Affordable Housing Definition
December, 2007
Housing Opportunity Committee
Taxation Committee
Legislative Committee
The following is for study only and has NOT been approved by the Housing Opportunity, Taxation, Legislative or Executive Committees, or the Board of Directors.
Issue
1. What does “affordable housing’ mean under existing C.A.R. policy and should C.A.R. adopt a definition of “affordablehousing” consistent with how that terminology has evolved since C.A.R. began addressing it in 1981?
2. What funding options are supportable by C.A.R. under this definition?
Action
Optional
Options
1. Do nothing. Existing C.A.R. policy is sufficiently clear and further policy guidance on matters relating to the “affordable housing” issue is unnecessary.
2. Establish a definition of “affordable housing” against which C.A.R. decisions relative to legislative and regulatory actions, including funding options, can be weighed.
3. Establish a Task Force to further evaluate this issue before making a recommendation to the Board of Directors.
4. Other.
Status/Summary
During its October, 2007 meeting, the Housing Opportunity Committee considered proposals to create a permanent source of funding for “affordable housing”. In the course of those deliberations it became clear that there is adiversity of views as to what can appropriately be included within a program intended to generate affordable housing. The Committee directed:
That C.A.R. Staff prepare an Issues Briefing Paper on “affordable housing”, what it means underC.A.R.’s existing policy, and identify approaches and funding options supportable under that policy.
Does the following definition, which represents a staff consensus summarizing the content of Issue Briefing Papers (IBPs) dating back to 1981 (See Addendum #1 to this IBP), reflect C.A.R.’s existing policy (“a definition by default”) on affordable housing?
“Affordable Housing” means housing that that can be purchased by first-time homebuyers, including workforce participants seeking to purchase housing within a reasonable distance of their place of work, that is priced no higher than the median price for housing in the purchaser’s region and requires an expenditure of monthly income on housing costs thatdoes not exceed 30% of gross income.
Discussion
I. A C.A.R. DEFINITION OF “AFFORDABLE HOUSING”
Executive SummaryC.A.R. clearly has an interest in the affordable housing issue, given the establishment of the Housing Opportunity Committee and its mission statement, as well as the Housing Affordability Fund. Given that REALTORS® are in the business of helping their clients buy and sell homes, should C.A.R. limit itself to the area of single family homes and first-time homebuyers in its policies relating to affordable housing? Should C.A.R. adopt a definition of “affordable housing”? If so, given the historical policy outlined in Addendum #1 at the end of this Paper, is the draft definition noted above adequate?
Mission StatementThe purpose of the CALIFORNIA ASSOCIATION OF REALTORS® is to serve its membership in developing and promoting programs and services that will enhance the members’ freedom and ability to conduct their individual businesses successfully with integrity and competency and, through collective action, to promote the preservation of real property rights.
A. Preface/Introduction - “Affordable” housing in the context of C.A.R.'s Mission Statement:
Who does C.A.R. represent? It would seem that the Mission Statement leaves no doubt that C.A.R.'s role is to represent its REALTOR members. Even in promoting the preservation of property rights, it would appear that C.A.R.'s role is to facilitate the “collective action” of its membership in a way related to the members' businesses.
It also seems clear that C.A.R.'s role as a trade group is NOT to represent the dispossessed, the homeless, or taxpayers except in so far as they are incidental beneficiaries of C.A.R.'s efforts to protect REALTORS. Even homeowners are not specifically a class to be protected, except as part of the group with “property rights” whose rights will be guarded.
In termsof business roles, C.A.R. members typically act as:
- Agents of buyers and sellers,
- Managers of property, and (occasionally)
- Makers or arrangers of financing.
How does housing “affordability” fit intothe charge of C.A.R. to protect members' business interests?
