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Health Note: Senate Bill 13

August 2019 | By Aureo Dias Mesquita, Adriana Ramos-Yamamoto, and Monica Davalos

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Summary of Health Note Findings: Senate Bill 13

Senate Bill 13, as amended in the state Assembly on August 12, 2019, would help to facilitate the development of accessory dwelling units (ADUs) and provide amnesty for unpermitted ADUs to become compliant. SB 13 may have housing- and income-related health impacts on both homeowners and tenants. This review finds:

  • strong evidence that easing restrictions on the development of ADUs provides incentives for homeowners to build ADUs and, as a result, increases the supply of permanent housing.[1]
  • a fair amount of evidence that ADUs are affordable within the neighborhood where they are located, but may not be a viable housing option for lower-income residents in the absence of government incentives.[2]
  • a fair amount of evidence that rent from ADUs provides homeowners with additional income to maintain their properties, sustain their mortgages, and increase disposable income.[3] There is a fair amount of evidence that seniors (age 65+) do not own or live in ADUs at higher rates than other age groups;[4] instead, there is a concentration of ownership among middle-aged adults.[5]
  • a fair amount of evidence that infill development in higher-income areas could increase the social and economic diversity of neighborhoods, providing more residents with access to better services.[6]
  • a fair amount of evidence that an amnesty program for unpermitted ADUs encourages landlords to bring units into compliance with permitting requirements, but it is not well researched if this results in health- and safety-related improvements in units with unhealthy or unsafe conditions.[7] The impact of an amnesty policy on rents is not well researched.

What Is the Goal of the Health Note?

Policy decisions made outside of the public health and health care sectors, such as in education, land use, or criminal justice, can affect health and well-being. Health Notes are intended to provide objective, nonpartisan information to help legislators understand the connections between these sectors and health. Health Notes are not intended to make definitive or causal predictions.

The California Budget & Policy Center selected SB 13 as an illustrative example to demonstrate potential health impacts of proposed legislation. Developing ADUs to increase the supply of housing has been cited by housing advocates and housing policy researchers as a potentially important strategy in California.

What Are the Potential Health Impacts of SB 13?

There are many ways in which housing and where one lives may influence health. For instance, housing affordability, the conditions in neighborhoods and communities, and the physical conditions within homes all affect individual health outcomes.[8] SB 13 aims to facilitate the development of ADUs and encourage landlords with unpermitted ADUs to become compliant. In doing so, this bill could help to provide more affordable housing options for renters, provide additional income for homeowners who build ADUs, increase renters’ access to well-established resource areas — higher-income neighborhoods — and improve the physical conditions of unpermitted ADUs that become compliant.

Both renters and homeowners may benefit from the development of ADUs by helping to lower their cost of living. Given that ADUs are often seen as affordable housing options for renters, particularly in urban areas, increasing the supply of ADUs may allow renters to spend less on housing.[9],[10] Homeowners who build and rent ADUs could also benefit from additional income support. Research shows that families that experience difficulty paying their rent, mortgage, or utility bills are more likely to lack a sufficient food supply and are less likely to have a consistent source of medical care.[11] Difficulty paying rent or mortgage is also a marker of housing instability and may lead to food insecurity and homelessness.[12] Therefore, this bill could lead to a change in income-related health outcomes for renters and homeowners, including a decrease in chronic health conditions and mental health conditions such as stress and anxiety.

Furthermore, given that access to affordable housing is a problem that disproportionately affects low-income households, and that the majority of individuals with high housing cost burdens in California are people of color, the development of more affordable housing options could help to address health inequities based on race and ethnicity.[13]

Building more ADUs could help with housing affordability even if the ADUs themselves are not considered to be affordable units. The development of ADUs could lead to an increase in the supply of housing, which could potentially reduce the cost of housing in the overall market. More specifically, it could be expected to slow the rate of increase in the cost of housing compared to the increase expected without adding those units to the housing supply.

ADUs could be particularly beneficial for middle-aged and elderly homeowners by allowing them to more easily remain in their homes as they transition into fixed or reduced incomes towards the end of their lives. Research demonstrates that “aging in place” significantly reduces stress and improves mental health among seniors.[16] The income from renting out either an ADU or the main house could help older adults achieve the financial stability needed to age in place, thereby allowing them to stay near their established networks and decreasing the risk of isolation and depression.[17] ADUs could also be beneficial for seniors because they can be built with ADA accessibility standards to allow easy mobility throughout the home.

If ADUs are developed in well-established resource areas, they could improve opportunities for renters to be healthy. Research suggests that people living in lower-income areas rate their own health lower than those living in higher-income neighborhoods.[18] In addition, low-income neighborhoods contribute to higher rates of obesity and chronic disease due to many factors, including a higher density of fast food restaurants, decreased accessibility to fresh foods, and environments that are not conducive to physical activity.[19] Building ADUs in well-established resource areas could help to increase access to the amenities that are often found in these areas, such as higher-performing and better-funded schools, better police protection, and transit stations. Furthermore, ADUs could help to increase social equity — defined as ensuring that social services are delivered fairly and equitably to all social groups.[20] Social equity also reflects the notion that increasingly diverse populations are the foundation for a more creative and more tolerant society.[21]

By providing amnesty to owners of unpermitted ADUs, this bill may help to achieve a higher level of housing quality, which would promote good physical and mental health.[22] Research shows that poor conditions are associated with various negative health outcomes, such as injury, chronic disease, and poor mental health.[23] Features of poor housing conditions include a lack of air conditioning, inadequate plumbing, and/or exposure to hazards such as carbon monoxide, allergens, and lead in paint, pipes, and faucets.[24] People living in units with poor housing conditions may be more likely to be exposed to damaged appliances, exposed nails, or peeling paint, which could lead to illness or injury.[25] Waiving certain fees and penalties may help to provide a pathway for unpermitted ADUs to meet health and safety standards that would be less harmful to an occupant’s health.

Why Do These Findings Matter for California?

The high cost of housing and lack of affordable housing are among the primary drivers of California’s high poverty rate, ranked first among the 50 states under the Supplementary Poverty Measure.[26] The high costs disproportionately affect renters and households with low incomes.[27] More than half of renters are “cost burdened,” meaning they pay more than 30% of income toward housing.[28] Eight in 10 households with incomes below 200% of the federal poverty line were housing cost burdened in 2017.[29] Additionally, more than 2 in 3 Californians who struggle to afford housing are people of color.[30] High costs are in part driven by the shortage of rental housing.[31]

As the state continues to debate policy solutions to improve housing affordability, encouraging the development of ADUs may be an effective strategy to increase the supply of housing because it allows homeowners to increase the number of available units without requiring direct government investments in large development projects.[32] Compared to other forms of low-income and affordable housing, studies show that ADUs are relatively inexpensive to build. The Terner Center for Housing Innovation at UC Berkeley found that costs to build ADUs in the cities of Portland, Oregon, Seattle, and Vancouver were low because they did not include land costs and construction duration is short.[33]

Recent state legislation by Senators Wieckowski and Bloom in 2016 and 2017 helped to facilitate the development of ADUs by requiring cities to limit parking requirements,  eliminate some utility connection fees, and streamline review and approval processes.[34] San Diego had 17 ADU applications in 2016, which increased to 64 in 2017. [35] Similarly, Oakland saw an increase in the number of applications received from 99 in 2016 to 247 in 2017.[36] Los Angeles had the largest increase, receiving 80 ADU applications in 2016 and 1,980 through November of 2017.[37] Still, remaining barriers prevent further proliferation. Burdensome development fees and building codes continue to inhibit the construction of ADUs.[38] For example, the Terner Center survey of Portland, Seattle, and Vancouver found that city permits and utility connections accounted for over 10% of construction costs.[39]

What Are the Potential Effects of SB 13 on the Supply of Permanent Housing?

