Santa Cruz’s housing boom sees ‘significant slowdown’ as economic fears deepen

Santa Cruz is beginning to see a “significant slowdown” in applications for housing developments, City Manager Matt Huffaker told a gathering of local leaders from cities and counties across the Monterey Bay area Thursday. Many of the projects that are under construction or that have been entitled have paused moving forward with the building phase, he said — a testament to the current times’ pervasive economic uncertainty.

“If you’re a developer, and I’m sure we have some in the room, you don’t start a project unless you have certainty that you can complete it,” he said. “You hope that supply chains aren’t going to disrupt your ability to get lumber and building materials and labor, and we have very little certainty of any of that in our current environment.”

Similarly, Cabrillo College President Matt Wetstein and UC Santa Cruz Chancellor Cynthia Larive expressed worry over the schools’ joint affordable housing project due to the uncertainty around the costs of materials like lumber and steel. The schools plan to create 376 beds for Cabrillo students and 248 beds for UCSC students on Cabrillo’s Aptos campus, with the project set to break ground in October. Wetstein told the annual gathering of the Monterey Bay Economic Partnership (MBEP) in Aptos that the potential for big cost increases for the whole project “are starting to keep me up at night.” 

Larive said that, given UCSC’s status as a research university, much of that research work requires expensive equipment, which tariffs will make even more expensive. Grants being slashed adds to that stress, she said.

“We’re the biggest employer in Santa Cruz County and last year we had about $210 million in grant funding, and $132 million of that came from the federal government,” she said. “So far, we’ve lost about $15 million in grants.”

Larive said about 80% of each grant goes to pay people, and when those grants get cut, it means fewer people working in the county. For each research position lost due to a cut grant, she said, “that’s at least two other jobs in our community that are lost from downstream effects.”

Uncertainty was the common theme at MBEP’s 2025 economic outlook conference at Seascape Golf Club on Thursday, where economists and local city and county officials spoke to what they are currently seeing, and what could be coming down the road. That includes a possible recession, as tariffs and a generally murky economic outlook are already causing far-reaching problems with housing developments, school and government budgets, and for thousands of undocumented workers across the Monterey Bay area.

Huffaker told the conference that he was actually somewhat reluctant to discuss the city’s economic trends because so much remains uncertain.

“We think there’s a high probability that everything we share with you today will be completely irrelevant by tomorrow,” he said, speaking to the rapidly changing economic situation that many local governments, businesses and institutions are navigating in the wake of major federal changes.

Jon Haveman, executive director of the National Economic Education Delegation, said the bigger economic picture could broadly be described as “uncertain,” but added that over the past year, the local economy has done well and employment in Monterey County, especially, has grown noticeably. 

Santa Cruz County also saw an uptick in employment over the past year. Huffaker pointed to tech startups Joby Aviation and Paystand establishing their headquarters in the city, as well as the La Bahia resort and Cruz Hotel developments moving forward. 

However, Haveman said that while a recession is not guaranteed, many economists believe one is approaching: “I don’t disagree with that. For a long time, I’ve been thinking that probably towards the end of this year we’re going to have a recession.” He added that how the broader economic picture unfolds relies on what the Trump administration actually does, including how far it will go with immigration enforcement, how many federal employees will be laid off, how high tariffs will remain, and if Federal Reserve Chair Jerome Powell will be fired.

Haveman said that data from 2019 showed that the Monterey Bay region is home to about 83,000 undocumented immigrants, which is “almost surely significantly larger now.” Even in 2019, those 83,000 made up about 15% of the labor force.

“What that means is that if we do get mass deportations, it’s going to be very, very bad for the local economy,” he said. He added that undocumented immigrants considered “low-skilled” do not take jobs away from “low-skilled” native-born Americans, but actually contribute positively to the economy, as they tend to create opportunities for “higher-skilled” individuals. He said, no matter how you slice it, mass deportations do not make sense.

“Low-skilled immigrants take jobs that Americans don’t want and they create jobs that Americans do want,” he said.

While much remains uncertain, Haveman said the broader economic outlook is not good. He said inflation is inevitable, as are job losses. With those murky, but negative, possibilities in mind, Santa Cruz County Executive Officer Carlos Palacios said that the tri-county partnership among San Benito, Monterey and Santa Cruz counties should be focusing on job training and apprenticeships as well as facilitating the construction of housing so that people can both find work in the area and have a place to live, allowing them to stay.

Palacios added that, beyond the workforce and local economy, the counties need to commit to working together on disaster response. He said that the Federal Emergency Management Agency (FEMA) is lethargic with reimbursements, and it still owes the county over $90 million that it has spent addressing natural disasters.

“The state’s going to have to step up, just like they’re going to do with L.A., because L.A. is not going to get the FEMA money that they want,” he said. “The other thing is we’re going to have to work even more closely together and help each other with our own resources when one of us starts having issues.”

Faris Sabbah, Santa Cruz County superintendent of schools, said the county badly needs teachers, but at the same time, school districts are also making staff reductions. With 12% to 16% of the school budgets coming from federal funds, he said, any cuts from Washington will heavily affect the ability to keep school districts solvent. He added that a lack of housing drives out both families and teachers, further complicating matters for county schools.

“It creates a difficult challenge for school districts, because they have to adjust to smaller numbers of staff, and when over 90% of your budget is on salaries and benefits, that means you have to make reductions,” he said.

However, Sabbah added that workforce housing is a serious consideration that many school districts are exploring, which could help remedy the issue.

“Many of the districts are using their bond money to build educator housing,” he said. “Utilizing bonds and a public plan to build that housing, I think, is going to be an important thing for school districts.”

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