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Proposal: Make Housing Affordable for Californians

For too many legislative cycles, California has failed to pass legislation that would provide a permanent funding source for affordable housing. Instead of funding Band-Aids to address symptoms, taxpayers need to fund programs redressing the causes of the problems without incurring undue financial burdens.

With this initiative, California can establish itself at the forefront of innovative, bipartisan solution-creating as these solutions will have practical applications to American communities nationwide.

The Issue

Problem Defined

Housing is increasingly unaffordable for everyday Californians. California ranks 49th in the nation for home ownership and 50th in affordability according to the McKinsley Global Institute. Efforts to replace redevelopment funds, expand state housing tax credits, and create a dedicated source of revenue for affordable housing have fallen short. Californians want an equitable and cost-effective solution that works for the long term.

Background
Expand all bullets
1.
California is short 2 million housing unitsMORE

California has a shortfall of 1,465,884 affordable units for extremely low and very-low income households.

  • California ranks 49th among the 50 US states for housing units per capita. Benchmarked against other states on a housing units per capita basis, California is short about two million units.
  • From 2009 to 2014, California added 544,000 households but only 467,000 net housing units. States such as New York have added nearly 80 percent more housing units than California relative to population growth. As a result, California’s real estate prices have increased by more than 15 percent since 2009, but median income by only 5 percent.
  • California could add more than five million new housing units in “housing hot spots”—which is more than enough to close the state’s housing gap. In aggregate, there is capacity to build as many as 225,000 housing units on vacant urban land that is already zoned for multifamily housing; 1.2 million to three million housing units within a half mile of major transit hubs; nearly 800,000 units by allowing homeowners to add units to their homes; nearly one million units on land zoned for multifamily development but underutilized; and more than 600,000 affordable single-family units on “adjacent” land currently dedicated to non-residential uses.

Source: A Toolkit to Close California's Housing Gap: 3.5 Millions Homes by 2025

2.
California has reduced its funding to develop and restore affordable homes by 79% MORE

Public funding of affordable housing programs in California have historically been provided by three primary sources: Federal allocation. Bond measures and Redevelopment Agencies.

  • In 2006, voters enacted the Housing and Emergency Shelter Trust Fund Act, which authorized the sale of $2.85 billion in general obligation bonds for various housing projects (Proposition 1C), on top of $2.1 billion in general obligation bonds approved in 2002 (Proposition 46). According to the State Treasurer, the state has sold almost all Proposition 46 bonds, but $1.26 billion of Proposition 1C authorized bonds have not yet been sold.
  • California receives $220 million annually in Low-Income Housing Tax Credit (LIHTC) funds through a federal allocation. The California Tax Credit Allocation Committee administers this program and grants tax credits to developers that successfully submit applications for affordable housing projects. In 2015, California’s LIHTC program supported the creation of 18,000 deed-restricted affordable housing units.
  • Citing a significant State General Fund deficit, Governor Brown’s 2011-12 budget proposed eliminating Redevelopment Agencies (RDAs) and returning billions of dollars of property tax revenues to schools, cities, and counties to fund core services. Among the statutory changes that the Legislature adopted to implement the 2011-12 budget, AB X1 26 (Blumenfield, 2011) dissolved all RDAs. The California Supreme Court’s 2011 ruling in California Redevelopment Association v. Matosantos upheld AB X1 26, but invalidated AB X1 27 (Blumenfield, 2011), which would have allowed most RDAs to avoid dissolution. RDAs’ dissolution deprived many local govern-ments of the primary tool they used to increase the supply of affordable housing.

Source: California Senate Governance & Finance Committee

3.
36% of mortgaged homeowners and 48% of renters spend more than 1/3 of household income on housingMORE

[bullet statement from Public Policy Institute of California, February 2015]

[insert graphic:  average housing prices increasing over time - over inflation? and higher % income?]

[Incorporate supporting elements with text or chart:]

  • The median sales price for homes in California was $393,000 in January 2015, according to real estate tracking firm Zillow.com. A household would need to make about $78,000 a year to reasonably afford a home at that price, assuming a 20 percent down payment. Almost two thirds of the state's households make less than $78,000, according to the U.S. Census Bureau.
  • Median rent prices average $1,750 for a 1-bedroom and $2,110 for a 2-bedroom according to California List Apartment Rental Report.
  • San Francisco Bay Area is the least affordable region; see graphs on housing affordability from the California Association of Realtors, http://www.car.org/marketdata/data/haitraditional/.]
  • https://www.inman.com/2016/11/15/where-will-our-children-live-tackling-housing-affordability-in-california/ 
  • “The average rent in the city of Los Angeles is $2,100 a month. A household needs to make $86,000 a year to afford that. Everybody that makes less than that is living unaffordably.” – Alan Greenlee, Executive Director, Southern California Association of Non-Profit Housing [This report by the USC Lusk Center for Real Estate, https://lusk.usc.edu/sites/default/files/attachments/2016-Multifamily-Forecast-Report.pdf, has different data -- see pages 12-20.}

