Carlsbad, Calif.—In a ritzy new master-planned community at the edge of a world-class golf course and resort sits a 180-unit complex of low-rise stucco structures. The two- and three-story buildings, which fit right in with adjacent homes selling for upwards of $900,000 each, house families headed by folks such as gardeners and grocery store clerks. What the households have in common: None can afford to live in market-rate housing in this community, one of Southern California’s priciest.

But because the city of Carlsbad requires new master-planned developments to make 15 percent of their housing units affordable to lower-income households, Morrow Development, which was developing a 3,600-home community on the adjacent land, sold the land on which La Costa Paloma was built to two nonprofits for $1. Morrow also made a $1.7 million soft loan to the project.

“This development is a prime example of why inclusionary housing is smart development because you have people able to live and work in the same community, and they would never be able to live in this upscale development,” said Mary Jane Jagodzinski, a senior project manager at Community HousingWorks in San Diego, which partnered with Mercy Housing West to develop La Costa Paloma.

Known as Dove Family Housing Associates, LP, the partnership had to work its way through a lawsuit, snafus by utility providers, and weather-related delays to get the project done.

Neighbors who objected to the affordable development filed a lawsuit in 2002, after developers got planning approval for the project. “The initial objections were, ‘I paid a million dollars for my home, how can these people live next to me?’” said Anne Wilson, director of housing and real estate development for Community HousingWorks. “We had to show them that these people are their bank tellers, these people are their grocery store checkout clerks, that these are not dangerous people; they’re people who want to move up in the world."

The neighbors eventually dropped their lawsuit after the developers agreed to build a basketball court on the site to keep kids occupied and make some design changes to alter the flow of traffic through the surrounding neighborhood, Wilson said. But that wasn’t the only challenge for the project developers.

Construction was delayed the following year when nearby wildfires created clouds of thick smoke that prevented work for several days, and again as incessant storms that made 2003 San Diego’s third-wettest year on record pelted the construction sites with rain.

“I kid the contractor that I’ve seen fire and I’ve seen rain,” said Wilson.

Despite all the obstacles, the project, which includes 111 three- and four-bedroom units is part of its effort to accommodate families, was completed in March 2005. Rents, at between $642 and $1,191, tend to be set at between 40 percent and 50 percent below market prices. Fifty-three of the units are targeted to households earning up to 50 percent of the area median income (AMI), which is $79,000 for a family of four, and 125 are slated for those with incomes up to 60 percent of AMI. Two units are reserved for managers.

In addition to the developer’s loan, the project was financed with $14.3 million in tax-exempt bonus sold through the city of Carlsbad, a soft loan of $1.63 million from the city, and $8.5 million in equity from low-income housing tax credits syndicated by the National Equity Fund, Inc.

La Costa Paloma is a testament to the power of inclusionary housing, said Jagodzinski. “That builds community because you don’t have enclaves of rich and po*r. That’s really important to the fabric of city development.”