When either transaction costs or product costs are prohibitively high, REALTOR® business activity is adversely affected. However, depressing prices or constraining price appreciationhas never been part of C.A.R.'s policy agenda. In the current political environment “affordable housing” proposals can be divided into four general types:
1. Supply Issues. Positive examples might include “build by right” or density bonus rules; negative examples might include environmental constraints on development like urban growth boundaries. C.A.R has historically sponsored or supported pro-supply proposals like the density bonus and opposed attempts to limit construction.
2. Subsidies to home buyers.Examples include the Home Owners’ Property Tax Deduction, deductibility of home mortgage interest, down payment assistance and other benefits that are funded out of general fund monies (bond sales). C.A.R. has historically defended or supported subsidies to homeowners, especially tax issues like mortgage interest deductibility.
3. Subsidies to non-owners.Examples include the renters' tax credit and move-in or relocation assistance programs. Rent control is the most extreme example of the subsidy of non-owners. C.A.R. has historically opposed benefits to non-owners (tenants) that come at the expense of the property owner, or result in burdens on property managers. C.A.R. has occasionally favored benefits to tenants or the homeless, but not at the expense of property owners or prospective owners.
4. Transaction cost issues.
Transaction costs are relevant in that they can sometimes adversely affect the REALTOR's ability to complete a transaction even more than product cost or cost of borrowing. Examples include documentary transfer taxes, title and escrow costs, point of sale mandates and “impact” fees that burden the development of new housing stock. Some transaction cost issues actually facilitate purchases, such as the recent increase in government loan limits which has the effect of reducing the costs of borrowed funds. C.A.R.has typically resisted the imposition of any additional burdens (financial or otherwise) on a transaction unless it is thought to be worthwhile because it facilitates another goal. Examples include requiring disclosure of agency status in order to preserve dual agency, or requiring notice of a list of sex offenders so as to avoid liability falling upon the agent.
B. “Affordable Housing” as Seen by Housing Advocacy Organizations
Affordable housing advocates believe that rentcontrol and inclusionary zoning are justifiable means of achieving “affordable housing.” Clearly, such means are completely at odds with long-standing C.A.R. policy. Thus, the question becomes: What is “affordable housing”, and affordable for whom? Should that question be answered prior to determining how “affordable housing”, as defined by C.A.R., should be funded? These entities typically represent non-owners of real property and are often opposed to C.A.R.’s positions on housing supply issues, subsidies to non-owners at owners’ expense, and most especially rent control. Their respective interpretations are summarized in Addendum #2 at the end of this Paper.
II. WHAT FUNDING OPTIONS ARE SUPPORTABLE UNDER THE DEFINITION OF “AFFORDABLE HOUSING” NOTED ABOVE?
Status/Summary
California’s chronic housing shortage guarantees that attempts will continue to be made to generate financial support for “affordable housing”, driven by the proponent’s perspective as to what is “affordable housing”. Consequently, C.A.R. Members’ perception of what constitutes affordable housing, and the companion problem of how to finance it, islogically followed by an evaluation of permanent funding sources C.A.R. would support to address this challenge.
Given the focused nature of C.A.R.'s Mission, there are only a limited number of “affordable housing” proposals that can qualify for support. They will typically involve proposals to make it easier to increase supply, subsidies to prospective first-time purchasers, and mandates that make it easier for a REALTOR to effectively practice.
It should be noted that while the role of C.A.R. in the broad sweep of “affordable housing” issues is relatively narrow, the actual involvement of individual REALTORS, and even local associations of REALTORS, is not. Members tend to be very involved in their local communities, often spearheading fund drives or food programs and other efforts that benefit the needy – but they do so as individuals or local community groups, and not because it is part of C.A.R.'s policy direction.
Discussion
There have been several recent legislative attempts to generate funds for affordable housing. These have included, for example, AB 239 (DeSaulnier, 2007) which proposed to authorize Contra Costa and San Mateo Counties to assess a $25 “fee” for the recordation of any real estate document. This measure came on the heels of Senator Torlakson’s SB 521 in 2006, which would have assessed a $1 per page fee on the recordation of real estate documents. The proceeds from these proposed“fees” were to be used to fund local housing trust funds. C.A.R. opposed these measures, based upon a long standing policy of opposing transfer “taxes”/fees, as well as the concern that societal problems (in this case, housing) must be spread across society as a whole and not “heaped upon the backs” of homeowners. C.A.R. was able to successfully stop SB 521 in 2006 and AB 239 in 2007.
