How California's State And Local Governments Are Addressing The Affordable Housing Crisis

With the highest cost of housing in the nation, California’s affordable housing crisis is threatening the economic vitality of the state.

The majority of renters, more than 3 million, pay more than 30% of their gross monthly income for housing, and one-third of renters, about 1.5 million, pay more than 50% of their income for a place to live, according to a California Department of Housing and Community Development report.

The accepted standard for housing affordability is that no more than 30% of monthly income should go for housing, according to Paul Habibi, a continuing lecturer of finance and real estate at UCLA.

In Los Angeles, to meet that 30% requirement for the median-priced home would require the median household receive a 52% raise from $63K/year to $96K/year, Habibi wrote in a recent op-ed piece. A 14% raise would cover the median-priced apartment.

"Affordable housing is being addressed to some extent, but we have a huge supply constraint in Los Angeles that's driven by multiple factors,” Habibi said. “But the long and short of it is we have more demand than we have housing supply. It's driven up the cost of housing, and it's created a pretty dramatic affordability crunch."

Habibi said the most effective way to address affordability is to build more housing of all types, affordable, workforce and market-rate, to create less upward pressure on rents. But California’s housing production has averaged less than 80,000 new units annually over the last 10 years, and current production continues to fall far below the projected need of 180,000 additional units annually, according to a California Department of Housing and Community Development report.

In response to California's growing housing crisis, state and local governments are acting to increase housing stock and affordability by relaxing regulatory barriers to housing development, fast-tracking projects, creating new funding sources and providing incentives to encourage developers to build new housing for all income groups. While affordable housing has long been treated as a local problem, those calling for change note it has regional and statewide implications that call for solutions that reach beyond local municipalities.

The California Environmental Quality Act was the place to start on the state level, as its onerous review process can hold housing projects up for years. While legislators passed CEQA with the intent of protecting the environment, it has become a tool for labor unions and opponents of growth and higher density, known as NIMBYs, to hold up projects. These groups file CEQA lawsuits to win concessions from developers and government agencies or block projects.

Building Industry Association of San Diego County President/CEO Borre Winckel said labor unions are using CEQA to stop projects that do not use union labor. Winckel said union labor runs up the cost of projects, which has forced market-rate developers to build luxury housing to make projects pencil.

Efforts are in place at the state level to create a more streamlined process for CEQA on certain projects that would save developers time and money — and increase housing stock.

Providing enough housing is a mandate in California, though what that means in execution varies depending on the city.

The California Housing Element Law requires local jurisdictions to update their general plans, requiring cities to develop adequate housing for all income groups. California Department of Housing and Community Development spokesperson Evan Gerberding said 87.5% of California cities and counties are in compliance with their housing element goals, but 57 jurisdictions are not.

The housing element law has not generated the results anticipated, according to a study by the Legislative Analyst Office that looked at whether communities are adequately planning for local housing needs. Legislative analyst Mac Taylor, the report author, said many local communities have fervently opposed, obstructed or even disregarded any rule changes that would speed up construction.

In November, voters in Encinitas, an affluent San Diego County coastal community, rejected a ballot initiative that would have allowed construction of 1,100 affordable housing units to bring the city into compliance with the law.

As a result, the BIA-SD is suing Encinitas for noncompliance with the housing element law for the second time. Winckel said Encinitas’ housing goal for 2010 to 2020 is 2,353 units, but seven years into its goal, the city had only produced 718 units, leaving a balance 1,638 units to produce over the next four years.

“Reality begs the question: ‘Why are they so far off schedule?’ The answer is because they don’t want it,” Winckel said. “This is the most insincere community within our regional planning agency.”

He said the state requires cities to build housing for all, but does not have the resources to enforce it.

Bay Area Council Senior Vice President Public Policy Matt Regan said NIMBYs are motivated by rational, irrational and sometimes self-serving reasons.

“Some homeowners have a selfish motivation to restrict supply to create artificial inflation of their homes,” he said.

Residents also worry adding more people to their communities will increase traffic congestion and demand for public services.

“What people fail to understand is how transportation and traffic works.”

Regan said former residents have been priced out of the Bay Area, with homes now priced two and a half times more than the national average and a two-bedroom apartment renting for about $4K/month. As a result, about 170,000 people now drive into the nine-county Bay Area from as far away as Stockton, Tracy and Manteca, which is causing a lot of congestion.

More housing in communities eases that congestion, and regional approaches are needed so all cities are a part of solving the problem, he said.

“New apartment buildings (near employment centers) take people off the roads,” Regan said.

One way the state is encouraging more affordable housing in projects is through the state density bonus law, which requires local governments to approve density bonuses and other incentives or concessions when at least 10% of a project is low-income units, 5% of units are for very-low-income residents, it is a senior housing project or 10% of units are for transitional foster youth, disabled veterans or homeless residents.

The amount of density bonus depends on the percentage of affordable units and income level targeted, but is capped at 35%. The state law also mandates that height and floor area ratio be automatically adjusted to allow for the greatest amount of density allowed for affordable housing projects.

According to the California Housing Partnership Corp., Los Angeles County needs nearly 500,000 more units that are affordable to households earning less than 50% of the area median income, but developers are building less than 3% of this number annually.

To increase funding for affordable projects, Los Angeles Mayor Eric Garcetti recently proposed a linkage fee, which could bring in $100M annually, according to estimates. Linkage fees, which are already used by San Francisco, San Diego, Boston and Chicago, are imposed on projects proven to boost housing demand.

Oakland Housing and Community Development Director Michele Byrd said her city has fallen behind on affordable housing production since 2011, when the state dissolved local redevelopment agencies. Oakland’s funding for affordable housing dropped from $30M annually to about $5M to $7M a year.

