SANTA CRUZ, Calif. – It's hard to believe affordable housing is an issue in this small beach city, where you're more likely to be addressed as "Dude" instead of "Sir", or even "Ma'am". Yet Santa Cruz, with a population of only 56,000, is one of the least affordable housing markets in the country, but Santa Cruz Community CU is trying to do something about that at least for its members. According to the city's Housing and Community Development Department, less than 7% of city residents can afford to purchase a median-priced home, and renters don't fare much better. In an attempt to alleviate the affordable housing issue, the city revised its zoning laws in late 2002 to relax restrictions for those who wish to add an Accessory Dwelling Unit (ADU), or "granny unit", to their existing single-family lot. Reaction to the new law was positive. The number of building permit applications for ADUs rose from an average of eight per year before the change, to 40 in 2004, said Carol Berg, Housing and Development Manager for the city. During the first quarter of 2005, the city received 14 more. To assist homeowners in financing the projects, the city turned to $52 million Santa Cruz Community Credit Union. The civic-minded CU has worked with the city to fund other community development projects, including childcare programs and playground improvement efforts. "This program supports our mission statement by providing avenues for members to live affordably," said Sheila Schat, Director of Community Outreach and Marketing for SCCCU. "Housing is a major issue in Santa Cruz, and this program provides a way for our members to build on their existing property, while also meeting the affordable housing needs in the area," Schat said. Members can borrow up to $70,000 for the building project at 4.5% interest. In exchange for the below-market rate, the units must be rented as low-income housing for the term of the loan, even if the loan is paid off early. The program is risk-free for the credit union, because the city guarantees the loans with state grant monies. Although the program has won several national awards and has received favorable reviews in the local press, the credit union has only funded two loans to date. In Berg's opinion, the low-income caveat is preventing homeowners from taking advantage of the loan program. To qualify as low-income, ADU renters must earn 80% or less of the area's median income. Berg said a separate fee waiver program, which can save builders as much as $10,000, has also been unsuccessful. It includes a similar requirement for the owner to use the new structure for low-income housing, Berg said, so she's assuming people don't want low-income renters on their lot. Schat disagrees. "Low income stereotypes don't apply in Santa Cruz," she said, "because anybody making less than $75,000 a year can't afford housing here." Schat explained that many professionals commute from Santa Cruz to high-paying tech and finance jobs in San Jose and San Francisco. This influx of wealth has contributed to the high cost of housing in the area. Despite the weak success of the program so far, Berg said it hasn't been for a lack of trying on the credit union's part. "They've called everyone who has applied for ADU permits and made them aware of the program, so they've done a good job promoting it," Berg said. Schat said she feels awareness is still an issue for the program. "It takes awhile for a program like this to be around before people will act on it," she said. SCCCU, which has a community charter to serve those living or working in Santa Cruz or north Monterey County, will continue to participate in the program despite an initial lack of takers. -

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