARGET INCOME GROUP
In addition to addressing the preservation of assisted housing,
this amendment also quantifies the existing objectives in the
housing element by target income groups. The following table shows
the City's existing objectives which have been broken down by
target income households for either a one year or five year period.
These figures do not reflect the city's total goals but only those
for the target households: low, very-low, and moderate-incomes.
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QUANTIFIED OBJECTIVES OF HOUSING PROGRAM
BY TARGET INCOME GROUP
Ob|ectives
Very Low
Annual Five Year Annual
Low
Fiv~ Year
Moderate
Annual Five Y~r
New Construction
Rehabilitation
862 1,296 1,641
953 1,424 1,809
· Neighborhood Housing
Service
· Neighborhood Rebates
· Self Funded City Loan
Program
· Multi-Family Units
Conservation
17 23
18 90 62 310
20
0
100
20 99 68 341 22 1D
20 101 30 150 25 124
· Notice of Violations 182 876 273
· Single Room Occupancies 158
· Units At Risk 112
1,308 346 1;662
RHNA Goal: 862 1,296 1,641
Implementation of the five-year housing program as adopted in the 1989 Housing Element is anticipated
to result in the construction or rehabilitation of the number and type of units described above. These
objectives are targeted to very Iow, low and moderate, incomes households and does not reflect the
City's regional allocation for moderate and upper income housing production. Targeting reflects the
City's actual program experience.
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