Will CA’s Affordable Housing Bond Measures Make an Impact?

Propositions 1 and 2 both passed in the ballot box last week—and to no surprise. They were both polling ahead. Prop 1 provides $4 billion in funding for veteran income-restricted housing, while Prop 2 expands the so-called millionaire income tax for homeless mental health services to include supportive housing. The affordability crisis in California has translated into several housing-related measures. These in particular provide funding support for affordable housing to serve in-need communities through existing government agencies.

“Both of these propositions are going to drive affordable housing development. Both of these bonds make money available for affordable restrictive projects that would not be built but for this money,” Ofer Elitzur, a partner at Cox, Castle Nicholson, tells GlobeSt.com. “For an affordable developer who is going to build a Veteran’s supportive housing project that is going to be income restrictive, there is going to be a gap in the financing for that deal. So, you need to have these sources of subsidy to buy down the long-term cost of capital to make these project financially feasible. That is what these two bond measures do.”

Elitzur anticipated that these two measure would pass, unlike prop 10, which received strong opposition from the real estate community. “There is also still a general feeling in the voting populace that we are having an affordable housing crisis. I think that there is an inclination to be supportive of things that might help,” he explains. “These were much less broadly affecting of the real estate community. These were finance subsidy propositions that affect affordable housing. For those subsets of the real estate community, these were a high priority however, the interest in these was dwarfed by prop 10, which affect affordable housing folks just as much as it would anyone else. It got the most attention for that reason.”

While the development of any affordable housing is a plus for the state, this is unlikely to make a significant impact in the supply of affordable housing. These two propositions will likely help finance the development of thousands of affordable units, but the state is in need of hundreds of thousands. “Neither of these propositions is the solution and neither is going to make a humongous dent in the affordable housing problem that Los Angeles has,” says Elitzur. “What we have is a chronic under production issue, which has a whole host of reasons, from local opposition to high development cost to the high cost of impact fees. There is a whole host of things. So, two bond measures are not going to solve these systemic issues. This is going to help house thousands of people that would not have otherwise been housed. The fact is that these thousands of housing units are not sufficient to address the hundreds of thousands of affordable units that we need across the state.”

Still, Elitzur said that Prop 1 was an efficient and smart way to provide funding for crucial affordable housing projects. “Prop 1 takes $4 billion and slices it into different buckets, like the State’s multifamily housing program, the State’s transit-oriented development implementation program, the State’s home loan program,” he says. “Each of these programs already exist, and these programs now have an infusion of money. These are complicated financing sources that take advantage of existing oversight mechanisms that the state already has. This is a smart way to help affordable projects get off the ground while leveraging existing oversight structures that the state already has in place.”

Because the funding is funneled through existing programs, Elitzur anticipates they will have an immediate impact. “My expectation is in the next couple of months, they are going to put out funding rounds. That is really the genius of Prop 1,” he adds. “These projects are ready to go off the ground without needing to set up a government office. We should expect projects to get off the ground in the next several months.”