Bill to Encourage Creation of Permanent Affordable Housing Passes California Senate

Affordable Housing, Irvine Community Land Trust, Irvine, California Assembly

By Meghan Hall

Discussions regarding affordable housing have been occurring since the 1960s and 70s, as communities have grappled with the state’s rapid growth. However, those conversations have changed little when it comes to the various types of affordable housing that developers and non-profits are working to bring to the table. Historically, legislation and funding has been geared toward limited-term rental product as opposed to permanent or for-purchase affordable housing, leaving little room for developers to pursue projects supporting various types of affordability. However, SB-196, a bill introduced by Senator Jim Beall and co-authored by Senators Mike McGuire and Bob Wieckowski could help to change that.

“We see the bill as a benefit to community land trusts trying to build affordable homeownership housing in their respective communities,” said Mark Asturias, executive director of the Irvine Community Land Trust (ICLT), one of the organizations advocating for the passage of the bill. “Any benefit we can achieve in reducing costs so that we can keep the price of the housing we sell down is beneficial. When you look at land costs and the way they are assessed, it gets to be a pretty significant cost when you consider how long it takes to get a project entitled and then built in California.”

If passed, SB-196 would allow community land trusts (CLTs) to qualify for welfare tax exemptions currently used exclusively for religious, hospital, scientific or charitable purposes that are also owned by certain non-profit entities. The bill’s qualification criteria stipulate that the land owned by the CLTs must be developed or rehabilitated as affordable housing. However, if the CLT does not begin construction or rehabilitation within five years of acquiring the property, the CLT will be liable for the property taxes for the years for which the property was exempt. The goal,  stated Asturias, is to incentivize CLTs to move efficiently when proposing projects and to push affordable housing projects through the approval process.

“There’s an extremely high level  of incentive to get projects developed,” explained Asturias of the bill. “And that’s our mission anyway; we’re not sitting on land, and we’re trying to get projects developed. But this puts a cap on the  amount of time CLTs can take to get something started.”

If a CLT fails to break ground on a project after five years, property assessors can revaluate the property, and the trust could face penalties and fines. According to Asturias and ICLT, who helped to draft the language of the bill, five years was agreed upon by the various agencies who look at property valuation as enough time for developers and land trusts to procure entitlements for a project. A previous iteration of the bill, proposed last year, did not as clearly define the time limitations, and was held in committee as a result.

The legislation is important at a time when cities and communities are evaluating different means of increasing affordable housing stock. Community land trusts like ICLT work to provide longer-term affordable housing options; often CLTs will aim to develop projects that allow for affordable homeownership or permanently affordable rental units. While Asturias acknowledges that many private developers do include affordable housing as part of their development proposals, most of those units go to market rate after their contractual obligations to provide affordable housing are up.

“This legislation really expands the opportunity to create something that for a long time didn’t exist, which was permanent affordable housing,” said Asturias. “The legislation that exists today, in many cases, has looked at the creation of affordable housing as limited term projects. Many developments now are contractually approved by cities for a minimum of 30 years, by the State 55 years, but at the end of the contract they go to market. The CLT model makes these units permanently affordable; they will never go to market.”

Asturias added that affordable housing has been a topic of debate since the 1970s, although 40 years ago many believed that the State wouldn’t be facing the housing crisis it is today.

“There was always this conversation on what was the appropriate term,” he said. “But there is this ongoing understanding that we need to extend the term of affordability, because in reality, affordable housing will continue to be an issue in the state.”

While the savings garnered from the exemption provided by the bill may not be huge, Asturias emphasized that every dollar counts; currently, very little funding is available for projects that provide permanent affordable housing, especially those that aim for permanent affordable homeownership.

“It’s almost financially impossible to develop a home for lower income families based on the  state’s criteria,” said Asturias.

The State of California classifies moderate income as a household of two earning $94,000 annually. In Irvine, where ICLT operates, a permanently affordable house developed for middle income earners would be would sold at around $350,000; a house developed for lower income would be sold for $150,000. In Irvine, two-bedroom homes often sell for a market rate of more than $700,000, meaning that CLTs must rely on a healthy mix of grants, donations and other funding resources to make their projects pencil. SB-196 would be one additional mechanism that would allow developers to save on project costs.

The Bill has cleared the Senate Finance Committee 7-0 at the beginning of May, and the full Senate this past week. It will next face a vote in the California Assembly shortly.

“The Bill is going to have a significant impact, period. There’s no question about that,” said Asturias. “There are CLTs right now in particularly high-cost areas, so whether it’s one  year or two or three, every dollar saved is a dollar that can be put back into development. Ultimately, reducing those costs will make it more feasible to sell those homes at an affordable price.”

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