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Addressing California's Affordable Housing Shortage

Alternatives to Proposition 1C

Leonard Gilroy, Adam Summers and Samuel Staley
September 1, 2006

Executive Summary

The severe shortage of affordable housing in California threatens the state’s economic health and has placed the American Dream of homeownership out of reach for hundreds of thousands of families. Declining federal support for housing programs over the last several decades has prompted calls for increased state funding for affordable housing in California. Rather than establishing a fiscally responsible ongoing revenue stream to fund the state’s affordable housing programs, California policymakers have repeatedly asked voters to approve one-time influxes of bond funding, violating a basic principle of public finance: long-term debt should be used to fund long-term investments, not the operating expenditures of state programs.

If approved by voters this November, Proposition 1C would become the latest in a string of housing bond measures that have failed to substantively address the state’s housing affordability crisis. It would authorize $2.85 billion in general obligation debt with an annual debt service of $204 million (and a total cost to taxpayers of about $6.1 billion) for the following purposes:

Like most of the political remedies aimed at increasing the affordable housing stock, Proposition 1C fails to reflect the real-world functioning of housing markets and could exacerbate the affordability problem. Specifically, Proposition 1C:

Alternative policies that do not require significant new spending and have a much greater likelihood of succeeding include: deregulating the land market to allow more market-driven densities and development, eliminating costly and wasteful building codes that do not measurably improve public health and safety, repealing prevailing wage laws that dramatically increase the cost of building new affordable housing, and avoiding new subsidies for high-income housing projects, such as transit-oriented development. Further, policymakers should separate the larger issue of housing affordability from efforts to provide a housing “safety net” for the needy through the construction of new shelters for homeless persons, foster children, domestic violence victims, and others. Safety net programs are best addressed through the regular budgeting process, as bond funding is a fiscally irresponsible method of financing ongoing government programs.

Like the numerous affordable housing bonds and programs before it, Proposition 1C would do little to address the problem of low-income homeownership and would likely worsen the situation. California’s affordable housing problem is largely a creature of government’s own making. Increasing the costs of housing, and then throwing an additional $2.85 billion of taxpayers’ money at the problems government has exacerbated in the first place, simply does not make any sense.


Leonard Gilroy is Director of Government Reform

Adam Summers is Senior Policy Analyst

Samuel Staley is Research Fellow

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