first tuesday breaks down the most important housing and homelessness items of the 2019-20 California State Budget.
This June, California lawmakers approved the 2019-20 California State Budget. It includes over $2 billion in spending for housing and homelessness issues. This budget is an important puzzle piece to reaching Governor Gavin Newsom’s promise of 3.5 million new housing units by 2025, but is it enough?
State of the state
First, let’s review a snapshot of the housing market lawmakers had in mind when crafting the budget. California is currently in the grips of a crippling housing shortage. Home sales are sluggish thanks to restrictive zoning schemes and soaring land and building costs. In turn, prospective homebuyers priced out of the market are forced to rent where they also face high housing costs.
One of the biggest culprits is antiquated zoning restrictions. These laws hold back development with height and density restrictions, parking requirements and more. They have resulted in:
- reduced construction;
- failure to meet high demand for housing;
- inflated prices of new and resale homes;
- an unstable housing market as home prices rise faster than incomes can keep up; and
- stunted homeownership and home sales volume.
While tight zoning has allowed suburban communities to maintain the status quo of post-World War II single-family residential (SFR) sprawl, it has also strangled new development. A dearth of affordable housing follows inflated prices and Californians are left to choose between being a super commuter or tightening their belts another notch to make rent.
An alarming number of households have chosen the latter and become cost-burdened. Such a household spends more than 30% of its income on housing costs. This is the tipping point at which they may have difficulty affording essentials like food, clothing and medical care, according to the U.S. Department of Housing and Urban Development (HUD).
For 130,000 Californians, this balance has tipped toward insolvency and left them homeless. California has seen double-digit jumps in homelessness numbers across the board. That’s 16% in the City of Los Angeles compared to the previous year and 17% in San Francisco compared to 2017.
Here’s how lawmakers reacted to California’s housing crisis through the 2019-20 state budget.
On housing and local government
The 2019-20 California State Budget dedicates a whopping $2.7 billion to housing and homelessness, the largest investment in recent memory for these programs. It earmarks $1.7 billion for housing programs and another $1 billion for homelessness programs.
Lawmakers look to tackle housing costs by investing in state and local government programs that produce housing, protect renters and preserve affordable housing. Here’s a rundown of the budget’s housing highlights.
- Short-term planning and infrastructure grants
A $750 million one-time general fund to help local governments remove building barriers and support projects that drive high-density development.
- State housing loan program
A $500 million general fund to offer loans for low- and moderate-income housing statewide via the California Housing Finance Agency (CalHFA) mixed-income development program.
- Expanded state housing tax credit program
California expands state tax credits up to $500 million annually for new construction in the state’s Low-Income Housing Tax Credit program.
- Long-term statewide housing production strategy
The budget installs a carrot-and-stick mechanism by which the state may incentivize policies that drive housing production. The “carrot” rewards cities and counties with more grant funding for housing and transportation projects. The “stick” empowers courts to hold non-compliant cities and counties accountable for their housing goals through fines and bring jurisdictions into compliance.
California’s 2019-20 budget includes $1 billion devoted to homelessness issues. Here are the highlights of the budget’s homelessness efforts.
- Homeless Emergency Aid
A $650 million one-time general fund for homeless shelter and support programs. This mainly includes housing and job support programs.
- Health and Human Services Investments
About $516 million in wraparound services to mitigate factors contributing to individuals’ homelessness, or to keep them from becoming homeless.
- California Environmental Quality Act (CEQA) exemption
Allows builders to expedite the building of navigation centers (a kind of homeless shelter) by sidestepping the California Environmental Quality Act (CEQA). The CEQA requires state and local governments to inform decision makers and the public about the environmental impact of proposed projects.
While the 2019-20 budget might seem aggressive, California’s current housing climate warrants aggressive strategies. The carrot-and-stick method Newsom employs here will help produce sorely needed housing by bringing not-in-my-backyard (NIMBY) advocates in line, but even that may not be enough.
While local NIMBYs may be the most vocal on this issue, there are still more influential opponents in the arena. California State Senator Anthony Portantino, for example, unceremoniously shelved Senate Bill 50 (SB 50) despite widespread support. The bill would lift zoning restrictions on higher-density housing near mass transit stops. Portantino also happens to be the former mayor of the predominantly SFR suburb of La Cañada Flintridge.
Public animus toward new housing development runs even deeper; often neighborhood councils are the fiercest opponents. In April 2019, the Los Angeles City Council voted to oppose SB 50. Opponents often cite upholding local control as the driving force against state intervention.
This is only one of the kinks Newsom will have to iron out to win over powerful players. Perhaps the most controversial item in the budget is the courts’ role in real estate. If a city, unswayed by fines and incentives, refuses to comply, how adeptly can a judge bring it into compliance without damaging the character of its neighborhoods? Opponents will also take issue with this point as a gross overstep of the state’s power in general.
More speed bumps
Tying state funding to housing production will also be problematic considering cities aren’t always in control of this. This issue may prove even trickier for rural areas that simply don’t have the resources to make the same kind of housing goal progress as their metropolitan counterparts.
Finally, while parts of the budget address wraparound services to support local homelessness programs, the budget doesn’t strike at the heart of the issue. Building in California is prohibitively expensive. Homelessness programs help thin the flow of homeless persons in California, but it doesn’t address the underlying economic issues that drove many to homelessness in the first place: high housing costs driven by high building costs.
Those costs come in many forms, most notably impact fees. Impact fees are housing development fees levied by municipalities to offset the impact additional residents will have on infrastructure. They make up a significant chunk of total development costs of new housing in California, according to a 2018 Terner Center for Housing Innovation study.
Proposition 13 has limited California jurisdictions’ ability to raise revenue for infrastructure, forcing them to rely on impact fees to make up the difference. California’s impact fees continue to grow as the national average shrinks.
Make no mistake, Newsom’s budget is a step in the right direction. It gives current legislation some teeth to spur on housing production and gives housing and homelessness programs a much-needed cash infusion. But holes abound in the budget, and California’s most vulnerable residents may be left twisting in the wind.