SAN MARCOS -- With explosive development in San Marcos driving a surge in affordable housing, some economists believe the requirement that developers build low-cost housing benefits a small segment of the population while hurting the majority.

New home developers must provide affordable apartments in certain areas when they build tract home communities. In the San Elijo Hills and the Cal State San Marcos area, for example, developers will build 486 low-cost apartments by December 2005, according to city statistics.

Those apartments will supplement the existing 1,103 low-cost apartments in the city which have been built by developers, nonprofit organizations and by the city of San Marcos and the county of San Diego.

"We are very satisfied with where we are at in providing affordable housing," City Manager Rick Gittings said last week.

But economists, such as UC San Diego Economics Professor Majorie Flavin, contend that the requirement forces developers to pass their building costs to consumers, causing new home prices to increase and forcing people out of the market.

"I can see the city's motivation," said Flavin. "But good intentions are not enough. The number of subsidized housing (units) is good for the lucky few. But everyone else is made worse off."

The costs developers pass on to consumers depend on the number of low-cost apartments the city requires them to build, said Andrew Murphy, division president of developer Fieldstone Communities Inc. That number is predetermined by the city in certain development areas.

Gittings said that despite the added costs, there are people willing to pay the higher home prices because right now demand exceeds the supply. The requirement is important, he said, because if developers are not required to build affordable housing the number of new low-cost apartments will drop off.

In demand

Such apartments are constantly in high demand, city officials said, with a nearly 2-year waiting list for units in the 20 low-cost apartment complexes spread across the city.

Most of the apartments range from one to three bedrooms and some complexes have laundry facilities, parking lots, and amenities such as swimming pools.

At the Villa Serena Apartments on Marcos Street, the price ranges from $347 for a one bedroom apartment to $859 for a three bedroom, according to manager Sophie Rosado. In San Marcos, the market prices for such apartments range from $785 for a one bedroom to $1,500 for a three bedroom, she said.

In San Marcos, families need to earn between 30 percent and 60 percent of the national median income to qualify for the low-income apartments. The median income for a family nationally is $63,400, according to the U.S. Department of Housing and Urban Development.

One San Marcos family that qualified, Liz Gurrola and her two young sons Mario Garcia, 8, and Gabriel Sanchez, 1, was on the waiting list for two years. Gurrola got a 1-bedroom apartment at Villa Serena for $347 a month. The Vista receptionist, who earns $16,000 a year, was paying $500 a month for a studio in Vista while she waited for an opening.

She was required to disclose her finances, submit to a background check, go through interviews and allow apartment officials to inspect her Vista studio, but she said the long wait and application process were worth it.

"Now, I'm so happy," said Gurrola, who has lived at Villa Serena for two years.

Gurrola said she is saving money to purchase a home in Temecula or Murrieta.

Higher home prices

But requiring developers to build more low-cost apartments, economist Flavin said, may not be the best route to take.

When developers pass their affordable housing cost to consumers, she said, the higher prices exclude more home buyers. In San Diego County, only 16 percent of families are able to purchase new homes, according to the County Tax Assessor's Office. San Marcos does not keep such numbers, but city officials said home purchasing power of local families is similar to the county average.

The median price of homes in San Marcos increased from $231,807 in 1999 to $451,914 this year, according to the Tax Assessor's Office.

Both Murphy of Fieldstone Communities Inc. and Jeff O'Connor, director of operations for developer San Elijo Hills, said part of the increase is based on the affordable housing cost developers pass on to consumers.

Flavin said the higher prices turn potential home buyers into renters, thus increasing demand in the rental market. When the rental market grows, she said, rents increase. People in the lower end of the rental market will no longer be able to afford market rents, thus they would be seeking affordable housing.

Theoretically, the professor said, the higher cost of homes would have a trickle down-effect that would ultimately result in a higher demand for affordable housing.

"I think the effect is bad," Flavin said.

Murphy said he believes requiring developers to build affordable homes is bad public policy because it has an adverse effect on a majority of the population.

Flavin said a better public policy is to require developers to build smaller homes that are more affordable. Homes at 1,600 square feet, compared to the 2,500-square-foot average in the county, she said, could sell for substantially less than the San Marcos average.

If more people bought cheaper homes, it would reduce the demand for affordable housing, the professor said.

Gittings said Flavin's position is an option, but local homeowners would not likely support it because building smaller, cheaper homes would lower a neighborhood's property value.

As long as it's a seller's market, Gittings said, the city's affordable housing requirements will not discourage developers to build in San Marcos or buyers to buy because demand is high.

Contact staff writer Ken Ma at (760) 761-4408 or kma@nctimes.com.