Policy Brief

Addressing California’s Affordable Housing Shortage

Alternatives to Proposition 1C

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:

  • $1.35 billion to fund housing projects predominantly in urban areas and near public transportation systems. Funds could be used for a myriad of purposes, including parks, water systems, transportation, and housing.
  • $625 million to fund taxpayer-subsidized loans and grants to encourage homeownership of low- and moderate-income homebuyers.
  • $590 million to fund taxpayer-subsidized loans for high-density multi-family housing that reserves units for low-income housing, with priority given to projects located in urban cores and near existing public services.
  • $185 million in taxpayer-subsidized grants and loans to fund homeless shelters and housing for farm workers, and to those that develop, own, lend to, or invest in affordable housing.
  • $100 million will be deposited into the newly-created Affordable Housing Innovation Fund to pay for grants and loans for affordable housing pilot projects.

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:

  • Fails to address the root cause of California’s housing affordability crisis: the severe, ongoing shortage of new housing, which is largely attributable to the myriad of state and local land-use regulations that make it difficult for new housing to be approved and built. The severe mismatch between supply and demand has helped to drive up the cost of housing statewide and has produced a shortage estimated between 600,000 and 1 million housing units.
  • Directs very little of the bond money to anything actually resembling infrastructure. Almost half of Proposition 1C-$1.35 billion-would fund new programs to promote urban infill and transit-oriented developments (TODs) and to acquire parkland. An additional 22 percent ($625 million) would be targeted to existing homeownership assistance programs via down payment assistance to homebuyers through low-interest loans or grants.
  • Perpetuates the misconception that the poor need high-quality new housing made artificially cheap through legislation and regulation. This practice contradicts the wellestablished concept of the “housing ladder”-affordable housing is created when existing homeowners upgrade to newer, higher-quality units, placing older, lower-quality units on the market for young and first-time homeowners.
  • Subsidizes housing, creating new demand in a market that is already experiencing a dearth in supply and potentially increasing the housing shortage.
  • Places an overwhelming focus on promoting transit-oriented development, which has little to do with addressing the housing affordability crisis and more to do with reengineering society with the aim of getting citizens to make the “right” transportation, housing, and land-use choices.

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.