User:J3baq/California housing shortage

In September 2022, Newsom signed a package of housing bills, including AB 2011, SB 6 and AB 2097.

AB 2011
AB 2011 has officially gone into effect as of July 1st, 2023. The policy allows for affordable and mixed-income housing to be built on commercially-zoned property on a ministerial, by-right basis, as long as the projects fulfill affordability and environmental criteria, and pay prevailing wage.

Important Definitions
Housing is considered affordable if a household is spending 30% or less of their monthly income toward their rent or mortgage. Affordable housing is housing specifically allocated for individuals earning 80% or less of the area median income (AMI) of the region they reside in, and restrics their rent payment to 30% of their monthly income. Mixed-income housing is defined by Brophy and Smith as "a mix of subsidized and market-rate housing".

Commercially-zoned property under this policy includes, "office, retail, or parking". Developers are able to use AB 2011 to develop residential units on commercially-zoned property without the need for rezoning of a parcel, which is a lenghty process that can last several months. Additionally, this policy also allows for project exemption from CEQA, which is beneficial since exemption can expedite the development process exponentially. This is especially crucial for affordable housing developments, as CEQA is often weaponized by NIMBY's to thwart projects from reaching approval.

AB 2011 Considerations with Affordable Housing
Although this policy will expedite the project approval process, requiring prevailing wage poses a major problem for 100% affordable housing developments (where all units are income restricted). The requirement of prevailing wages leads to difficulty in financing development, as prevailing wage potentially raises construction costs by up to 40%. This construction cost increase creates obstacles for the financial feasibility of affordable housing developments as affordable housing financing is far more complex than market-rate housing. Funding involves hard loans from banks accompanied by multiple state and municipal grants to fund the project, all of which are difficult to qualify for and obtain as there are many affordable housing developers competing for the same funds. When construction requires an affordable housing developer to pay prevailing wages, it becomes even more difficult to finance the construction cost increase. This is because receiving funding from public subsidies is competitive and affordable housing developments generate a low rental cashflow every year because they charge low rents; hence, they are unable to support a larger loan payment. The requirement of prevailing wage for construction can potentially mean that the development is financially infeasible, and the affordable development may not move forward or may not proceed with approval under AB2011. While AB2011 speeds up project approval, affordable housing developers may find it difficult to proceed with prevailing wage costs.

SB 6
SB 6 allows for residential use on commercially zoned property without requiring a rezoning, as long as a percentage of construction workers hired are unionized. AB 2097 removes parking minimums for homes and commercial properties within one mile of public transit stations or in neighborhoods with low rates of car use.

important to understand that affordable housing developments are funded differently than market-rate housing. Financing for market-rate housing is comprised of two major funding sources, debt and equity. Debt is sourced in the form of hard loans from banks and is usually about 70%-80% of the total project fund. Equity is sourced from developer and investor investments and makes up the remaining 20%-30% of total project funding. After a project is leased, rental cash flow is used toward paying off the hard loan. A rise in construction costs for market-rate development would primarily mean asking more from investors or applying for a larger loan from the bank.