New Remedies Suggested to Sustain Subsidized Housing -- California Capitol Hill Bulletin -- Volume 10, Bulletin 2 -- January 30, 2003

California's Senate Office of Research (SOR) has found that California lost more than 24,000 affordable housing units that are maintained by the U.S. Department of Housing and Urban Development and Farmers' Home when they converted from permanently affordable housing status to market rates. In addition, numerous owner-occupied affordable units are lost annually with the expiration of local inclusionary-housing requirements and other restrictions, SOR reports. An already tight housing market in the state will be further threatened by the fact that more than 48,000 other units are at risk of conversion to market rates, and 4,500 affordable rental units are at a high risk of converting to market rates over the next four years as the federal Low-Income Housing Tax Credit income and rent restriction expires.

Legally defined, permanently affordable housing is housing that is reserved for rent or sale only to households with incomes below fixed maximums. On the other hand, subsidized housing refers to housing that receives a one-time subsidy in order to make it affordable.

Though subsidized housing is usually set up for a period of up to 55 years before converting to market rates, money-strapped state and local governments are forced to choose between letting such conversion to market rates occur or spending thinly stretched funds to re-subsidize and save affordable housing.

The SOR report, released in January 2003, examines various long-term approaches in California, and offers several suggestions aimed at improving the permanently affordable housing situation in the state. Among other recommendations, the report proposes a requirement that state or locally subsidized housing be permanently affordable whenever feasible and provide incentives to permanently affordable housing projects during state-funding competitions in the form of bonus points. The report also suggests amending land-use planning law requiring local jurisdictions to make a certain percentage of new housing permanently affordable, and removing barriers in the path of community groups and local governments that work towards making housing permanently affordable. Additionally, other potential issues faced by communities and developers wanting to increase the number of permanently affordable units are discussed. The authors identify: Internal Revenue Service regulations; a reluctance by some lenders to finance unconventional projects; and a need for ongoing technical assistance and oversight of permanently affordable housing as other potential obstacles faced by various interested parties in the quest to improve the situation in California.

For more information about this report, please visit the California Senate Office of Research website: http://www.sen.ca.gov/sor

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