[graph:  price increases of 1 BR apts and basic homes over time in 5 major areas of CA]  Top 10 cities by population are LA, San Diego, San Jose, SFO, Fresno, Sacramento, Long Beach, Oakland, Bakersfield, Anaheim - but are you neglecting the inland cities?

4.
High costs and shortages in California housing harm familes and communitiesMORE

[find video]

  • The housing shortage not only is costly for people renting or buying homes, but it also weakens California’s economy as a whole. The McKinsey Global Institute calculates that the housing shortage costs the California economy between $143 billion and $233 billion per year. This estimate does not take into account broader costs to health, education, and the environment, and we therefore believe that it is conservative and that the real costs are likely much higher. 
  • There are three sources of cost to California’s economy : ƒ Households that spend a large share of income on rent or mortgage payments have less money to spend elsewhere. It is estimated that California’s high housing costs crowd out $53 billion to $63 billion of consumption per year. 
  • For low-income households, even necessities such as food and clothing can be crowded out by housing. ƒ 
  • California’s housing shortage is also a lost opportunity for the construction industry, which drives growth in the economy more broadly. Typically, every $1 of output from the construction industry creates $2.15 in total economic output. It is estimated that lost construction activity costs the state economy $85 billion to $165 billion per year.ƒ
  • California's housing shortage affects seniors, veterans, homeless, working families, people with mental, physical, or developmental disabilities, agricultural workers, people exiting jails, prisons, and other state institutions, survivors of domestic violence, former foster children, and teens in transition.

26% of home sellers are moving to another state or out of the country (source: Inman):  http://www.scanph.org/

5.
California is home to 20% of the nation’s homeless but 12% of its population MORE

[insert visual] - is homelessness going up?

  • The housing shortage also contributes to homelessness.According the US Department of Housing and Urban Development, California has well over 100,000 homeless people—about one-quarter of the homeless population in the United
  • In addition to the suffering that the homeless endure, the state spends $5 billion per year to provide shelter, emergency room visits, policing, mental health interventions, and other services to this vulnerable population.
  • 63% of homeless Californians are unsheltered (highest rate in the nation)
  • California has 24% of the nation’s homeless veterans and one-third of the nation's chronically homeless
  • California has the most unaccompanied homeless children and youth, at 30% of the nation’s total
6.
The average cost to construct a new home in California is $163,000MORE

The cost to construct a 1,200 square foot home with building materials slightly above the minimum needed to ensure full protection of health and safety for occupants in California is $163,239 or $136 per square foot. Material cost ($95,219), labor cost ($65,086), and equipment cost ($2,934), financing cost ($$), and builder profit ($$).

Source: Building-cost.net on-line calculator using procedures from The National Building Cost Manual

7.
14 states fund affordable housing in part through (home real estate) feesMORE

[show images of states with text of their fee system]

8.
Other proposals have unintended consequences and burdens MORE

[Image: Use data from file attached]

SB 2 (Atkins) currently proposed in the California Legislature assesses a fee of $75 whenever a person records one of a specified list of documents with the county to pay for public housing programs, except for documents that transfer deeds of realty

  • Recording documents is not mandatory; it is a voluntary act to give public notice that land transactions have taken place. Fees for liens (e.g., child support, mechanics), foreclosure documents, affidavits of deaths, deeds, and others are increased by $75 each from on average $10 to $85 or 7 times--diminishing Californians' ability to record important documents.
  • An old piece of tax policy wisdom attributed to Louisiana Governor Russell Long states that, “Don’t tax you, don’t tax me, tax the man behind the tree.” . As such, the responsibility to pay for housing programs, previously paid for out by a combination of redevelopment funds, state bonds, federal funds, and proceeds from local exactions, is shifted onto the individuals recording these documents, which includes property owners, lenders, and borrowers, among others. 
  • While resources for public housing programs have rapidly dried up, is it appropriate to saddle a part of one class of taxpayer with the burden to pay for affordable housing? For example, a contractor filing a mechanics’ lien to secure payment for services has to pay the fee, but the individual purchasing a luxury home does not.
9.
Nebraska collects $1.15 per $1,000 of each home's sale price to fund affordable housingMORE

The Nebraska legislature passed LB 40 in 2005:

Go deeper
1.
Perspectives on Helping Low-Income Californians Afford Housing

Legislative Analyst's Office - The California Legislature's Nonpartisan Fiscal and Policy Advisor (2016)

http://www.lao.ca.gov/Publications/Report/3345

Nonpartisan series of reports on affordable housing in California, published by the State of California.

