HomeMy WebLinkAboutITEM #4 LEGISLATIVE ANALYST article 2-9-16 ITEM #4
Article from the Legislative Analyst's Office
Dated February 9., 2016
LAO
75OPerspect'ives on Help*ing Lowminco e
CaliforniansAfford Housi*ng
MAC TAYLOR LEGISLATIVE ANALYST FEBRUARY , 201
Summary
California has aserious housing shortage.California's housing costs,consequently,have been rising rapidly
for decades.71hese high housing costs make it diff=icult for many Californians to find housing that is affordable
and that meets their needs,forcing them to make serious trade-offs in order to live in California.
In our March 2015 report, al r ria High Housing osis Causes and Consequences,we outlined the
evidence forCalifornia's housing shortage and discLlssed.its maJor ramification .We also suggested that the
key rernedy toCalifornia's housing challenges is a substantial increase in private hone building in the state's
coastal urban communities. An expansion ofCalifornia's housing supply would offer widespread benefits to
Californians,as well as those who wish to live in California but cannot aff rd to do so.
Some fear,however,that these benefits would not extend to low-income Californians. Because most new
construction is targeted at higher-income households, it is often -assumed that new construction does not
increase the supply of lower-end housing. In addition,some won-y that COJISIFUCtlon of market-rate lousing
in low-inconic neighborhoods leads to displacement oflm%,-income households.In response,some have
questioned whether efforts to increase private housing developinent-.11V prudent.1-hese observers suggest that
policy mak-ers instead focus on expanding government programs that alni to liclp log v_mcoine Califc)rnians
afford housing.
In this follow up to aliforiri(r's High Ho iisr -ig,Costs,Neve offer-additional evidence that facilitating more
private housing development in the stage' coastal urban con-imunities would help makes housing rnore
affordable for low-income alifoi-nians. Existing affordable housing progra.nis assist only a small proportion of
low-income Californians.Most low-income Californians receive little or no assistance.Expanding affordable
housing prograrns to help there h uscho lds likely would be extremely challenging and prohibitively expensive.
It may be lest to focus these programs or,Californians with more specialized housing needs—such as homeless
individuals and families or persons with significant physical and mental health challenges.
l JjC0urakT r additionaI private h(,)U S 1119 constrrlction can help the ninny low-income Cal i for n i a n s who
do not rec.elvc assistance. Ionsiderable evidence suggcsts that construction of marka-ratc housing re#di*rees
housing costs for tow-income hoUscholds and,consequently,helps to mitigate displacement in many cases.
Fringing about inore private lionic building,however,would be no easy task,requiring state and local policy
makers to confront very challenging issues and taking many years to c:orne to fruition. Despite these difficulties,
these efforts could provide significant widespread bexnchts:lower housing costs for millions of Californians.
AN LAO BRIEF
VARIOUS GOVERNMENT PROGRAMS HELP
CALIFORNIANS AFFORD HOUSING
Federal, state, and local governments Vo u ch e rs He 1p Ho useolds.Mord Housin .
ini.plement a variety of pro rams aimed at helping The federal government also makes payments
Californians, particularly low-income Californians, to landlords—known as housing vouchers—on
afford housing. These programs generally work behalf of about 400,000 low-inconie households
in one of three ways: (1) increasing the supply of in California. '1hese payments generally cover the
moderately priced 11OLISillg, (2) paying a portion of portion of a rental unit's monthly cost that exceeds
households' rent costs, or (3) hiulting the prices and 30 percent of the household's income.
rents property owners may charge for housing. Some Local Governments Place Limits on
Various Pro, rains Build Nears Moderately Prices and Rents. Some local governments have
Priced Housing. Federal,state, and local policies that require property owners charge
governments provide direct financial assistance— below-market prices and rents. In some cases,
typically tax credits,grants,or low-cost loans—to local governments limit how much landlords
housing developers for the construction of rental can increase rents each year for existing tenants.
housing. In exchange, developers reserve these About 15 California cities have these rent controls,
units for lower-income households. (Until recently, including Los Angeles, San Francisco, San Jose, and
local redevelopment agencies also provided this Oakland. In 1995, the state enacted Chapter 331
type of financial assistance.) By far the largest of of 1995 (AB 1164, Hawkins), which prevented rent
these programs is the federal and state Low Income control for properties built after 1995 or properties
Housing Tax Credit (LIHTC), which provides tax built prior to 1995 that had not previously been
credits to affordable housing developers to cover subject to rent control. Assembly Bill 1164 also
a portion of their building costs. `1he LIHIV, allowed landlords to reset rents to market rates
subsidizes the new construction of around 7,000 when properties transferred froin one tenant to
rental units annually in the state—typically less another. In other cases, local governments require
than 10 percent of total public and private housing developers of market-rate housing to charge below-
construction. This represents a significant majority market prices and rents for a portion of the units
of the affordable housing units constructed in they build, a policy called "inclusionary housing."