However, the author of AB 239 has indicated that he intends to again pursueits enactment in 2008. Undoubtedly, other attempts will continue to be made to generate funds to address the creation of a permanent source of funding for affordable housing. As a result, C.A.R. will likely be placed in the position of opposing many of these attempts, particularly those that have a “point-of-sale” nexus.
C.A.R. has increasingly been confronted with the assertion that if it is to legitimately call itself a supporter of affordable housing programs, then it must support a permanent funding source for it. Is it incumbent upon C.A.R. to support an on-going affordable housing funding source for “non-owner occupied” affordable housing efforts?
Assuming for the moment that C.A.R. has adopted adefinition of “affordable housing”, it is incumbent upon C.A.R. to evaluate and recommend permanent funding sources that are consistent with its definition of affordable housing. Based upon previous exercises to evaluate funding options,and the exclusion of many as recently as the October 2007 meeting of the Housing Opportunity Committee, the following options appear to be worthy of further exploration consistent with policy, because :
- They benefit owner occupants; or
- They enhance housing supply; or
- They do not benefit non-owners at the expense of real property owners; and
- They do not burden the transaction with unrelated costs.
Potential Revenue Sources
Mello-Roos Districts
Conceivably, the purposes for which Mello-Roos districts can be formed could be expanded to include the construction of affordable housing. Currently, Mello-Roos districts can fund the maintenance of parks, parkways and open space. In addition, these districts can purchase real property for park, recreation, parkway and open space facilities. Historically C.A.R. has opposed the use of such districts for the funding of affordable housing. Most recently (2006), C.A.R. opposed SB1432 (Lowenthal) because it would have allowed Mello-Roos districts to fund the construction of affordable housing, a clear departure from the current uses for which Mello-Roos districts are formed. Is it time to re-visit C.A.R. policy on this potential funding mechanism for construction of affordable housing? Measures such as 2007’s AB 239 (DeSaulnier) will continue to be introduced, fixated on a funding mechanism with fees or “taxes” paid upon transfer, until a permanent sourceof funding is found. Expanding the uses for which Mello-Roos districts are formed to include the construction of affordable housing may serve to “short circuit” attempts to establish real estate transfer fees for such a purpose. Itis also conceivable that Mello-Roos could be expanded to allow affordable housing and simultaneously be a part of the solution to limit the growing phenomenon private transfer taxes.
Local Taxes Vote Reduction
A few years ago the vote requirement for approval of local education related bonds was reduced to 55%, revising a long-standing two-thirds vote requirement. The rationale was that education is a fundamental need and, as such, should not be held to the same voting standard as all other needs. Arguably shelter is an even more fundamental need. An attempt could be made to lower the vote threshold for local taxes intended to fund affordable housing to 55% or, given that it is of such a fundamental nature, to even a simple majority vote. The precedent has been established by reduction of the vote threshold for local education bonds to 55%.
Other?
ADDENDUM #1 TO DECEMBER 2007 AFFORDABLE HOUSING IBP
C.A.R. Perception/Characterization of “Affordable Housing”….A definition by default?
Throughout the high-interest-rate environment of the 1980’s, “affordable housing” in C.A.R.’s perspective equated to lowering the monthly housing costs for first-time homebuyers. Early attention to affordable housing issues by C.A.R. occurred as far back as 1981 (September 16 IBP on First –Time Homebuyers) with an analysis examining the problems confronting such home purchasers in the current housing market. Affordability implications created by the early 1980’s economy found first-timers spending roughly 29.3% of household income on monthly mortgage payments, compared to 25.3% for repeat homebuyers. This percentage ratcheted up to ranges between 32% and 37% of household income when interest rates were pegged at the 14% to 16% levels. Affordability for first-time homebuyers was measured by the percent of income that had to be allocated to monthly housing expenses. C.A.R. zeroed in on the affordability problems of potential first-time homebuyers by exploring possible assistance methodologies that included general savings incentives, targeted down payment savings programs, interest rate subsidies, graduated mortgage payment programs, and equity participation plans.
