The concept behind "smart growth," which once appealed mostly to academics and public policy wonks, appears to be getting smarter every day.

With every uptick in the price of gas, with every new foreclosure in the hyper-depressed housing markets of California's outer-ring suburbs, the notion of finding housing close to work and along public transit lines is becoming more appealing to ordinary Californians.

Here are two indicators of what's going on: The rental market is booming, with rents having risen 20 percent or more in most housing markets and, for the first time in memory, there will be more multifamily housing units constructed in the state this year than single-family residences.

As it turns out, there has been a happy confluence of events: Just as market demand is growing for affordable apartments and condos in urban areas, the state is ramping up housing subsidies funded by Proposition 1C, the housing component of the package of infrastructure bonds approved by voters in 2006.

"We were a little bit ahead of the curve on the programs in the bond," state Housing and Community Development Director Lynn Jacobs told me this week.

The response from the private sector to the state's housing initiatives has been phenomenal, she said. For $240 million in bond money this year that was set aside to fund infill development projects, Jacobs' department received applications for $1 billion in funding. For $95 million set aside for projects close to mass transit lines, developers stepped up with nearly $550 million in requests.

The demand was so great that lawmakers, by unanimous votes in both houses of the Legislature, rushed through a bill during the last week of June to accelerate the issuance of $150 million in housing bonds that had originally been scheduled for sale two years from now.

The combination of market demand and the availability of state subsidies has provided a boost for the depressed housing industry and also for the public policy goals behind the bond.

State subsidies, Jacobs said, have made possible private financing for affordable and smart-growth projects at a time when financing has dried up for other projects.

"It's not a housing crisis, it's a financial crisis," Jacobs said of the state's housing woes. State subsidies provide lenders with an opportunity to invest in housing projects that have less exposure to risk. "Banks may not be financing the market-value guys, but they're financing affordable housing."

Since developers received bonus points on their applications for the amount of affordable housing they included, the state was able to shatter its goal of having 15 percent of bond-subsidized units affordable. Instead, it came in at 50 percent.

As for the industry, the timing of the bonds has been a saving grace in an otherwise abysmal year.

Jacobs estimates that 75,000 new housing units will be built in the state this year, with only 35,000 being single-family homes. Of the 40,000 apartments and condos, the state is subsidizing 17,000.

"It's about half of what we're projecting for the whole state," she said. "It's a pretty big chunk."

Jacobs, a former affordable housing developer who lives in Ventura, faces one of the most challenging jobs in state government. She is California's housing czar at a time when the state's home-building and real-estate industries are in a historic slide.

There will be no turnaround, she said, until something is done to stem the foreclosure crisis — both by preventing new foreclosures and by reducing the number of foreclosed properties that are depressing the housing market.

Jacobs sees glimmers of progress on both fronts.

Lenders, she said, are at last beginning to negotiate loan workouts with borrowers to help them avoid defaulting on their loans. To further prod that process, Gov. Arnold Schwarzenegger this month signed legislation that mandates lenders make personal contact with borrowers before foreclosure proceedings can begin.

As for getting those foreclosed properties off the market, Jacobs said the Schwarzenegger administration is "trying all kinds of things," such as a program announced Monday to make available low-interest loans to about 1,000 first-time homebuyers in neighborhoods hardest hit by the foreclosure crisis.

But perhaps the most hopeful development, she said, is that "investors are starting to come back into the market. That's usually the first sign of a turnaround."

When the turnaround comes, Jacobs is determined that the state continue to promote smart, affordable housing. At the governor's direction, she's working on finding a permanent funding source for affordable housing.

That's important, she knows, because eventually the turnaround will come. And that will be no excuse for California to stop growing smart.

— Timm Herdt is chief of The Star's state bureau. Read his political blog "95 percent accurate*" at http://www.TimmHerdt.com.