California’s housing crisis has been well documented. What isn’t as widely understood, however, are the financing tools we use in the production of affordable housing.
One of those indispensable tools, Private Activity Bonds, are in danger of being eliminated as part of the Federal Tax Reform. There’s no other way to say it, this action would be devastating for the millions of low and moderate income Californians that are struggling to afford housing.
Fifty-four percent of renters in our state are rent-burdened, and California has nearly a quarter of the nation’s homeless people. The problem is one of supply, as California would need to create 180,000 units annually to keep up with demand. Current production is less than 100,000 per year.
September had seemingly brought some good news when, after years of hard work by housing advocates and lawmakers, Governor Jerry Brown signed a package of housing legislation. Like the homes it would help create, the package was built on a foundation. And that foundation was partnerships with the federal government.
Now, however, the Federal Government is threatening to rip away that foundation by eliminating Private Activity Bonds, which are used in public-private infrastructure partnerships and are also required for affordable housing developers to access 4% Low Income Housing Tax Credits. These bonds and tax credits are the building blocks of affordable housing throughout the country, including California.
The numbers aren’t pretty. Eliminating PABs would lead to the loss of 20,000 units of affordable housing in California each year. Remember, California is already behind in production by nearly 100,000 units per year as it is.
Eliminating access to the 4 percent tax credits would result in the loss of $2.2 billion of financing for affordable housing development in our state each year.
One big misconception is that these bonds are primarily used to finance projects like professional sports stadiums and golf courses. On the contrary, 36 percent of the Private Activity Bonds issued in California over the past 10 years went to finance affordable housing, while 40 percent went to hospitals and healthcare, and 14 percent to education. Add in pollution control and recycling and you have more than 94 percent of the bond issuance being used to finance projects that serve vital public purposes.
Since 2013, in Kings County alone, PABs and the 4 percent tax credit were used to finance 11 multifamily housing developments, supplying nearly 800 homes for struggling families, seniors and people at risk of homelessness.
Now, the federal government is threatening to eliminate the financing that made these projects happen.
When it comes to housing, the entire state of California is in a huge hole. If Private Activity Bonds go away, then we’re being told: “Keep digging.”