HomeMy WebLinkAbout122220-03.1 Attachment BCalifornia’s Housing Agencies
The State Must Overhaul Its Approach to Affordable
Housing Development to Help Relieve Millions of
Californians’ Burdensome Housing Costs
November 2020
REPORT 2020 ‑108
ATTACHMENT B
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Elaine M. Howle State Auditor
621 Capitol Mall, Suite 1200 | Sacramento, CA 95814 | 916.445.0255 | 916.327.0019 fax | www.auditor.ca.gov
November 17, 2020
2020-108
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento, California 95814
Dear Governor and Legislative Leaders:
As directed by the Joint Legislative Audit Committee, my office conducted an audit of the State’s
efforts to support affordable housing projects throughout California. Our assessment focused on
financing provided for affordable housing projects from four key state agencies—the California
Department of Housing and Community Development, the California Housing Finance Agency,
the California Tax Credit Allocation Committee, and the California Debt Limit Allocation
Committee (Debt Limit Committee). The following report details our conclusion that the
State must overhaul its approach to affordable housing development to help relieve millions of
Californians’ burdensome housing costs.
California is failing to build enough affordable homes for lower income residents in part because
the State lacks an effective approach to planning and financing development of affordable housing
at both the state and local levels. For example, the State does not have a clear plan describing
how or where its billions of dollars for housing will have the most impact. In fact, 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 that the committee failed
to publicly disclose and struggled to explain. These 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—another factor that can interfere with the State better
meeting its goals for affordable housing.
At the local level, state law and state oversight are not strong enough to ensure that cities and
counties are doing their part to facilitate the construction of affordable housing. Therefore, the
State needs to improve its statewide housing plan, harmonize its funding programs, and strengthen
its oversight of cities and counties.
Respectfully submitted,
ELAINE M. HOWLE, CPA
California State Auditor
iv California State Auditor Report 2020-108
November 2020
Selected Abbreviations Used in This Report
CalHFA California Housing Finance Agency
HCD California Department of Housing and Community Development
HUD U.S. Department of Housing and Urban Development
IRS Internal Revenue Service
vCalifornia State Auditor Report 2020-108
November 2020
Contents
Summary 1
Introduction 5
Chapter 1
The State Lacks an Effective Approach to Building Enough
Affordable Homes 17
Recommendations 30
Chapter 2
The State Has Not Ensured That Local Jurisdictions Accommodate
Needed Affordable Housing 33
Recommendations 50
Other Issues We Reviewed 53
Appendix A
Debt Limit Committee-Awarded Bond Resources 55
Appendix B
Tax Committee Distribution of Tax Credits Awarded 57
Appendix C
Scope and Methodology 59
Responses to the Audit
California Department of Housing and Community Development 63
State Treasurer’s Office 65
California State Auditor’s Comments on the Response From
the State Treasurer’s Office 71
vi California State Auditor Report 2020-108
November 2020
Blank page inserted for reproduction purposes only.
1California State Auditor Report 2020-108
November 2020
Audit Highlights . . .
Our audit of the State’s efforts to support
affordable housing projects highlighted
the following:
»The State’s approach to planning and
financing the development of affordable
housing at both the state and local levels
is ineffective.
• Four key state agencies contribute to
the State’s basic housing efforts, but
there is no sound, well-coordinated
strategy or plan to most effectively use
their financial resources to support
affordable housing.
• The lack of a comprehensive plan
allowed one agency to mismanage
and ultimately lose $2.7 billion in
bond resources.
• The four agencies’ requirements
are misaligned and inconsistent,
which results in an unnecessarily
cumbersome process for awarding
their financial resources.
• Local jurisdictions have created
local barriers such as restrictions
on the number of units developers
can build and lengthy project
approval processes.
»State law and oversight are not strong
enough to ensure that cities and counties
are doing their part to facilitate the
construction of affordable housing.
• We reviewed cases in which local
jurisdictions acted inconsistently with
state law and/or delayed projects,
yet the State lacks authority to
ensure affordable housing is built
in a timely manner.
Summary
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.
California State Auditor Report 2020-108
November 2020
2
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
3California State Auditor Report 2020-108
November 2020
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:
• Require HCD to prepare an annual addendum to the State’s
housing plan that identifies all of the financial resources the State
possesses for the development of affordable housing, the number
of affordable units those resources are expected to help build, the
amount the State will need to obtain from other sources, where
the State’s resources will have the most impact, and outcomes to
measure the success of its investments.
• Create an interagency workgroup to develop consistent program
requirements for awarding financing resources to multifamily
housing projects to maximize affordable housing built and
remove administrative barriers.
ATTACHMENT B
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4
• Strengthen existing standards for mitigating barriers on potential
affordable housing sites to ensure that local jurisdictions conduct
streamlined reviews and do not unduly restrict the number of
units developers can build on each site.
• Create an appeals process for developers to resolve disputes over
eligible affordable housing projects in a timely and fair manner.
