The Marin Post

The Voice of the Community

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Keith Miner

Moving the goal posts to conceal housing policy failures

Every article we read these days about affordable housing legislation presents formulas about what percentage of new units need to conform to various percentages of “median income” or “middle income” or “area median income” or other such standards to qualify for government subsidy, waivers, bonuses, and other developer incentives. These rules require things like 10% of new units must be for 30% of median-income households, or 20% of new units must be for 80% of middle income households, or 100% of new units must be “affordable,” defined as serving households earning up to some other percentage of area median income or whatever.

If you find this confusing, you have lots of company.

Taken together, the number of formulas and calculations that can or cannot apply to any particular project is so ambiguous, overlapping, and sometimes contradictory (Density Bonus laws, streamlining review laws, HUD rent standards, etc.) that almost any project could be argued for or against on technicalities. But then, that argument would come before a Superior Court judge, the vast majority of whom have no expertise whatsoever in real estate development, finance, or these laws and the definitions of terminology found in them (e.g., what being “substantially compliant” with state housing law really means?).

Meanwhile, after 15 years of passing more and more aggressive housing laws in California, since the passage of SB 375 in 2008, each removing more and more layers of local planning and zoning powers and increasing development ‘rights’ to housing developers, the state has little to show for it: particularly with regard to providing housing for low and very-low-income residents.

SB 375, theoretically, set up a process by which metropolitan planning organizations (MPOs) and the Air Resources Board would establish greenhouse gas emissions targets, by requiring MPOs to create “Sustainable Communities Strategies” in concert with a regional transportation plan that demonstrated how the region would meet its greenhouse gas emission targets.

It also introduced the concept of CEQA exemptions and project streamlining to override local control, based on the dubious claim that high density, by itself, was good for the environment (no matter how it was constructed). But ever since, the GHG emissions targets and the coordination with ‘regional transportation planning’ has gone by the wayside and all anyone in Sacramento cares about now is removing local control and CEQA protections and handing local planning and zoning control over to private development interests—all based on the argument that this will make housing more affordable.

So, how is that been working out?


The chart, above, shows that multifamily housing production levels today are no higher than they were in the early 1980s (when a spike to 18% prime interest rates crashed the housing market). It shows zero correlation between the passage of California housing laws, which started in earnest in 2007, and housing production. However, it does show strong correlations between housing starts and the economy and interest rates. (I would also add real wage growth, which has been flat to down.)

After the interest rate peak of 1980, housing starts followed the drop in rates until the late 1980s, when recessionary forces intervened, then they took off again until the market became glutted in the mid-2000s up to the Crash of 2008, for which the housing market (and the fundamental economy) has never fully recovered even after 12 years of near-zero interest rate Federal Reserve policies.

Interestingly, it appears that the pandemic was not a significant factor in impacting housing starts, either way, in terms of the overall trend. But now, with interest rates rising again and with California losing population for the first time in recent history, housing starts are rolling over again.

All of this has left state legislators and particularly ‘housing-at-all-costs’ fanatics like Senator Scott Wiener, with a marketing problem. Still, despite this, Wiener and his minions continue to claim that state housing laws are a smashing success. One of the ways they have been able to do this is by moving the goalposts to up their ‘winning’ score.

Defining “affordable”

The definition of “affordable” has been much abused since the federal government decided to weigh in on the U.S. housing market back in 1934, when the Federal Housing Administration, the FHA (later to be called the Housing and Urban Development – HUD), was created to house families who could not afford housing. The definition of affordable housing was further defined by the creation of the Section 8 rental assistance Program in 1974,

“…to provide rental subsidies for eligible tenant families (including single persons) residing in newly constructed, rehabilitated, and existing rental and cooperative apartment projects.”