2.
Senate Bill-2 now in Legislature as Building Homes and Jobs Act

California State Senator Toni Atkins - (2016)

SB-2 Atkins December 2016.pdf

California State Senator Toni Atkins (D, 39th, San Diego) has re-presented this bill to the California legislature. The bill would impose a $75-225 fee on the recording of every real estate instrument, paper, or notice required or permitted by law.  

Expert Authors

CALIFORNIA FORWARD (CA Fwd) is driven to make the California Dream of prosperity, sustainability, and equitability attainable for all. Its inspires better decision-making by governments to forge a responsive democracy at all levels to grow middle class jobs, promote cost-effective public services, and create accountability for results. Founded in 2008 and governed by a bipartisan board of directors, CA Fwd harnesses the power of regional collaboration to spur economic and social innovation and growth. CA Fwd's 2016 Roadmap to Shared Prosperity has committed to three "one million challenges:" one million more jobs, one million more affordable homes, and one million more acre-feet of water.

DAVENPORT INSTITUTE OF PEPPERDINE UNIVERSITY'S SCHOOL OF PUBLIC POLICY was founded in 2005 as a multi-partisan and non-profit organization. Formerly Common Sense California, the Institute engages California citizens in policy decisions that affect our lives every day. Davenport believes that, in today's world of easy access to information and connectivity, California's municipal and education leaders are seeking ways to involve the residents of their communities in important issues they confront. Done legitimately, this new kind of leadership produces better, more creative policy solutions and better, more engaged citizens committed to the hard work of self-governance.

THE GOLDMAN SCHOOL OF PUBLIC POLICY OF THE UNIVERSITY OF CALIFORNIA BERKELEY (GSPP) is a graduate school that prepares students for careers in public leadership. Most students at GSPP are enrolled in the Master of Public Policy (MPP) program, which emphasizes the applied and quantitative aspects of policy making. GSPP also offers a Master of Public Affairs (MPA) program focusing on policy management and leadership as well as a doctoral program in policy research. Goldman School faculty represent top researchers in their fields, including economics, political science, law, social psychology and engineering. Their expertise ranges from education policy to racial profiling to clean energy. As teachers, they are dedicated to training tomorrow's policy leaders. As researchers, their work is shaping public policy today.


Deborah Devedjian
Founder & Chief Citizens' Officer - TheChisel / More Perfect Union, Inc.
Born in Philadelphia, Deborah Devedjian has been a leader in the global Education and Training industry and an expert in corporate governance—creating, building, investing in, and transforming organizations. Long committed to education and inquiry as the basis for democracy, she weaves together more than 20 years of experiences in the private, public, and not-for-profit sectors to maximize learning, collaborative decision-making, and stakeholder value. 

She’s served in founding or leadership positions with Copernicus Learning Ventures, Warburg Pincus, RoundTable Partners, European Bank for Reconstruction & Development, and The Boston Consulting Group. Deborah has chaired or served on the executive committee of 20+ not-for-profit boards, including Polytechnic University; Marlboro College; Elwyn, Inc. (for the developmentally challenged); French-American Foundation; Pennsylvania-Russia Business Council; Commission of Independent Colleges and Universities; Harvard Business School Club of New York; and Yale Reunions.

She attended public schools, has a BA from Yale and MBA from Harvard, but her father still hopes she’ll go to med school. Fluent in French and Armenian. Amusing in German and Italian. Deborah’s day is not complete without a dose of the Rolling Stones, Beethoven, and Coltrane. Deborah is an independent (small "i"). Her patron saint is Ben Franklin. She excels at “herding cats,” according to one business school dean.
Kammi Foote
Clerk-Recorder & Registrar of Voters - Inyo County

Kammi Foote is the elected Clerk/Recorder & Registrar of Voters, where she interacts with thousands of Californians annually for matters related to public elections and ownership of land.

As a publicly-elected official, she has served as the Legislative Liaison for the County Recorders Association of California (CRAC) and in leadership roles for the California Association of Clerks and Elections Officials (CACEO). Kammi has testified before the California legislature and participates in statewide and national panel discussions regarding the impact of policy and regulation on local government and the public.