California each year.
NEED FOR HOUSING ASSISTANCE
OUTSTRIPS RESOURCES
Many Low-Income Households Receive 3.3 million low-income households (who earn
No Assistance. The number of low-income 80 percent or less of the median income where
Californians in need of assistance far exceeds they live) rent housing in California, including
the resources of existing federal, state, and local 2.3 million very-low-income households (who earn
affordable housing programs. Currently,about 50 percent or less of the median income where they
www.lao.ca.gov Legislative Analyst's Office 3
AN LAO BRIEF
live). Around,one-quarter(roughly 800,000) of Majority of Loup-Incoyne Households Spend
low-income households live in subsidized L1f1'()F(Ltb1L' 11orc Than Half of Their Income on Housing.
housing or receive housing vouchers. Most :Y(IttFld 1.7 ni.illion r-enter houscilolds
households receive no 1)(111 from these prig,2,i'.'uns- III (,-J-1 101'111;t NPOFt SJClhillh� 111011 Il I
Those that do) of Lind di-l'it it ),val-s to I�,I],. I IIS M 11 C k)I I 11()L I's i I 10V l 11 Is I's about I f perc�21 I t
get assistance. Roughly 700,000 1()U,'01101dN ()CCUPY ol'all California hOLIscholds, a considerably higher
waitilig lists for housing vouchers,almost twice the proportion than in the rest of the country(about
nuniber of vouchers available. 8 Percent).
CHALLENGES OF EXPANDING EXISTING PROGRAMS
One rossiblc response to these afl-Ordability .-III-Ordable Housing Construction Requires
chl i Ilenges could be to expand exist I iio 1 41 11 a rge Public Sllbsi(f irs. WI 11'Ic iI i� ti i fl,cu It tc)
f)C1�-cci 111,1m, Linits of
�,rmni
s. Gvcn the number of est I 111�'It c I sely llm%
-1
11 i(TJJ ll()LI S' -
�,truggting w1fli ME �,_,Ostsl liOWOVY, thl� hOUSing are needed, rc-C,1,w n able star ti n pol lit I
L
1)pi-oach would req, i -c draniati .-xl n,�mn te stat"c's current popuI at Ion (d 0W i 11C(A11C 1_C1'1k21_
of('Xisting government prograni,,, i iC.L,(_,�Sltat I lit' hOLISCholds that spend more di,in half their
Ll I Icl I I 1g, I ilC keases orders of magnitLl,�lC: larger- Oil housing—abOLtl 1.7 110111011
Llian cxistiii8 program funding and far-reacli 1 n!,', used on data from the LI TC,housino built
changes in exist in,, regulations. Such a dran)atic tow-income households in California's coastal
change would face several challenges and urban areas requires a public subsidy of around
r)rohably would have unintended consequences. S 165,000 per U 11 i L. At i I i I�, c()st,building i rig a ffordable
$ -dened
It I t natel y, attem lit I ng to address the state's 110LISHIg for Calif6rnia's L7 million IT111 hU:
liousl no -if I rr l.rl ility challenges primarily through I()% )I I C 0111 C 1, (1 sell ol d S wml I d Lost 111 C X Cc, t
expansion of government prograrns, likely WOUld be '�250 I)II11oll. 'lhiS 0,)Idd hC SJ)FC%-1L1 OLIt 0VC1_
impractical. howevcr, docs i)()- Ilreclude these several yc,ai-s by li,S,Uillbonds or
programs froni platy Ilik) E1 1,01C ill sli-atcgy %;Ubsidies to builders in i n -kill ment s), ivquii,ing
'pcnditurc,� ill the 1-ano-c 15 bi I holl
to improve California's housing I C
Ll()�)Ll cliance the actual
Below, we discuss these iSSLIeS in more detail. 1() S_'() I)II11on. LI Z,
cost could be higher. A110rdable housing projects
Expanding Assistance Programs often receive,subsidies frorn more than one source,
Would Be Very Expensive meaning the public subsidy cost per unit likely is
Extending housing assistance to low-income higher than $165,000. It is also possible the number
Californians who currently do not it—either of un Its needed could be higher if efforts to make
through subsidies for afford ablU]1 itc, or housing 1110re affordable spurred more
110 C
vouchers—woutd reqU11,C M) L"11111LI'Ll i i 4,f L111d,1 " PO p1c to o�-
in -c to the state. Conversely,there is
%6.
