While people still live in those homes, the state agency has recently been paying exorbitant prices for roof repairs for some of the homes at an average of $71,000 per roof.
Caltrans has spent millions over the years renovating the houses it rents.
Tenants like John Kvammen and Lynn Bryan are in a constant battle with their landlord.
Kvammen' home was renovated at a cost of $800,000, but only two thirds of it is habitable.
"They have over the years really created slum lord conditions in the corridor and we fought that for decades," Kvammen said.
Two of the roofs on Madeline Drive cost more than $100,000 a piece to replace. The third roof was $80,000, several times more what a similar job would cost a private owner.
"I had a leak for 10 years," Bryan said. "They finally fixed it last year and every year they came out and refixed what they didn't do the previous year."
One home with a broken window and new roof is owned by Caltrans. The house across the street, also owned by Caltrans, is uninhabitable because the basement is filled with water.
Anthony Portantino is the assemblyman representing the area.
"The houses are just one piece of some of the financial questions," Portantino said. "Obviously if it's true that they're spending hundreds of thousands on roofs of houses they want to tear down, that makes absolutely no sense."
The 500 homes have been estimated to be worth at least $400 million in today's market. Caltrans has no intention of selling them until the state makes a final decision on extending the 710 freeway.
"I am angry," Portantino said. "Every day we learn more and before we embark on a $15 billion boondoggle, let's get our physical house in order. Taxpayers are being asked to pay more to go to school, were cutting, slashing and burning things all over."
Caltrans describes the reason for the some of the high cost is because the homes are in a historic preservation district.
There are currently two investigations in Sacramento into the way Caltrans has handled the project.
"I believe the surface freeway will never be built and that they should sell these homes and put them back on the tax rolls and take the money to help out the budget problems that the state is having right now," Kvammen said.