There is strong evidence that easing restrictions on the development of ADUs provides incentives for homeowners to build ADUs and, as a result, increases the supply of permanent housing.[40]

Studies analyzing the effect of easing strict land-use regulations on the development of ADUs conclude that incentives are an effective policy tool to increase the supply of such units. In 2010, Portland, Oregon waived development fees covering sewer, water, and other infrastructure connections, reducing costs by $8,000 to $11,000 per unit.[41] In 2013, the city received almost 200 ADU applications, six times more than the yearly average from 2000-2009.[42]

A recent study found that localities in California with the least restrictive laws regulating ADUs were 67% more likely to receive frequent applications than localities with restrictive laws.[43] This study found that localities without off-street parking requirements were much more likely to receive monthly applications.[44] Another study analyzing single family lots within half a mile of five Bay Area Rapid Transit (BART) stations in the cities of Berkeley, El Cerrito, and Oakland estimated that 2,149 potential ADUs could be constructed if cities had less stringent lot-size, parking, and setback requirements than under the zoning laws at the time.[45]

The Terner Center survey of Portland, Seattle, and Vancouver found that 60% of ADUs were used for permanent housing, compared to 12% for short term rentals.[46] Results from another study in Oregon showed that about 82% of respondents used ADUs as someone’s permanent residence, which is similar to an analysis conducted in 2011 in the East Bay Area, where 85% of owners reported using ADUs as long-term housing.[47]

What Are the Potential Effects of SB 13 on the Supply of Affordable Housing?

There is a fair amount of evidence that ADUs are affordable within the neighborhood where they are located, but may not be a viable housing option for lower-income residents in the absence of government incentives.[48]

Some research finds that ADUs offer affordable rents, in part because of their smaller unit size, and that they often rent at below market rates. [49] The Terner Center study of Portland, Seattle, and Vancouver found that 58% of homeowners reported renting below market rate.[50] Similarly, a study in the East Bay Area concluded that average rents of ADUs were affordable to households earning at or below 62% of area median income. (Many ADUs included in this study were unpermitted, which may have decreased rents.[51]) In contrast, a study conducted in Portland, Oregon found that about 80% of ADUs were rented at market rate or sometimes even at a premium compared to apartments of similar size and location.[52]

Interwoven with the shortage in housing supply is the need to provide low-income housing to the state’s most financially strained residents. There is mixed evidence that permitted ADUs house low-income households, despite localities’ ability — since 2002 — to count ADUs as low-income housing for the Regional Housing Needs Assessment.[53]

Additional policies could guarantee that newly built ADUs have affordable rents. Research by Ramsey-Musolf finds that unless a local zoning code regulates an ADU’s maximum rent, occupancy income, and/or effective period, then the city or state will be unable to ensure that units are available to people with low income.[54] One strategy implemented in Los Angeles, through The Backyard Homes Project, provides owners with support through technical assistance and financing in return for agreeing to rent their ADUs to households using subsidized housing vouchers.[55] Another example is the city of Pasadena, which reduces permit fees from roughly $20,000 to $1,000 per unit if homeowners agree to a seven-year rent restriction.[56]

What Are the Potential Effects of SB 13 on Housing Stability for Homeowners and Seniors?

There is a fair amount of evidence that rent from ADUs provides homeowners with additional income to maintain their properties, sustain their mortgages, and increase disposable income.[57] There is a fair amount of evidence that seniors (age 65+) currently do not own or live in ADUs at higher rates than other age groups;[58] instead, there is a concentration of ownership among middle-aged adults.[59]

While more research is needed to better understand the social-economic breakdown of homeowners who are able to build ADUs, available information suggests that ADUs can provide additional income support. Research shows income received from rent is a major factor prompting homeowners to build ADUs. Building an ADU to have an extra source of income was the number one reason for initiating construction of an ADU, according to a recent Terner Center survey.[60] Furthermore, a study in Seattle found that 64% of respondents said they built ADUs for extra income, 53% to reduce house payments, and 47% to increase home value.[61]

It is often cited that ADUs can provide seniors with the ability to age in place, extend their independence, and allow caretakers to live in proximity. However, research over the past few decades has consistently shown that seniors do not own or live in ADUs at higher rates than other age groups.[62] Major barriers for seniors include the hardships entailed in construction, renting, and maintaining ADUs as well as reluctance to take on debt.[63],[64]

As the population of ADU owners ages, there may be a significant increase in the percentage of seniors who own ADUs and could benefit by living-closer to family, housing a caretaker, receiving additional income from rent, or downsizing. A survey in Oregon found that about 30% of ADU owners were 55 to 64 years old and nearly 23% were 45 to 54 years old. In contrast seniors (65+) accounted for 20% of homeowners in the areas surveyed.[65] Furthermore, opinion polls show that as many as 70% to 80% of Baby Boomers express a preference for aging in place.[66] Therefore, while seniors do not currently own or occupy ADUs at especially high rates, middle-aged adults do, and they could benefit from owning ADUs when they become seniors.

What Are the Potential Effects of SB 13 on Access to Neighborhood-Based Resources?

There is a fair amount of evidence that infill development in higher-income areas could increase the social and economic diversity of neighborhoods, providing more residents with access to better services.[67]

Research shows that when ADUs are located in higher-income areas and provide housing for middle- and low-income families, “place diversity” can increase.[68] “Place diversity” refers to the spatial diversity of people and functions.[69] It can increase social equity by mixing different social groups in one area, providing more people with access to key resources.[70] A recent study found that geographical disparities in life expectancy in US counties are large and increased from 1980 to 2014.[71] Furthermore, research shows that growing up in a neighborhood with concentrated poverty may decrease one’s well-being.[72]

Infill development — when new buildings are constructed in previously developed areas rather than on raw land — could provide more residents with access to better schools, safety, and other vital services that improve health and well-being, assuming that these new units are located in well-established resource areas.[73] In contrast, infill units in neighborhoods with high crime and low-performing schools would not provide access to crucial resources.

What Are the Potential Effects of SB 13 on Unpermitted ADUs?

There is a fair amount of evidence that an amnesty program for unpermitted ADUs encourages landlords to bring units into compliance with permitting requirements, but it is not well researched if this results in health- and safety-related improvements in units with unhealthy or unsafe conditions.[74] The impact of an amnesty policy on rents is not well researched.