commitment in the low tens of billions of dollars. �101 11 Q'I �I i-rli n ce the cost cou I d be lower if bUi Id i n cT
I"
This is roughly the magnitude of the state's largest 11m,hoill ortl)c ].- 1111,11;,oll C.'Is-ed comma 111011
General Fund expenditure outside of education at tli�- bottoni end of the houJng in'L,Irket and
(Medi-Cal). 11111MVCJ some low-income families toy find
4 Legislative Analyst's Office www.lao-ca-gov
AN LAO BRIEF
affordable market-rate housing.Nonetheless,under Housing Sho rtage Has Do wnsides Not
any circumstances it is likely this approach would Addressed by Existing. sing Programs. High
require ongoing annual funding at least in the low housing costs are not the only downside of the
tens of billions of dollars. state's housing shortage.As we discussed in detail
Expanding Housing Vouchers Also Would in California's Hig Tousing Costs,California's
Be Expensive. Housing vouchers would be housing shortage denies many households the
similarly expensive.According to American opportunity to live in the state and contribute
Community Survey data,around 2.5 million to the state's economy.This,in turn,reduces the
low-income households in California spend state's economic Productivity.The state's housing
more than 30 percent of their income on rent. shortage also makes many Californians—not only
These households'rents exceed 30 percent of low-income residents—more Idly to commute
their incomes b $625 each month on average, longer distances,live in overcrowded housing,and
meaning they would require an annual subsidy delay or forgo homeownership. Housing programs
f around$7,500.This suggests that providing such as vouchers,rent control,and inclusionary
housing vouchers to all ofthese households would dousing that.do not add to the stats housing stock
cost around$20 billion annually.By similar logic, do little to address these issues.
less generous program that covered rent costs Scarcity ofHousing Undermines Housing
exceeding 50 percent of household income would Vouchers. California's tight housing markets pose
cost around 10 billion annually.There is,however, several challenges-for housing voucher programs
good reason to believe the cost of expanding which can limit their effectiveness.In competitive
voucher programs would be significantly higher housing markets,landlords often are reluctant
than these simple estimates suggest.As we discuss to rent to housing voucher recipients.Landlords
in the next section,a major increase in the number may not be interested in navigating program
voucher recipients likely would cause rents to requirements r may perceive voucher recipients
rise.Higher rent costs,in tura,would increase the to be less reliable tenants.One nationwide study
amount government would need to pay on behalf ndu ted in 2001 found that only two-thirds of
of Tow-income rentefs.This effect is difficult to voucher recipients in competitive housing markets
quantify but probably would!add several billion were able to secure housing.This issue likely would
to tens of billions of dollars to the annual cost of a be amplified if the number of voucher recipients
major expansion ofvuhers. competing for housing were increased significantly.
In addition,some research suggests that expanding
Existing Housing Shortage.Poses housing vouchers in competitive housing markets
Problems for Some Programs results in rent increases,which either offset benefits
Many housing programs—vouchers,rent to voucher holders or increase government costs for
control,and inclusionary housing—attempt to the program. One study looking at an unusually
make housing more affordable without increasing large increase in the federal allotment of housing
the overall supply ofhousing.This approach clues vouchers in the early 2000s found that each
very little to address the underlying cause of 10 percent increase in vouchers in tight housing
California's high housing costs:a housing shortage. markets increased monthly rents by an average.of
Any approach that does not address the state's 1 (about 2 percent).This suggests that extending
housing shortage faces the following problems. - vouchers to all of California'slow-income
www.lao.ca.gov Legislative Analyst's Office
AIS LAO BRIEF
households a several hundred percent-increase:in Barriers to Private Development Also
the supply of vouchers) could lead to substantial Hinder Affordable Housing Programs
rent inflation.If this were to occur,the estimates in Local Resistance and Environmental
the prior section of the cost to expand vouchers to Protection.policies Constrain Housing
all low-income households would be significantly Development.Local community resistance and
higher. California Environmental Quality Act A
Housing Costs#for-Households Not Receiving challenges limit the amount housing—both
in t
Assistance Could Rise.Expansion of voucher ri
pv to and subsidised—built in California.
