.Can Santa Cruz County Build Hundreds of Mandated New Housing Units?

Over the next eight years, the state will require cities in Santa Cruz County to build hundreds of new housing units—even as these municipalities are failing to meet the goals set forth by the state a decade ago.

Between 2014 and 2023, California set the expectation for Santa Cruz and Monterey counties to permit roughly 10,430 homes, in an attempt to address the region’s housing shortage. Many of these homes are required to be affordable for people with lower incomes. This year, the state more than tripled the number of houses it expects the counties to build over the next eight years, setting a goal of 33,274 units to be built by 2031.

How to distribute these housing units between the two counties was decided earlier this month, and has been a point of contention for Santa Cruz County cities. Capitola, Santa Cruz and Scotts Valley all saw their housing goals increase to what the cities’ representatives claim are unattainable numbers.

“The state’s housing expectations are laughable, when you look at the space and budget our city has,” says Scotts Valley City Councilman Derek Timm. 

Timm claims the burden of building these units was disproportionately placed on cities in Santa Cruz County, and that Monterey County was able to get off easy in comparison.

But Rafa Sonnenfeld, director of legal advocacy at Yes In My Back Yard (YIMBY) Law, said that the housing goals each city is expected to meet are fair, and it’s simply a matter of cities being resourceful and committed to creating affordable housing.

“I think it really says something that the wealthiest cities in our region—Carmel, Scotts Valley, Santa Cruz, Capitola—were the only cities that didn’t vote for this, and the only cities that are really complaining about their numbers,” Sonnenfeld says. 

The Methodology 

To ensure enough housing is being built, the California Department of Housing and Community Development (HCD) uses a methodology called the Regional Housing Needs Assessment, or RHNA (pronounced “ree-na”), to determine how much housing at each affordability level should be built in different regions across the state. A council of local jurisdictions, in Santa Cruz County’s case the Association of Monterey Bay Area Governments (AMBAG), then divides that number up among its member cities.

This year, HCD expanded its criteria when defining housing needs, which is why the goals it set increased by more than three times from last cycle. HCD also put forward new criteria by which jurisdictions could divvy up the housing units across cities. 

“The way that we’re distributing housing units now is basically encouraging more development in the high-wealth, high-opportunity areas. So for the likes of Scotts Valley, in particular, which got much larger numbers than they’re used to, it’s because they have good schools, they have high-paying jobs,” Sonnenfeld says.

City representatives like Timm and Capitola City Councilwoman Kristen Petersen say they think their cities were unfairly saddled with too many units when factoring in things like space and budget, compared to Monterey County.

Originally, AMBAG discussions had placed Santa Cruz County’s goals for new housing units between 10,800 and 10,500 by 2031. But at AMBAG’s Jan. 12 meeting, the board voted to increase the number of housing units assigned to Santa Cruz County to 12,979. This draft was sent to HCD in a 21-6 vote, with Santa Cruz City Councilman Justin Cummings, Petersen and Timm all voting against this allocation.

“After spending three years on this and having a general feel of what the numbers would be, this was a dramatic shift,” says Timm. 

Ultimately, Timm’s gripe is with AMBAG’s decision-making process, which gives Monterey County more voting power than Santa Cruz County. San Benito County also voted in favor of the increase, despite not having a stake in the game—but because San Benito is on the Board of Directors, they have the voting power when deciding the RHNA cycle numbers for the two other counties.

The other problem with this big of an increase, city representatives like Timm and Petersen point to, is that smaller cities like Capitola and Scotts Valley don’t have the space or the funds to build out the number of affordable units assigned to them.

“We expected our numbers to go up. But zoning for this many units represents such a challenge, especially for a community like Capitola or like Scotts Valley, where you are already built out with residential neighborhoods,” says Timm. “We have a percent of the valley that has fire-safety access issues, and our undeveloped land has hillsides and other reasons why it cannot be developed.”

But Sonnenfeld said cities might just need to rethink their approach. Developing vacant parking lots and high-density housing could be solutions to space limitations, he said. 

As far as funding is concerned, Sonnenfeld agreed that the state should help cities fund more affordable housing projects. But municipalities need to do their part in prioritizing the projects that are submitted by developers, he added, pointing out that Scotts Valley has permitted many market-rate units and few low-income units.

Scotts Valley has already surpassed its current RHNA allocation for total units permitted, but fewer than 3% are considered affordable by the state’s guidelines. Capitola has similarly not reached any of its 2023 housing targets. And although Santa Cruz has surpassed its 2023 RHNA goals for low, moderate and above-moderate incomes, it has only issued permits for 12 of 180 required very-low-income units.

When a city doesn’t meet its housing target, state law allows streamlined approval of some housing projects under Senate Bill 35. That’s what’s playing out in Santa Cruz right now with the affordable housing project on Water Street. Developers submitted plans under SB-35, which means Santa Cruz city officials have limited authority to deny the project, and developers can bypass some requirements.

“It’s that fear of losing that local control that I think is driving those comments about unrealistic, infeasible, unachievable numbers,” says Sonnenfeld. “But I think if cities really want to lean into meeting their goals, they can do it.”

While AMBAG has approved its draft RHNA numbers, they are not final yet. HCD still needs to review the draft. But Timm thinks they are as good as final.

“There’s no reason to think HCD won’t approve them,” says Timm. “We’re stuck with a ruling that we couldn’t really have an equitable discussion about with Monterey County.”