That, coupled with a shortage of land for new construction, makes it important for her agency to look at ways to maintain the current stock of affordable housing, she said. The department has built 6,000 units of affordable housing in the city and has 150 units in the pipeline. It provides a first-time homebuyers program, loans and grants for existing low-income homeowners to provide repairs, offers senior housing and also offers assistance for paying bills.

Ken Sauder, president/CEO of Wakeland Housing, a San Diego-based affordable housing developer, said there is a push to re-establish redevelopment agencies.

“People are talking about Redevelopment 2.0, but nothing will get traction until we get a new governor,” he said.

While state and local governments are doing much to increase the affordable housing stock, there are big challenges ahead. 

Tax reform presents significant risk to the affordable tax credit program, the biggest funding source for low-income housing, said Stockton Williams, Urban Land Institute executive vice president of content and executive director of the ULI Terwilliger Center for Housing.

Sauder said since President Donald Trump was elected, funding from tax credits has declined 15% and will probably drop another 10% when tax reform is a done deal.

“The one hopeful thing is local governments are becoming very creative at reducing regulatory barriers and using public-private incentives to increase housing stock,” Williams said.

San Francisco provides a 100% density bonus and 30-foot height bonus for 100% affordable housing projects. The city recently added three new density bonus options and other incentives, including expedited processing, for projects that comply with the state density bonus law.

San Diego has a 10% or 20% inclusionary housing ordinance or set-aside, depending on a project’s location, but Mayor Kevin Faulconer recently launched a package of housing incentives aimed at boosting housing production in transit priority areas and creating more low- and middle-income housing stock.

This included a 25% density bonus for workforce housing projects and upping the affordable housing density bonus from 30% to 50%, San Diego Housing Commission Executive Vice President and Chief Strategy Officer Debbie Ruane said.

She said previously affordable housing was only available to families with an income of no more than 80% of area median income, but now families earning up to 150% of AMI, or $110K annually for a family of four, are eligible for subsidized housing. SDHC has also engaged consultants to identify areas of San Diego where density could be increased.

Ruane said the agency is looking at out-of-the-box housing design opportunities, like container housing units and building technology innovations.

“So far it’s been a shotgun approach, but we need to explore all different avenues,” she said. “We want to do a modular housing pilot project, but there isn’t any mechanism in place yet to monitor it.”

Faulconer’s plan also calls for streamlining the approval process to fast-track environmentally sustainable, affordable and transit-adjacent housing projects; lowering parking requirements in areas with transit access; reducing developer impact fees; eliminating all fees on 100% affordable housing projects; allowing business owners to create living quarters within their businesses, such as behind a restaurant or shop; and relaxing restrictions on granny flats or separate dwellings.

San Diego Planning Director Jeff Murphy, who is revising the municipal code to accommodate the mayor’s incentives, said the planning commission has approved code changes to encourage construction of companion units and separate dwellings by homeowners.

Code changes will cut approval time for certain types of projects by 50%, reducing time from application to groundbreaking from one year to six months. The express review process applies to any projects that meet new sustainability standards, incorporate low-income units or are in transit priority zones or within the San Diego Promise Zone, a federally designated area.

The city is also implementing a fairer way to calculate impact fees based on square footage or number of bedrooms rather than number of units. Murphy said this should help boost housing production overall, but the city hopes it will also encourage developers to include micro units in projects to increase density. Historical structures incorporated into the design of projects also will not affect gross floor area calculations or parking requirements.

All of these efforts on the local level should help to make affordable housing more appealing and attainable for developers and communities, but state-level support is still crucial to solving California's housing crisis. Below are some of the bills in play for state legislation that would address affordable housing.

California Housing Legislation That Could Address Affordable Housing

SB 35: Streamline the California Environmental Quality Act review process

Last fall Gov. Jerry Brown attempted to streamline the approval process for urban housing projects by relaxing the CEQA review process, but the proposal failed. Sen. Scott Wiener (D-San Francisco) has introduced a similar bill that would allow housing projects to bypass the multilevel CEQA review process if the project site is already zoned for the proposed number of units. A state study found subjecting housing projects to multiple levels of review adds about 5% to the overall cost. SB 35 would only apply to local governments that have fallen behind on their state-mandated “housing element” goals. Brown has reached a deal on SB 35 and two other bills aimed at spurring new housing production, SB 2 and SB 3, with passage expected by mid-September.

SB 2: Fee to generate funding for low- and medium-income housing

Introduced by Sen. Toni Atkins (D-San Diego), SB 2 would create an ongoing funding source for low- and medium-income housing. It would impose a $75 to $225 fee on real estate transactions, which would generate $229M to $258M annually, according to a Senate Appropriations Committee estimate.

SB 3: Affordable housing bond initiative

Authored by Sen. Jim Beall (D-San Jose), SB 3 would put a $3B bond initiative on the November 2018 ballot that would leverage nearly $11B in federal funding for homes and medium-income housing.

SB 166: Amend state zoning law

Sen. Nancy Skinner (D-Berkeley) has introduced SB 166 to amend California’s existing “No Net Loss” zoning law, ensuring that cities maintain an ongoing supply of identified sites for housing construction at each income level.

SB 167: Amend Housing Accountability Act

Skinner's other bill, SB 167, strengthens the state’s existing Housing Accountability Act by limiting a local jurisdiction’s ability to stall housing projects that meet planning and zoning requirements.

AB 73: Create special housing districts

AB 73, from Assemblyman David Chiu (D-San Francisco) would allow local governments to create special housing districts close to transit and job centers with high density and ease permitting and other regulatory requirements for development proposals in the new zones. Developers would be required to provide 20% set-aside for affordable housing.

AB 1637: Funding for workforce housing

Assemblyman Todd Gloria (D-San Diego) is working on AB 1637, which would provide funding for workforce housing statewide.