programs also could aggravate hoilsing challenges These factorsresent challenges for subsidized
p
for those who do not receive assistance,particularly construction and inclusionary housing programs.
if assistance is extended to some,but not all Subsidized housing construction faces the same,
low-income households.As discussed above, in many cases more,community opposition as
research suggests that housing vouchers result in market-rate housing because it often is perceived a
rent inflation.This rent-inflation not only effects bringing negative changes to a cornu unity's duality
voucher recipients but potentially increases rents or character. Furthermore,subsidized construction,
paid by other low-and lower-middle income like other housing developments,often must
households that do not receive assistance. undergo the state's environmental review process
Housing Srt g Also Creates Problems outlined in CEQA.This can add costs and delay
for Rent Control Policies.The state's shortage of to these '
r eet .Inclusionary r housing programs
p � y h
housing also presents challenges for expanding rent rel onp rivate housing development to fund
control policies.Proposals to expand rent control construction of affordablehousing. Because
often focus on two broad changes: 1 expanding of this,barriers that constrain private housing
the number of housing units covered—by applying development also limit the amount of affordable
controls to newer properties or enacting controls housingproduced by inclusionary housing
in locations that currently lack thein—arid ro rains.
(2) p g
prohibiting landlords from resetting rents to Horne Builders Often Forced to Competefor
market rates for new tenants.Neither of these
Limited Development Opportunities.With state
.changes would increase the.supply of housingand, and localp oli ie limitingthe number of housing
in fact,likely would discourage new construction. projects that are permitted,home builders often
Households looking to move to California or compete for limited opportunities. One result of
within California would therefore continue to face this is that subsidized construction often substitutes
stiff competition for limited housing,making it for—or"crowds out"—market-rate development.
difficult for there to secure housing that they can Several studies have documented this crowd-out
afford. Requiring landlords to charge new tenants effect,generally finding that the-construction of
below-market rents would not eliminate this one.subsidi ed housing unit reduces market-rate
competition.Households would have to compete construction by one-half to one housing unit.These
based on factors other than how much they are crowd-out effects can diminish the extent to whish
willing to pay. Landlords might decide between subsidized housing construction increases the
tenants based on their income,creditworthiness.,or state's overall supply of housing.
socioeconomic status,likely to the benefit of more
affluent renters.
Legislative Analyst's office www.lao.ca.gov
AN LAO BRIEF
Other Unintended Consequences 11ils lock-in effect can Cause households to stay
"'Lock-In"Effect. Households residing longer in. a particular location than is otherwise
in affordable housing (built via subsidized optin-ial for them.
construction or inclusionary housing) or Declining Quality of Housing. By depressing
rent-controlled housing typically pay rents well rents, rent control policies reduce the income
below market rates. Because of this, households received by owners of rental housing. In response,
may be discouraged from moving froni their property owners may attempt to cut back their
existing unit to market-rate housing even when ll operating costs by forgoing,maintenance and
may otherwise benefit them—for example, if the repairs. Over time, this can result in a decline in
market-rate housing would be closer to a new job. the overall quality of a community's housing stock.
MORE PRIVATE HOME BUILDING COULD HELD'
Most low-income Californians receive little higher-income households. 17his seems to suggest
or no assistance from existing affordable housing that construction of new market-rate housing
programs. Given the challenges of significantly does not add to the supply of lower-end housing.
expanding affordable housing programs, this is Building new market-rate housing, however,
likely to persist for the foreseeable future. Many indirectly increases the Supply of housing available
low-income households will continue to struggle to low-income households in multiple ways.
to find housing,that they can afford. Encouraging Housing Becomes Less Desirable as It Ages. . .