Kammi serves on the Board of Directors for several non-profits including the Owens Valley Committee, which is a citizen action group dedicated to protecting the natural resources of the Owens Valley; Friends of the Manzanar Committee, an organization that works with the National Park Service and other interested groups to preserve the Japanese Internment Camp of Manzanar and to interpret its stories, resources, and lessons of civil rights violations for this and future generations and the Woodrow Wilson Legacy Foundation, an organization established to teach networking skills and partnership strategies by empowering leaders to champion programs of world peace through effective relationship building.

Kammi lectures on civic engagement and has appeared in articles featured on Forbes and Huffington Post. She lives with her husband and two children in the foothills of the Eastern Sierra in California.

Lisa Goldman Forgang
Chief Policy Officer - TheChisel / More Perfect Union

Lisa Goldman Forgang was born in Boston, grew up in Washington, DC, and has lived in both Northern and Southern California and Zurich, Switzerland. 

She has an extensive background in statistics and analytics. Lisa has held executive roles in marketing, membership, and loyalty programs at The Walt Disney Company, Citi Cards, and Barnes and Noble. She received both her BA and MA from Stanford and her MBA from Harvard (HBS).

Lisa is a board member of the HBS Women’s Association of New York and was Vice President of the HBS Club of New York for eight years. She has been a lay leader with UJA-Federation for ten years and serves on the Leadership Committee of HBS Community Partners which provides pro bono consulting to non-for-profits. 

Lisa lives in New York with her attorney husband Chuck. She has two adorable pre-teen nephews and two adult step-daughters. Lisa loves cruises and won't eat blue M&M's.

The Solution

Proposed Actions
Expand all bullets
1.
Increase the transfer tax of 55 cent tax per $500 value on all homes' sale priceMORE

The California legislature could follow the model of Nebraska and fund their affordable housing programs by increasing documentary transfer tax on home sales in California.

  • In 1967, the Legislature authorized all California Counties to approve an ordinance to impose a documentary transfer tax (DTT), which applies to deeds of transfer of realty within that jurisdiction, and is based on the value of the transfer. In counties, the rate is fifty-five cents ($0.55) for each five hundred dollars ($500) of value. 
  • All of California’s 58 counties apply the tax, which is modeled after the repealed Federal Documentary Stamp Tax. Cities may also enact ordinances to impose a DTT: non-charter cities within a County that impose a DTT may apply its tax at half of the rate of the county and applies it as a credit against the county rate. Charter cities may impose a DTT at a higher rate under the municipal affairs doctrine in the California Constitution (Article XI, Section 5). If they do so at a higher rate than the non-charter rate, then the city DTT does not serve as a credit against the county tax.
  • Exemptions exist for public agencies acquiring land, land acquired as a result of a plan of reorganization or adjustment such as bankruptcy, and certain transfers in lieu of foreclosure, among others.
  • California voters have passed several propositions that limit state and local governments' ability to raise taxes on real property, including Proposition 13 in 1978, Proposition 218 in 1996, Proposition 62 in 1986, and Proposition 26, 2010. Therefore, any document transfer tax increase would likely need to be ratified by 2/3 of California voters.
2.
Create the Building Homes & Jobs FundMORE

Revenues from this fee, after deduction of any actual and necessary administrative costs incurred by the county recorder, be sent quarterly to the Department of Housing and Community Development for deposit in the Building Homes and Jobs Fund, which the proposal would create within the State Treasury. 

The proposal would, upon appropriation by the Legislature, require that 20% of the moneys in the fund be expended for affordable owner-occupied workforce housing and 10% of the moneys for housing purposes related to agricultural workers and their families, and would authorize the remainder of the moneys in the fund to be expended to support affordable housing, homeownership opportunities, and other housing-related programs, as specified. 

The proposal would impose certain auditing and reporting requirements and would establish the Building Homes and Jobs Trust Fund Governing Board that would, among other things, review and approve recommendations made by the Department of Housing and Community Development for the distribution of moneys from the fund.

This proposal would state the intent of the Legislature to enact legislation that would create the Secretary of Housing within state government to oversee all activities related to housing in the state.