As such, according to HUD,

“Under the [Section 8] Housing Act, "low-income families" are defined as those families whose annual incomes do not exceed eighty percent (80%) of the median income for the area in which the project is located, adjusted for family size, as determined by HUD at least annually. A "very low-income family" is defined as a family whose annual income is at or below 50% of the median income of the area in which the project is located, adjusted for family size.” [Emphasis added]

So, to understand how these percentages relate to housing prices, one needs to know how the term “median income” is defined. According to the U.S. Census,

“The median divides the income distribution into two equal parts: one-half of the cases falling below the median income and one-half above the median. For households and families, the median income is based on the distribution of the total number of households and families including those with no income.” [Emphasis added]

Correspondingly, in legislation, the term “median” has been used interchangeably with the term “middle.” This is different from the “average” or the “mean” income. That is calculated by adding up the entire income of all the residents, some making nothing but some making millions per year, and dividing that number by the number of residents.

Put another way,

"The average is calculated by adding up all of the individual values and dividing this total by the number of observations. The median is calculated by taking the “middle” value, the value for which half of the observations are larger and half are smaller."

The question then becomes, is the median income high enough to be able to afford the median home cost (single-family home or apartment) in any particular area? In other words, are homes “affordable?” And this is where the definition of what is or is not affordable has become more of an art form than a statistical calculation.

Originally, under the Section 8 program,

“The U.S Department of Housing and Urban Development (HUD) considers housing to be affordable when a household spends 30% or less of its income on housing costs.” [Emphasis added]

That meant that any household spending more than 30% of the median income on housing costs qualified to live in an “affordable housing” project. And anyone who is spending less than 30% of the median income did not qualify for government assistance. This also suggested that government programs were needed to provide real estate developers with incentives (subsidies and development rights) to induce them to build housing for those “30% of median income” households.

There has also been general agreement in state and federal housing laws that the terms “middle income” or “median income” are both defined as 100 percent median income households. But, the definition of “affordable housing” has gotten a lot more complicated and the math has gotten a bit fuzzier.

As of today, according to HUD and the California Department of Housing and Community Development (HCD),

“State statutory limits are based on federal limits set and periodically revised by the U.S. Department of Housing and Urban Development (HUD) for the Section 8 Housing Choice Voucher Program. HUD’s limits are based on surveys of local area median income (AMI). The commonly used income categories are approximately as follows, subject to variations for household size and other factors:

“Acutely low income: 0-15% of AMI

Extremely low income: 15-30% of AMI

Very low income: 30% to 50% of AMI

Lower income: 50% to 80% of AMI; the term may also be used to mean 0% to 80% of AMI

Moderate income: 80% to 120% of AMI”

The last category, “Moderate income,” now suggests that a household making the area’s “median income” (or “AMI”) cannot afford the median cost of housing, so the percentage of AMI has to be stretched beyond 100% of median income to 120%.

Although it must be acknowledged that in many markets the costs of housing has become unaffordable to middle income families, because home prices have risen faster than wage gains, the ongoing expansion of the “middle income” definition of “affordable” has also allowed politicians to claim that recent housing laws are succeeding in achieving housing affordability (more homes that are built are now classified as affordable even as costs for housing rise).

But these claims are questionable because in some instances, the upward adjustment in what percentages above median income qualify as being affordable (and therefore in need of government support), has gone beyond reflecting the impacts of housing costs rising faster than income increases.

For example, the current median income in Mill Valley, California, is $179,529 per year. That means that according to HCD, households earning 120% of median-income, or $215,435 per year, and the developers building housing for those households need government incentives, waivers, and subsidies to develop housing in Mill Valley.

Though it is indeed more challenging for a household in Mill Valley making the median income to buy a home, it’s by no means been impossible for a household making $215,435 per year (120% of median income) to do so.

However, under the latest revisions to the Housing Accountability Act, Housing for Very Low, Low-, or Moderate-Income Households, Government Code, § 65589.5, subdivision (h)(3), the definition of “middle income” households has been revised once again. It is now defined as,

“Middle-income households are those persons and families whose income does not exceed 150 percent of area median income (Gov. Code, § 65008 subd. (c).)” [Emphasis added]

First off, this new definition is nonsensical on its face because the terms “middle income” and “median income” are the same thing. It is the height of Orwellian-speak to say that households that earn 150% of “median income” are now, magically, to be called a “middle income” households. How can the “middle” suddenly be defined as 50% more than “median?”

