Pacific Station South, in background, is a 69-unit affordable housing complex on Pacific Avenue in Santa Cruz that is expected to finish construction this summer. Pacific Station North began construction this year and its 128 affordable units are anticipated to open in 2026. (Stephen Baxter — Santa Cruz Local)

Editor’s note: Need help decoding housing jargon? Check out Santa Cruz Local’s new Housing Glossary.

SANTA CRUZ >> The results are in: the City of Santa Cruz was the sole local government in Santa Cruz County to meet state targets for affordable housing over the past eight years.

The state requires local governments to make plans to hit housing production goals every eight years. Although all jurisdictions in the county outperformed the state average, most lagged behind their targets for housing permits — especially for the most affordable homes. Only the City of Santa Cruz met its targets for all income levels.

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The heightened pace of development seeks to overturn a decades-long pattern of population growth without new housing. Since 1980, Santa Cruz County’s population has grown by about 80,000 people while roughly 26,000 homes were built, according to county records.

“We really have an obligation as a society to provide for all the people who need housing here,”  said Santa Cruz County Principal Planner Suzanne Ise. “My [adult] children can’t afford to locate here at all, and I know I’m certainly not the only person with adults who can’t live here,” Ise said. 

The housing production results forewarn difficulty in meeting the next round of targets for 2032, which are three times higher or more.

  • Scotts Valley and Capitola made the least progress in issuing permits for new housing. Both cities are betting on large city-center developments to catch up over the next eight years.
  • The cities of Santa Cruz and Watsonville approved the most homes for “very low income” renters, leaning on streamlined production times, larger developments and partnerships with nonprofit developers.

State housing goals

Every eight years, the Association of Monterey Bay Area Governments sets a Regional Housing Need Allocation, or housing production target, for local governments across Santa Cruz and Monterey counties. Those targets include homes priced for low-income renters as defined by state-set income limits. Cities and counties that don’t make enough progress on those goals can lose much of their control over the location and size of new housing that can be built in their jurisdiction.

The fifth eight-year cycle ended in 2023, but most local governments fell well short of their goals. Across the state, local governments permitted less than half of the target for homes priced for lower income households.

Capitola, Scotts Valley struggle

Capitola and Scotts Valley fell the furthest behind their goals. Capitola permitted about 60% of its target for the total number of homes, and 20% of homes for “very low income” households as defined by state authorities. Scotts Valley exceeded its target for total homes, but permitted zero for very low income households.

Both cities made progress on affordable housing by permitting more accessory dwelling units. But neither built many developments with more than five units, which elsewhere in the county contributed most very low income homes.

Both cities have long-planned projects with affordable homes alongside shops and offices. But both the Capitola Mall and the Scotts Valley Town Center have lagged for years as developers try to make the projects profitable.

To spur development, the Capitola City Council in February told developer Merlone Geier they would consider a mall project up to 75 feet tall. 

Capitola Planning Director Katie Herlihy said the city’s small size and few vacant lots make larger developments difficult. The city plans to promote slightly denser housing in single-family neighborhoods by allowing duplexes on corner lots, and city staff is considering increasing allowable density in areas zoned for multifamily development, Herlihy said.

Capitola and Scotts Valley also face the largest increase in their state-mandated housing goals. Targets for the next eight years are about eight times higher for both cities.

That’s a prospect that worries Scotts Valley Vice Mayor Derek Timm. “Short of state funding coming in to do that, I think we’re set up for failure by the state,” Timm said.

Rafa Sonnenfeld, a housing advocate with Santa Cruz YIMBY, said both cities should more aggressively upzone areas to allow more multifamily development. Cities across the county could also work together to fund an affordable housing trust to spur new development, he said.

County, Watsonville keep pace

Unincorporated Santa Cruz County and Watsonville came closer to meeting their goals. But Watsonville failed to build much housing for moderate-income renters. Those homes fall in a gap between market-rate homes and highly-subsidized nonprofit developments, said Watsonville Planning Director Suzi Merriam.

Watsonville has a jump start on the next round of targets with large developments on vacant land, including Hillcrest Residents on Ohlone Parkway and Pacific Sunshine Garden at 1773 Santa Victoria Ave. Both developments have 20% affordable housing, and have not yet finished construction. 

The city has limited opportunities for other large projects on vacant land, Merriam said. Instead, they’ll seek to carry out their Downtown Specific Plan, which raised height and density limits downtown. 

So far, Watsonville has seen limited interest from developers. “Unfortunately, right now, I think with the economy, the cost of labor and materials, for for-profit developers it’s still not penciling,” Merriam said. 

A map shows new homes permitted in Santa Cruz County over the past eight years. Select “construction” on the top menu and “maps” on the left menu. Then select Santa Cruz County. (California Department of Housing and Community Development)

City of Santa Cruz finds success 

The City of Santa Cruz is a rare housing production success in the state. It was one of just 2% of local governments to meet state-set goals across all affordability levels, and permitted four times the target for low-income homes.

Santa Cruz Director of Planning and Community Development Lee Butler attributed that success to a streamlined approval process that minimizes public hearings and increased height and density limits downtown and on major streets. 

“We would not have met our RHNA targets had we not increased the development capacities in the downtown,” Butler said. Most of those projects used state density bonus laws that allow greater height or density in exchange for more affordable apartments.

But rapid development has come with its own challenges. Many residents worry about diminished public input on new developments. Others are concerned that new market-rate developments will displace and price out long-time residents. 

City staff hope to meet the next round of goals with the downtown expansion plan, which would increase height and density limits south of Laurel Street. The plan hasn’t been finalized, and has faced considerable community pushback.

Projects like the Food Bin redevelopment that adjoin single-family neighborhoods are likely to see heavy opposition, said resident Candace Brown. 

“I think that’s where you’re going to see a lot of issues with people,” she said. “And developers like Workbench, unfortunately, are pushing it right to the limit” by maximizing heights and minimizing parking, she said.

Affordable housing advocate and former city council candidate Joy Schendledecker said the new affordable housing is helpful, but may be “too little too late.” 

“Clearly we have just a massive deficit in affordable housing over at least a generation of people,” she said. As new housing comes online, she said she’d like to see more policies aimed at combating gentrification and displacement, like more robust eviction protections. 

Santa Cruz city staff plan to present an anti-displacement policy in 2025, Butler said.

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Reporter / California Local News Fellow | + posts

Jesse Kathan is a staff reporter for Santa Cruz Local through the California Local News Fellowship. They hold a master's degree in science communications from UC Santa Cruz.