A housing project behind Monterey City Hall faces new funding challenges.

If someone were to create the perfect affordable housing project in a lab, so to speak, they would struggle to do better than the project in the works behind Monterey City Hall.

Aside from a single unit set aside for the property manager, all remaining 41 units are to be affordable – reserved for households making 60 percent or less of the county’s median income – and will range from studios to one- to three-bedroom units.

“It’s a project that the private sector doesn’t build,” says Kim Cole, Monterey’s community development director. “But when you look at the corresponding income rates [for households that would qualify], it’s what a lot of our workers are getting paid. And these aren’t bad salaries.”

The project doesn’t have a name yet – city staff refer to it in-house as the “Madison Street project” – nor does it have financing, as nonprofit MidPen Housing, which has an exclusive agreement with the city to build and manage the project, was planning to rely on federally funded housing vouchers to subsidize more than half of the units. However, MidPen learned earlier this year that those are now off the table indefinitely due to changes at the federal level.

When asked by the Weekly what potential funding streams MidPen is exploring to close the shortfall in subsidies – a gap that must be closed in order to obtain a construction loan – a MidPen representative responded by email, “We know from experience that there are multiple paths to financing affordable housing, and our team is working diligently to determine the best plan for this development.”

While MidPen is working on that, the project is advancing in other ways. In order to qualify for any potential federal funding that might help subsidize rents, the project must undergo a federal environmental review. In 2023, the city obtained a roughly $2.3 million Regional Early Action Planning (REAP) grant from the Association of Monterey Bay Area Governments to help pay for that review and other predevelopment costs for the project, like preparing the construction documents so that the project is shovel-ready if and when the funding conundrum is resolved.

Cole says all the required studies – archaeological resources, hazardous materials, etc. – are completed, and that the city is readying to open the review for public comment this summer.

MidPen’s development agreement with the city expires next April – it’s already been extended three times – at which time City Council will have to assess how best to move forward.