A focus also surfaced in November of 1981 (IBP- “PROPOSALS TO ASSIST FIRST-TIME HOMEBUYERS”) to reduce the effective interest rate costs of mortgage financing through public sector programs such as tax-free bonds whose proceeds could be dedicated to offering low-to-moderate income first-time homebuyers mortgage loans at lower than market interest rates. The goal was to reduce ownership costs in the initial years of ownership by the first-time homebuyer and enable such a buyer to accumulatesufficient equity to apply it towards an upgraded purchase in the future.
In the late 1980’s (February, 1989) C.A.R. published “California’s Housing Crisis: The American Dream Deferred”. This in-depth analysis of challenges to home ownership equated “affordable housing” with the inability of the work force to find suitable housing within a reasonable commuting distance, caused by “…[h]igh housing costs, particularly in many of the state’s urban centers…forcing people to live farther and farther from the work place.” The definition has thus evolved to encompass the percentage of monthly income devoted to housing costs, and the ability to locate housing in a proximity to the workplace that fits the work force members’ budgets. The housing affordability “problem’ was defined in this report of the Housing Policy Task Force of C.A.R. as a combination of the rapid rise in home prices with double-digit interest rates.It also focused on the affordability challenge for rental housing as rents in the late 80’s were rising faster than incomes, and the rental component of CPI had been increasing at a much faster pace than the cost for all other consumer items. C.A.R. related this affordable housing problem for renters to the challenge faced by first-time homebuyers, stating in this report that “…households are paying as much as 50 percent of their income on rent, [which makes it] extremely difficult forthem to save enough money for a down payment to buy their first home.” “Affordable” in the renter’s context, from C.A.R.’s stated policies, are rents that very low-, low- and moderate-income renters can manage and still set aside funds to ultimately become first-time homebuyers.
The divergence from C.A.R.’s perspective on affordable housing by several housing advocacy organizations is highlighted by a June, 1993 IBP entitled “Housing Affordability Impact Analysis: Model Local Ordinance”. It detailed what C.A.R. believed a “housing affordability impact analysis” should be; a calculation based upon a median-priced single family residence and the impact on this cost created by local ordinances.C.A.R. considered seeking to require local agencies to conduct such an analysis for each local ordinance adopted.
As will be noted below, several prominent housing advocacy organizations encourage local agencies to go in a different direction, promulgating inclusionary zoning ordinances as the answer to affordable housing challenges around the state. C.A.R. has a vigorous policy (See June, 2002 IBP entitled “Inclusionary Zoning Issues Briefing Paper) against such ordinances and strongly believes that they do not promote or encourage more affordable housing because:
- It is unfair to place the burden of providing affordable housing solely on developers….The lack of affordable housing is a societal problem.
- Inclusionary zoning does not address the factors that contribute to the high cost of market rate housing…such as high land costs, lack of sites, excessive developer fees and exactions, and burdensome permitting processes.
- Resale price controls eliminate a homeowner’s ability to realize any equity appreciation and discourage home improvement by the owner.
- The best way for local government to provide affordable housing is make it easier for developers to construct such housing by reducing land costs, reducing permit fees and streamlining the permit process.
In recent years, C.A.R. has focused on the supply-side of the affordable housing issue by sponsoring and supporting legislation to streamline the development process at the local government level, such as SB 1818 in 2004 (density bonus), as well as the 2002 bills, AB 1866 (second unit) and AB 2292 (prevents local governments from arbitrarily reducing densities of housing developments). The goal of these andother measures supported by C.A.R. in recent years is to increase the supply of housing, thus providing all purchasers more housing options.
