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California State Auditor Logo COMMITMENT • INTEGRITY • LEADERSHIP

California's Housing Agencies
The State Must Overhaul Its Approach to Affordable Housing Development to Help Relieve Millions of Californians' Burdensome Housing Costs

Report Number: 2020-108

Summary

Audit Highlights . . .

Our audit of the State's efforts to support affordable housing projects highlighted the following:

Results in Brief

California's ongoing affordable housing shortage has contributed to the homelessness crisis and has left more than three million renter households with burdensome housing costs. This shortage in part stems from the State's ineffective approach to planning and financing development of affordable housing at both the state and local levels. Specifically, the State requires a far more effective statewide plan as well as sufficient oversight over the billions of dollars available for construction. In addition, the State's processes for awarding its financial resources for housing development are unnecessarily cumbersome. At the local level, state law and state oversight are not strong enough to ensure that cities and counties (local jurisdictions) are doing their part to facilitate the construction of affordable housing. Therefore, the State needs to improve its statewide housing plan (state housing plan), harmonize its funding programs, and strengthen its oversight of local jurisdictions.

The State plays a critical role in supporting affordable housing development and the Legislature has declared that private investment alone cannot achieve the needed amount of housing construction at costs that are affordable to people of all income levels—including households earning 80 percent or less of their area's median income (lower-income households). We refer to housing affordable to lower-income households as affordable housing. Four key state agencies contribute to the State's basic housing efforts and its goal of providing a home for every Californian: the California Department of Housing and Community Development (HCD), the California Housing Finance Agency, the California Tax Credit Allocation Committee (Tax Committee), and the California Debt Limit Allocation Committee (Debt Limit Committee). These four agencies provide financial resources in the form of loans, tax credits, and tax-exempt bonds (financial resources) to housing developers who build and rehabilitate affordable housing (developers) for lower-income households. This is in accordance with state law, which gives the State and local jurisdictions the responsibility to facilitate the improvement and development of housing to meet the needs of all state residents.

However, the State does not currently have a sound, well‑coordinated strategy or plan for how to most effectively use its financial resources to support affordable housing. For example, state law requires HCD to develop a state housing plan every four years, but its most recent state housing plan from 2018 lacks key attributes, such as explaining how state financial resources will contribute to meeting current and future housing need and identifying where those resources will have the most impact. Although state law does not expressly require this information in the plan, without it, the State cannot demonstrate how it will build enough affordable housing and ensure that its financial resources are put to best use. In one important example, the absence of a comprehensive and coordinated plan allowed the Debt Limit Committee to mismanage and ultimately to lose $2.7 billion in bond resources with little scrutiny, a loss the committee failed to publicly disclose and struggled to explain. These lost bond resources could have helped support the construction of more affordable housing.

The State's lack of a coordinated housing plan is also evident in the four agencies' misaligned and inconsistent requirements for the affordable housing programs they administer. The resulting approval process for the programs' financial resources is cumbersome for developers who need state resources to support their projects. Because these developers must often use multiple sources of funding for their developments to be financially feasible, the misaligned requirements can slow development and increase project costs. In addition, the Tax Committee's and Debt Limit Committee's review processes for projects are redundant in several respects because the committees review most of the same projects, contributing to our recommendation to streamline the funding process and consolidate these two committees.

The State's shortage of affordable homes is also attributable to barriers local jurisdictions have created. These local barriers—such as restrictions on the number of units developers can build or lengthy processes for approving developers' projects—make it more challenging to build needed affordable homes. Each local jurisdiction is responsible for planning to accommodate a designated portion of the State's needed affordable housing units; state law requires jurisdictions to adopt what are called housing elements (local housing plans) that identify sites suitable to accommodate these units, and also requires them to include actions to mitigate potential barriers to development. However, state law does not currently ensure that local jurisdictions actually mitigate such barriers. For example, although state law requires local jurisdictions to conduct streamlined reviews of affordable housing projects in certain cases, it does not guarantee streamlined reviews for all potential sites that jurisdictions have identified in their housing plans—meaning that jurisdictions can still undermine affordable housing development by using lengthy and uncertain approval processes. We found that, as of June 2019, local jurisdictions had collectively reported issuing building permits for only 11 percent of the affordable housing units in their current housing plans. Underdevelopment of affordable housing statewide and in certain areas is especially problematic because nearly every area in the State needs more affordable housing: for example, in 523 of 539 local jurisdictions, at least 20 percent of lower‑income renter households spend half or more of their incomes on housing—a severe cost burden.

Even if the Legislature strengthens state law to ensure that local jurisdictions mitigate key barriers to building affordable housing, HCD's current limited oversight is insufficient and its lack of authority does not permit it to ensure that all jurisdictions follow through with mitigating those barriers. Although HCD is responsible for overseeing local jurisdictions' housing efforts, it lacks adequate enforcement authority—short of initiating time‑intensive litigation—to ultimately ensure that jurisdictions comply with state law when they review affordable housing projects. In one case, HCD indicated that a city had acted inconsistently with state law by delaying a project on a site the city had identified for affordable housing and that the developer had subsequently withdrawn its application for the proposed development. Yet HCD simply encouraged the city to work with the developer and indicated that failure to comply with state law could result in litigation. The State needs a timely enforcement mechanism—such as an appeals process developers can use—for situations when local jurisdictions fail to approve eligible affordable housing projects. Without substantial changes to address these issues, the State will continue to face a patchwork of local housing efforts that limit Californians' access to affordable homes.

Summary of Recommendations

Legislature

The Legislature should amend state law to do the following:

Agency Comments

The State Treasurer's Office and HCD generally agreed with our recommendations.

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