To boost affordable housing, Berkeley looks to buy, not just build

With construction costs high, Berkeley is increasingly looking to create affordable housing by buying and fixing up older buildings.

This story was made possible by the Berkeleyside Founders' Fund.

Stanley Glenn stands outside his apartment on Tenth Street in West Berkeley. Glenn’s complex was purchased by the Northern California Land Trust, which aims to preserve affordable housing by buying apartment buildings and fixing them up while keeping rents low. Credit: Kelly Sullivan

When the West Berkeley apartment complex that has been his home since the early 1990s went on the market, Stanley Glenn watched with trepidation as prospective buyers checked out the property.

“We thought they were going to kick us out,” said Glenn, a retired grocery store worker who, along with his wife Weynshet Semawu, pays less than $700 per month for their one-bedroom apartment on Tenth Street.

He’d heard plenty of stories about landlords buying properties and finding ways — legal or otherwise — to convince longtime tenants to move so they could lease apartments to new residents paying far higher rents. If that happened, Glenn feared, there was no way he could stay in Berkeley. He and Semawu would probably have to move “out to Stockton somewhere, or Modesto,” Glenn said.

But instead of an investment firm looking to flip his apartment, the building on Tenth Street was bought by the Northern California Land Trust — an organization that has spent decades working to keep tenants like Glenn in their homes. Thanks in part to a $1.6 million loan from the city of Berkeley, the land trust is now working to fix up the building while keeping Glenn’s rent affordable.

His apartment complex is an example of what researchers and advocates describe as a particularly promising strategy to address the Bay Area’s rising housing costs: buying existing buildings to preserve their low rents or turn them into affordable homes.

Compared to building new apartments from the ground up, “acquisition and rehabilitation” projects can offer a faster and less expensive way to create affordable housing, proponents say. But they haven’t historically gotten as much public attention or funding.

That’s starting to change in Berkeley, where city officials — working with land trusts and community organizations that have long pursued acquisitions — are ramping up their investment in the strategy. The city has provided $16.1 million for four acquisition and rehabilitation projects in recent years, helping secure a total of 73 affordable apartments at Glenn’s complex, a vacant apartment building in South Berkeley, a hotel in Northwest Berkeley and another apartment building in North Berkeley.

“The city has supported acquisitions before, but it’s proliferating now,” said Amy Davidson, the deputy director of Berkeley’s Department of Health, Housing & Community Services. Much of the money has come from voters’ approval of housing measures in 2016 and 2018, Davidson said, and it’s been helped by massive new state investments in the strategy, all of which have “really allowed the city to expand the types of number of developments it’s working on.”

Faster than new construction

One reason California doesn't have anywhere near as much affordable housing as it needs is the sky-high cost of building those homes.

With a $25 million price tag, the 34 income-restricted apartments for seniors at Berkeley's newest affordable housing development, Jordan Court, cost about $735,000 apiece. That's far from unusual in an expensive region like the Bay Area — in 2019, each new unit of affordable housing built in Alameda County cost $726,469 on average, according to a Bay Area Council Economic Institute analysis of data from the California Tax Credit Allocation Committee. A Los Angeles Times investigation in 2020 found projects that neared and passed $1 million per unit.

It might take an affordable housing developer years to stitch together enough funding for a project, guide it through the approval process and build the structure.

Compare that to California's Project Homekey program, in which the state provided funding to help local agencies buy hotels and motels and convert them into apartments for unhoused residents.

An analysis of the program by UC Berkeley's Terner Center for Housing Innovation found 40% of properties bought during the first round of Homekey funding in 2020 were ready for tenants to move in within six months of being sold.

"The single biggest benefit is just the urgency and the speed by which you can get people housed," said Carolina Reid, the lead author of the Terner Center's report. "The prospect of being able to house people in three (or) six months, depending on the property, instead of three, four, five years is a really important part of the affordable housing toolkit."

"It can also be a lot cheaper," Reid added.

The $800 million first round of the Homekey program allowed agencies across California to buy 94 properties, with just over 6,000 rooms, for a statewide average cost of less than $150,000 per unit. Add in the cost to renovate rooms, and projects that turned hotels into permanent supportive housing cost about $270,000 per unit on average.

Those costs are steeper in the Bay Area, however.

