February 9, 2001
JOHN SIMPSON
Campus Provost and Executive Vice Chancellor
Dear John:
RE:
Interim Strategies to Mitigate Demand for Faculty Housing
The period during which the unmet demand for faculty housing will be most acute will be from now through the 2003-04 academic year. According to information provided by Vice Chancellor Hernandez, it is unlikely that new housing for faculty will come on line during that time, and the following assumes a best-case scenario with respect to the four horsemen of construction projects: programming, quality, cost and timelines. (It should be noted that at the present time construction costs for the city and the county are between $300 and $350 per square foot.)
· Inclusion Area D, planned to be a mix of for-sale and rental housing, is currently scheduled to have its first units available for occupancy Fall 2003.
· The Market Street property, on which the developer proposes to build 47 units, 20 of which would be sold to the University for approximately $350,000 each, would have units available 2002/03 at the earliest.
· The Shaffer Road property, on which the developer proposes to build 200 apartments, which he would sell to the University at a predetermined price upon completion, is not expected to ready for occupancy until sometime in 2003.
At the same time, according to his information:
· The city of Santa Cruz is 99% built out with little room for new housing developments.
· The county of Santa Cruz is unlikely to rezone any agricultural land for housing.
· Santa Cruz is the 2nd least affordable area for housing in the country, where the median sale price for homes has risen from $209,000 to $338,000 in five years.
A recent issue of “The Westside Review”, a newsletter issued by a local realtor, predicts that the forces that have influenced the cost of housing, especially on the west side of Santa Cruz –the continuing emergence of repeat buyers, a prevalence of multiple offers, and the reappearance of buyers relocating from Silicon Valley – will continue to dominate. The county condo sales market during 2000 was much stronger than single-family home sales since buyers who could not afford houses purchased condos, thus driving up the price of these units which were once an affordable option, especially for junior faculty.
The campus Faculty/Staff housing program has a total of 133 rental and for-sale units available on- and off-campus:
· 50 on-campus two-bedroom apartments
· 3 off-campus two-bedroom apartment
· 48 on-campus two-bedroom for-sale townhouses
· 21 on-campus three-bedroom for-sale town houses
· 11 on-campus custom built single family homes
There have been five re-sales since April 1999, all two-bedroom units. It is possible that two townhouses will be available for re-sale in the coming year.
At the present time, Hagar Court has a wait list of 67 faculty and academic staff. All new Assistant Professor requests for apartments were accommodated Fall and Winter 2000-01. Cardiff Terrace has a total of 76 faculty members from the first sub-group of the first priority: 28 who already own in Cardiff Terrace and would like a bigger unit; 27 who are on the new Assistant Professor list; and 21 who are on the current Assistant Professor list. There are also 31 faculty on the wait list for single family home re-sales.
There are 51 faculty recruitments presently underway. During the three-year period 97/98 to 99/00, there were 89 recruitments. Whether the campus is successful in filling all 51 positions for an effective appointment date of July 1, 2001 remains to be seen. Of the 89 searches from 1997-2000, 26 or 29.2% closed without an appointment. If we continue to have a 70% success rate, we can anticipate adding another 35 new faculty for the 2001-02 academic year. During the whole period when no new housing stock is likely to be available for faculty housing, we will probably hire more than 100 new faculty.
We know, therefore, that there are approximately 107 current faculty members who have indicated a desire to purchase on –campus housing, and 67 faculty and academic staff plus, possibly, 100 new faculty who are or will be in the market for rental and/or for-sale housing.
1. The Housing Office has explored the possibility of the University pursuing leasing options to local apartment complexes. The campus is currently has leases on three units at Westmont and is on the wait list for another five. In addition, Cypress Point could master lease up to 15 apartments for Fall 2001. This would give the campus 23 apartments that could be made available to newly hired faculty members, the assumption being that current faculty already have found a place to live and that the need is greatest for faculty new to the area. The Senate Committee on Faculty Welfare can be asked for its advice regarding eligibility priorities. The campus would need to master lease at least 20 additional units, preferably more, for each of the succeeding two years, for a total of 60 off-campus units, if no new on-campus or off-campus units were constructed. In the event that faculty demand lags, staff demand for housing could be partially met.
It should be noted, however, that many on the Hagar Court wait list decline off-campus units in Westmont in favor of remaining on the wait list. On-campus apartments currently rent for $1030, furnished, not including utilities. Off-campus apartments rent from $1025 (1BR) to $1700 (2BR). It has been suggested that the campus might provide a subsidy to lower the rent of units it master leases, but it is hard to defend such a subsidy for these off-campus units when many faculty members are already renting off-campus apartments without such subsidy. Moreover, Section 119 of the IRS Code requires the University to report as income to the employee subsidies that exceed 5% of the property being rented. The 5% is the threshold that will trigger imputed income liability.