more private housing development seems like a New housing generally becomes less desirable as it
reasonable approach to help these households. But ages and, as a result,becomes less expensive over
would it actually help? In this section, we present time. Market-rate housing constructed now will
evidence that construction of new, market-rate therefore add to a community's stock of loi,%rer-cost
housing can IoAv-er housing costs for low-income housing in the future as these new homes age and
households. become more affordable. Our analysis of American
Housing Survey data finds evidence that housing
Increased Supply,Lower Costs becomes less expensive as it ages. Figure I (see
Lack of Supply Drives High Housing Costs. As next page) shows the average rent for housing,
we demonstrate in Cal�fornia's High Housing Costs, built between 1980 and 1985 in Los Angeles and
a shortage of hOLIsing results in high and rising San Francisco. These housing units were relatively
housing costs, When the number of households expensive in 1985 (rents in the top fifth of all rental
seeking housing exceeds the number of units units) but were considerably more affordable by
available, households must try to outbid each other, 2011 (rents near the median of all rental units).
driving up prices and rents. Increasing the supply Housing that likely Nvas considered "luxury's when
of housing can help alleviate this competition and, first built declined to the middle of the housing
in turn,place downward pressure on housing costs. market within 25 years.
Building New Housing Indirectly Adds to the
Supply of Housing at the Lower End of the Market.
New market-rate housing typically is targeted at
www.lao.ca.gov Legislative Analyst's Office 7
AN LAO BRIEF
But Lack of New Construction Can Slour New Housing Construction Eases Competition
This Process. When new construction is ahumiant, 13dween Middle- and Low-Income Households.
middle-income households ]()()kl 11;7 Lo 111"01-J& -Another result of too little housing�.,()nstruction
the qUalitN' 01 r%11C11-110LISillg 01(c1i m m c [rom i� 111,ot mm'C "Ifluent 11misdit)US, 1'a
O1 CIS 11)W-C h0L1S111('Y t(') 11C:'W 110LISilig. I llnitc.l ImUS1119 '-IMY choose to live 11-1
\s till" C I I I I dtfl(" III Illy I I()LIS L'I I I�f, 11) L: 0,Ll t neighhm-11o)+[)-is anJ hoUL 1110 Units that
of older 110LI1,111(l It kc-�:onies avzulabl�, for lover- ha\��e been occupied bylow-income houschk)l(k.
income houscholids. 1his is less likely to occur in 'This reduces the amount of housing availabh- 1'()I-
communities where new housing construction is low-income households. Various econoinic StUt.11'CS
limited. Faced with heightened competition for have docunientcd this result. One analysis of
scat-cc housing, middle-inconie households may American Housing Survey data by researchers at
live longer in aging hOLISillg. Instead of'upcYradino the I-edcral Reserve Bank of New York C( and that
by moving to a new home, owners of agIII(" 110111L'S the i�,()re constrained the SL11)1)1V 1'CSj)()11-,C 10!, M%_-'AV
may choose to remodel their existing homr 2s. resideii.tUld units to demand shocks, t1w the
Sirnilarly, landlords of aging rental housing may probabilit), t1liat an affordable unit will Lip and
elect to update their properties so that thq, can out of the affordable stock." Other researchers have
continue to market thern to middle-0ik_-(.i,,nc, ft)Lind that low-income neighborhoods are more
households. As a result,less hOLISillg transitions to likely to experience an influx of higher-income
the lower-cn ] of the housing market over time. One households when they are in close proximity to
study Of 110LISing costs in the U.S. found that rental affluent neighborhoods with tight housing markets.
housing generally depreciated by about 2.5 percent More Supply Places Downward Pressure on
per year between 1985 and 2011, but that thl", I'Mc Prices and Rents. Wlien the number of housing
Nva s cons i d c r-ki I-) wc r e rce tit per yea 0 111 1111.t,,,, -(iv I I{i ble at t,I i c I ower end of a community's
�
regions Wit 11 YQ_�I'Ll t I Vk2l I I 1-11 ItC d 1.10 Ll sing supply-_ hmisin�', wart III�_t'�et �("S' growth in prices
,111 1 I-Clit's s1(-)XVS_ 1`.videllcc
this rclationsh,
Figure 1
Housing Becomes Less Expensive as It Ages
.a 11 be foUlld b)' Lornparing
cXp:ndiLures of
Percentile Rank of the Rent for Housing Built Between 1980 and 1985 1"
10WA11COMe 111OL16Cholds living
90% E1986 in California's slow-growing
80 coastal communities to
70 L Lhose living in fast-growing
60 communities elsewht,�T-e
50 in the country. Between
1 )'1')t Llnt12013, the hous' in
40
in C.iflifornia's coastal
3o. L11-I)MI 0AMLICS 6_'(_)L]1)t1(11S
20. 0)11,1prising metropolitan
10 .-trees with populations greater
than _500,000) grew by only.
