As the city and county of Santa Cruz plan for thousands of new residents, housing developers are finding themselves in pre-construction limbo as they face a number of complicating factors from supply chain issues, to higher construction costs, to broader economic uncertainty.
“It’s a challenging time right now with tariffs and high interest rates,” said Iman Novin, president and CEO of Walnut Creek-based Novin Development, which has three upcoming affordable housing projects in Santa Cruz County. “We’re tightening our belts and being careful.”
At the annual gathering of the Monterey Bay Economic Partnership on May 1, Santa Cruz City Manager Matt Huffaker told local civic leaders from across the Monterey Bay region that many of the housing projects in the city that have been entitled — gotten legal approval from the city to develop or redevelop a parcel — have hit pause on breaking ground, reflecting the precarious economic situation that many developers are grappling with at the moment.
Lee Butler, director of planning and community development for the City of Santa Cruz, said he didn’t know the exact number of projects that have paused before groundbreaking, but pointed to a few notable ones. Talbott Apartments, a 43-unit complex proposed for 513, 515 and 519 Soquel Ave., just east of Ocean Street, was entitled and has been in the preapplication phase since 2022, but has not progressed further since.
Another development called Hagemann Townhomes consists of 14 units at 162 Hagemann Ave., near Arana Gulch. It was first entitled in 2016 or 2017, said Butler, and the developer got another entitlement about two years ago to add for more units. Since then, however, the city has not received any applications for building permits.
Butler also mentioned two downtown-area projects by Swenson Builders — the Calypso Apartments at 130 Center St. and a 276-unit apartment complex at 530 Front St. — that were entitled but have not begun construction. Applications for major housing developments have also been slow to start the year, he said, adding that just one has come in so far – an eight-story, 245-unit mixed-use development proposed for the Ace Hardware site downtown.
The mixed-use development going up along Front Street between Soquel Avenue and Laurel Street. Credit: Kevin Painchaud / Lookout Santa Cruz
However, Butler said that the nature of significant development applications is often sporadic. “Sometimes we go for months at a time without a big new project coming in, and then we’ll get three,” he said.
Novin said that high interest rates for construction and permanent loans — a construction loan that converts to a long-term loan upon completion — along with rising construction costs and supply chain issues don’t bode well for investors.
“Market-rate housing is dependent on investors who are sitting on the sidelines and not investing,” he said, adding that when high interest rates, escalating building costs and an uncertain economy collide, they can greatly affect projects that already often have tight profit margins. “Anything causing significant delays or unexpected costs can affect feasibility of a project.”
Like Novin, Butler said he believes that investors are hesitant to jump into housing developments right now, not only due to high interest rates on construction loans, but also because of the erratic economy.
“You’ve got the stock market zooming, the potential for tariffs and the cost of construction materials in flux,” Butler said. “Investors might be a little less willing to jump into a big project right now when those are so uncertain and could have a substantial swing.”
The planning and design of both Talbott Apartments and Hagemann Townhomes are headed by Santa Barbara-based architecture and development firm Hochhauser Blatter Associates. The firm’s co-owner, Jan Hochhauser, largely agreed that construction costs and economic uncertainty are affecting developers, and said that bigger developers are having a difficult time with financing and lending, which usually come from private or institutional money.
“I think there’s a lot of hesitation because of what’s happening financially, those sources are not looking favorable at the moment,” he said, adding that difficulty financing projects and increasing construction costs put their viability into question.
Hochhauser said he believes the projects on Hagemann Avenue and Soquel Avenue are great plans and he is disappointed that the Talbotts, the family behind the project, haven’t pushed them along — something he also attributes to a hesitancy to take on the risk of beginning construction.
“Both of those were exciting projects to work on and we’re proud of what we got there. It’s just sad that they can’t somehow manage that,” he said. The project’s owner and applicant, Shay Talbott, did not respond to Lookout’s request for comment.
Santa Cruz city planning director Lee Butler (left) confers with Mayor Fred Keeley. Credit: Kevin Painchaud / Lookout Santa Cruz
Butler said that because entitlements happen over a long period of time, he can’t say for sure that the Trump administration’s economic policies are causing all of the delays, but he does think that is somewhat influencing development.
Some developers with multiple projects on the go might simply be cautious about breaking ground on too many buildings at once, he said, pointing to Swenson, which is also constructing the new luxury La Bahia hotel.
“They might have conditions that still work, but may be waiting so all of those units don’t hit the market at the same time,” Butler said.
Swenson President of Development Mark Pilarczyk told Lookout via email that high interest rates create “significant hurdles” for multifamily projects at this time, including the delay of institutional equity that commonly funds new development projects.
“As things start to settle down, we expect to see more optimism from both debt and equity groups, especially those with a primary focus on projects that are entitled and permit-ready to break ground, as they require less time and market risk,” he wrote.
Novin said that, generally, his firm uses public-private partnerships and public investment tax credits for affordable housing to help reduce risk. Even so, the firm isn’t completely unscathed by the wider economic picture, and also has to contend with other factors outside of its control.
Novin’s 36-unit Soquel project called Park Haven Plaza, at 2838 Park Ave., which aims to house homeless veterans, youth emerging from the foster care system and a limited number of families, has been sitting partially built for a few months now. The factory that produces the modular homes for the development, Vallejo-based Factory OS, was bought out by investors who ousted the leadership, leading to significant delays. Weather issues and problems in receiving necessary components from overseas didn’t help, either.
“A lot comes from China and supply chain issues have made them challenging to get,” Novin said, specifically mentioning the main electrical panel and transformer for the development taking a long time to arrive. “You can finish building but you’d need to wait for months to turn on power.”
The Park Haven Plaza development at 2838 Park Ave. in Soquel. Credit: Will McCahill / Lookout Santa Cruz
Novin said that escalating costs have created a funding gap for the Park Avenue project, a gap the firm needs to figure out before it can fully complete the development, which was originally slated for completion this spring. He doesn’t know exactly how much more funding the project needs, but said he’s working with the state and the county to determine the amount and find additional funding to finish. As the development is the first modular project ever in Santa Cruz County, Novin said it has come with unforeseen challenges.
“We’re hoping to hear back on funding applications in June and resume work with those funds,” he said, adding that about eight months of work remains to complete the project. “That’s a moving target, because we need to identify the funds.”
Still, Butler said that having so many developments in the pipeline indicates that the city of Santa Cruz is still a strong market for new housing.
“I think time will tell, but we’ve got a lot of projects lined up but not yet constructed,” he said. “We hope to see those moving forward to construction soon, we know we need more housing and we’re hopeful that we continue to see those new projects.”
Hochhauser is inclined to agree.
“I am glad that, in spite of the hesitation, there’s still a tremendous need for housing and people want to look for ways to make it happen,” he said.
-Max Chun, Santa Cruz Lookout, May 12, 2025
