City leaders consider hot home market, overall access
Housing availability and affordability dominated discussion for hours on Monday night as the Merced City Council received updates on the local real estate market and listened to many residents push for a new Inclusionary Zoning (IZ) policy.
Loren Gonella, a longtime Realtor and analyst for Coldwell Banker Commercial Gonella Realty, provided market insight for leaders as he has done periodically for many years.
Meanwhile, Sheng Xiong of the Fresno-based Leadership Counsel For Justice & Accountability promoted the idea of equitable access to local housing through a policy that requires a certain percentage of market-rate housing development to be designated as affordable housing.
Xiong was backed up by a multitude of voicemails — 45 recordings in all — sent in by residents responding to an agenda item about a staff request for direction on various affordable housing options, including the possibility of a new IZ ordinance. Most of the voicemails were favor of IZ in Merced, though some were not. There were also a few dozen emails sent to leaders on the topic, but those were not read out loud during the meeting.
- Interest rates are low right now, Gonella said, and in 2020 they dipped below 3 percent bringing a lot of people into the market. “We are in a wonderful interest rate environment,” he said, with numbers “not seen since the 1950s.”
- Those low interest rates have fueled an extremely strong demand for mortgages.
- Existing homes sales and new home sales roared back in the second half of 2020.
- Home sales in the Central Valley were up 22 percent in 2020, and the median sale price was $395,000, up 15.5 percent.
- About 50 percent of Merced County residents can afford to buy a median-priced home.
Said Gonella, “If the goal is to increase the rate of home ownership in the city of Merced, a couple of suggestions: Implement a down payment assistance program. Charge developers a small fee that goes into a pot that buyers can then qualify for to use for their down payments. Typically it’s not the monthly payment that slows buyers down, it’s the down payment. In addition to that, the city can partner with nonprofit companies who assist buyers in building up their credit because it does you no good to have down payment assistance and have poor credit and not qualify for a loan.”
- The median home sale price in the Merced-Atwater area is $315,000, that’s up 14 percent from a year ago.
- Average days on the market for the Merced-Atwater area has lowered to 21 days. “It’s a very hot market that we are dealing with,” Gonella said.
- “We are also dealing with inventory issues.” There’s 1.3 months of housing supply in the Central Valley and the entire state, meaning that’s how long inventory will last if sales continue and no new homes are added to the market. (A balanced market has 6 months of inventory.)
- In Merced, there was 0.7 months worth of inventory in the Merced-Atwater area recorded in March. “This is my 43rd year in real estate, and I have never seen the inventory this low.”
Why: Seniors are not staying put. Sellers are not moving. “From 2008 to 2013, when the City of Merced should have built 1,800 homes, they built 39, and we are still trying to play catch up.”
- What to do about new construction: Assist developers by allowing higher density development, and speed up their processing time for tentative and final map approval.
Gonella’s suggestion: “Try to minimize government influence in the private market.”
- 723 single family residences were built in Merced last year. 668 in 2019. “The city of Merced is doing a great job building a number of homes (compared to nearby areas), unfortunately it’s not enough,” Gonella said.
- There are eight active subdivisions underway in Merced with hundreds of buyers waiting to purchase. There are housing developments in all corners of the city. “We just need to do a better job at moving them along quickly,” Gonella said.
- Local renter inventory remains very tight. Less than 1 percent vacancy factor with rents increasing while COVID-19 restrictions have a cap of 10 percent.
- Even though many UC students were not in Merced during the pandemic, they kept their units and renewed leases. New rental calls are coming from families not students.
- A 3-bedroom home (1,800 sq.ft.) in north Merced is renting for about $1,700. Meanwhile, the monthly payment of $1,244.68 a month at 2.875 percent for 30 years would give a buyer a home loan of $300,000. “It is cheaper to own than it is to rent,” Gonella asserts.
- In 2020, there were 20 multifamily buildings set up in Merced, with 389 units.
- There is a strong demand for “good” office space, and a strong demand for medical space, but again, supply is limited.
- Nationally, 2.5 million mortgages are in forbearance, meaning borrowers have missed payments. This could translate to 600,000 foreclosures nationwide, and perhaps 60,000 in California. In the Merced, Atwater and Winton area, according to Gonella, the number of foreclosures could be around 500.