Existing literature on ADUs notes that the majority of existing units are unpermitted.[75] A 2014 study estimated 25,000 unpermitted ADUs in Los Angeles alone.[76] Unpermitted ADUs may not have the proper living amenities and may not meet local health and safety standards, which could have health implications. One study in the East Bay Area found that ADUs were more likely to have substandard cooking facilities than other types of rental units, due largely to the number of unpermitted ADUs and construction carried out in an amateur manner.[77]

Research demonstrates that various amnesty programs throughout California have proven successful encouraging many homeowners to register unpermitted units.[78] For example, in just two years, 60 units were legalized in Marin County.[79]Their success was attributed to a limited grace period coupled with fee reduction and regulatory concessions.[80] However, it is unknown if ADU amnesty programs lead to improvements in the health and safety conditions of unpermitted units. Research is needed to determine how to most effectively structure an amnesty program to ensure that owners of unpermitted units in poor conditions may have a path to receive permits and also have incentives to improve the quality of their ADUs.

It is not well researched whether providing a pathway for unpermitted ADUs to become compliant changes rents for tenants. The informal manner in which many ADUs are built, managed, and supplied contributes to relatively lower rents.[81] As noted above, a 2011 study in the East Bay Area found that rents were affordable to someone earning at or below 62% of the area median income.[82] However, this same study found that upwards of 90% of ADUs in the city of Berkeley, one of three cities within the area researched, lacked building and zoning permits.[83] Further research is required to make conclusive claims regarding the effects widespread amnesty might have on rents.

Which Populations Are Most Likely to Be Affected by SB 13?

Research suggests ADUs are composed of smaller households and younger adults compared to the primary residence. Also, ADUs may have important implications for middle age adults, seniors, and communities of color.

The Terner Center study found that ADU households in Portland, Seattle, and Vancouver generally are small: 57% of ADUs consisted of one person and 36% consisted of two people.[84] A study in Oregon found similar results: 64.2% of households included one person and 34.3% two people.[85] It also found that nearly 60% of occupants were female.[86]

Various studies have found that ADU tenants are younger than residents of the primary unit and that most do not have children. A study conducted in the Bay Area found that adults in ADUs were, on average, 11 years younger than those residing in the main residence.[87] It also found an average of 0.18 children per ADU household compared to 0.37 in households in the primary residence.[88] Other studies suggest that ADUs can be an affordable housing option for students near college campuses.[89]

In addition, ADUs can help middle-aged and elderly homeowners who build and rent ADUs. Although seniors currently do not disproportionally utilize ADUs more than other age groups, ADUs may become a source of income for them in the long run. ADUs could provide seniors with the ability to live in multi-generational homes near their children, house caretakers, or downsize to live in a smaller unit while renting the primary residence for extra income.

Facilitating the development and legalization of ADUs could have important implications for communities of color. The majority of individuals in California facing high housing cost burdens are people of color, so if SB 13 led to an increase in the housing supply — particularly in the supply of affordable housing, with resulting effects on health as described above — people of color might especially benefit.[90] At the community level, one study found the most restrictive ADU laws are in communities of color with lower household incomes, greater declines in income during 2010s, and lower median home values.[91] More research is needed to understand why these communities have chosen to enact more restrictive ADU laws in order to understand the benefits and tradeoffs that these communities could experience if SB 13 becomes law.

How Large Might the Impact Be?

The history of zoning in the United States and California has led to urban sprawl and strict limitations on density, which makes ADUs a potential solution to increase the supply of housing in desirable neighborhoods. ADUs allow for infill development of housing in single-family-home neighborhoods. Census data from 2000 show that 56% of overall housing stock in California is composed of single-family detached units.[92] The concentration of single-family-home neighborhoods is even higher in some cities. For example, 94% of residential land in San Jose is zoned for detached single-family homes.[93] After state policymakers eased ADU regulations in 2016, applications in San Jose increased from 45 in 2016 to 166 in 2017.[94] Many other cities, including Los Angeles, Oakland, and San Francisco, also saw significant growth in the number of applications. Oakland received 99 ADU applications in 2016, and 247 in 2017.[95] Therefore, ADUs are a potential strategy to boost the supply of housing in areas that offer few opportunities for large scale multi-family and apartment developments.[96]

Bill Information

Bill number: SB 13

Bill topic: Accessory Dwelling Units (ADUs)

Primary Sponsor: Senator Bob Wieckowski

The bill aims to facilitate the construction of ADUs in single-family and multi-family areas. Key components of the bill prohibit a local agency from:

  • Requiring the replacement of parking spaces if a garage, carport, or covered parking is demolished to construct an ADU.
  • Imposing parking standards on ADUs located within a traversable distance of one-half mile of public transit.
  • Establishing a minimum square footage.
  • Establishing a maximum square footage that is either less than 850 square feet, or 1,000 square feet for ADUs with more than one bedroom.
  • Requiring owner occupancy for either the primary residence or the ADU until January 1, 2025.
  • Imposing any impact fees upon the development of an ADU that is less than 750 square feet. For larger ADUs, the bill would require any impact fees to be proportional to the square footage of the primary dwelling unit.

SB 13 requires a local agency to consider an application within 60 days, instead of the current 120-day review window. In addition, the bill encourages owners of unpermitted ADUs – those built before January 1, 2020 – to register their units and come into compliance with local building standards. Specifically, a local agency, upon request of an owner, would be required to delay enforcement of a local building standard for five years.

Methodology

Once the bill was selected, the research team hypothesized the bill’s likely impacts, including health outcomes. The bill components were mapped into steps on a pathway of impacts. Research questions and a list of keywords to search were developed. They reached consensus on the final conceptual model, research questions, contextual background questions, keywords, and keyword combinations. Internal and external subject matter experts reviewed a draft of the note. A copy of the conceptual model is available upon request.

Our research questions related to the bill components examined:

  • To what extent do ADUs affect the supply of housing?
  •  To what extent do ADUs affect the supply of affordable housing?
  • To what extent do ADUs affect the supply of housing in areas zoned for single-family/multi-family dwelling use?
  • To what extent do ADUs affect access to well-established neighborhoods with services and transportation?
  • To what extent do ADUs affect access to safe and quality neighborhoods?
  • To what extent does rent from ADUs supplement homeowner income to pay for mortgages?
  • To what extent does rent from ADUs help seniors supplement income?
  • To what extent do ADUs help seniors retire in place?
  • To what extent do ADUs affect household disposable income?
  • To what extent do ADUs affect housing instability?
  • To what extent do ADUs provide long-term housing?
  •  To what extent do ADUs house families compared to individuals?
  • To what extent do ADUs provide quality housing?
  • To what extent do ADUs affect homelessness?
  • To what extent does legislation incentivize the construction of ADUs?
  • To what extent does amnesty of unpermitted ADUs lead owners to register and become fully compliant?

The research team then conducted an expedited literature review using a systematic approach to minimize bias and answer each of the identified research questions.[97] They limited the search to systematic reviews and meta-analyses of studies first, since they provide analyses of multiple studies or address multiple research questions. If no appropriate systematic reviews or meta-analyses were found for a specific question, we searched for nonsystematic research reviews, original articles, and research reports from US agencies and nonpartisan organizations. The search was limited to electronically available sources published between January 2014 and January 2019. Research cited by these sources was also explored, some of which were outside these dates.

