ENCINITAS — Applications are now open for a newly built affordable home in Leucadia, reopening a city-run process that, in past cases, resulted in designated low-income homes being sold to wealthy investors rather than qualified households.
The home, part of the recently completed Stonesteps Cove development on North Vulcan Avenue across the railroad tracks from Pannikin Coffee and Tea, is available for sale to a qualifying very low-income household under the city’s affordable housing ordinance.
The two-story, detached condominium is 1,531 square feet and includes three bedrooms, 2.5 bathrooms, a loft, a fenced yard and a two-car attached garage. The home is listed at $150,494.
The application period opened Jan. 16 and runs through Jan. 30, with buyer selection scheduled for Feb. 5, followed by city verification.
The sale of the affordable home is governed by a regulatory agreement between the city and DLS Holdings LP, a development entity affiliated with DLS Investments. The Encinitas City Council approved the agreement in October 2023, under state and local density bonus rules, as part of the 12-home Stonesteps Cove project.
The agreement, signed by former City Manager Pamela Antil and City Attorney Tarquin Preziosi, requires one home to be “maintained as affordable” to a very low-income household in perpetuity.
The developer purchased notices advertising the home in The Coast News for two consecutive weeks, in the Jan. 16 and Jan. 23 print editions, the minimum amount required under the regulatory agreement. The selection process will begin after the two-week advertisement period has ended.
Troubled history
The city’s affordable homeownership program has drawn scrutiny in recent years after two homes designated for very low-income buyers were sold instead to investors with city approval. The homes were then converted into affordable rental units.
In 2022, shortly after the sale, The Coast News uncovered overlapping relationships among developers, lenders and buyers tied to the program, creating the appearance, if not the reality, of insider advantage.
In one prior instance involving a designated affordable home at 1412 Mackinnon Avenue in Cardiff-by-the-Sea, court documents revealed a lender hired by the developer to qualify applicants was a co-worker of the investor who was ultimately selected to purchase the home.
The sale of affordable homes to real estate investors — despite dozens of qualified applicants — sparked community outrage and led to a federal discrimination lawsuit filed by four Encinitas residents, some of whom were among more than 80 low-income households passed over for homeownership in the Loden at Olivenhain community.
“This leads families like mine to think I have a chance to buy a house in the town I grew up in at a price that I could actually afford,” Leah Sorenson, a plaintiff in the federal lawsuit, told The Coast News in 2021. “And then we either never hear back or we get denied, and we find out they sold to an investor or developer instead.”
The city and developers claimed in federal court filings that state and local law permitted sales to investors so long as the units were rented to low-income households. However, plaintiffs in prior litigation argued that the practice undermines the spirit and purpose of affordable housing programs and discourages low-income families from applying.
A federal judge later dismissed the lawsuit, with leave for the plaintiffs to refile in state court. The Coast News subsequently received reports of a settlement, but those details were never confirmed.
Public records cited in prior reporting show that between 1995 and 2017, the city sold 22 single-family affordable homes under the density bonus law. Of those homes, just six (27%) were sold to low-income or very-low-income households, while the remaining 73% were sold to investor buyers.
‘A tremendous opportunity’
Stonesteps Cove developer Daniel Frye, principal of DLS Investments, told The Coast News that his understanding is that the affordable home sale process is structured to prevent investor purchases and insider dealing, both of which are “prohibited” and an “extraordinarily big risk” under the regulatory agreement.
“The way I read the city’s affordable regulatory agreement, (selling to an investor) is expressly forbidden,” Frye said. “The applicant can’t own any other real estate and has to meet strict income limits based on household size.”
According to the regulatory agreement, the city is responsible for conducting an annual review of the homeowner’s financial standing. If someone exceeds the income limits at any time, there’s a required process to sell the home to another qualified buyer.
“If you’re an unscrupulous developer, you might think you can get away with a sale like that, but you’re also betting you can get away with it in perpetuity,” Frye said.
While Frye said he is not surprised by past reports of “backdoor” deals favoring friends, co-workers or family members, he called such behavior “a shame.”
City officials have previously said the city’s affordable housing regulatory agreements were drafted based on legal interpretations that prioritize the availability of low-income housing — whether rented or owned — and do not guarantee access to homeownership. Developers, not the city, select the buyers, and the city’s role is limited to verifying compliance with affordability restrictions.
It remains unclear whether the Stonesteps unit may still be purchased by a non-qualified investor and rented to a qualifying low-income tenant. The Coast News submitted questions to the city seeking clarity on the program’s guidelines and will update this story with a response.
Regarding the property, Frye called it a “tremendous opportunity,” and “exactly the kind of place where affordable homeownership should exist.”
Located near Paul Ecke Central Elementary School and just a few blocks from Stonesteps Beach, the home immediately drew significant public interest, receiving roughly 150 inquiries on its first day on the market, according to Frye.
“I’m not an affordable housing developer, but it is nice to provide a family a real leg-up in life with a chance to live in a safe area near good schools,” Frye said.
Eligible applicants for the Stonesteps Cove home must complete an Affordable Home Screening Questionnaire to be considered for purchase.
