Watsonville City Council · Tuesday, September 22, 2026, 4:30 PM · Item 12.b · NEW BUSINESS
Set 2026 income, rent and sale price limits for affordable housing
In plain English
Watsonville's Affordable Housing Ordinance (Chapter 14-46 of the Municipal Code) requires that 15 to 20 percent of units in new residential projects of seven or more units be affordable, and the City Council periodically sets the dollar limits used to run that program. Staff is asking the Council — sitting both as the Council and as the Successor Housing Agency — to adopt updated 2026 maximum income limits, maximum rents, and maximum home sales prices, based on the state income limits released by the California Department of Housing and Community Development on June 29, 2026. The resolution would also set the 'prevailing interest rate' used in the sales-price formula at 7.00 percent, down from the 7.5 percent adopted in June 2024. A yes vote puts the new limits (Exhibit A to the resolution) into effect immediately, until the Council replaces them later.
These numbers decide who qualifies to rent or buy Watsonville's deed-restricted affordable units, how much rent landlords of those units may charge, and the ceiling price at which those homes can be sold or resold — for example, a three-bedroom unit at the Median category would top out at $379,883 using the recommended 7.00 percent rate.
Key facts
- The state housing department released the 2026 Official State Income Limits on June 29, 2026; the City's current limits date from June 2024 and used a 7.5 percent prevailing interest rate.
- Staff recommends a 7.00 percent prevailing interest rate for calculating affordable ownership sales prices.
- Local lender 30-year fixed rates reviewed for the first week of September 2026 ranged from 6.974 percent (Chase Bank) to 7.373 percent (US Bank), assuming 5 percent down and a credit score of 700–719. Freddie Mac's national average was 6.71 percent on September 3, 2026, and Bankrate listed California at 6.89 percent.
- For a three-bedroom unit, maximum prices at 7.00 percent would be $379,883 (Median), $455,859 (Moderate), and $569,824 (Above Moderate); at 6.75 percent they would be $389,666, $467,600, and $584,500.
- Under the Code, 'Watsonville Median Household Income' is 70 percent of Santa Cruz County median household income, adjusted for family size. Staff states the action will not impact the General Fund and is not a project under the California Environmental Quality Act.
- Sales prices assume a household size one person larger than the number of bedrooms, 30 percent of income toward housing, a 30-year fixed mortgage, and a mortgage equal to 95 percent of the sale price.
Reasons to support
- Adopting the limits keeps the program running on the most current state income data, as Chapter 14-46 contemplates; without action, the older June 2024 limits and 7.5 percent rate stay in place.
- Staff says 7.00 percent is a reasonable, administratively practical midpoint given that the four local lenders surveyed ranged from 6.974 to 7.373 percent, and the Council can revisit the rate if market conditions change materially.
- Preparing and administering the limits uses existing budgeted staff in the Community Development Department and does not touch the General Fund.
Reasons to oppose or change it
- The 7.00 percent recommendation is higher than the Freddie Mac national average of 6.71 percent and the 6.89 percent California average cited in the report; using a lower rate such as 6.75 percent would raise the three-bedroom Median ceiling from $379,883 to $389,666, which helps owners selling deed-restricted homes but raises the price buyers must pay.
- Conversely, a higher assumed rate lowers the price caps, which squeezes existing affordable-unit owners' resale proceeds — the Code partly offsets this by letting sellers use the higher of the formula price or their original price plus 50 percent of the increase in the House Price Index.
- The Council could modify the interest rate or other elements, or decline to adopt, in which case the 2024 limits — built on older county income figures — continue to govern who qualifies and what rents and prices are allowed.
Official wording
ADOPT WATSONVILLE AFFORDABLE HOUSING PROGRAM 2026 INCOME, RENT, & SALES PRICE LIMITS (Recommended by Community Development Director Orbach) 1.Report - 2026 Affordable Housing Program Limits.pdf 2.Resolution - 2026 Affordable Housing Program Limits.pdf 3.Exhibit A - AHO Limits 2026.pdf 1) Staff Report by Housing Manager Landaverry 2) City Council Clarifying & Technical Questions 3) Public Input 4) Motion 5) City Council Deliberation on Motion 6) Joint Resolution of the City Council & City Council Acting as the Successor Housing Agency, Adopting the Watsonville Affordable Housing Program 2026 Income, Rent, & Sales Price Limits for the City's Affordable Housing Program
Summary written by claude-opus-5 from the agenda and the Report - 2026 Affordable Housing Program Limits.pdf. It can contain mistakes. The official documents govern.