In summary, the historical character of C.A.R.’s policy regarding affordable
housing is a perspective emphasizing capability of first-time homebuyers to enter the realm of homeownership at a cost that does not exceed approximately one third of the monthly income of the homebuyer. As indicated in a June, 1993 IBP (“Mixed Income Housing Opportunity Policy”), “… [a]ffordability standards [should be] based on a percentage of the median selling price/median income of the…locality, not state or regional standards.”
ADDENDUM #2 to DECEMBER 2007 AFFORDABLE HOUSING IBP
Statewide Affordable Housing Groups
The Western Center on Law & Poverty (WC), Non-Profit Housing Association of Northern California (NPH), Housing California (HC), California Housing Consortium (CHC), California Coalition for Rural Housing (CCRH), California Housing Authorities Association (CHAA) and California Rural Legal Assistance, Inc. (CRLA) are housing advocacy organizations with a primary focus on affordable housing that is significantly different than C.A.R.’s.
WC - The Western Center states that it represents “low-income people” on health, housing and public benefits issues. In the housing arena, WC’s goal is to protect affordable housing from deteriorating conditions, from rising costs, and from conversion of subsidized housing to market rate housing. WC’s focus is to promote the development of housing affordable to lower income families in their communities, particularly through the enactment of inclusionary zoning ordinances, and promoting/supporting local rent control. WC is funded by donations and grant programs. The primary beneficiaries if its programs are renters.
NPH - his is a San Francisco-based association that has a membership of non-profit housing developers, community leaders and private financial institutions with a focus on creating attractive, successful affordable housing developments. NPH’s housing-related goals include providing housing for the local workforce, especially lower wage earners, and helping cities and counties accelerate adoption of inclusionary housing policies. NPH is funded by donations and grant programs with primary beneficiariesof its services being renters and the homeless.
HC - Housing California believes the solution to California’s housing shortage is increasing the supply and variety of affordable homes that meet the different needs of Californians at all income levels. Its “Priority One”: Establish a permanent funding source to increase the variety and supply of affordable homes. HC members believe that rent control restrictions and resistance to condo conversions are appropriate responses to a growing population in need of affordable homes. HC members include more than 1,000 financial institutions, elected leaders, developers, advocates of affordable-homes, and representatives of homeless-service organizations.HC is funded by a volunteer membership, donations, and grant programs. Its primary beneficiaries are the homeless and disadvantaged.
CHC - The California Housing Consortium (CHC) calls itself the statewide “big tent” housing advocacy organization representing development, building, financial, and public sectors united in a non-partisan effort to advance affordable housing and community development across California. CHC’s mission is to collaborate with housing providers, business leaders, non-profit organizations, and government at all levels to increase the availability of rental and homeownership housing opportunities for low-to moderate-income Californians.
CCRH - This organization focuses on tenant education and preserving at-risk housing in the Central Valley. Its primary goal is to preserve privately-owned, federally-subsidized housing that is at-risk for converting to market rents, as well as assisting HUD tenants in understanding their rights and accessing them. CCRH also supports inclusionary zoning programs as a tool for building low cost housing. Its primary funding is from grant programs.
CHAA - Consists of 120 local housing agencies in California managing nearly 350,000 low rent apartments with the help of HUD tenant-based voucher funding, Public Housing Operating subsidies, and Public Housing Capitol Funds. These California agencies house approximately 1.3 million low-income Californians who cannot afford rent without the HUD subsidy. CHAA is a government-funded organization.
CRLA - CRLA advocates in courts and the legislature as the “voice of California’s farm workers and the rural poor”. The stated goal of CRLA is to teach the poor to become aware of their rights and to lift such citizens out of shanties and labor camps in which many currently reside. CRLA is funded by membership dues, donations and grant programs. Its primary beneficiaries are farm workers and the rural poor.
