(The Center Square) – California developers who have earned tens of millions of dollars in government tax breaks and construction funding for building “affordable” housing at typical local market rates spent hundreds of thousands of dollars on lobbyists to protect their subsidies, the San Jose Mercury News reports.
So-called deed-restricted “moderate income” housing, which does not allow rental to households making more than 120% of area median household income, often have rents too high for middle class individuals making the maximum allowable rent to afford.
Developers told the Mercury News a loss of subsidies would “make projects financially unfeasible,” while critics say limited government funds should not be diminished, or diverted from subsidizing low-income housing that has a harder time pencilling out.
Mercury News’ investigation found two developers of deed-restricted middle income housing have spent $610,000 lobbying legislators to prevent requirements that would have required rents on these projects to be lower.
Under California’s “essential housing” program, the government issues bonds to support housing production for middle-income households, with the bonds to be paid back through rent from the projects once they are complete. These projects often involve renovations or new construction that enhances the value of the targeted property, which governments cannot collect as they become exempt from property taxes.
Developers take fees from development, and property management, while banks and law firms take fees from bond sales. The California Public Finance Authority notes the revenue from these bonds is tax free and helps the bonds offer developers lower financing than what the market currently offers.
However, data suggests this program may only benefit developers, bankers, and lawyers at taxpayers’ indirect expense.
Mercury News found that of the 13 “essential housing” projects in Northern California, half charged rents higher than the local market, and that the projects have created $25 million in up front fees for developers, $48 million in banker and lawyer fees relating to the bonds, and $21 million in forgone property taxes.
While advocates, including the California government, argue the program does save the government money over programs that involve the government directly spending taxpayer money to build and manage housing on its own, the produced housing often excludes the “essential workforce” the program is meant to house.
As one example, a one-bedroom moderate-income-restricted apartment in Santa Monica that costs $2,774 per month requires an annual income of $110,960 to afford without spending more than 30% of one’s income on rent, which is part of the state’s definition of “affordable” housing. The apartment also requires that a household with one individual not make more than $97,100 per year, a figure that scales by just over $10,000 per additional individual.
This means an individual making less than $110,960 does not make enough money to afford the home, but would be disqualified from renting it.
Even larger households could find themselves easily excluded from the program; a police officer and teacher with two children would also be barred from trying to rent a $3,762 per month three-bedroom “moderate-income” apartment in the same building.
With Los Angeles Police Department trainee officer salaries starting at $92,143 — not including benefits or signing bonuses — and Los Angeles Unified School District teacher salaries starting at $66,639 — also not including benefits — the couple would make $158,782 per year.
Though this sum is higher than the $150,480 required to afford paying no more than 30% of one’s income in rent, it is above the income limit of $138,700 per year for a four member household.
While it is possible to fill units like these by allowing households to pay more than 30% of their income in rent — and thereby become “rent-burdened,” such practices undermine the rationale for providing government support.
NYU’s Furman Center, which focuses on real estate and urban policy, analyzed moderate-income housing subsidies, and has argued that they divert limited government resources away from programs for needier, lower-income households.
“Unless the city devotes funds for moderate- and middle-income rental subsidies that are over and above existing subsidies, those subsidies could divert the public resources now allocated to low-income renters, and reduce the scarce subsidy dollars available to them,” wrote Furman researchers. “That could place lower-income households at greater risk of housing insecurity.”
