Addressing California's Affordable Housing Challenge

The Housing California Conference that took place in Sacramento at the beginning of April was a great opportunity to connect on issues and topics related to the affordable housing challenge that we face as a country.

Housing for the Homeless

Safe & Permanent Housing Solutions

One of the hottest topics at this year’s conference was housing for the homeless, as it is a major concern for the state. Discussions about what safe and permanent housing solutions look like included SRO (Single Room Occupancy) models. SROs are residential properties that include multiple single room units and, in many cases, offer communal conditions. They were a common way to address homelessness in the early and mid-20^th century, but many became uninhabitable and were demolished due to the decrepit state they were in and/or tax incentives to do so and convert them to something else. We’ve seen a resurgence in recent years and expect to see that continue. This model allows for flexible design, use of limited space, and creates functional and practical living at an affordable base/model.

Equitable Housing / Inclusionary Practices

Equitable housing goes beyond low-income and allows for a wide variety of price points for rent and affordability, creating flexible models and designs that offer healthy returns on investment for developers and investors while still meeting various housing demands and needs per area, region, and demographic. Inclusionary housing is also important as lifestyle norms and gender identity definitions change, and Fair Housing practices must be followed. Sometimes this requires changes in zoning laws and district realignment, as well as enforcement and/or implementation of Fair Housing and Equal Opportunity FHEO practices and standards.

Related Social Services & Support Programs

The Opioid crisis and drug addiction, as well as mental illness, stagnant wages, and insufficient training and education—all of which compound social and income disparity—are triggers of an affordability/opportunity gap. Community and social programs designed to lift people out of poverty and stabilize individuals, families, and communities are part of the solution to affordable housing concerns.

Solutions to the Affordable Housing Challenge

Strengthening Partnerships Between Communities, Developers, Lenders, Agencies & Residents

There was a call for lenders to create more flexible, efficient, and appropriate finance options when traditional tax credits and financing/equity investment alone are not enough. Lenders can create more suitable loan types that allow developers to meet demand for affordable housing while still making a profit and filling the need of the community and its residents. Communication and collaboration are key to determining what is most beneficial from one neighborhood/project to another.

Cutting Red Tape, Creating Efficiencies in the Process & Identifying New Solutions to Decades Old Problems

New Government Programs

• Homekey focuses on developing a range of housing types for those that are homeless or are at risk of homelessness. They range from hotels and motels to single family homes and multifamily apartments and aim to provide “Permanent or Interim Housing for the Target Population”. Homekey is an example of a state-funded program designed to promote and support development in one particular area of need.
• The Middle-Income Housing Tax Credit (MIHTC) is similar to the Low-Income Housing Tax Credit program. These federally issued tax credits to state housing agencies can be allocated and awarded to affordable housing developers. Once investors engage and purchase the credits, the developer can then take the equity and invest in developing apartments or properties that qualify for MIHTC. To qualify, these properties have to set aside 60 percent of the units for households earning 100 percent or less of Area Median Income. MIHTC will create another tier of affordable housing that allows for higher rents while meeting the needs of an underserved sector. It also gives flexibility to developers/investors to create mixed-income/mixed-use properties instead of only low-income housing which can sometimes be challenging from a profitability standpoint.

Where are the new growth and development opportunities?

• Urban infill and adaptive reuse provide creative options for housing while simultaneously breathing life into older properties and filling vacant parcels with new developments.

• Rural migration means cost-efficient land, which equates to more cost-efficient outset costs. However, it also creates concerns regarding utilities and infrastructure as well as transportation, connectivity, and employment opportunities for residents.

New Energy Regulations & Incentives

There are proposed changes as part of the California 2022 Title 24 Energy Code update (in effect on January 1, 2023). 

• All multifamily property types will now be subject to the same energy code requirements. Previously, there were distinctions in requirements between low-rise and high-rise. A low-rise multifamily property and high-rise multifamily property will now be in the same category.
• The new energy code is very much geared towards encouraging decarbonization/switch to electrification.
  • A SOURCE energy category has been added when determining energy design rating (SOURCE incentivizes electricity over natural gas).
  • For new construction, natural gas-operated furnace installations must be pre-wired for an electric heat pump installation, too.
    • This does not apply to rehabs. If an existing property utilizes natural gas, you can still replace that system with a natural gas-operated system without any penalties (although you would get additional points for switching to electric).
  • Battery Storage must be included with solar for non-residential buildings (which, in the context of multifamily properties, may include a standalone community/amenity building).
    • Residential buildings must be, at minimum, set up to be Battery Storage ready.
  • Prescriptive solar PV is applicable to all multifamily buildings (including high-rise).

Any projects that are submitted for permitting before January 1, 2023 would still be subject to the 2019 energy code, and the property can actually be permitted after January 1^st by submitting the proper paperwork.

Overall, the discussions had, and the connections made at the Housing California Conference took all of us a step further in understanding the overall issues and goals of affordable housing. We look forward to keeping the dialogue open with our industry peers and, as always, providing clarity and assistance with moving affordable housing projects through the pipeline.