The research team searched PubMed and EBSCO databases along with the following leading journals to explore each research question: The American Journal of Public Health, Social Science and Medicine, Health Affairs, Social Science Research, Journal of Urban Economics, Housing Policy Debate, Housing Studies, and Journal of Housing and Community Development. For all searches, the research team used the following key terms: Accessory Dwelling Units, supply of housing, affordable housing, proximity to services, quality housing, healthy housing, transportation, disposable income, rent, rent burden, housing stability, mortgages, seniors, aging, low-income families, green housing, and secondary income.

The research team also searched the websites of leading relevant policy organizations, including the Terner Center at UC Berkeley, the Lincoln Institute of Land Policy, the US Department of Housing and Urban Development, the Brookings Institute, and the Urban Institute.

After following the above protocol, the research team screened 95 abstracts. They reviewed and identified 36 peer-reviewed and grey literature sources for full-text review, excluding 18 titles. The remaining 18 sources were included in the Health Note. In addition, the research team identified other peer-reviewed sources through the original articles and identified additional resources with relevant research outside of the peer-reviewed literature. A final sample of 26 resources was used to create the Health Note.

Of the studies included, the strength of the evidence was qualitatively described and categorized as: not well researched, mixed evidence, a fair amount of evidence, strong evidence, or very strong evidence. The evidence categories were adapted from a similar approach from another state.

Very strong evidence: The literature review yielded robust evidence supporting a causal relationship with few if any contradictory findings. The evidence indicates that the scientific community largely accepts the existence of the relationship.

Strong evidence: The literature review yielded a large body of evidence on the association, but the body of evidence contained some contradictory findings or studies that did not incorporate the most robust study designs or execution or had a higher than average risk of bias; or some combination of those factors.

A fair amount of evidence: The literature review yielded several studies supporting the association, but a large body of evidence was not established; or the review yielded a large body of evidence but findings were inconsistent with only a slightly larger percent of the studies supporting the association; or the research did not incorporate the most robust study designs or execution or had a higher than average risk of bias.

Mixed evidence: The literature review yielded several studies with contradictory findings regarding the association.

Not well researched: The literature review yielded few if any studies or yielded studies that were poorly designed or executed or had high risk of bias.

Additional Information

This Health Note was produced using a methodology and approach developed by the Health Impact Project at The Pew Charitable Trusts, and is part of a pilot program in several jurisdictions to test the use of Health Notes to inform policymaking at state and local levels. This Health Note is supported by a grant from the Health Impact Project. The views expressed are those of the authors and do not necessarily reflect the views of the Health Impact Project or The Pew Charitable Trusts.

Please visit the Health Impact Project at www.healthimpactproject.org for more information.

Acknowledgments

Dr. Sherice Janaye Nelson is a professor at St. Mary’s College of California and researches the effects of the Black Diaspora with emphasis in the United States. Her study of Black Americans encompasses the economic and political behaviors and the effect of those behaviors in a modern-day democracy. Dr. Nelson served as our external subject matter expert. Sara Kimberlin, Senior Policy Analyst at the Budget Center, served as internal subject matter expert and guided the development of the Health Note.

Aureo Mesquita, Adriana Ramos-Yamamoto, and Monica Davalos prepared this Health Note. The Budget Center was established in 1995 to provide Californians with a source of timely, objective, and accessible expertise on state fiscal and economic policy issues. The Budget Center engages in independent fiscal and policy analysis and public education with the goal of improving public policies affecting the economic and social well-being of low- and middle-income Californians. General operating support for the Budget Center is provided by foundation grants, subscriptions, and individual contributions.

View the endnotes for this publication.

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Introduction

Unaffordable housing costs are one of California’s most pressing challenges. The high cost of housing is one of the primary drivers of California’s high poverty rate — ranked first among the 50 states — under the Supplemental Poverty Measure, which accounts for differences in the local cost of living.[1] The lack of affordable housing increases economic insecurity among California families and also creates challenges for California employers striving to retain and recruit workers. Housing affordability is a problem throughout the state when housing costs are compared to incomes, and the Californians who are most affected by the housing affordability crisis are renters and households with the lowest incomes.  Policy solutions that particularly target these households represent a promising approach to tackling the state’s housing crisis strategically, with a focus on those most deeply affected.

Renters Are Especially Likely to Have Unaffordable Housing Costs, While Homeowners Without Mortgages Are Least Affected

Determining whether housing is affordable requires considering both housing costs and household incomes. For renters, housing costs include monthly rent payments, plus the cost of utilities if not included in the rent. Housing costs for homeowners include monthly mortgage principal and interest payments, plus property tax, property insurance, utilities, and condo or mobile home fees (if applicable). To understand California’s housing affordability challenges, it is important to consider these housing costs relative to incomes. If high housing costs are matched by high incomes, then expensive housing may be affordable to many households. At the same time, even relatively low housing costs may be unaffordable if local incomes are also low.

For housing costs to be considered affordable, a household’s total housing costs should not exceed 30 percent of household income, according to the US Department of Housing and Urban Development. Households paying more than 30% of income toward housing are considered housing “cost-burdened,” and those with housing costs that exceed half of their income are considered “severely cost-burdened.” By these standards, more than 4 in 10 households statewide had unaffordable housing costs in 2017. Furthermore, 1 in 5 households across California faced severe housing cost burdens, spending more than half of their income toward housing expenses.

California’s renters are substantially more likely to struggle with housing affordability than homeowners in California. More than half of renter households paid over 30% of income toward housing in 2017, and more than a quarter were severely cost-burdened, paying more than half of household income toward housing costs. California homeowners generally struggle less to afford their housing, though more than a third of homeowners with mortgages were housing cost-burdened in 2017. Owners without mortgages are least likely to face high housing burdens in California. Besides not having the monthly expense of a mortgage, many of these homeowners have been in their homes for decades and therefore benefit from relatively low property taxes due to Proposition 13’s limitation on property tax increases.

Low-Income Households Are Particularly Affected by Unaffordable Housing

Households with the lowest incomes are by far the most likely to have housing costs that are unaffordable. Eight in 10 households with low incomes (those with incomes of less than 200% of the federal poverty line) were housing cost-burdened in 2017, and more than half of these households spent more than half their income on housing. At the same time, only about 16% of high-income households (with incomes of 400% or more of the federal poverty line) were housing cost-burdened in 2017, and less than 3% were severely cost-burdened.

Housing Affordability Is a Problem in All Regions of California, and Many of Those Affected Are People of Color

Housing costs vary substantially throughout California, with the highest costs in coastal urban areas and the lowest costs in inland rural areas. But incomes also vary regionally, and areas with relatively lower housing costs also tend to have lower typical incomes. The result is that housing affordability is clearly a problem throughout the state when housing costs are compared to incomes. Across every region of California, from the high-cost San Francisco Bay Area and Los Angeles and South Coast to the lower-cost Central Valley and Far North, at least a third of households spent more than 30% of their incomes toward housing in 2017, and more than 1 in 6 spent more than half of their incomes on housing costs.