In April, the state announced Berkeley would receive $16.4 million through Project Homekey to help pay for the acquisition of the Golden Bear Inn, a 44-room hotel at 1620 San Pablo Ave. Berkeley is chipping in another $8.5 million for the purchase, which when combined with state funding means the complex will cost around $565,000 per unit.

Rising construction costs are taking a toll on other acquisition efforts, which often require extensive renovations. In addition to a $1.9 million purchase price, Northern California Land Trust expects to spend about $2.4 million to fix up Glenn's complex on Tenth Street, with improvements like a full seismic retrofit, new electrical systems and other repairs to stairways, balconies and residents' apartments.

The land trust's executive director, Ian Winters, said buildings like the one on Tenth Street typically became affordable because their owners neglected maintenance and other upkeep, leaving them in rough shape.

"Rehab is markedly more affordable than new construction," Winters said. "But at the same time, if you're doing a good rehab ... it's not a Home Depot kitchen facelift and a quick coat of paint."

The city of Berkeley provided $1.6 million to help fund the Northern California Land Trust's purchase and rehabilitation work at this West Berkeley apartment complex. Credit: Kelly Sullivan

Once scarce, funding now increasing

Despite the potential advocates see in acquisitions to provide affordable housing, government funding has mainly been dedicated to building new projects — not buying existing apartments. Land trusts and other housing organizations have often struggled to find the funding they needed to make purchases on the open market, where they compete against other buyers.

"If you want to buy a property, you need a lot of money right at the front end, and that money hasn't always existed," Reid said.

Project Homekey marked a sea change at the state level, as California committed an "unprecedented" amount of funding to the acquisition strategy, according to Reid's report. Gov. Gavin Newsom expanded the program last year, dedicating another $2.75 billion to help pay for hotel and motel acquisitions. (Project Homekey is not to be confused with Project Roomkey, a similarly named pandemic-era program that provided state funding to lease hotel rooms so they could be used as temporary emergency shelters for the homeless.)

Berkeley was already moving in that direction when the Homekey project launched. Along with the funding it provided for the Tenth Street project, the city has also loaned $2.1 million to rehabilitate eight vacant apartments on the property of a South Berkeley church, and another $3.9 million to fund the purchase of a 13-unit apartment building on Solano Avenue, which is set to be completed this summer.

The Golden Bear Inn in Northwest Berkeley. Credit Supriya Yelimeli

Both of those acquisitions received money through Berkeley's Small Sites program, which is modeled on a similar initiative in San Francisco that provides funding to buy or fix up smaller apartment buildings to preserve them as affordable housing.

Under the Small Sites model, any existing residents get to stay in their homes without the threat of being driven out by a rent hike or mass eviction — something tenants in the Solano Avenue building were facing before a land trust and the city got involved. As people choose to move elsewhere, income caps mean the apartments they leave behind will be set aside for low-income renters.

"We're ensuring long-term affordability," said Davidson.

Leaders of the McGee Avenue Baptist Church had long wanted to fix up the apartment complex the church owns on Stuart Street, especially as soaring housing costs pushed members of its historically Black congregation out of Berkeley and neighbors complained about the dilapidated buildings. But until the church received funding from the city, as well as assistance from the Bay Area Community Land Trust and Local Initiatives Support Corporation, its members didn't have the money or experience needed to pull off such an extensive project, said Michael Jones, chairman of the church's board.

"It actually felt like a godsend," Jones said. Without the extra funding and assistance, he said, "We would never have been able to get it done.

"A way was made out of no way."

A formerly vacant and dilapidated apartment complex owned by the McGee Avenue Baptist Church has undergone a substantial rehabilitation funded in part by Berkeley's Small Sites affordable housing program. Low-income tenants are set to move into the building this summer. Credit: Ximena Natera for Berkeleyside/CatchLight Local

Projects face challenges, limits

Like at the complex on Tenth Street, though, the effort to reopen McGee Avenue Baptist Church's apartments has faced the challenge of shoring up an aging building.

When Berkeley first got involved with the project in 2019, the city provided a $1 million loan and hoped new tenants could move in within a year. Officials knew it wouldn't be easy to restore the buildings, which needed lead, asbestos and mold abatement work.

But the project wound up being even more costly than expected thanks to the pandemic and problems that arose once work began, which have stretched out the construction timeline and required Berkeley to double its loan amount. The complex's first new tenants are set to move in this summer.