This means that developers building housing for households in Mill Valley that earns $269,294 qualify for government (taxpayer) subsidies, waivers, streamlining processing, and financial incentivizes to do so. But, consider that if that family spends 30% of their income on housing, at today’s rates, with 20% down, they can afford a home in the $1.35 million range, which are certainly available.

Perhaps, it’s the 70-year old assumption that spending “30%” of median income is a reasonable definition of what constitutes “affordable housing” that needs rethinking? Is that metric really appropriate now when the costs and complexities of home ownership and renting have dramatically increased--land costs and scarcity, materials and construction costs, the many kinds of insurance required, tax rates, fees, dues, and utility costs, etc.--when compared with the other costs of living?

Either way, we’ve certainly come a long way from HUD’s original definition of households in need of "affordable" housing assistance.

Escalating the definition of affordability and which projects qualify for government giveaways is obviously attractive to politicians wanting more housing, regardless of the negative financial impacts on cities, in order to lavish benefits into the wallets of for-profit developer donors, while also wanting to claim that state housing laws are a big success. But this also potentially distorts the fundamentals of supply and demand pricing in counterproductive ways.

In a market economy, unless artificially subsidized, the price of a commodity will rise until it becomes unaffordable at which point demand diminishes and those who make their living selling that commodity start to lower the prices until demand returns. However, with the government subsidizing housing (through development incentives for for-profit developers), prices (for sales or rentals) will continue to rise (and profits will continue to flow to housing developers) above natural pricing levels.

This is analogous to the infamous “Fed put” that underwrote the stock markets for so long, by the Federal Reserve keeping interest rates artificially low (a form of subsidy) and in combination with spending trillions on pandemic stimulus, thus driving demand and stock prices to unsustainable levels.

Considering the stagnation in housing starts, it seems that in addition to being completely addicted to artificially low interest rates even all the government giveaways, subsidies, and incentives are not enough to support financially feasible housing development. After all, no market can succeed unless there is real demand.

Add to that media and government’s avoidance of talking about the general, affordability collapse for the working middle-class and you get a glimpse of how formidable and intractable our housing challenges really are.

No amount of redefining terms is going to fix that.

Now, if we combine that with our state’s population outflows, our over-dependence on taxes from the tech sector, with their employment now falling off a cliff, the stubbornly high costs of construction, the looming costs of maintaining an upgrading our aging infrastructure, the state’s rising budget deficits, and the Sacramento’s myopic focus on destroying all semblances of local control of planning and zoning, it looks like a state government that is in a serious case of denial—the costs of which will inevitably result in more taxes and fees and other dramatic increases in the cost of living in California for years to come.

Good luck creating affordable housing in that scenario.

Where does this leave us?

At the end of the day, math is math, we need to either find ways to attract more private capital to housing development or decrease the real costs of development (not just more nonsense about local government being biggest obstacle) without killing the goose that laid the golden egg--the financial integrity of local governments--or both. This would suggest that it’s important that every dollar spent toward creating/maintaining affordable housing be done in the most cost-efficient way.

Of the potential places to cut costs, some are already in the works, such as incorporating prefabricated building components. However, the most obvious savings would come from significantly limiting developer and private lender profits when they build housing for low and moderate income families (while simultaneously providing co-insurance on debt and project-based subsidy contracts to reduce their risk when they build low-income housing).

Barring that, it may be that the only way to create and maintain affordable housing is to re-learn the lessons of the 1930s and for government to start building and managing affordable housing, again. After all, all the 'housing as a right' success stories everyone is always pointing to, whether rental or ownership, are in places like Austria, Sweden, Singapore, nations where the government builds the bulk of the “affordable” housing.

Government-built housing worked for decades in the U.S. until they decided we couldn't afford to build it or manage it (Nixon Administration) and then couldn't afford to finance it (Reagan Administration), leading decisively to the 'leave it to for-profit developers and the markets' mess we are in today.

Bob Silvestri is a Marin County resident, the Editor of the Marin Post, and the founder and president of Community Venture Partners, a 501(c)(3) nonprofit community organization funded by individuals and nonprofit donors. Please consider DONATING TO THE MARIN POST AND CVP to enable us to continue to work on behalf of all California residents.