Throughout the state, many of the individuals affected by unaffordable housing costs are people of color. Among all Californians living in households paying more than 30% of income toward housing costs in 2017, more than two-thirds were people of color, and about 45% were Latinx.

High Housing Cost Burdens Call for Policies Designed to Help Those Who Are Most Affected

What problems arise when households struggle to afford housing? Unaffordable housing costs can force families to spend less on other basic necessities like health care or food, to cut costs by seeking lower-quality child care, and to under-invest in important long-term assets like education or retirement savings. Unaffordable housing costs can also force families and individuals to accept substandard housing or live in neighborhoods that lack basic safety and offer limited opportunities. In the most serious cases, unaffordable housing can push households into homelessness. All of these consequences can have cascading effects on health and can shape both short-term well-being and long-term outcomes for affected individuals.[2]

Given the challenges of housing affordability across all regions of California — especially for renters, households with the lowest incomes, and people of color — strategies to increase affordability are urgently needed, particularly for the most-affected Californians. Housing affordability policy solutions can focus on protection of affordability for current residents, preservation of existing affordable housing, and production of more housing, particularly homes targeted to the households that struggle most to find and retain affordable housing, including renters and those with the lowest incomes. Specific policy solutions that can make a difference include tenant protections against excessive rent increases, funding to support affordable housing construction and preservation, and policies that increase local incentives and local accountability for accommodating more housing development, particularly for housing affordable to low-income households. Moreover, policies outside of the housing arena that help families make ends meet — by reducing costs for child care, food, health care, or other necessities, or by supplementing incomes — represent another important approach to helping Californians who are struggling to afford the cost of housing.

As state leaders craft budget and policy proposals, it is important to acknowledge that a mix of policies is needed to address California’s housing affordability challenges and that doing so is particularly important for California’s renters, low-income households, and people of color.

[1]Sara Kimberlin and Esi Hutchful, New Census Figures Show That California Has 7.5 Million Residents Living in Poverty — More Than Any Other State (California Budget & Policy Center: September 2018).

[2]Adriana Ramos-Yamamoto, Advancing Health Equity: How State Policymakers Can Increase Opportunities for All Californians to Be Healthy (California Budget & Policy Center: March 18, 2019).

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The Center on Budget and Policy Priorities’ annual conference, Impact 2018: Building Momentum for Equity and Opportunity, brought together members of the State Priorities Partnership (SPP), a network of independent, nonprofit research and policy organizations representing more than 40 states, and others interested in state policy. Executive Director Chris Hoene presented to the SPP Leadership Institute on the results of a strategic planning retreat he attended earlier this year and also introduced the conference’s closing plenary speaker, Professor Manuel Pastor of USC. Also, Steven Bliss, Director of Strategic Communications, presented “Using Digital Tools to Expand Reach and Engagement” for the workshop “Digital Advocacy 101.”

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What Would Proposition 1 Do?

Prop. 1 would allow California to sell $4 billion in bonds to support affordable housing development and to help veterans and low- and moderate-income homebuyers purchase homes. Prop. 1 was placed on the ballot through legislation enacted last year, the Veterans and Affordable Housing Bond Act of 2018 (Senate Bill 3, Beall), which was part of the broader legislative housing package passed by state policymakers to help address California’s housing affordability crisis. Of the $4 billion in bonds sold under Prop. 1, $3 billion would be repaid over several decades, with interest, from the state General Fund, and $1 billion would be fully repaid by veterans receiving bond-funded home loans.

What Problem Does Proposition 1 Aim to Address?

California faces a housing affordability crisis. Among all Californians in 2016, more than 4 in 10 households (42.1%) across the state paid more than 30% of their incomes toward housing costs, a level considered unaffordable according to the US Department of Housing and Urban Development. More than 1 in 5 (21.0%) were severely housing cost-burdened, spending over half their incomes on housing, according to a Budget Center analysis of US Census Bureau data.

Californians with low incomes have particularly high rates of housing cost burden. Among households with incomes below 200% of the official federal poverty threshold, more than 1 in 2 (57.3%) paid more than half of their income toward housing costs in 2016. Unaffordable housing burdens affect residents in all parts of the state, even in areas where housing costs are lower, because incomes in those areas tend to be lower as well. Moreover, California’s high housing costs are a key driver of the state’s high poverty rate. Under the Supplemental Poverty Measure, an improved poverty measure that accounts for differences in local costs of living, nearly 1 in 5 Californians (19.0%) were living in poverty from 2015 to 2017 — giving California one of the highest poverty rates in the country, statistically tied for first (with Florida and Louisiana) among the 50 states.

When individuals do not have access to housing they can afford, the consequences can be serious. This is because safe, stable housing is a key foundation for short-term and long-term health and well-being. Unaffordable housing costs can force households into substandard housing, which is linked to poor health outcomes. Lack of affordable housing can also force families to move more often, and this housing instability is linked to negative health outcomes for both adults and children, as well as worse educational outcomes for children. In the most extreme cases, high housing costs can push households into homelessness, with particularly negative effects on children’s physical and mental health. Addressing the problem of housing affordability can help prevent this cascade of negative health, behavioral, and educational outcomes. Improvements in individual health and well-being can also translate into broader public benefits, as healthier individuals are less likely to need public services and supports to address health or mental health needs.

A key driver of California’s housing affordability crisis is an inadequate supply of housing. The Department of Housing and Community Development estimates that 180,000 new housing units need to be built each year to keep up with housing demand, but over the past 10 years only 80,000 units have been built per year on average. Given the large scale of this problem, an array of different policy strategies are needed to push California’s housing supply to catch up with the need for housing for current and future residents.

One strategy is direct state investment in building affordable housing and helping individual Californians afford housing. An increase in the supply of housing that is affordable to the lowest-income residents is especially needed in California, because these households are least able to afford California’s escalating rents, which have been growing faster than median annual earnings. The National Low Income Housing Coalition estimates that California has only 67 affordable housing units available for every 100 low-income households. Research in the San Francisco Bay Area has also shown that in the face of gentrification pressures, an increase in subsidized affordable housing units has nearly twice the impact in reducing displacement of low-income households at the regional level, compared to a similar increase in market-rate housing units.

What Is the Expected Impact of Proposition 1?

The bond funds from Prop. 1 would be allocated to a number of established state housing programs. Of the $4 billion total, $3 billion would support the development of affordable housing and homebuyer assistance for low- and moderate-income Californians, specifically:

The remaining bond funds consist of $1 billion for the Cal-Vet Home Loan Program to provide homebuyer loans to veterans, without regard to income (which would be paid back to the state by the loan recipients). Altogether, the Prop. 1 bond funds would support a wide variety of housing activities, including multifamily affordable housing development, infrastructure to facilitate infill and transit-oriented housing, affordable homeownership opportunities, farmworker housing, self-help (e.g. Habitat for Humanity) and mobile home housing, and mortgages for veterans.

In the case of housing and/or infrastructure development, funds from Prop. 1 would typically make up only a portion of the total funds for any given project. Bond funds would be used by developers to leverage additional federal, state, and local public funds, as well as private financing, to cover the full costs of these types of projects, which would multiply the impact of the Prop. 1 funds.