Experts also warn that organizations must figure out how to pay for ongoing maintenance and staffing needs to keep their buildings in good shape and, in some cases, provide support for residents, since the rent amounts paid by lower-income tenants are unlikely to cover all of those costs.

The Northern California Land Trust plans to spend $2.4 million to fix up the Tenth Street apartment complex. The building needs extensive rehabilitation work, including a seismic retrofit and improvements to stairways and balconies. Credit: Kelly Sullivan

These challenges can mean that if they aren't done right, acquisition projects might bring vulnerable tenants into dated and substandard housing. A San Francisco Chronicle investigation of residential hotels leased to provide housing for thousands of formerly homeless residents found many buildings have deteriorated from insufficient city funding, leaving residents to contend with rodent infestations, broken elevators, insufficient staffing and other problems. The Vallejo Sun uncovered similarly poor conditions in the hotels that the city leased through Project Roomkey.

And some acquisition efforts have raised questions from critics.

Berkeley and several other Bay Area cities have partnered with the California Community Housing Agency, a Central Valley-based joint powers authority that acquires newer apartment buildings and enacts rent caps meant to make their units affordable to middle-income tenants. Last fall, the agency bought downtown Berkeley's notorious K Street Flats apartment complex, the site of the 2015 balcony collapse tragedy that killed five Irish students. The sale did not involve any city funds, but the purchase will take the property off local tax rolls.

The agency says its acquisition deals help provide homes for teachers, firefighters and others priced out of expensive markets. But it has faced questions about whether the discounts it provides are generous enough to meaningfully improve affordable housing options — while apartments at K Street Flats are cheaper than they were before the agency bought the building, one-bedrooms start at $2,342 per month.

Ultimately, proponents of the acquisition strategy stress that it isn't a silver bullet to Berkeley and the Bay Area's struggle to create and keep affordable housing. One of its most important limitations, Reid and other experts say, is that acquisition deals don't address the fact that the region needs more housing overall.

"The evidence is clear that part of California's affordable housing crisis is that we are just not building enough to meet the job growth that is happening in this region," Reid said. "I don't think we're going to solve it by just a shifting around of existing units."

The city of Berkeley is contributing $3.9 million to a land trust's purchase of the 13-unit apartment building at 1685 Solano Ave. Once the sale is completed later this year, the land trust will lease its vacant units to low-income renters. Credit: Ximena Natera for Berkeleyside/CatchLight Local

Many want to scale up strategy

Despite those challenges, advocates and Berkeley leaders say acquisitions have proven themselves to be one solution that can boost the city's affordable housing supply and help keep longtime residents in their homes.

The city has spent all of the initial funding it set aside for the Small Sites program, but Mayor Jesse Arreguín says he wants to commit another $10 million to buy and preserve affordable apartment buildings, and eventually provide annual funding for the strategy. A $300 million affordable housing and infrastructure bond measure city officials are considering putting before voters in November could provide funding for acquisitions, Arreguín said.

"We have been putting money in — a million here, a million there — but it's nowhere near the scale we need," he said. "The need is huge and there are properties going on the market all the time."

The vast majority of affordable housing in the Bay Area isn't legally restricted to low-income tenants, said professor Karen Chapple of UC Berkeley's Urban Displacement Project. That means if a landlord decides to renovate their building to take advantage of soaring rents, the apartments could quickly go from affordable to out of reach.

"Almost all of those units in Berkeley are at risk," Chapple said. "There [are] hundreds of buildings that the city could be looking at acquiring or putting into one of these programs."

But ramping up acquisitions to match the need for affordable housing in the Bay Area will take more than just local or even state funding, she said.

"Ultimately, it doesn't scale unless the federal government gets involved in a serious way," Chapple said, noting that the federal Low-Income Housing Tax Credit program mainly funds new construction, not acquisitions. "That's the big missing piece."

The hope of affordable housing advocates and city officials is that more renters can eventually feel the security tenants like Glenn enjoy. Glenn says he never wants to leave his apartment on Tenth Street, and now knows he won't have to worry that he and his wife are one rent increase away from having to move.

"We're more comfortable — we're not shaky about what's going to happen," Glenn said. "We've got our feet on solid ground."

Berkeleyside reporter Supriya Yelimeli contributed to this article.

Nico Savidge is Berkeleyside's senior reporter covering city hall. Email: nico@berkeleyside.org. Twitter: NSavidge.