ENCINITAS — Following backlash from residents about an affordable home in Olivenhain sold to a non-qualified investor, the City of Encinitas has doubled down on its role, stating it had no choice but to approve the sale.
But while the city contends it was merely following state housing law, municipal personnel are currently working with attorneys to adjust how the process could work in the future, according to Roy Sapa’u, the city’s director of development services.
“That’s something that we’re looking at is potentially prioritizing selling a unit to an income-qualified person before considering selling it to a non-income-qualified person,” Sapa’u said.
The house in question on Portola Road in the Loden at Olivenhain community of Encinitas was sold earlier this year to a non-qualified investor among a field of more than 80 low-income applicants, as first reported by The Coast News.
The advertisement for the low-income home, which ran in The Coast News’ print editions on March 5 and March 12, did not include the words “for sale” or the home’s list price.
Some have questioned if the program was reserved solely for affordable homeownership, why would investors seek to purchase the home?
Sapa’u said that under state law, the developer of the property has three choices when it comes to the low-income affordable unit after the development is completed — the owner can keep it themselves and rent to a low-income family; sell the unit to a low-income household, or sell to a non-qualified investor who then must rent the unit to a low-income household for a period of at least 55 years.
When asked what particular state law the city was referencing, Julie Taber, the city’s public information officer, cited Government Code Section 65915, commonly known as the Density Bonus Law.
According to the city, it has no say in rejecting a developer’s choice from those options.
“Based on the way our current agreements are drafted, those options are available and we can’t influence the process,” Sapa’u said.
Sapa’u said those agreements for the affordable housing program were drafted by the city based on state housing laws.
“Based on the city attorney’s interpretation of the law, as long as that individual, or investor, or nonprofit group is committed to renting the unit to a low-income household then that meets the intent of the law,” Sapa’u said.
The city said it does annual checks in these cases to ensure the property owner is renting to a low-income household and in a press release also noted the investor who purchased the Portola home “already owns and manages two affordable units in the city and has consistently been in good standing with the city’s compliance monitoring.”
The sale of the Loden property was signed off by multiple parties from the city, including City Attorney Leslie Devaney, who said in a public statement that her signature means her office has advised city staff on legal aspects of the sale and confirmed the decision is defensible in court.
“(The City of Encinitas’ density bonus) agreement provides that the affordable unit may be sold to a non-qualifying household with approval of the City provided that the unit will be continuously rented to a very low-income household. This restriction applies in perpetuity (forever). There are no guidelines or criteria governing the City’s approval of the sale to a non-qualifying household except for the rental restriction,” Devaney wrote in the statement.
However, some critics, including low-income individuals who applied to purchase the home, claim the point of the program should be to give access to generational wealth that allows households with lesser means to lift themselves out of poverty.
But Sapa’u said that when a low-income household purchases an affordable home, the property still must remain at low-income value for 55 years.
For example, if an individual tried to get a line of credit against the house, they would only be eligible for the current low-income rate.
According to the city, should a homeowner pass away before 55 years, transfer of the property to their next of kin is not automatic.
“There are certain steps that you have to follow to show or demonstrate qualification in order for the unit to be transferred to next of kin,” Sapa’u said. “Meaning they also have to qualify as low-income. For instance, if your kids go to college and they’re successful and they don’t meet that income threshold, they may not be able to qualify to receive the unit.”
However, if the homeowner is still alive after the 55-year period, the individual is then free to do whatever they like with the home as a normal market-rate property.
“I think that’s one of the biggest misconceptions that wealth is accumulated overnight,” Sapa’u said.
EDITOR’S NOTE: This story was written prior to a federal discrimination lawsuit being filed on Sept. 30 against the City of Encinitas, Woodbridge Pacific Group and other developers for their alleged roles in the sale of two affordable homes to non-qualified investors. Read the story here.