Can’t get there from here

In the irony-laced Chico housing market, even the affordable homes aren’t affordable anymore.

Tony Symmes, long known in building and housing circles as the only developer building houses geared toward the average first-time homebuyer, has a waiting list of 2,000 would-be customers. Many of them are in for a big disappointment.

“Most of those people have been on the list for two, three, four, five years,” Symmes said, having signed up when his houses were going for $160,000 to $170,000. “Now I say the same house is $250,000, and they can’t do it.”

“The market’s basically a $250,000 entry-level market,” Symmes said. “It’s terrible.”

Chico made national news in February when a study named the city the most out-of-whack housing market in the nation, with prices 43 percent higher than what they “should be.”

Economist Richard DeKaser, of National City Corp., called the pricing in 16 markets, including Chico, “bubblettes"—areas where houses are well above the value local history would indicate and are deemed unaffordable based on local incomes. In Chico, prices had risen by 15 percent in 2004 and by 23 percent the year before that. The median home price in Chico went from $139,000 in 2000 to $275,000 in 2004.

To put it another way, Chico’s house prices have risen 107 percent during the five-year period ending in April 2005, according to the Office of Federal Housing Oversight.

The news surprised even Dennis McLaughlin, the housing officer for the city of Chico. “That’s the sticker shock: It’s jumped up in the last five years and doubled in price,” he said.

Chico’s median income for a family of three hovers at $44,200, and, according to city and federal housing measures, a family earning $47,513 a year, which amounts to a combined $24 an hour, can afford to buy a $200,000 home.

Trouble is, the math doesn’t work.

For the past 15 years, the city has offered a mortgage subsidy program, which currently amounts to a loan of $15,000, $30,000 or $45,000, depending on the value of the home, that doesn’t have to be paid off until the house is sold.

In the 1990s, it was a big help to families who had trouble coming up with more than $5,000 for a down payment and needed to avoid paying pricey mortgage insurance.

But the city, following rules set up by the state, won’t let homebuyers’ housing costs exceed 35 percent of their incomes. (Affordable housing is legally defined as housing costs not exceeding 30 percent of gross income. The Housing Element of the city’s General Plan assumes a family can afford to buy a house that costs four times the family’s annual income.)

That means, in most cases, that if you make enough to buy a house in Chico, “then you wouldn’t be eligible for the program,” McLaughlin said.

Let’s try that again: You’ve qualified to buy a home that doesn’t exist.

“You can’t get to the house,” McLaughlin explained. “We end up chasing our tail.”

Noting that the median price of a Chico home rose to $275,000 in 2004, city leaders decided to raise the mortgage subsidy price cap to $300,000. But to be able to afford the payments on such a house, a family would have to earn $70,926 a year. That’s a total of $36 an hour, or 160 percent of the median income.

For a few years, until the city raised the price ceiling, almost no one was able to use the mortgage subsidy program. Now, “We’re doing condos and small houses or large families. This year, because the loan amounts went up, we’ve done 12.” Of course, to qualify for the city loan, your house has to be in the city or an unincorporated area within it.

Even if you can find a single-family house for under $200,000, McLaughlin said that in Chico it’s likely to be in such a bad condition that it will be hard to find an insurer that will write a policy on it as required by law.

It’s sad and frustrating, said Chico City Councilman Andy Holcombe. As an attorney representing low- and moderate-income tenants in rental disputes, Holcombe has several ideas on how housing can be made more affordable in cities like Chico. But ideas are all they are.

“There’s not much political support for it on the council, and it is very expensive,” he said of concepts like inclusionary zoning, in which the city would create an ordinance requiring 10 percent of newly built housing to be made affordable.

Developers, used to the free-market way of doing business, would likely balk at such a directive. And in Chico, builders have contributed big bucks to some councilmembers’ campaign coffers to make sure their voices are heard.

Even if the city were to come up with some kind of subsidy to allow for more entry-level houses, such a program would open up a whole new set of problems, including the uncomfortable paradox of having two families pay different amounts for the same house.

“I acknowledge it may not be a realistic plan,” Holcombe said. “It’s both politically and practically unfeasible … a theoretical remedy.”

