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California’s Housing Affordability Crisis

Renters and Households With the Lowest Incomes Are Hit the Hardest

April 2019 | By Sara Kimberlin

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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.

Housing & Homelessness

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