Altogether, the Legislative Analyst’s Office (LAO) estimates that Prop. 1 would “provide annual subsidies for up to 30,000 multifamily and 7,500 farmworker households” as well as “down payment assistance to about 15,000 homebuyers and home loans to about 3,000 veterans.” The California Housing Partnership Corporation and Northern California Carpenters Regional Council, which support Prop. 1, have estimated a somewhat larger number of housing units — “nearly 50,000 new and rehabilitated housing units” — would be created with the support of the $3 billion in Prop. 1 housing funds (separate from the $1 billion for mortgage assistance for veterans). This estimate was calculated using the IMPLAN economic impact model and was based on historical per-unit costs and leveraged funding, adjusted by region, for each of the state housing programs to which Prop. 1 funds would be allocated.**

The housing produced through Prop. 1 would not be sufficient to close California’s affordable housing shortfall. However, no single policy could be expected to fully address the state’s tremendous housing affordability challenges. The bond funds would support the production of housing units affordable to low-income residents, which are unlikely to be produced by the private for-profit housing market and which would help the residents who struggle most to afford the state’s high housing costs.

What Are the Tradeoffs in Using Bond Dollars to Support Affordable Housing Through Proposition 1?

Of the total $4 billion in bonds that Prop. 1 would authorize, the $1 billion for mortgages for veterans through the Cal-Vet Home Loan Program would be expected to be fully repaid over time by the veterans receiving home loans, at no direct cost to the state, according to the LAO. However, the remaining $3 billion in bonds for other housing activities would have to be repaid over time, with interest, from the state’s General Fund. The LAO estimates that the cost to repay the bonds would be approximately $170 million each year for 35 years. Over this period, the state would pay $3 billion to repay the principal on the bonds and an estimated $2.9 billion for the interest, according to LAO estimates, for a total of $5.9 billion, or nearly twice the amount of the original bond issuance.

The General Fund dollars used to repay the principal and interest on the Prop. 1 bonds would not be available to support other public systems and supports, including those that directly support low- and moderate-income Californians — a tradeoff that should be considered when evaluating the potential impact of Prop. 1. On the other hand, as noted above, safe, affordable, stable housing is a foundation for long-term physical and mental health and is linked to improved individual educational and economic outcomes. As a result, an investment in affordable housing could contribute to healthier, more productive residents who may have less long-term need for publicly-funded health, mental health, and safety net services.

What Do Proponents Argue?

Proponents of Prop. 1 include veterans’ organizations, affordable housing advocates, business and labor leaders, cities, and environmental groups. Among these are Dignity Health, Habitat for Humanity California, United Ways of California, California Association of Veterans Services Agencies, California Housing Consortium, Housing California, Silicon Valley Leadership Group, State Building and Construction Trades Council of California, California League of Conservation Voters, and the California League of Cities. Proponents argue that Prop. 1 “directly addresses the shortage of housing by building more affordable homes — without raising taxes.” They state that Prop. 1 will benefit “hardworking people like nursing aides, grocery clerks, and teaching assistants, so they can live in the communities where they work” and “will address rising homelessness in our neighborhoods.”

What Do Opponents Argue?

Opponents of Prop. 1 argue that the bond funds “would go to a variety of programs that may or may not repay money for revolving use” and would help only “a very limited number of persons.”

Conclusion

To address the root cause of California’s housing affordability crisis, the state needs to increase its supply of housing. Increasing the supply of affordable homes in particular is especially needed, because low-income Californians are most likely to have high housing cost burdens and are least likely to be able to afford rising rents. Prop. 1 would not in itself eliminate California’s affordable housing gap, but it would take a step toward addressing the shortfall by allowing the state to sell $4 billion in bonds and use the proceeds to develop affordable housing and help veterans and low- and moderate-income Californians purchase homes.

These bonds would be paid off over 35 years, at about $170 million per year. The $1 billion in bonds to help veterans buy homes would be fully repaid by home loan recipients, at no direct cost to the state, but the $3 billion in bonds for other housing activities would incur principal and interest costs, which would be paid out of the state General Fund. These dollars would not then be available to pay for other public systems and costs supported by General Fund dollars, like pensions for public employees, health care for low-income individuals, or the criminal justice system. A key question for voters is whether developing tens of thousands of affordable housing units and assisting veterans and lower-income residents to purchase homes is worth the tradeoff of dedicating these General Fund dollars to bond principal and interest payments over time. In evaluating this tradeoff, considerations include the fact that bond funds would leverage significant federal, local, and private dollars to support housing production and that affordable housing has cascading positive effects on health and well-being, which may reduce demands for other public supports over the long term.

* Up to $360,000 of the total combined funds allocated to these programs could be used by the Department of Housing and Community Development to provide related technical assistance to cities and counties.

** This estimate did not account for the $150 million allocated to homebuyer assistance through CalHFA rather than to housing production, which would slightly decrease the estimated number of housing units produced.

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Proposition 2, which will appear on the November 6, 2018 statewide ballot, would allow California to move forward with a program, called No Place Like Home (NPLH), to finance the development of permanent supportive housing for Californians with mental illness who are homeless or at risk for chronic homelessness. The Legislature and Governor Brown placed Prop. 2 on the ballot because a lawsuit challenging NPLH and the state’s original financing plan has prevented California from implementing this new program. This post provides an overview of Prop. 2, discusses its expected impact, and examines other issues the measure raises in order to help voters reach an informed decision.

What Would Proposition 2 Do?

Prop. 2 asks California voters to approve a housing program — along with related financing — that state policymakers created in 2016, but which has been on hold due to litigation. No Place Like Home (NPLH) aims to develop permanent supportive housing for people with mental illness who are homeless or at risk for chronic homelessness. The state would finance this new housing using proceeds from the sale of up to $2 billion in bonds. These bonds would be repaid over several decades, with interest, using revenues from an existing state tax on California millionaires, which was imposed by Prop. 63 of 2004, the Mental Health Services Act. Currently, most of the proceeds from this tax — a 1% surcharge on taxpayers with annual taxable incomes of more than $1 million — pay for a broad range of mental health services that are provided or coordinated by California’s 58 counties. Voter approval of Prop. 2 would allow the state to use a portion of these Prop. 63 revenues — up to $140 million per year — to pay off the NPLH bond debt, likely over a 30-year period.

What Problem Does the No Place Like Home Program Aim to Address?

Safe and affordable housing is a key building block of health and well-being. Moreover, because housing is rooted in specific neighborhoods — each with its own unique mix of advantages and challenges — where people live helps to determine the opportunities that are available to them. These opportunities, in turn, influence each person’s educational, health, and economic outcomes. As one federal agency aptly puts it, without “a safe, affordable place to live, it is almost impossible to achieve good health or…one’s full potential.”

Unfortunately, California’s worsening housing crisis means that many people lack access to stable housing and find themselves living on the streets. As of January 2017, more than 134,000 residents of the Golden State — including both adults and children — were experiencing homelessness, according to the most recently published point-in-time count. This means that 34 out of every 10,000 Californians lacked a stable home, double the national rate of 17 per 10,000.