3.
Incentivize building more housing in greater densityMORE

According the California Legislative Analyst Office, the legislature should focus on what changes are necessary to promote additional housing construction of new homes, including:

  • Expedited project review of residential developments with an affordable housing component
  • Provide technical and financial assistance to mobile home park residents who want to purchase their mobile home park
  • Provide density bonus incentives
  • Encourage accessory dwelling unit development 
  • Reduce site development and/or design standards (e.g., reduction in setback or parking requirements, increase in building coverage requirements)
  • Approve mixed-use development if the non-residential land uses will reduce the cost of the housing project and the non-residential land uses are compatible with the housing project and surrounding development
4.
Incentivize local governments to approve already planned-for housingMORE
  • Under California’s administrative system, there is broad consensus that the state needs more housing—but minimal incentive for cities to allow developers to build it. Instead of vying for new residents as a source of revenue and dynamism, many cities are concerned about the impact new residents could have on municipal finances and aging infrastructure.
  • Residents who bought their homes when the city looked a certain way want it to stay that way and may oppose development because of its impact on parking, traffic, schools, sight lines, or community character. City council members who make land-use decisions respond to homeowner voices, creating an environment where it is easier to say “no” to housing than “yes.” 
  • To confront this local resistance to housing creation, the state’s housing element law mandates that every community set local housing production targets, but the law lacks the teeth to enforce these targets. Every eight years, the government conducts a Regional Housing Needs Assessment (RHNA) and assigns a certain number of target units to each region, which then determines production goals for each jurisdiction. Localities are required to zone and plan for these units but do not necessarily give developers approval to build them.
  • There is little reason to raise low compliance rates; state funds for local public projects are usually provided regardless of housing performance. If local governments were incentivized to raise housing performance by 30 percent over their performance in the last RHNA cycle, the state could produce approximately 40,000 more units annually, or a total of 330,000 units by 2025. Current compliance rates leave much room for improvement, especially for the very-low-income, low-income, and moderate income segments

Source: A Toolkit to Close California's Housing Gap: 3.5 Millions Homes by 2025

5.
Reduce housing operating costs MORE

According to a survey by the local Initiative Support Corporation, operations and property maintenance are key expenses for multifamily housing operators, costing them between $4,500 and $6,500 annually per unit. The variation in expense stems from the age and size of the property, the type of landscaping, and whether households are submetered for water, among other factors.

Three ways to improve operational efficiency for housing in California: ƒ

  • Reduce utility, water, and waste expenses: While some affordable housing developers are on the cutting edge of green building management, more could be done. Approaches range from low-cost solutions such as better monitoring of energy and water consumption to capital improvements such as rooftop solar power generation, water-efficient plumbing fixtures, and gray water systems. 
  • ƒReduce procurement costs: Due to high purchasing volume, large market-rate housing operators typically obtain discounts on services such as insurance, landscaping, and painting. Affordable housing operators typically lack similar purchasing volume. New collaborative purchasing organizations such as HPN Select enable affordable housing operators to pool their purchasing volume to negotiate discounted prices. Pooled procurement could reduce costs by up to 20 percent in certain procurement categories. ƒ
  • Optimize staff productivity: Salaries and personnel make up nearly 25 percent of operating and management costs. Productivity could be improved by screening employees more effectively during the hiring process and through targeted employee training
Expected Results
Expand all bullets
1.
Tax expected to generate over $800 million annuallyMORE

Based on a survey by the County Recorders Association of California, increasing Documentary Transfer Tax collected by counties by an additional tax of $0.55 per $500 on sales transactions would net over $800 million annually.  

2.
# net positive Californians or families in homes over # yearsMORE

cite study or source

3.
# net jobs created over # years (at averager salary of)MORE

Boosting the construction sector will reduce the state’s unemployment rate.

Also boon to real estate brokerage and mortgage business with the supply of new homes.

4.
Stabler, stronger families and communities MORE

[Cite studies about ramifications of better housing: + healthcare, shorter commute times]

5.
Any negative environmental impact?MORE

Water and land improvements?

Budget
Budget Impact

Admin cost/year to government

Spending per year and onward for maintenance, etc.

Net Present Value

The Conversation

Othman Lanizi
Front End Developer
2 years ago
Because building families and communities is so important, to what extent will the developers be required to build playgrounds or community centers?
Deborah Devedjian
Founder & Chief Citizens' Officer
2 years ago
Similarly, is funding for land improvements anticipated in the budgets for new housing?
Othman Lanizi
Front End Developer
2 years ago
Let's not forget an important component of people who need housing, namely the homeless. As much as this cost-oriented approach adds housing stock, the homeless, in general, will need considerably more social services to put them on a healthier path. I hope that other proposals will address their needs separately.
Deborah Devedjian
Founder & Chief Citizens' Officer
2 years ago
What do you expect to be the multiplier effect of this new construction?
Deborah Devedjian
Founder & Chief Citizens' Officer
2 years ago
Combining a low flat-fee with a progressive tax (% of value) address equitability in ways other measures haven't. I can certainly see how this approach balances out the discrepancy of the regressive tax of my grandmother selling her $100K apartment and paying $75 to record the transaction while someone else, selling a $5 million mansion, would incur the same $75 fee.

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