Market, Not Govt., Builds Cheaper Housing

JAN. 17, 2012

By WAYNE LUSVARDI

Is the demise of redevelopment hurting the poor?

El Monte Mayor Andre Quintero says it is. He’s bemoaning that, when Gov. Jerry Brown  and the Legislature killed redevelopment, the source of funds for affordable family housing subsidies was eliminated in his city.

But El Monte doesn’t need funds from redevelopment for affordable family housing.  The real estate market is already providing it, at least for one of the two zip codes in the city.

El Monte is a city of 118,874 people.  It is a working-class suburb of the city of Los Angeles.  It has older housing stock, 59 percent of which is renter-occupied and 41 percent is owner-occupied.

El Monte Housing Already Affordable

The definition of affordable housing by the U.S. Department of Housing and Urban Development is for a household to spend no more than 30 percent of its income on housing. Well, 30 percent of the $41,948 annual median household income in El Monte is $12,584 a year. That’s $1,049 per month.

According to California licensed real estate appraiser Charles B. Warren, for November 2011, the median home value in El Monte was $240,000 in zip code 91731 (source: Dataquick.com).  Warren stated the monthly mortgage payment today on a $240,000 home in El Monte would be $1,034 per month at a prevailing 3.169 percent interest rate on a 30-year loan, assuming zero down-payment.  That would be $15 less than the 30 percent HUD threshold.

In other words, there is no apparent need to continue to divert redevelopment property taxes from the public schools in El Monte to subsidize affordable family housing.

Prop. 22 Retains Redevelopment Funds Locally

Warren said the way redevelopment works in California is that 20 percent of all the property taxes in a commercial redevelopment project are set aside for affordable housing.  The 20 percent for affordable housing is diverted away from public services such as police, fire, parks and public schools.

Brown indicated in his Jan. 5 state budget revision that $5 billion would have to be cut back from public schools for the upcoming 2012-2013 fiscal year. Coincidentally, about $5 billion in property taxes were diverted from the state budget for redevelopment each year.  Twenty percent — or $1 billion — of the $5 billion in property taxes for redevelopment were further allocated to “affordable housing.”  Under Proposition 22, which voters passed in Nov. 2010, local redevelopment agencies were allowed to retain their affordable housing funds.

Only new monies for affordable housing would be cut off because new redevelopment projects would be cancelled. But should those cities be allowed to keep their affordable housing funds if there is no need for them?

Affordable Housing is a Trick

Warren added that the way California redevelopment law apparently redefined affordable housing as “new” was an end run around Proposition 13, the 1978 tax limitation initiative.  Warren said that, traditionally, affordable housing was old, obsolescent and located farther away from shopping centers and public services. That is what made it “affordable.”

“Affordability in housing is like affordability in cars,” he said. “Older cars are more affordable. Less luxurious cars are more affordable. Of course, the more new cars there are, the lower the price for used. Nobody claims that everybody has a right to a new luxury car. That claim is equally preposterous for housing. Building new market-rate housing lowers the cost of used housing. That’s an affordable housing program that demonstrably works.”

But under California redevelopment, affordable housing is new, with luxury amenities, and is often located on pricey commercial land next to public transit centers or light rail lines. Thus, by redefining affordable housing as “new,” it increased the property tax base and circumvented Prop. 13. The problem is that most of the property taxes from that higher tax base went to city halls rather than public schools.

Markets Provide

The unintended consequence of Prop. 22 and Brown shutting down redevelopment is that affordable housing funds from redevelopment projects may no longer be needed to build inexpensive housing.  The collapse of the housing bubble has allowed market forces to provide affordable ownership and rental housing from existing housing stock in many communities.

That’s also true of areas where housing prices have dropped dramatically, such as Stockton, Sacramento, the Inland Empire in Southern California and the older working-class suburbs of Los Angeles. These areas also likely would not need to continue to build the unnecessary affordable housing that does nothing but perpetuate redevelopment bureaucracies and rob public schools.

Markets, not government, provide affordable housing.

 

5 comments

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  1. LGMike
    LGMike 17 January, 2012, 16:21

    With a few exceptions, I would bet “affordable housing” costs more than the 30% level mentioned in article. If you look at the “affordable” building in San Diego, the market rates are extremely high, it only becomes affordable because the government is paying in some cases 60-70 % of the rent so that the people moving in don’t pay over the 30 % housing criteria. Not to mention, the donations that most of the developers give to be rewarded for building affordable units. WHAT A JOKE, real affordability in housing comes from letting the market build and see what they can sell to real persons wanting a home, not an investor trying to “turn” for a quick profit.

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  2. Brad
    Brad 21 January, 2012, 20:06

    Your math in the sixth paragraph is faulty. A zero-down-payment mortgage would require PMI ($100ish/mo), and a mortgage of whatever type would also require insurance (at least $100/mo) and property tax ($200ish/mo), putting that house well over affordable. Also, can you really get a zero-down loan these days?

    But yes, the only way to actually build enough affordable housing is to build more housing.

    Reply this comment
  3. Marilynne L. Mellander
    Marilynne L. Mellander 22 January, 2012, 17:15

    “Affordable housing” are exempt from CEQA regs http://www.pclfoundation.org/publications/ceqaguidelines/Article-12.5.html#sec15196
    which abnormally drive up the costs of non-government building projects

    Reply this comment
  4. Marko Mlikotin
    Marko Mlikotin 23 January, 2012, 07:14

    This article raises an important point worth watching as Senator Steinberg writes legislation to reconstitute redevelopment agencies, but limiting their activities to “low incoming” housing. What constitutes a “low income” housing project?

    Redevelopment agencies have received state and federal grants to build low income housing. However, it is not uncommon for them to acquired property by eminent domain with a substantial portion of the property including retail and market based housing too. This, of course, is where politically favored developers make their money and cities generate sales tax. In Rancho Cordova the price per door for one “low incoming” housing complex cost taxpayers approximately $500,000 per a door. This is a community with home values in the low $200,000s and a very high inventory of vacant housing. So, was this a good use of taxpayer dollars?

    Marko Mlikotin – California Alliance to Protect Private Property Rights
    http://www.CalPropertyRights.com

    Reply this comment
  5. Scott Zwartz
    Scott Zwartz 23 January, 2012, 11:26

    In L.A. County, the County Bd of Supervisors showed that the CRA/LA tore down far more Affordable Housing than it build leaving the middle and low class worse off.

    As the W Hotel condos showed, the developers ended up building luxury which no one wanted. The fools who built the W Hotel condos actually believed that people would give up their cars because the W was on top of the subway. That was a stupid multi-million dollar mistake. What make it particularly stupid was the the CRA Hollywood-Highland had already lost $454 Million by making that same error.

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