State’s end-of-year affordable housing bonanza likely to leave dozens of near-ready projects ‘mothballed’

In summary

The state has hundreds of millions to spend. Developers say they need billions.

Just in time for Christmas, the Newsom administration is preparing to dole out more than $500 million to build affordable housing, playing Santa to projects that promise to shelter low-wage school employees, veterans, farmworkers, people living on the street and other poor and middle-income Californians.

Like sleepless children on Christmas Eve, nonprofit developers across California are impatiently waiting to find out who will receive a cut. But everyone already knows that most will be left with empty stockings.

This is the second year the state’s housing department has bundled the applications for four of its low-cost loan or grant programs for affordable housing development into a “one-stop shop” application process culminating in a single nine-digit funding blast around the New Year.

Competition is even more fierce this year. In July, more than 100 developers backing 240 projects with a total of more than 20,000 proposed units applied to the Housing and Community Development department’s second annual Multifamily Finance Super Notice of Funding Availability — more commonly known by its cutesy shorthand, the “Super NOFA.”

‘Hoping to win the lottery’

If a developer wants to have any chance of winning the end-of-year funding bonanza, their project has to be pretty far along in the development. In most cases, according to housing developers with projects in the running who spoke to CalMatters, the land has already been secured, zoning issues have been ironed out and the building designs and much of the financing have been assembled. State funding is one of the final pieces of a lengthy and expensive puzzle.

“They’re just waiting to go, they just don’t have the resources,” said Mark Stivers, a lobbyist with the nonprofit California Housing Partnership, which advocates for affordable housing.

State low-cost loans and grants play an especially important role since securing some of that public support vastly improves a project’s chances of securing another: The Low Income Housing Tax Credit, the federal government’s workhorse affordable housing program.

Projects that don’t make the cut in this year’s funding round may be able to turn to other state or federal programs, but there aren’t many of those and all of them are also intensely competitive. In most cases, a project that misses out this round will have to be put on hold.

“You mothball it…you’re gonna wait until next year,” said Linda Mandolini, president of Eden Housing, an affordable housing development nonprofit that applied for $135 million to support ten projects.

That wait comes with a price tag — another year of payroll costs, of watching cost estimates tick up and of making interest payments on existing loans. It also gives other funders more time and more reason to reconsider their investment and pull out, delaying the project further.

“I like to say that my business model is that I hope to win the lottery,” said Rebecca Louie, president of Wakeland Housing and Development Corp. “And I have to pay like a million and a half dollars for the ticket.”

More funding incoming?

The prospect of missing out on the state funding award is particularly concerning for affordable developers this year. California is facing a cash crunch, meaning housing programs won’t be able to rely as much on budget windfalls as they have in prior years. Though bond measures are likely headed for the ballot in November, the political prospects of voter-sanctioned borrowing are far from certain.

This will-they-won’t-they approach to funding is no way to tackle twin housing and homelessness crises that California survey respondents regularly name as a top priority, said Louie with Wakeland Housing. “It should be considered infrastructure and a really important part of a healthy economy and we treat it each year as if it’s a surprise that we still need it,” she said.

Since 2012, when state lawmakers and the courts nixed California’s “redevelopment” agencies, locally-funded entities tasked with funding infrastructure, public spending on affordable housing has come in fits and starts, one state bond measure or flush budget season at a time.

The last time the cause of affordable housing went before state voters was in 2018. Nearly half of the $4 billion in borrowing authorized by Proposition 1 went to the Multifamily Housing Program. That fund is now running low, which prompted state lawmakers last year to begin mulling a new bond for 2024.

That discussion was left on hold when the legislative session ended in September, but is sure to pick back up in January. Meanwhile, housing advocates in the San Francisco Bay Area and San Diego are planning to launch their own regional borrowing efforts, while a statewide measure is likely to make it easier to pass such campaigns.

The other side of the equation: Cost

Spending more public money on affordable housing is one way to produce more units. Another is to make it cheaper to build them in the first place. Lee Ohanian, a UCLA economics professor and right-of-center policy commentator, said the state isn’t focusing nearly enough on the second option.

“There’s only so many units, we can build at a million dollars a unit,” he said. “Just dumping more subsidies into a grossly inefficient system is just going to lead to more waste of tax dollars.”

Particularly budget-busting affordable housing projects often make headlines, but industry-wide cost data is hard to come by. That makes it difficult to diagnose where developers and policymakers should focus their cost-trimming efforts.

In 2020, the UC Berkeley’s Terner Center for Housing Innovation analyzed project applications to one of the state’s main subsidy programs. The key takeaway: Between 2008 and 2019, total costs increased 55% per square unit. The biggest cost drivers, labor and material costs, weren’t specific to affordable housing construction, but costs that affect the entire building industry.

Things have likely only gotten worse in the years since. The industry has been hammered with supply chain snarls and resulting material price hikes, soaring insurance premiums and, most recently, sharply higher interest rates.

Ohanian said more data gathering is needed, but the state can and should still focus on “low-hanging fruit regulatory reforms.” Those include continuing to make it harder for project opponents to use environmental

SDGs, Targets, and Indicators in the Article

1. Which SDGs are addressed or connected to the issues highlighted in the article?

• SDG 1: No Poverty
• SDG 11: Sustainable Cities and Communities
• SDG 17: Partnerships for the Goals

2. What specific targets under those SDGs can be identified based on the article’s content?

• SDG 1.4: By 2030, ensure that all men and women, in particular, the poor and the vulnerable, have equal rights to economic resources, as well as access to basic services, ownership, and control over land and other forms of property, inheritance, natural resources, appropriate new technology, and financial services, including microfinance.
• SDG 11.1: By 2030, ensure access for all to adequate, safe and affordable housing and basic services and upgrade slums.
• SDG 17.17: Encourage and promote effective public, public-private and civil society partnerships, building on the experience and resourcing strategies of partnerships.

3. Are there any indicators mentioned or implied in the article that can be used to measure progress towards the identified targets?

Yes, the following indicators can be used to measure progress towards the identified targets:

• Number of affordable housing units built or rehabilitated
• Amount of funding allocated to affordable housing projects
• Number of low-cost loans and grants provided for affordable housing development
• Percentage of funding requested compared to the available funding
• Number of projects put on hold due to lack of funding
• Cost per unit of affordable housing
• Number of regulatory barriers removed or streamlined

Table: SDGs, Targets, and Indicators

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Source: calmatters.org

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