SANTA CRUZ, Calif. – For low-income residents, trying to find housing in pricey Santa Cruz – where the average sales price of a home was more than $630,000 in April and a studio apartment can rent for $925 a month – is no easy task. But an innovative program involving the city and the Santa Cruz Community Credit Union may offer some help. Under the Accessory Dwelling Unit (ADU) Development Program, the city has deposited $350,000 in the credit union, which will make low-interest construction loans available to homeowners who want to build rentals on their existing property. To qualify, loan applicants must guarantee these so-called "granny" or "mother-in-law" units will be rented at affordable rates for the next 20 years. Bill Leland, director of community development for the credit union, said the program fit well with the credit union's mission. "Our mission is twofold," Leland said. "One is to be involved in community development work that does support social and economic development serving low-income people. The second part is, of course, to provide affordable services to our members." The 27-year-old Santa Cruz Community CU serves more than 8,500 members throughout Santa Cruz County and northern Monterey County. Asset size is $52 million. Leland said the city's non-member deposit in the credit union in April was the result of the CUs past involvement with the community. "We try to be out in the community doing what we can to look for partnerships to support products and services for low-income people," he explained. "In that regard, we've been involved in certain advisory committees and other kinds of activities with the city around affordable housing." The ADU program is similar to a low-interest, low-income child-care revolving loan fund the credit union previously set up to provide loans of up to $15,000 to local child-care centers. The new loan program is targeted at people who will be building accessory dwelling units and who are seeking construction loans/long-term loans. To speed up the approval process for ADUs, the city has developed seven architectural design prototypes for the program which will be available for public use. "The city supported some basic designs that people could use that then helps keeps their costs down and streamlines the planning process if they use a design that's already been approved," Leland said. He said the credit union considers the city deposit as "no cost funds" which allowed the CU to buy down the interest rate it would have to charge borrowers. ADU loans are now at 4.5 percent. City officials are promoting the ADU program through literature and on their Web site. Leland said some loan applications are "in the pipeline" but none has yet been completed. Loans are limited to a maximum of $70,000. "We figured that figure should be adequate to get the work done," he said. He admitted that the city's deposit would only fund five loans at the maximum amount. "If, and presumably when, all the money is obligated it would make the case for `let's see if we can do more,'" he said. The rental market in Santa Cruz is normally tight, with some of the pressure coming from students at the University of California-Santa Cruz who seek off-campus housing during the school year. Occupancy rates for the first three months of this year were up 1.3 percent to 97.1 percent, according to a recent survey. The survey found that rental costs in Santa Cruz County during the first quarter of 2003 ranged from $925 for a studio apartment to $1,925 for a three-bedroom unit. Less expensive rentals can be found in smaller complexes or single-family units. The survey was conducted by research firm RealFacts, which analyzed the 12 largest complexes, or 1,296 units, in the county. It noted that some complexes had cut prices in order to keep units rented in a softening market, brought on by the sluggish economy, people trying to find a home to buy, and the university attempting to house more students on campus. Santa Cruz Community Credit Union is currently the only financial institution participating in the loan program. "At the start it didn't make sense to get lots of different financial institutions in this relatively small program," Leland said, adding that he had no objection to others joining in. "One thing we made clear is we are a community development credit union and we don't seek exclusive holds on things like this," he said. "We set it up and tried to establish a model and if down the road other financial institutions want to get into it in a similar arrangement with the city we certainly would support that. Part of our mission is to encourage other financial institutions to get involved in things like this." [email protected]