Civil grand jury dings Scotts Valley, Capitola over affordable housing — and exponential increases are still ahead

New housing construction in the Crocker Village neighborhood in Sacramento on Feb. 10, 2022
(Miguel Gutierrez Jr. / CalMatters)

By 2031, under state mandates, Capitola will need to boost its affordable housing permitting by roughly 9,000% over what it permitted between 2015 and 2022; Scotts Valley will need to permit 803 new income-restricted units, a more than 4,000% increase. That comes after both jurisdictions struggled to meet state goals from 2015 through 2022, and both come in for criticism in a recent report by Santa Cruz County’s civil grand jury.

This story was originally featured in this week’s In the Public Interest newsletter from Christopher Neely. Be the first to hear about politics and policy news in Santa Cruz County — sign up for Christopher’s email newsletter here.

One of the latest reports from the Santa Cruz County Civil Grand Jury — a citizen-led government watchdog — casts a critical net across the county and its four jurisdictions for the collective failure to stave off a steadily growing housing crisis and plan for or build enough affordable housing over the past few decades. From that lens, the civil grand jury is just one more voice in a long-established choir of criticism over housing development in Santa Cruz County. Yet this report goes further, and comes down especially hard on the county’s two smallest jurisdictions.

According to the 2022 year-end reports to the state, Scotts Valley (population 12,073) and Capitola (population 9,659) have struggled the most of any local jurisdictions to build their share of state-mandated affordable housing units. The civil grand jury investigation, “Housing Our Workers,” published June 2, does not hold back in its criticism.

“Scotts Valley and Capitola made almost no attempt to build housing for low-income or extremely low-income workers [between 2015 and 2023],” the 19-member, volunteer grand jury writes in its report, which examines affordable housing construction across the county over the past eight years. The city of Santa Cruz has met its housing permitting goals, and the report notes that Watsonville is on track to come close. While the county government, which oversees the land and the people outside of the four incorporated cities, has also fallen short on its affordable housing permitting, the civil grand jury chooses to focus on the two smallest cities as the worst culprits in a county that “has had a no-growth mindset for over 40 years.”

Santa Cruz County’s civil grand jury is in focus for Christopher Neely in this edition of In the Public Interest, as he...

Between 2015 and 2023, the state mandated Capitola to permit 83 new income-restricted affordable housing units. By the close of 2022, according to a report to the state, Capitola had permitted only 10 of these units since 2015, 12% of its requirement. In Scotts Valley, over the same eight-year period, the city permitted only 20 of a required 82 income-restricted affordable units.

According to the state, income-restricted affordable housing units come in three levels: very low-income, low-income, and moderate-income. The grand jury found that Capitola built none of its required 23 units in the low-income category since 2015; Scotts Valley built zero of its required 34 units in the very low-income category.

By themselves, the numbers offer an eye-opening look at how short the communities fell in their affordable housing allocations; the real shock, however, comes through comparing these numbers against the state’s mandate for the next eight years.

Capitola will need to permit 881 income-restricted affordable housing units by 2031. If the city is going to hit that number, Capitola will need to boost its affordable housing permitting by roughly 9,000% over what it permitted between 2015 and 2022, an increase of almost unfathomable magnitude. Scotts Valley will need to permit 803 new income-restricted units, a more than 4,000% increase over what it had permitted during the same period.

Income-restricted housing, especially low- and very-low income units, are the most difficult housing types to build. The level of subsidy required to keep the unit prices down often calls for complex financing mechanisms. Capitola and Scotts Valley, which have struggled the most to create affordable housing, now face the largest mandated increases, proportionally between the two housing cycles, of any Santa Cruz County jurisdictions.

According to the civil grand jury, Capitola and Scotts Valley have claimed that, compared to Santa Cruz County, the city of Santa Cruz and Watsonville, they have “significantly fewer resources” to attract the builders and partnerships necessary to develop the large batches of affordable housing required to meet the state’s housing mandates.

Further, the jury says, Capitola is zeroing in on accessory dwelling units — small houses built and rented out next to the main house on a property. However, according to the jury, “there is little chance that ADUs alone” can be enough to meet the state requirements.

This month, the two cities are finishing up the first drafts of their housing elements, the plans mapping out how the jurisdictions expect to fit their required new housing units. (The City of Santa Cruz sent its plan off to the state in April; Watsonville’s and the county’s are still under development.)

The Capitola City Council received a briefing on the housing element last week, which shows much of the sites analyzed for new housing to be along commercial corridors, where recent rezonings will allow for residential mixed-use, such as along 41st Avenue and Capitola Road. The city will also lean heavily on the redevelopment of the Capitola Mall, which, according to the city, has the capacity for 853 units.

Residents in Scotts Valley have the opportunity to comment on the first draft of the city’s housing element until June 19, before the city sends it to the state for an initial look. Scotts Valley’s plan says it has room for 2,173 total units, a major chunk of that coming from rezoned commercial lots along Scotts Valley Drive, as well as the Town Center project, which it estimates could yield nearly 400 units if built out.

Leaders in both cities admitted they were stunned when the state’s numbers first came out, and even considered pushing back against the state mandate to defend against their communities’ identities as quaint small towns. Neither followed through on those initial urges, but protection of community character amid hundreds of new units remains a chief concern.

During a housing panel hosted by Housing Santa Cruz County and Lookout last month, Capitola Mayor Margaux Keiser said the state’s numbers were “concerning” and ignited a “sticker shock reaction,” but that the city will need to find a way forward.

“We have to progress no matter what, this is what these numbers are telling us,” Keiser said. “However, we do want to preserve some of our quaintness, some of our idyllic situations we have here.”

Scotts Valley Mayor Jack Dilles admitted squeezing so many new units into Scotts Valley will require “significant change.”

“We’re hoping we can find a way that we can fit it nicely into town,” Dilles said. “Time will tell. It’s a big challenge and it’s hard to get my head around how we can do that, but we’re working on a plan.”

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