Los Angeles San Francisco 34 percent, compared to
8 Legislative Analyst's Office www.lao.ca.gov
AN LAO BRIEF
99 percent in.the fastest growing urban counties (see next page) shows,displacenicnt Nvas more than
throughout the country(top fifth of all urban twice aslikely in low-income census tracts with
counties), As figure 2 shows,over the same time little market-rate housing construction (bottom
period rcnts paid by low-income households grew fifth of all tracts) than in low-income census tracts
nearly three times faster in California's coastal. with high construction levels (top fifth of all tracts).
urban counties than in the fastest growing Urban. Results Do Not Appear to Be Driven by
counties (50 percent compared to 18 percent). Inclusionary Housing Policies. One possible
As a result, the typical low-income household in explanation for this finding could be that many
California's costal urban counties now spends Bay Area communities have ilICILIsionary housing
around 54 percent of their income on housing, policies. In communities Nvith inclusionary housing
compared to only 43 percent in fast growing policies, most new market-rate construction is
counties. This difference-11 percentage points—is paired with construction of new affordable housing.
roughly equal to a typical low-income household's It is possible that the new affordable housing
total spending on transportation. units associated with increased market-rate
development—and not market-rate development
Lower Costs Reduce Chances of Displacement itself—could be mitigating displacement. Our
More Pri va te D e velopin en t A sso ci a to lith analysis, however, finds that market-rate housing
Less Displacement. As market-rate housing construction appears to be associated.with
construction tends to slow the growth in prices less displaceryient regardless of a community's
and rents, it can make it easier for low-income inclusionary housing policies. As with other
households to afford their existing homes.This Bay Area communities, in communities without
can help to lessen the displacement of low-income inclusionary housing policies, displacement
households. Our analysis of
low-income neighborhoods
in the Bay Area suggests Figure 2
a link between increased Places With More Building Saw
Slower Growth in Rents for Poor Households
construction of ii-iarket-rate
housing and reduced Rents Paid by Low-Income Households in Urban Counties(In 2013 Dotlars)
displacement. (See the $1,400
technical appendix for 1,200, 1,960
more information on how 2013
we defined displacement 1,000
for this analysis.) Between 800
2000 and 2013,low-income
census tracts(tracts with an 600
above-average concentration 400
of low-income households)
in the Bay Area that built the 2W
most market-rate housing
experienced considerably less lifomia Coast U.S.Countift With Most Hotm BuNing
displacement. As Figure 3
www.lao.ca.gov Legislative Analyst's Office 9
AN LAO BRIEF
w,,Js i-vorc than twice as likely 111 1()N� 1'11C 1I1c, experience displacement. A nci(hhor lioo�Y1 ,
x.'1) LIS t I'ACtS Wit 11 liIII ItCd 111,11-k�,l_r_tilt1(�tP.,I t II.; emo raphics an l.rs111cf CIiariic tt'r"r,��J,ti �e�rot)at)IV
�� ? 1 � Y-i�1c;: � � `]1;[1 tr 4z s .°i:l err` [11111 -tant.i o�gl�lkcic.`. Nve�-()i1t.�.r1L.lc tk) flllo
hi�,h t:()ii t r u- tion levels. t 1{it 111c l-c" sed a7wret-rate 110usin C011�t]'U,11'011
Relationship Remains Ali ci-Atc'o unthi Jol, liiikc'd to i'CdL11L1('d "0111111011
Fconomic anti Dernographic Flic lor's. (.)Lher factt)rs statistical technigLI s LO -L1Lk_:0L111[ I{.)C`
play a role in determining which roc#ighb rhoods (See the tcchnical appendi I'(W 11'101,C cictC.1ik.)