What’s more, a large share of people experiencing homelessness also struggle with mental illness. In January 2017, almost 34,700 homeless Californians — just over one-quarter of the total estimated homeless population — were identified as having a severe mental illness. Given the challenges of accurately gauging the true scope of homelessness, some research (here and here, for example) suggests that the actual share of homeless people with severe mental illness may be closer to one-third. Even more troubling: A sizeable share of those who are both homeless and mentally ill (half or more) grapple with drug or alcohol addiction stemming from their efforts to “self-medicate” in order to relieve their symptoms, according to experts.

No Place Like Home aims to assist Californians with mental illness who are homeless or at risk for chronic homelessness by building or rehabilitating permanent supportive housing specifically for this population. Supportive housing “is a highly effective strategy that combines affordable housing with intensive coordinated services to help people struggling with chronic physical and mental health issues maintain stable housing and receive appropriate health care,” according to one review of the literature. In other words, this approach provides affordable, long-term housing linked to wraparound services that can help people address mental health issues and other challenges.

Under NPLH, the state would borrow up to $2 billion and distribute nearly all of these funds to counties to both 1) finance the capital costs and 2) capitalize the operating reserves of permanent supportive housing.* In addition, counties would use other revenue sources — such as their annual Prop. 63 funds — to provide or coordinate services, including mental health and substance abuse treatment, for the tenants of supportive housing developments “for at least 20 years,” as required by the legislation that created NPLH in 2016 (Assembly Bills 1618 and 1628).

What Is the Expected Impact of the No Place Like Home Program?

No Place Like Home could significantly reduce the number of Californians with mental illness who are living on the streets. Assuming voter approval of Prop. 2, the state plans to award $262 million in NPLH funds each year for seven years, beginning at the end of 2018, the Legislative Analyst’s Office (LAO) has reported. This amount of funding could pay for the creation of “roughly 20,000 supportive housing units” over the course of a decade, with “a few thousand units” available by late 2020 or early 2021, the LAO estimates.

However, well over 30,000 Californians with severe mental illness are homeless, as noted above. This means that the projected 20,000 supportive housing units would fall short of the number needed to assist every Californian with severe mental illness who is experiencing homelessness. Therefore, even if voters approve Prop. 2, state and local leaders would still need to adopt additional policies targeting this population to fully address California’s overlapping crises of homelessness and mental illness.

Boosting the supply of permanent supportive housing could also decrease the use of other public systems by homeless residents with mental illness, in turn reducing state and local costs for these systems. For example, savings could come from lowering the number of homeless residents who end up in local jails or emergency rooms, according to a recent review of the research. Moreover, the evidence suggests that “the greatest reductions are likely achieved with supportive housing that focuses on people who are the costliest utilizers of services.”

Case in point: Los Angeles County’s “Housing for Health” (HFH) program. Launched in 2012, HFH uses permanent supportive housing to address the housing and health care needs of homeless residents, targeting “frequent users of health care services,” according to a RAND evaluation. RAND’s key finding: HFH “reduced health care use and county costs.” Even after taking into account the cost of supportive housing, LA County saved $1.20 (from reduced health care and other social service costs) for every $1 invested in the program.

What Are the Tradeoffs in Using Bond Dollars to Build Supportive Housing Through the No Place Like Home Program?

Under No Place Like Home, the state would issue up to $2 billion in bonds, with the proceeds going to build permanent supportive housing for homeless Californians with mental illness. These bonds would be repaid, with interest, from annual revenues that are generated by Prop. 63’s “millionaire’s tax,” which provides funding for mental health services that are delivered or coordinated by counties. As outlined in AB 1628 of 2016, the state would use up to $140 million per year in Prop. 63 revenues to pay the debt service (principal + interest) on the bonds. The most recent state estimate assumes a 30-year debt-service schedule with a 4.2% interest rate, resulting in projected payments of approximately $120 million per year.

By comparison, Prop. 63’s tax on millionaires typically generates over $1 billion per year for mental health services, and the state expects to collect more than $2 billion from the tax in 2018-19, the fiscal year that began on June 30. (Proceeds from this tax fluctuate significantly from year to year.) As a result, a relatively small share of Prop. 63 revenues would be used to pay debt service on the NPLH bonds in any given year. For example, if Prop. 63 generated $1 billion in revenues, the state’s projected payment would equal 12% of these funds ($120 million / $1 billion). If, in another year, Prop. 63 raised $2 billion in revenues, the state’s projected payment would amount to 6% of these funds ($120 million / $2 billion).

Issuing bonds would allow the state to quickly amass a large amount of funding (up to $2 billion) to jump-start the development of permanent supportive housing around the state. Boosting the supply of supportive housing over a relatively short period would allow counties to better focus their resources on an otherwise hard-to-serve population — those with mental illness who are homeless or at risk for chronic homelessness — while potentially achieving improved outcomes for this population through the provision of long-term housing combined with mental health and other supportive services.

However, in selling bonds, California would incur a debt that would have to be repaid with interest. As a result, over time the cost of servicing the debt would far exceed the amount of the borrowed funds. Using the example cited above, debt service on the NPLH bonds could amount to $120 million per year, assuming a 30-year debt-service schedule with a 4.2% interest rate. Over three decades, these payments would total $3.6 billion — much higher than the original $2 billion bond issuance. If the state used the maximum allowable amount of Prop. 63 revenues for NPLH ($140 million per year), then the debt service would total $4.2 billion over 30 years — more than double the amount of the original bond issuance. Moreover, because annual NPLH bond payments would be funded with Prop. 63 revenues — which primarily go to county mental health programs — counties would receive well over $100 million less in Prop. 63 funding each year to meet the mental health needs of their residents.

Yet, Californians who are struggling with mental illness and living on the streets are among the most vulnerable people in the state — a reality that is explicitly recognized in Prop. 63 (see Section 2(d) of the initiative’s “Findings and Declarations”). What’s more, counties have long been responsible for assisting Californians with severe mental illness and collectively receive billions of dollars each year to do so. While counties’ annual mental health funding would be reduced if voters approve Prop. 2, counties could also experience savings in other public systems, such as jails, due to the expansion of supportive housing, as explained above. Counties could use such savings to expand or enhance other local services, including services for residents of supportive housing. Moreover, counties could bolster their support for mental health services by prudently allocating the large amounts of unspent Prop. 63 funds that have been allowed to accumulate at the local level due to what the State Auditor recently called the state’s “ineffective oversight of local mental health agencies.”

What Do Proponents Argue?

Proponents of Prop. 2 include the California Police Chiefs Association, the California State Association of Counties, the League of California Cities, and Mental Health America of California. Proponents argue that Prop. 2 “delivers the proven solution to help the most vulnerable people experiencing homelessness in California” by “build[ing] housing and keep[ing] mental health services in reach for people — the key to alleviating homelessness complicated by mental illness.”

What Do Opponents Argue?

The National Alliance on Mental Illness (NAMI) Contra Costa opposes Prop. 2. NAMI Contra Costa argues that Prop. 2 “takes Billions [of dollars] away from our loved ones and rewards developers, bond-holders, and bureaucrats.” This organization further states that “counties already know where to best acquire housing for access to critical services. Prop. 2 cuts off local input and predetermines the balance between treatment and housing needs.”

