Confronting the Housing Crisis in California

Having a place to call home is a signature component of the American dream. But for far too many people, finding safe, decent, affordable housing is extremely stressful. The United States simply does not have enough affordable housing, and nationally, the situation is only getting worse.

Rental Crisis

California is no stranger to the struggles of affordable housing.  Once again, San Francisco tops the charts with the nation’s highest rents, according to a report from ApartmentList.com.  Rent for a 2-bedroom unit in the Bay area averaged $4,780 for the month of March, over $300 more than a 2-bedroom unit in New York.  San Jose and Los Angeles also made the top-10 list of highest rental markets, with average rents of $2,640 and $2,630 respectively for a 2-bedroom unit.

The housing affordability problem disproportionately affects low-income residents, particularly those classified as “Extremely Low Income”, or ELI families, which earn less than 30% of the median income in their areas.  While most economists suggest devoting no more than 30% of your income toward housing costs, 75% of ELI families spend more than half of their income for housing, often leaving them without enough money for food, medicine, child care, transportation, and other basic necessities, much less a cushion for emergencies.  Furthermore, they are at high risk of frequent moves, eviction, and homelessness.

Affordable Housing?

To paint a broader picture, every single county in the United States lacks affordable housing, and in no state can someone earning a minimum wage rent a 2-bedroom apartment at market rate.  A new report by the National Low Income Housing Coalition documents a shortage of 7.2 million affordable and available rental units for the nation’s 10.4 million extremely low-income renter households.  The report calls for greater federal investment in ELI rental housing through the National Housing Trust Fund (NHTF) and other housing programs. 

An interactive map from the Urban Institute visually demonstrates the lack of affordable housing nationwide.  In 2013, just 28 of every 100 extremely low-income families could afford their rental homes, a 25% decline from 2000.  California’s averages are significantly lower than the rest of the country with a statewide average of just 24 affordable housing units for every 100 ELI families.  The number becomes even more bleak if you remove Federal Housing Assistance, dropping the statewide average to just 9 units per 100 ELI families.  Some counties, including Sacramento, Santa Barbara, Marin, San Joaquin, Orange, San Diego, Solano, Monterey, Fresno, Santa Barbara, Orange, and Stanislaus, rely on federal housing assistance to provide any affordable housing at all.  Removal of federal housing assistance results in zero affordable housing units in these counties.

Since the 1990s, federal resources devoted to housing extremely low-income renters have slowed.  In recent years, Congress has cut and shown additional interest in trimming federal spending for housing assistance programs.  To top it off, many counties are still without rent stabilization or just-cause eviction protections, making many renters vulnerable to the whims of investors and market speculation.

Affordable Housing Development

Nowhere has the war between renters and developers been more apparent that in our very own Silicon Valley where real estate prices have skyrocketed along with the technology boom.  Many older homes and apartment buildings are slated to be demolished to give rise to luxury condos and hotels, often removing affordable housing units from the market.

While many California communities have requirements for developers to include a percentage of affordable units in market-rate housing developments, many developers are trying to push back, saying these requirements make developments unprofitable and even unfeasible.  Thanks to the researchers at Cornerstone Partnership, we can now show that is simply not true.

The Inclusionary Calculator was developed by the Cornerstone Partnership and allows users to simulate the balance sheets for market-rate developments for any number of scenarios.  It accounts for factors such as cost of production, financing, affordability set-asides, and parking requirements.

No matter what kind of scenario you run, developers can still produce market-rate housing developments that include affordable housing and produce a profit.  Users can mirror market conditions across the US and in any target market by adjusting the variables for a hypothetical housing development.  In almost every case, a developer could make a 10% profit from a development and still include at least 12%-15% affordable housing units – even in the San Francisco and Los Angeles metro areas.  Using this innovative new tool, users can get a sense of what might be economically reasonable for a given jurisdiction to set appropriate inclusionary housing requirements and offer developers meaningful incentives.

Affordable Housing Assistance

New rental housing affordable to ELI households is nearly impossible to produce without subsidies, and today’s major federal affordable housing production program allows rents that are too high for ELI renters to afford.  Expanding the affordable rental supply is necessary to help ease California’s current housing crisis.