CONCLUSION
Addressing California's housur;0 CH�,i1, i,�, "HIC Current response to the state's 110LtsHIg
(Me of the most difficult It challenges facing the Often has centered oii l o%v to improv-
state' policy makers. Ilie scope of the problem �11Hc�rIIHC housing pro rai1rs_ 1lic cm�1-r11ity of
is massive. Millions of Californians struggle toCalifornia's h LI in chtali(Al ,c ,howcvcr, suggests
find housing that is both affordable and suits t1i,d( policy makers look for solutions K!yoricl these
their needs. The crisis also is a long time in the programs. While affordable housing programs
making,the culmination of decades of shortfalls are vitally 1111 port nt to the households they
1'1 11mising construction. And just as the crisis has these 1:)1,001,1111), 1rdil ()r11v a small fraction.
t . 4r1 'Wades to develop, it will take r iany years (�t t 11c -(11i1_01,11MI a�l t are struggling to cope
or decadcs to correct. There are 1-10 (lr~LrCk J 111] �:XIIV with thc sl Ertc', 111oh cosk . 'flie major{itv
lix s. III0)i1IC 110U,t-1101dS r�_'L:C'\T C (")I' 1 [7
and srciiJ rrlclr c
1"111 half of thel I' 1 I1_'011.1k2 011
Building Market-Bate Housing
110LI.sin , r-actc�d1y speakili ,
A ears to Reduce Displacement expanding affordable
Percent of Low-Income Bay Area Consus Teas Thar housing pro rams to serve
Experienced Displacement Between 2000 and 2013 these households WOUld be
40% Amount of Market-Rate extremely challenging and
Housing Construction prohibitively expensive.
E Low
30
❑High In our view,encouraging
more private housing;
di�vcloprncnt Carl provide
(] some relIJ to lm!-lncorn
tosec urc assrstaII".c!. i1�`
10
the role of afford 11 ]
housing programs in
`
All Communities +�mmr uhcl �irI��California's mostnities Without �
Inclusionary Housing dis.idvanta ed residents
1,C11IM11S 1111portant,
10 Legislative Analyst's Office www.lao.ca.gov
i
AN LAO BRIEF
we suggest policy maters primarily focus on The changes needed to bring about significant
expanding efforts to encourage private housing increases in housing construction undoubtedly will
development. Doing so will require policy makers be difficult and will take many years to come to
to revisit long-standing state policies on local fruition. Policy makers should nonetheless consider
governance and environmental protection,as these efforts worthwhile.In time,such an approach
well as local planning and land use regimes. offers the greatest potential benefits to the most
Californians.
www.lao.ca.gov Legislative Analyst's office 11
AN LAO BRIEF
REFERENCES
Early, D. 'W. (2000). Rent Control. 1\ental Malpezzi., S., & Vandell, K. (2002_). Does
Housing Supply, and the Distribution ol''l."eilant the low-income housing tax credit increase
Benefits. .1ournal qf'Urban Economics. - f f? , I
t Ile SLID Ply of housing?Journal ol'Ilottsing
185-204. 1__'CM Oill C!s, 1](4). 360-380.
- (20'�)
En en. M. D., & RS
oscnthal. S. S. (2010). MUnch, J. R., & Svaier, M. 0 . Rent
Crowd out effects of place-based SLit S'1L.11/Cd control ,md tenancy duration.Journal of t-11q)an
rental housing: Ncw cvlciciick� I'Yom the H I ITC L'col?MMCS., 52(_3'), 54?'-560.
pro gram. .1ournal ol'Public /,:'CWMMI.c.N� Rosenthal.' S. S. (2014). Are Private Markets
95.3-966. x1c] Filtering a V11,JbIc 1_�ource of LoNx-r-Income
Erikscii. \1. D, & Ross. A. (.201-4 1 lotisinO I lousilw") Estim,,_0"'s h-om a "Repeat Income
Vouchers ancl the Price of Rental Housing. N lodcl. lbe.,.4nierlcan Econonfic Revieiv.
,,linerican Econonfic Journal: Econoinic 104(.2,i. 687-706.
Finkel., N4., & Buron, L (j^2001). Study Sinis. 1), 1� (,2007). (._)L11 Of C011tFOL Wildt
on Section 8 Voucher Success Rates. Ct111 \\�5 leani from the end of Massaclitts-Cits
Volume I. Quantitative Study of Success 1,(2111 conti-of_.), (11T.-I-b(In 1_-_,cW)()fflhA,
Rates in Metropolitan Areas. Prelmi-eti by At 61(11), 129-151.