But Holcombe isn’t giving up. He served on the Housing Element Task Force and plans to reintroduce the inclusionary-zoning idea, a concept that is more workable with rental housing, when the city considers the concept of form-based code. “It allows much greater flexibility in development,” he said.

He’s also intrigued by the idea of density bonuses: letting developers build more houses than would normally be allowed, but requiring those extra homes to be priced within reach of the first-time homebuyer.

Financing, special interest rates and tax credits are other moves cities have made to encourage developers to build houses that are in reach of moderate-income earners.

Tony Symmes says he is no hero, or even an altruist. “It’s just a different business model,” said Symmes, who is tan with a confident smile. He speaks quickly and efficiently, one hand on his cell phone. “I build affordable, entry-level, value-based housing. It’s personally gratifying to me.”

He can count by memory the 1,068 houses in 16 developments he’s built or is in the process in building in Chico since the city first lent him money.

“The city gave me my start in 1995,” said Symmes, who was granted a $864,000, low-interest loan and paid it back in half the time allowed. Per the agreement, he sold 75 percent of the homes to people who qualified for the mortgage subsidy program.

“I kept doing what they gave me the money for without them giving me the money,” he said.

He does it by doing away with some of the overhead most builders have: salespeople, model homes and office staff. “I just pass the savings on to the homebuyer.”

But even Symmes’ savings isn’t what it used to be, and he may soon lose the label of friend to the first-time homebuyer.

His developments are pointed out with pride or prejudice by home-watchers in the Chico market. They’re small, close together and comparatively cheap, considering that most developers are building in the $350,000 to $400,000 range.

Just a few years ago, a Symmes home could be had for less than $150,000. Now, Symmes is selling new, three-bedroom, two-bath, 1,100-square-foot houses for $239,900.

And he said that extra money isn’t going to line his pockets. A combination of rising insurance costs, workers’ compensation and materials price increases are as much to blame as supply-and-demand pressures for rising house costs, developers say.

“The main problem is land costs,” said Symmes, who bought his first plots of developable land at $28,000 an acre. “Now I’m negotiating on a piece that’s $340,000 an acre. It’s gone up 10-fold.”

If Chico’s middle class is getting squeezed out of the housing market, its low-income residents are getting downright screwed.

“I don’t think there are affordable homeownership options for the low-income in our community,” Holcombe said. “It doesn’t exist. It’s not going to happen.”

The self-help houses coordinated by the Community Housing Improvement Program (CHIP) and Habitat for Humanity are few and far between.

And it’s not getting better.

Experts and laypersons alike have been warning for years of a housing bubble, an end to inflated prices and a correction in the market that will stall prices or even send them downward. But, like Armageddon, it hasn’t happened yet.

McLaughlin pointed out that, although home prices shot up starting in 2000, the increase would seem much less dramatic if house prices hadn’t been flat through the 1990s. (See chart, page 19.) The median home price increased by only about $5,000 between 1992 and 1999. But between 1999 and 2004, that figure went up a whopping $146,750, bringing the median price to $275,000.

The market, some observers say, is just correcting itself.

“When you look back over 20 to 30 years, Chico has pretty much tracked the national market,” McLaughlin said.

Baby boomers came of home-buying age and created a supply-and-demand problem, just as interest rates became attractively low.

And, again, he said, it’s all relative. Bay Area residents, whom some blame for driving up local house prices, can move to Chico and buy a home using the appreciation from their hugely appreciated Bay Area digs.

More options may be coming available in the form of newly built condominiums, planned row houses and small houses on very small lots. The city is also reviewing its rules on second-dwelling units, only 36 of which were built between 1992 and 2002, according to city records. Developers like Tom DiGiovanni of New Urban Builders have included “granny units” with some houses, which, if rented out, can help cover one’s mortgage payment.

New Urban Builders is currently in a phase of building houses priced in the upper $300,000 range and higher, but DiGiovanni said lower-priced units are planned for its Meriam Park and Westside Neighborhood developments.

“We’re finishing out Doe Mill with row houses that are mid- to high-$200,000s,” he said. The Westside project, along Nord Avenue, will start later this year and include row houses starting at $225,000, DiGiovanni said.

“We do want to attract first-time home buyers, young couples, young families,” he said. “If you can build an entry-level home, you’ve got a large market to appeal to.”