One other consideration of master leasing off-campus units is the UC Seismic Safety Policy for Purchased and Leased Buildings. The policy is quite complex but, simply stated, says that if a structure proposed to be leased is a simple one (the policy gives specifics) and it was constructed or retrofitted pursuant to the 1976 or later edition of the Uniform Building Code, then the University requires that an architect, civil engineer, or structural engineer complete, sign, and seal a one-page “Certificate of Applicable Code”. The language of the policy requiring independent seismic review in general can be found at http://www.ucop.edu/facil/fmc/facilman/volume1/rpseid.html and as it applies to leased or purchased property, at http://www.ucop.edu/facil/resg/seismic/welcome.html
Given the unique circumstances of the Santa Cruz housing market, as well as the most optimistic timelines for projected campus plans for building on-campus housing or partnering with local developers for off-campus housing, when taken in conjunction with the anticipated increase in faculty hires, the University’s best option is to secure master leases for at least 60 units, 20 each of the next three years.
2. The campus should explore providing a supplemental housing allowance to all newly hired Assistant Professor for the first two years of their appointments as part of the basic start-up package. One possibility is for such assistance to be a loan, which could be rolled into a future mortgage loan at a lower, subsidized rate of repayment. This would prevent the money being considered taxable income by the IRS, but such a possibility would need to be explored with UCOP.
The University has hired 51 faculty since July 1, 1999: 36 Assistant Professors, 5 Associate Professors, 8 Professors, and 2 Lecturers SOE. The median salary at time of hire was:
· Assistant Professor: $49,650
· Associate Professor: $62,500
· Professor: $95,750
· Lecturer SOE: $58,452
The campus expects to continue hiring disproportionately at the Assistant Professor level, and it is those junior faculty who will experience the greatest difficulty in coping with the cost of local housing.
3. Since this problem is a systemwide problem, the assistance of UCOP is required to find broader solutions. Individual campuses are attempting to devise creative responses to the situation prevalent in most of the surrounding
communities. A systemwide Task Force should be formed to investigate the possibility of expanding the University’s housing assistance programs to include, among other possibilities:
· MOP loans with a graduated interest rate, starting at a below market level and increasing to market over a five to seven year period.
· Forgivable loans, with interest payment deferred and forgiveness based on remaining employed by the University for a specified period.
· Recoverable loans, with a portion of a housing assistance grant to be recoverable from the proceeds of the sale of a house if the grantee leaves University employment.
· Shared equity/co-ownership, where the University becomes a co-owner of a house, using housing assistance funds as a contribution to the down payment.
· Share equity/non-co-ownership, where the University contributes down payment funds in exchange for a participation interest in the sales proceeds of the house, but does not become a co-owner.
· Housing assistance loans that could be rolled into a mortgage loan for repayment at a lower rate of interest.
4. In addition, UCOP should explore the possibility of having University faculty and staff included in special statewide mortgage programs established to assist K-12 teachers and staff
· Bank of America Mortgage (888-391-7538) -
http://wwww.bankofamerica.com/mortgage/
· California State Teachers' Retirement System (800-228-5453) -
· Freddie Mac - http://www.freddiemac.com
· Home Buyer Assistance Center, a non-profit organization for Bay Area home
buyers, (510-832-6925)- http://www.hbac.org
·
Homes for California Teachers - http://www.homesforteachers.com
5. UCLA has initiated a new mortgage program for its faculty: foundation-funded loans. The foundation provides the loan funds to hiring units, with a designated interest rate (in UCLA’s case, 6.5% per year). The hiring department then offers a loan to a
newly hired faculty member at whatever interest rate it deems necessary; under University policy (the Supplemental Home Loan Program), the interest rate can be as low as 0%. The department is responsible for two costs under this program:
a) it must contribute 10% of the loan amount to a loan loss reserve fund,
which exists for the life of the loan; and b) it must cover the
interest differential, if any, between the rate it offers to the faculty member
and the foundation's required rate of return. Our campus might consider whether some form of this program might be possible.
I hope that this report has responded to your request for information and analysis. Clearly, further financial analysis will need to be carried out if the campus decides to pursue securing off-campus rental space.
Sincerely yours,
Julia Armstrong-Zwart
Assistant Chancellor/HR
Assistant Vice Chancellor-Faculty Relations
Cc: Vice Chancellor Hernandez
Associate Vice Chancellor Michaels
Professor Traugott
Vice Chancellor Vani