,4ssuclates.for the US. Delmronent of Housing
S 1 na i. T., & W,i I�_l 1'()LY
and Urban Developinew., 2-3). el, J. (2005). Do
low-income housing subsidies increase the
Glaeser. E. L., & Luta men, E. F. (2003). The OCCUPI-ed housino stock?Journal of Public
Misallocation of Housing tJnLlC1_ �\)ent Control. F-,cononfics, 89(11), 2137-2164.
The :lmcrican Econonfic Rei-lew. 9314). Somerville. C. T.. & Mayer, C. J. (200-3).
Guerricri V., Hartley, D., & ilurst, E. (jovernment Regulation and Changes in the
(2013). Endogenous GentrificAlun and HOLISIng Affordable HOLISing Stock. Economic Policy
Price Dynamics. Journal of'Piiblic Econoinics, Rei.,Ieii9 9(2). 45-62.
T-bluine 100 (C). 45-60. Susin, S. (2002)� 1 .:nt vouchers and the
Gyourko, J.. & Linneman, P. (1990). Rent price of low-income IWLI�Inu. J0111-W1101'Public
L
Controls Rental Housing Quality: A Note Econoinics, 830), 109-1524
on t,h,.- F11'ects ot'New York Chit y%-, Old Controls.
` " -409.8
11011/Thd ()f Urban ["conom cs. ') (I
1,2 Legislative Anallyst's Office www.lao.ca.gov
AN LAO BRIEF
TECHNICAL APPENDIX
' o examine the relationship between displacement between 2000 and 2013. This type
market-rate 110LIsing construction and displacement of model allows us to hold constant various
of low-income households we developed a simple economic and demographic factors and isolate
econometric model to estim(ite the probability of a the impact of increased market-rate constructioll
low-income Bay Area neighborhood experiencing on the likelihood of displacement. The results
displacement. of our regression are show in Figure Al.
Data. We use data on Bay Area census tracts Coefficient estimates from probit regressions are
(sn-iall subdivisions of a county typically containing not easily interpreted. While the fact that the
around 4,000 people) maintained by researchers coefficient for market-rate housing construction
with the University of California (UQ Berkeley is statistically significant and negative suggests
Urban Displacement Project. 11iis dataset included that more construction reduces the likelihood
information on census tract deniographics, lousing of displacement, the magnitude of this effect
characteristics, and housing construction levels. We is not immediately clear. 110 better understand
focus Oil data for the period 2000 to 2013, these results, We Used the model to compare the
Defining Displacement. Researchers have probability that an average census tract would
not developed a single definition of displacement. experience displacement when its market-rate
Different studies use different measures. For 0L11' construction was low (0 units), average (136 units),
analysis, we use a straightforward yet imperfect and high (243 units). As shown in Figure A2 (see
definition of displacement which is similar to next pagc), with low construction levels, a cera Lr
the definition Used by UC Berkeley researchers. tract's probability of experiencing displacement was
Specifically, we define a census tract as having 47 percent, compared to 3-4 percent with average
experienced displacement if(1) its overall construction levels,and 26 percent with high
population increased and its population of construction levels.
low-income households
decreased or(2) its overall Figure Al
population decreased and Regression Results
its low-income population Dependent Variable:Did Displacement Occur(Yes=1 and No=O)?
declined faster than the M I
overall population. Number of market-rate housing units built -0.00237 0,00043
Our Model. We Share of population that is low income 1.74075 0.54137
useprobit regression Share of population that is nonwhite -0.61213 0.29151
Share of adults over 25 with a college 1.90054 0.38599
analysis to evaluate how degree
various factors affected Population density -0.00001 0.00000
the likelihood of a Share of housing built before 1950 1.16506 0.22569
Constant -1.45886 0.33420
census tract experiencing
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AN L.AO BRIEF
Figure
More Housing Construction
Linked to Lower Chances of Displacement
Likelihood of an Aver Lour-Income Bay Area
Census Tract Experiencing Displacement, 2000 to 2013
50° Amount of Market-Rate
Housing Construction
Lover
40 Average
30 E]Higli
C�
1
{B
AN
Communities COMMUnitles Without.
Inclusionary dousing
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LAO Publications
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Sacramento,CA 95814,
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