“I’ve grown a little concerned [by rising prices],” DiGiovanni said. “It’s risen so much for so long. It’s unsustainable. There’s at least going to be a leveling off of pricing and maybe even a reduction at some price levels.”

In the meantime, buyers are casting an ever-wider net in looking for a home. If moderate-income home seekers don’t mind the inconvenience and environmental impacts of a half-hour commute, they can follow some former Chicoans’ lead and buy property in more-affordable outlying towns.

Orland, once the refuge for families seeking bigger houses at smaller costs, has seen prices rise dramatically as well. Last week, only three homes were listed at under $200,000 there. It’s a similar story in Paradise, where five houses were selling in that range. The picture is better in Corning, with a dozen lower-priced houses, and in Oroville there are a few dozen offerings for less than $200,000, although most of them are small.

In McLaughlin’s experience, most people know what they want and aren’t willing to compromise.

“We ask [subsidy applicants], would you take less house if it cost less, and they say yes, and you say what would you give up, and they can’t name anything,” he said. “It’s hard for people to take less house.”

Symmes and other developers, especially those who are running out of buildable land, say the city can do more to help by loosening its grip on a dozen chunks of Chico land designated as future “expansion areas.” That the building process should be streamlined is also a frequent refrain.

But even as they complain that the city isn’t moving fast enough, developers have already hedged their bets and bought land in the expansion areas.

The city’s Housing Element calls for the city to “encourage the development of affordable housing for first-time home buyers.”

But, McLaughlin reiterated, “The city doesn’t have a whole lot of options to make affordable housing available.”

The city would have to reach outside the housing market and buy land, build houses and sell them for less than their market value—while somehow making sure those buyers don’t turn around and sell the house they just bought at a profit.

Realtors and other investors have been blamed, anecdotally, for “snapping up” comparatively cheap houses before the average family can even get a bid in. Indeed, dozens of houses in Symmes’ developments have been sold this way.

“Of the thousands of houses I’ve built, fewer than 50 of them have [been sold to investors],” said Symmes, adding that he has no choice but to sell to investors when buyers on his waiting list can’t qualify. “They flip [quickly resell] it … and I get criticized for that small failure.”

He’d be glad to work with the city again, if the conditions were to his liking.

Symmes would like to build alongside CHIP property near Hank Marsh Junior High School.

“I wish at some point the council would take a leap of faith [and] trust me. I’ll do a hell of a job,” Symmes said. The city could even vet applications for him, thus controlling who could buy the homes.

“He would be building the houses for the city,” McLaughlin said of the theory in which Symmes would have less risk but give up some power. “We would control the price.”

Until then, Symmes said he’s doing his best to provide houses that are, if not affordable to the median-income earner, at least cheaper than what most developers are building.

“I can’t sell you charm. I can’t sell you big, mature trees,” he said of the houses he builds at six to seven units per acre. “The only way to make it work now is increasing density.”

Holcombe hopes the city can find a way to play a part in the affordable-housing market beyond the rental assistance it already provides. (See sidebar, page 15.)

“People philosophically think that’s going too far. They think, let the market provide.

“It is frustrating. You want to make a difference,” said Holcombe, who was raised in a wealthy family but was drawn to charity work after law school. “I think it’s just taking care of people’s basic needs. They’ll build a better community around them if they feel secure in it.”

Holcombe, like many Chicoans who have already bought into the housing market, surveys his neighborhood with both relief and concern. “It baffles me,” he said, mentioning a two-bedroom, one-bath house near his that went on the market at $319,000. “I just don’t get it.”

Median sale price of single-family homes within Chico’s spere of influence 1990-2004
Year 1992 1993 1994 1995 1996 1997 1998 1999 2000 2001 2002 2003 2004

Median price $123,000 $121,500 $124,500 $123,000 $123,000 $120,000 $122,000 $128,250 $139,000 $168,000 $181,000 $220,000 $275,000

Median sq. ft. 1,482 1,466 1,516 1,439 1,458 1,499 1,452 1,484 1,472 1,485 1,485 (est.) 1,485 (est.) 1,485 (est.)

Median cost sq. ft. $83.00 $82.88 $82.12 $85.48 $84.36 $80.05 $84.02 $86.42 $94.43 $113.13 $121.89 $148.15 $185.19