By Catherine Warmerdam

John Vignocchi co-founded real estate development firm Urban Capital with Chris Garner in 2018, seeking to build more homes and apartments in the city and, in the process, make housing more affordable for Sacramentans.

A 2022 report issued by the City of Sacramento says that the city is falling far short of its target to add 5,700 new units annually to the current housing stock. From Vignocchi’s perspective, financing hurdles and outmoded government policies and regulations, both state and local, are a big part of the problem.

We spoke with Vignocchi recently to get his take on what’s working in Sacramento’s housing landscape, what’s broken, and what it would take to get developers like him to bring more units to the marketplace.

Tell me about Urban Capital and its relationship to Sacramento’s affordable housing crisis.

We are a start-up real estate development firm. I founded the company after several years of living in San Francisco because I was frustrated with the hypocritical politics there when it came to housing. It’s supposedly the most progressive city in the world, but it has the most backwards housing policy.

I’m from Santa Barbara and grew up with a lot of housing insecurity, which was really stressful. You feel like you don’t have a lot of hope. My wife grew up in Sacramento and never wanted to return, but I came to fall in love with the city. The more time I spent here, the more I realized that this is the future of California.

Our firm started off doing some smaller high-end housing, two and three-unit projects, a bit of historic restoration. They were fun projects, but they were not making a lot of impact. Our entire portfolio is now shifting to building privately financed workforce housing. We are scaling up to do, hopefully, thousands of low, medium and moderate-income housing units throughout Sacramento.

And what drives your desire to build those?

That’s the secret sauce: We found a way to get things financed that generates returns. Our motivation is that we want to do the most amount of good while still making money for ourselves and our investors. To be sustainable, you have to figure that out.

So this is not an altruistic endeavor for you?

We’re not doing this out of charity, and that’s a good thing, because charity is hard to replicate and scale up.

Are you building apartments or single-family homes?

These are apartments. We would love to do condos and promote more housing ownership, but the state of California, through terribly written and poorly interpreted legislation, makes condo development very difficult.

What do you see as the major factors driving lack of affordable housing in the Sacramento region?

Bad housing policies at the state and local level are driving a lack of inventory. For decades, Sacramento was very pro-development. In terms of policy, Sacramento had laid the groundwork to streamline infill housing, to streamline things like zoning reform and housing production, especially compared to coastal cities. But I worry that the city is taking a step backward with so-called progressive policies.

For example, there is talk of increasing development impact fees. People think that when you increase the cost of development that you’re taking money out of the developer’s pocket, but that’s not true. What you’re doing is increasing the risk of the project, and when the risk increases, your investors require a higher return. And so you’re not taking money out of my pocket. What you’re doing is you’re taking money out of the renter’s pocket, if the housing gets built at all.

We have to figure out more innovative ways of paying for infrastructure — water lines, sewer lines, all that stuff.

What do you see as the most promising solutions to addressing the issue of housing affordability?

If any city is going to solve the housing crisis, it’s Sacramento. But we need to keep the fee structure where it is because right now, Sacramento has low fees relative to all the other jurisdictions, and that serves as a signal to the marketplace that hey, we want you to build housing here. The lower fees should be seen as a system feature, not a bug.

Also, why are we building brand new affordable housing from the ground up? The current cost of a new affordable housing unit for a place like Mirasol Village [a redevelopment project in the city’s River District] is something like $700,000 a door. Our units cost less than half that. They might be a little smaller but they have many of the same amenities. What is driving that delta? That is not fiscally sustainable. The nonprofit developers do amazing work to get these projects built, but it’s just morally wrong that we’re financing affordable housing using antiquated and terribly inefficient financing mechanisms.

One local solution that sounds promising is to issue bonds to buy apartments and convert them into deed-restricted affordable housing. So rather than building something from the ground up, why not buy less expensive units and then deed restrict them? You can get two times the number of units.

How do you know these solutions are feasible?

Sacramento has produced more affordable housing per capita than San Jose, San Francisco, the East Bay, lots of places. So we’re doing it, but the whole system is just a mess. How do I know these solutions will work? It’s just basic math, basic supply and demand. When you lower the cost of production, you increase the supply.

If the solutions are as straightforward as you suggest, why do you think they haven’t been adopted yet?

I don’t know why. I think it might be a failure of leadership. When we have political division and there is the far right and the far left, you get more extreme sides of a topic. So, you get less rational policy and the problems don’t get fixed. Politicians don’t seem to like looking in the rear-view mirror and solving stuff. They like pushing new things because that’s what’s sexy. It could also be the unintended consequences of policies that sound good on paper but don’t work in real life.

What message do you have for elected officials and policymakers about solving the problem of housing affordability?

I want them to know that streamlining regulations and lowering the cost of housing production will lead to more housing supply.

This Q&A has been edited for length and clarity.This story is part of the Solving Sacramento journalism collaborative. Solving Sacramento is supported by funding from the James Irvine Foundation and Solutions Journalism Network. Our partners include California Groundbreakers, Capital Public Radio, Outword, Russian America Media, Sacramento Business Journal, Sacramento News & Review, Sacramento Observer and Univision 19.