The group Citizens for a Balanced Community, which is hoping to drastically lower the amount of affordable housing units built by developers in the city, wants its case well presented when the city hears a report on the controversial issue.
The group has collected double the signatures needed to put the issue on the November ballot. If passed, the initiative would reduce the amount of affordable housing from 33 percent to 20 percent and would shift the burden of building affordable homes from the developers to so-called affordable housing specialists like the non-profit Gilroy-based South County Housing.
Through signature-gathering firm Olson Consulting, the group collected 2,885 valid signatures in three weeks - almost double the amount required to certify for the November ballot.
The topics the group would like included in a city report on the issue serve as an overview of what developers and others suspect about affordable housing and the people who own them.
City council directed staff to prepare a report that would look at the effects the change would have on the city. When the report is released in a few months, it will be public record and a public hearing will be held on the initiative.
The group requested that staff also report on the current below market rate program's effects on the community.
Developers want the report to address how below market rate homes affect the property tax base, the impact on school test scores, the demand on emergency services, the effect on surrounding home values, the city's ability to attract and retain higher-end retail uses, low-income homeowners' financial stability, the low-income homes' resale value and the middle class's ability to live in Morgan Hill.
While group member South County Realty Broker Chris Borello said the group mostly assumes there are negative effects in these eight areas, he said he's suspending judgment until after the report is done.
"If there's an impact, let's discover it," he said. "If not, then there's not."
Mission Ranch resident Kristina Hoffman shares some suspicions the group has.
"Over the last three months, we have noticed some serious issues in our area including a condemned house on our block, a major drug raid a couple of blocks from us, and people living in the shed of a backyard a couple of blocks from us. There has also been a string of vandalism, one home having $7,000 of damage to their front yard," she wrote in a March statement to city council. "Our neighborhood is considered 'upscale.' The majority of the homes are new. As I started talking with neighbors, a commonality began appearing in the issues being discussed: that being below market rate houses."
Former Morgan Hill Mayor Lorraine Barke agreed.
"Our community has changed to either very wealthy or the very, very low-income," she said. "I think a balanced community is a healthy community, including all income levels. Morgan Hill has gone out of whack."
The group, of which Hoffman and Barke are members, went the legislative route after working with the city for more than two years to try to reach a compromise. The group met with city council members and their subcommittee, the Community and Economic Development Committee to discuss below market rate homes.
In February, the council agreed to raise the price of affordable housing homes. According to the new pricing, the cheapest home available through the program costs $200,000, up $24,000 from the prior price.
But this was little consolation for the group whose members say the lagging housing market and national economic downturn, coupled with the high amount of low-cost homes they're building, requires a faster, more aggressive approach.
The group, including developers Dick Oliver and Rocke Garcia, South County Realty Brokers Borello and John Telfer and Bay Area land use planning consultant Don Lapidus, say the issue is not about "developers versus the city," but about what citizens want long-term for their community.
"The city has to ask, how do they want their city to grow?" Lapidus said.
Borello said Citizens for a Balanced Community members want Morgan Hill to remain an upscale community, but that is not what's happening because below market homes represent more than one-third of all new housing.
"What people really care about in Morgan Hill is their community," Borello said. "And we're seeing a change. People who have lived here seven years have seen a change."
Oliver, addressing the council at an April meeting, said his company alone has built more than 100 below market rate homes during the past 10 years and he's been pleased to do so.
"The problem now is that we've been caught in a financial crisis," he said, adding that he wants to bring in some fairness to the way the state-mandated affordable housing program is administered by the city.
Borello, a third-generation Morgan Hill native, agreed.
"It doesn't pencil anymore," he said. "The requirements are so stringent, the number is so tough - it just doesn't work."
Borello said city services, which are straining for cash in the weak economy as well, are missing out on property tax prices thanks to below market rate homes.
After crunching numbers on his desk calculator, Borello said almost $700,000 in city revenue is lost when a property is sold at an "affordable" price, rather than the market-rate price.
An affordably priced $350,000 home pays the city $4,375 a year in property tax, or 1.25 percent. A $1 million market-rate home, on the other hand, brings the city $12,500, a difference of more than $8,000. In one year alone, new housing's 83 below-market-rate homes cause the city to lose out on about $664,000 in property tax revenue, according to city officials.
Borello said the 13 percent developer requirement is unfair to everyone, not just those in the real estate community. He said regular home buyers are paying the price since the developer is forced to pass on the building cost for low-income homes to the market-rate home prices.
"If it costs a developer $500,000 to build a below market rate home then for the next 10 homes you build you have to factor in $50,000 (to each one)," he said, giving a simplified example.
Lapidus said the average three-bedroom home costs $620,000 to build, regardless of whether it's been designated as below market rate or not. Since the average below market rate home sells for about $300,000, developers have no choice but to pass the cost on, Borello said.
Borello said this pass-on makes pricing unfair to working people who are trying to buy a home but make too much to qualify for affordable homes.
"Buying a home isn't necessarily a right, it's a privilege," he said. "You have to budget yourself to make it work. You just reevaluate things, reprioritize things. People shouldn't feel entitled."
Natalie Everett Natalie Everett covers education and city issues for The Times. Reach her at (408) 779-4106, ext. 201, or neverett@morganhilltimes.com.
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