More than 4 million middle-income workers in California are facing a crisis of not being able to live where they work. The lack of housing for the “missing middle” is causing an unprecedented exodus of essential and hourly wage workers to leave their communities and the state in search of more affordable housing. There is an innovative and economically viable solution to this problem that many forward-thinking cites are embracing— while at the same time it is currently being rejected by many of California’s larger cities. This bond-finance-backed approach offers a model for other parts of the U.S. but it’s particularly apt for the extreme conditions in the Golden State.
With more than 20 percent growth in apartment rents in California for 2021, housing price pressure is not easing up any time soon. Soon only the wealthy will be able to afford to continue to live in California cities. Teachers, construction workers, government employees, nurses and first responders all struggle to afford rent or are forced to move away.
Some 37 percent of Californians pay more than 40 percent of their income as rent.
Rightly so, housing is a big priority for California cities setting their budgets and agendas for the upcoming fiscal year. California has one of the biggest housing challenges, following years of under-producing housing. Its income inequality is among the highest in the U.S. and growing faster than other states.
Cities are pushing to find solutions through traditional means, and through new tools and concepts. In San Francisco, where homelessness and high housing costs remain hot issues, the two-year city budget through 2023 called for over $1 billion of its proposed $13 billion budget to be focused on homelessness. That’s over $100,000 per homeless person based on the latest counts exceeding 8,000 homeless in the city.
The attention focused on homelessness and its next step up the ladder, low-income affordable housing, are critical for California cities, but have largely left out a very important segment—housing’s missing middle. Among other innovations and programs, a relatively new bond-financed program is demonstrating how state and local governments can make a significant progress for middle-income workers.
The Program’s Big Idea
Who are these missing-middle workers? In the Bay Area, there are an estimated 1.1 million middle-income workers (34 percent of the workforce) who kept the economy going through the COVID downturn. Recent news of people exiting the state cites housing costs as a main reason, as many people can no longer afford rents here, or the crushing commute to lower-cost communities. There are innovative programs and non-profit developers making a dent, such as teacher-focused housing programs sponsored by school districts and cities. But they are a drop in the bucket.
An innovative and easy to implement funding tool is now available to solve this problem on a more systemic, widespread basis—available to every city and county of California.
Workforce Housing Bond Programs have evolved to a well-proven model that could become a standard tool for preserving thousands of rent-capped apartments for middle-income workers and families across the state.
Under the concept, a bond-issuing agency, such as California Statewide Communities Development Authority, issues tax exempt bonds related to a specific apartment property at historically low interest rates. This allows the bond-issuing entity, working with an operating partner to acquire the property—high quality, well-located apartment buildings—and then reduce rents for existing and future residents to affordable levels (typically a discount of $200-$600 per month) plus future rent control not to exceed 4 percent.
In California in 2021, nearly 14,000 units were acquired and converted to rents affordable for middle-income families using this structure. For example, Moda at Monrovia Station in Monrovia, Ca., outside Los Angeles was acquired by CSCDA in April 2021. Realized rent savings are now $850 per month for middle-income residents and rents have increased only 1.5 percent for qualified residents at the property versus rent increases of 23 percent in the competitive market. This is a consistent story across more than properties the CSCDA has acquired across the state in the last year.
The program is inexpensive and low risk to cities, requiring no subsidies, outside equity, tax credits or grants. And the participating city assumes no debt liability. Workforce Housing Bond Programs are also faster than new construction. Recently built, high-quality properties can be converted to workforce housing within a few weeks once a city approves them.
California cities now have an opportunity to protect their critical workforces and provide long term housing security for their residents. This benefits not only middle-income residents, but helps local businesses where residents can spend disposable income, helps employers and protects the environment by reducing commutes.
It’s crucial for California and other U.S. regions facing a housing crisis to take action not only for homeless and low-income groups but for our essential workers, too.
Innovative Workforce Housing Bond Programs offer opportunity to take leadership and house middle-income workforce at a fraction of the cost and resources, for the long term.
After having survived the COVID crisis and economic crunch of the last year, it’s the least we can do for these residents.
Lauren Seaver is the president of Bay Area-based Opportunity Housing Group, which provides rent-restricted housing for middle-income workers.