The city and county hope to join forces to purchase three vacant hotels and convert them into permanent housing for the homeless.
The San Diego County Board of Supervisors on May 23 authorized up to $32 million in funds toward the city’s purchase of the properties, plus an additional $4.6 million annually toward support services, for a minimum of five years.
The city’s Housing Commission voted in mid-May to pursue the project by applying for $88.7 million from the state’s Project Homekey funding. If selected for the grants, the city would also contribute $32.2 million of its own funds.
If purchased, the properties would yield an estimated 325 to 500 housing units for the homeless. After conversion costs, the average price per unit would be $383,000.
The project is contingent on San Diego’s approval for the grants. Project Homekey is in its third round of funding and has set aside $736 million in grants statewide.
Supporters say the purchases would provide much-needed resources to address both the housing and homelessness crises, with the project heavily funded by the state. Critics say the program does not address the root cause of homelessness and will not solve the problem.
The county board approved the motion in a 3-1 vote, with Supervisor Jim Desmond casting the opposing vote.
“It would be silly for us to leave money on the table,” said Supervisor Terra Lawson-Remer at last Tuesday’s meeting. “There’s a big pot of money in Sacramento, and if we’re willing to put skin in the game and match it, we can be competitive for these grants.”
Desmond, however, called Project Homekey’s housing-first approach “a formula for failure” because the model does not require recipients of aid enter treatment for addiction or behavioral health issues.
“It’s no wonder that after spending billions of taxpayer dollars on homelessness in the State of California, we haven’t fixed or solved this yet,” Desmond said. “I want to give people all the help they need, and I think any effort to reduce homelessness must require treatment and care. Taxpayers deserve accountability for the billions of dollars spent.”
Board Chair Linda Vargas countered with the story of a veteran and housing-first beneficiary who struggled with – and then overcame – addiction. There are plenty of success stories in San Diego, she said.
“For us as a county, our top priority is ensuring that people have a good quality of life, and part of that is access to a home,” she said, noting that the proposed project would yield permanent rather than transient housing. “This will make a difference long-term for the community.”
Public comment at the meeting was sparse, but most speakers opposed the plan. A representative of San Diego Mayor Todd Gloria spoke in support of the motion, though Coronado Mayor Richard Bailey, a longtime critic of housing-first initiatives, opposed it.
“The proposed allocation of $157 million for this housing first project will not lead to a meaningful reduction in homelessness, but rather contribute to a cycle of dependence on government support,” Bailey said in a statement.
The SDHC voted unanimously last month to pursue the purchase of two vacant Extended Stay America hotels for this project. In early May, the commission added two more vacant properties – a Ramada Inn and an apartment building in Ocean Beach – to the list.
The proposed purchases are a 107-unit Extended Stay America property on Muprhy Canyon Road for $40.7 million, a 140-unit Extended Stay America hotel on Mission Valley Road for $52 million, and a 62-unit Ramada Inn on Midway Drive for $11.6 million.
The SDHC is also submitting a joint application with Wakeland Housing and Development Corp. for $5 million in Homekey funds to purchase a 13-unit apartment building in Ocean Beach.
By adding funding to the pot, the county’s Board of Supervisors hopes to boost the appeal of San Diego’s application for Homekey funding.
How Project Homekey works
The state’s Homekey funding is designated for quick housing projects that address homelessness. Projects awarded funding must be completed within 12 months, with full occupancy reached by 15 months.
The program almost exclusively funds hotel conversions, with 91 percent of grant funding put to such projects.
In the first round of Homekey funding, San Diego was granted $37.7 million, which it put toward purchasing vacant hotels to create 332 homes between the Valley Vista and the Kearny Vista apartment complexes. The hotels cost $67 million and $39.5 million, respectively, and local funds covered the gap.
The city is still in the process of spending its $11.8 million in round two funding, for a 42-home project known as PATH Villas in El Cerrito. The county contributed $11 million, and the city contributed $2 million.
Statewide, the program has created 7,100 housing units at 108 separate project sites, using $2.25 billion in funding. That number does not include matching funds contributed by local municipalities.
Including this year’s budget, the state has allocated $3.5 billion in grants.
Because projects often utilize a mixture of Homekey grant funding, county, and city funds, it is difficult to discern exactly how much each unit costs.
In San Diego’s first hotel rehabilitation projects, the cost-per-unit averaged at $311,500. This third-round proposal carries a higher per-unit cost of $383,000, largely because the Ramada Inn property’s units do not include kitchenettes, and therefore will cost $469,000 per unit to convert.
In contrast, it typically takes $500,000 to build a low-income housing unit from scratch in California, according to research from the Terner Center for Housing and Innovation at the University of California Berkeley.
Converting hotels into housing
Using hotels to create affordable housing took root in both California and New York during the pandemic, prompted in part by high-vacancy hotels as travel diminished. Its execution has yielded mixed results.
New York City allocated $100 million funding, but years later, hotels remain unconverted due to bureaucratic slog in the form of zoning regulations and restrictive building codes.
California, by contrast, invested $800 million in its first year of Homekey and was able to house 8,264 people with it. The state has been increasingly lifting barriers to construction in recent years to entice more units into its inventory-desperate housing market.
The debate now remains on whether the conversions are successful. After San Diego purchased and converted its first two hotels into housing for the homeless in 2020, the properties reported a high rate of resident deaths. In about a year, 10 residents died either at the complexes or at hospitals after sustaining injuries at home.
Some housing authorities say projects that cater to vulnerable populations will inevitably see higher mortality rates, while others criticize the number of case workers available at the converted hotel sites.
Meanwhile, rates of homelessness in California continue to rise, begging a classic, chicken-and-the-egg question: Is housing first not addressing the root cause of homelessness, or are there simply more homeless people than ever as San Diego’s cost of living continues to soar?