Conclusion

Our state’s worsening housing crisis has left more than 130,000 Californians homeless, including tens of thousands of people with severe mental illness. Prop. 2 would take a significant step toward reducing the number of people with mental illness who are living on the streets. It would do so by allowing the state to sell up to $2 billion in bonds and use the proceeds to spur the creation of permanent supportive housing (stable housing linked to services) for this population. These bonds would be repaid over several decades with revenues from an existing state tax on California millionaires that was imposed by Prop. 63 of 2004. Prop. 63 directs most of the funds raised by this “millionaire’s tax” to county mental health programs. If voters approve Prop. 2, up to $140 million per year in Prop. 63 revenues would be used to pay off the new bond debt, leaving less for mental health services.

A key question for voters is whether the benefits of using bond funds to develop up to 20,000 supportive housing units around the state outweigh the potential impact of a relatively small decrease in counties’ annual mental health funding. On the one hand, increasing the supply of supportive housing for homeless residents with mental illness would allow counties to better focus their resources on an otherwise hard-to-serve population while potentially improving outcomes for these individuals. On the other hand, counties would receive less annual Prop. 63 funding to address the mental health needs of their residents.

Two key factors would mitigate the impact of this Prop. 63 funding reduction on local mental health services. First, developing supportive housing for homeless residents with mental illness could decrease the use of other public systems, such as jails, thus reducing state and local costs for these systems. At least some of the resulting savings would accrue to counties, which could shift these freed-up revenues to other services, including mental health treatment. Second, many counties have amassed exceedingly large sums of unspent Prop. 63 funds that could be drawn down over a number of years in order to bolster annual support for mental health services.

* Up to 5% of the total bond funds could be used for state administrative expenses. In addition, up to 4% of the bond funds that would be allocated to counties through NPLH’s “competitive program” could be used to create default reserves.

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Supplemental Security Income/State Supplementary Payment (SSI/SSP) grants are a critical source of basic income for well over 1 million low-income people with disabilities and adults age 65 or older in California. Grants are funded with both federal (SSI) and state (SSP) dollars. Currently, the maximum monthly grant for an individual is about $911, which consists of an SSI grant of $750 and an SSP grant of $160.72. In order to help close budget shortfalls during the Great Recession, state policymakers made deep cuts to the SSP portion of the grant, reducing it from $233 per month in early 2009 to $156.40 per month by mid-2011. With an improving fiscal outlook, state policymakers increased the SSP portion by a modest $4.32 per month starting in January 2017. However, no additional state increases have been provided since then, and the Governor’s proposed 2018-19 state budget assumes that the SSP portion will remain frozen for another year. Because state cuts largely remain in place, SSI/SSP recipients have less money in their budgets to buy basic necessities such as medicine and food. (People enrolled in the SSI/SSP program are not eligible for CalFresh food assistance.) They also have less money to pay the rent. In fact, in every county, the “Fair Market Rent” (FMR) for a studio apartment exceeds 50% of the maximum SSI/SSP grant for an individual. People are at greater risk of becoming homeless when housing costs account for more than half of household income.

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For the Southern California Association of Non Profit Housing’s (SCANPH) annual conference, Senior Policy Analyst Sara Kimberlin delivered a presentation that looked at the profile of poverty and housing needs at the local, regional, and statewide level, as well as local and state housing policies that can make a difference in addressing the challenges low-income households face.

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California is well-known for its high housing costs. Yet, to understand the state’s housing affordability problem, it is important to consider California’s housing costs relative to incomes. If high housing costs are matched by high incomes, then expensive housing may be affordable to many households. At the same time, even relatively low housing costs may be unaffordable if local incomes are also low. Unfortunately, while housing costs vary across California, housing affordability is clearly a problem throughout the state when housing costs are compared to incomes.

Renters Are Especially Likely to Have Unaffordable Housing Costs, While Homeowners Without Mortgages Are Least Affected

For renters, housing costs include monthly rent payments, plus the cost of utilities if not included in the rent. Housing costs for homeowners include monthly mortgage principal and interest payments, plus property tax, property insurance, utilities, and condo or mobile home fees (if applicable). For housing costs to be considered affordable, these total costs should not exceed 30 percent of household income, according to the US Department of Housing and Urban Development. Households paying more than 30 percent of income toward housing are considered housing “cost-burdened,” and those with housing costs that exceed half of income are considered “severely” cost-burdened. Across California, more than 4 in 10 households had unaffordable housing costs, exceeding 30 percent of household income, in 2015. More than 1 in 5 households statewide faced severe housing cost burdens, spending more than half of their income toward housing expenses.

Unaffordable housing costs particularly affect renters, and also affect a substantial share of homeowners with mortgages. More than half of renter households and more than a third of mortgage holders paid over 30 percent of income toward housing in 2015. Owners without mortgages are less likely to face high housing burdens. Besides not having the monthly expense of a mortgage, many of these homeowners have been in their homes for decades and therefore benefit from relatively low property taxes due to Proposition 13’s limitation on property tax increases.

Low-Income Households and People of Color Are Particularly Affected by Unaffordable Housing

Households with lower incomes are especially likely to have housing costs that are unaffordable. More than 8 in 10 low-income households (those with incomes of less than 200 percent of the federal poverty line) were housing cost-burdened in 2015, and more than half of households spent more than half their income on housing. At the same time, only 15 percent of high-income households (with incomes of 400 percent or more of the federal poverty line) were housing cost-burdened in 2015, and less than 3 percent were severely cost-burdened.

Many of the individuals affected by unaffordable housing costs are people of color. Among all Californians paying more than 30 percent of income toward rent in 2015, more than two-thirds were people of color, and about 45 percent were Latino.

Housing Affordability Is a Problem in All Regions of California

Housing costs vary substantially throughout California, with the highest costs in coastal urban areas and the lowest costs in inland rural areas. But incomes also vary regionally, and areas with relatively lower housing costs also tend to have lower typical incomes. The result is that housing cost-burden is high throughout the state. Across every region of California, from the high-cost San Francisco Bay Area and Los Angeles to the lower-cost Central Valley and Far North, at least a third of households spent more than 30 percent of their incomes toward housing in 2015, and at least 1 in 6 spent more than half their incomes on housing costs.

High Housing Cost-Burdens Call for Policies Designed to Increase the Supply of Housing and Help Families Meet Basic Needs

What problems arise when households pay more than they can afford for housing? Unaffordable housing costs can force families to spend less on other basic necessities like health care or food, to cut costs by seeking lower-quality child care, and to under-invest in important assets like education or retirement savings.

Given the challenges of housing affordability across all regions of California — especially for renters, households with lower incomes, and people of color — there is a need for strategies to increase affordability in every part of the state. Policies that increase local incentives and local accountability for accommodating more housing development, including development of housing affordable to lower-income households, are one approach to increasing the supply of housing in all parts of California, and thus reducing upward pressure on housing costs in order to improve affordability. Funding to support affordable housing construction and preservation can also help. Moreover, policies outside of the housing arena that help families make ends meet — by reducing costs for child care, food, or other necessities, or by supplementing incomes — represent another important approach to reducing the negative impact of unaffordable housing costs.

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