Santa Cruz Local: Ballot measure aims to build more affordable housing in Santa Cruz

Elaine Johnson, executive director of Housing Santa Cruz County, speaks at a Jan. 16 event for a campaign to fund affordable housing. (Jesse Kathan — Santa Cruz Local)

SANTA CRUZ >> A signature-gathering effort kicked off Thursday to put a new parcel tax and property transfer tax on the Nov. 4 ballot in the city of Santa Cruz. The taxes aim to raise $5 million annually for affordable housing and homelessness prevention.

The proposed Workforce Housing Solutions Act needs 3,620 signatures to qualify for the November ballot. It would need more than 50% of the vote to be adopted. Santa Cruz Mayor Fred Keeley, leaders of the community organization Housing Santa Cruz County, and a coalition of housing activists and local professionals are leading the effort.

“There’s still people unhoused, still people struggling to pay the rent,” said Elaine Johnson, executive director of Housing Santa Cruz County. After nearly two years of community meetings with attendees across the political spectrum, “we came up with a little something that everybody was wanting,” Johnson said.

“This is a community problem that needs community-level support,” said Marvin Christie, president and co-owner of Felton-based real estate firm Anderson Christie Inc. “Asking property owners to share in that load seems like a reasonable request.”

How much is the tax and who would pay?

Voters in many cities and counties across the country, including Berkeley and Santa Clara County, have approved local housing bonds to pay for new below-market-rate homes.

The proposal for Santa Cruz is different. Instead of borrowing a lump sum, the city would accumulate money over time through a parcel tax and a property transfer tax.

The proposed $96 parcel tax, unlike a bond, can legally exempt certain property owners. The ballot measure includes parcel tax exemptions for:

• Low-income households earning below 60% of the area median income according to state guidelines.

• Seniors age 65 and older who earn below 80% the area median income.

• 100% below-market-rate housing developments.

• Schools and religious organizations.

The ballot measure also proposes a property transfer tax paid by sellers.

Property transfer taxes have been used elsewhere to fund affordable housing, although Keeley said he doesn’t know of any that have been paired with a parcel tax. In Los Angeles, a 4% “mansion tax” approved in 2022 is assessed on the sale of properties over $5 million to fund affordable housing and homelessness prevention.

The proposed measure for the city of Santa Cruz would kick in for properties sold for more than $1.8 million. The median listing price for homes in Santa Cruz is $1.6 million, according to aggregated real estate listings.

The tiered tax rate would increase for higher-value properties. For example, the seller of a $2 million property would pay a 0.5% tax, or $10,000. A $5 million sale would be assessed a 2% tax, or $100,000. The maximum transfer tax for any property would be $200,000.

Both taxes would start July 2026 and expire July 2047.

How would affordable housing be built? 

About 90% of the money would go towards the city’s Affordable Housing Trust Fund to pay for the creation and protection of below-market-rate housing. 

The city wouldn’t directly build homes, but would offer loans or grants to nonprofit and for-profit developers or other groups. For example, the fund could offer a loan to a developer to buy land for affordable housing, or give a grant for a nonprofit to buy existing apartments and rent them below-market rate.

The money could also be used to preserve existing affordable housing, renovate below-market-rent apartment buildings or offer loans for down payments to first-time homeowners.

The measure allocates 10% of the money for measures to reduce homelessness, including permanent supportive housing, transitional housing and shelters. It could also include temporary assistance to help keep people in their existing homes. 

Although the city has made progress in reducing homelessness, those efforts have been hampered by the number of people who continue to fall into homelessness. 

If one member of a household loses their job and is at risk of eviction, “The cost to us and to them to get back out of homelessness is enormous,” Keeley said. “What if instead we said, ‘Here’s a check for your rent this month. Use that period of time, go find that other job, and we’ll just keep you where you are.’”

Santa Cruz created its Affordable Housing Trust Fund in 2003. It receives money from sales of city property and in-lieu fees from developers who do not build the required amount of affordable housing.

How was the tax developed?

In 2018, then-Santa Cruz County Supervisor Keeley championed Measure H, which would have allowed the county to borrow $140 million for affordable housing and pay back the loan with a property tax increase. Although the measure was defeated, it won more than the required 66% vote within the city of Santa Cruz. Keeley said the results speak to the willingness of voters in the city to put money towards affordable housing, even if it means higher taxes. 

During his campaign for Santa Cruz mayor in 2022, Keeley vowed to propose another measure to fund affordable housing. But it took two years of community meetings and collaboration with nonprofit Housing Santa Cruz County to work out the details.

The challenge was to craft a tax that would raise money for affordable housing and be palatable to voters.

Some attendees at the community meetings spoke out against parcel taxes as a regressive tax that disproportionately affects lower-income taxpayers. Others said they didn’t like a real estate transfer tax. To compromise, the coalition created versions of both taxes that most attendees could accept. 

“We were trying to accommodate different values and belief systems in coming together, and that’s what this represents,” Keeley said.

Santa Cruz Together, which formed to oppose rent control proposal Measure M in 2018 and campaigned against the empty-home tax Measure N in 2022, announced in a Jan. 16 newsletter that the organization will be neutral on the proposed measure.