Inclusionary Zoning (IZ)
Inclusionary Zoning, according to Sheng Xiong, can help Merced further its fair housing goals, increase affordable housing opportunities, and prevent displacement of individuals and families who have lived here for years.
“Every city has a moral and legal duty to affirmatively further fair housing,” Xiong said. “As the sixth fastest growing city in California, Merced is at a critical moment of its development. The projected growth for UC Merced is 17,000 by 2030, with the overall projected growth in Merced reaching 160,000 by 2030. The city must have the foresight to be proactive in shaping its housing plan, to further their housing goals, and meet housing needs for residents of all income levels.”
Xiong showed leaders a map of where people of color live in Merced. “While diversity is a strength of our city overall, there are clear paths of segregation as with other cities,” she said. “Merced residents of color are concentrated in areas to the south and west, and have less access to housing opportunities in opportunity-rich north Merced. Ensuring that affordable housing is a part of all new housing developments will make our city more equitable and inclusive, particularly as Merced continues to grow north and east.
Xiong pointed out …
- Almost all — 94 percent — of extremely low income residents in Merced County are cost burdened, and 74 percent are severely cost burdened. In Merced, a 2017 study found that 54 percent of renters are cost burdened, and 25 percent are severely cost burdened, spending 50 percent of their income on rent.
- In Merced County, the mean renter wage is $14.23 per hour, but the hourly wage needed to afford an average 2 bedroom apartment is $18.21 per hour.
“For our workforce to continue to live here, we need to provide sufficient affordable housing opportunity,” she said.
- From 1999 to 2006, 170 “IZ” programs across the state produced 29,281 affordable homes
- 80 percent of the IZ programs are in cities with a population less than 100,000.
- 8 out of the 10 cities hosting a UC campus have an IZ program.
- 1 out of every 10 IZ programs are in the Central Valley.
- A study of 55 Bay Area IZ programs found no evidence that IZ impacts either prices or production of market rate single-family homes.
“Looking at Merced’s housing production, we see that the city is on track to meet its moderate income and above moderate income needs,” Xiong pointed out. “But Merced is falling dramatically short on meeting housing needs for lower income households. [From 2017 to 2019] there was 0 housing approved for low income residents. It wasn’t until late last year that City Council approved the Childs & B project. However, that project won’t be completed until the end of 2022.
On the other hand, Merced is in a good position to meet or exceed its need for market-rate development by 2024.”
Over the past few years, if Merced had adopted an IV program dedicating 25 percent of new market rate developments to affordable housing, according to Xiong, the move would have supported hundreds of local families who are struggling.
After both presentations, Mayor Matthew Serratto asked Gonella, the Realtor, a good question.
“How many housing units do you think the city of Merced would have to add to get back to a balanced market with six months of supply?”
Gonella answered: “I would have to say somewhere between 1,500 to 2,000.”
And then the Mayor followed up: “We have 2,250 multifamily units that have been approved by this body, and for the most part, the developments have not been built for a number of things. What is your understanding about the delay in these projects?
Gonella responded: “Well probably Frank Quintero [the city’s economic development director] could answer the question better, but if you would like some insight from what we have had … Many times, when we have gone to lenders for multi-residential projects, they have not been very receptive to lending in our area because they still think that we are in the depths of the Great Recession. We can’t get them to understand that our rents have gone up, etc., and this is a good market to put these in. They are looking at the increasing amount of cost of materials such as wood and dry wall that has gone up 30 to 50 percent in a year, and therefore, a lot of these projects have a difficult time penciling. They are just afraid that the rents in this area don’t support it. Well, we try to convince them that this is not the case. And that’s the constant battle that we are fighting.”
Lots of reaction
The 45 voicemails concerning Inclusionary Zoning were all played during the meeting, and that lasted well over an hour. And then members of the City Council weighed in with some opinions before offering some guidance to the City Manager and department heads. A specific new IZ ordinance for the city was not before leaders for approval on Monday night. However, it was apparent a majority of the council was not in favor of such a policy.
Unfortunately, the Times has ran out of space and time in this week’s newspaper. Stay tuned for details on what else was said during the most recent meeting in next week’s edition!