• Eliminate the Debt Limit Committee and transfer its authority
to the Tax Committee to manage tax-exempt bonds, including
its responsibilities for reviewing applications and allocating
bond resources.
Agency Comments
The State Treasurer’s Office and HCD generally agreed with our
recommendations.
5California State Auditor Report 2020-108
November 2020
Introduction
Background
The Legislature has identified housing as an essential motivating
force in helping people achieve self-fulfillment in a free and
democratic society. To that end, the Legislature has declared that
the State’s basic housing goal is to provide a home and suitable
living environment for every Californian. However, the Legislature
has also declared that in California, private investment alone
cannot achieve the needed construction of housing at costs that
are affordable to people of all income levels, including to those
households earning 80 percent or less of their area’s median income
(lower-income households). We refer to housing affordable to
lower-income households—which comprise more than 40 percent
of all California households, according to U.S. Census Bureau
data—as affordable housing. California’s shortage of affordable
housing has created a substantial need for new housing and the
rehabilitation of existing housing. Research demonstrates that
in addition to improving the well-being of residents, affordable
housing development also increases spending and employment in
the surrounding economy and provides an important source of
revenue to cities and counties (local jurisdictions) from sales taxes
on building materials and building permit fees.
State law has given the State and local jurisdictions the
responsibility for facilitating the improvement and development
of housing to meet the needs of all economic segments of the
community. Four key state agencies contribute to the State’s
mission to provide suitable housing for all Californians: the
California Department of Housing and Community Development
(HCD), the California Housing Finance Agency (CalHFA), the
California Tax Credit Allocation Committee (Tax Committee),
and the California Debt Limit Allocation Committee (Debt
Limit Committee). As we show in Figure 1, these four agencies
offer financial support for the development of affordable housing.
Further, HCD is responsible for overseeing local jurisdictions that
plan and approve the construction of affordable housing, in part,
by reviewing and approving their state-required plans to build
such housing.
The State’s Shortage of Affordable Housing Affects Millions
of Californians
California’s lack of affordable housing has contributed to the
homelessness crisis and has left more than three million renter
households with burdensome housing costs. HCD determined in
2018 that California needs to add about 180,000 units of housing
6 California State Auditor Report 2020-108
November 2020
annually through 2025 to keep up with housing demand, which
amounts to more than 70,000 units of affordable housing needed
annually.1 This lack of supply affects the affordability of housing,
according to HCD, which reports that the State has fallen short
of the needed units by tens of thousands compared to the annual
projected need. At the same time, each year that the State does
not meet its projected need for affordable housing, the number of
needed housing units grows, making it even more difficult to keep
pace with housing demand.
Figure 1
The State Provides Financial Assistance and Is Responsible for Ensuring That Local Jurisdictions Support Sufficient
Affordable Housing
State Financial Resources for Affordable Housing
Provides
funding
via loans
or grants
Issues
bonds and
provides
loans
Awards
tax credits
Authorizes tax-exempt
bonds for development
HCD CalHFA Tax Committee Debt Limit Committee
HCD Oversight
Reviews and approves local
jurisdictions’ state-required plans
to develop aordable housing
Reviews local jurisdictions’
progress in building
aordable housing
Can refer local jurisdictions to the
Oce of the Attorney General if
they violate state law
Local jurisdictions designate building sites, set rules for development, and
approve building permits to build aordable housing. Using state and private
financial resources, developers build and rehabilitate aordable housing.
Affordable Housing Development
Source: Various state laws.
1 A unit of housing can include a single-family house or an apartment.
7California State Auditor Report 2020-108
November 2020
Because of this shortage of affordable homes, residents of
California are experiencing widespread consequences, as we show
in Figure 2. For example, California represents 12 percent of the
nation’s population, but 27 percent of the nation’s population who
are experiencing homelessness—more than 151,000 people—live
in California. Since at least 2018, the State has made additional
investments to boost construction of housing and to help those
experiencing homelessness. However, the U.S. Department of
Housing and Urban Development (HUD) reported in January 2020
that California’s population experiencing homelessness increased
by more than 21,000 people from 2018 to 2019, or about 16 percent.
Moreover, the Governor emphasized the urgency of the State’s
homelessness crisis in his February 2020 State of the State address.
Figure 2
California’s Shortage of Affordable Homes Has Widespread Consequences
1.6 million renter households are severely
cost-burdened, meaning they spend more
than half of their income on housing costs.
Of these, more than 98 percent are
lower-income households.*
California ranks worst in the nation in
renter overcrowding with 13 percent
of renter households having more than
one person per room, including all people
and rooms (living rooms and bedrooms)
in each household.
California is home to 27 percent of the
nation’s homeless population, despite
containing only 12 percent of the nation’s
overall population.
Source: 2012 to 2016 and 2018 U.S. Census Bureau data from the American Community Survey,
U.S. Census Bureau 2019 population estimates, and HUD’s 2019 Annual Homeless Assessment Report
to Congress.
* Households earning incomes that are 80 percent or less of their area’s median income.
California State Auditor Report 2020-108
November 2020
8
Further, high housing costs and the lack of access to affordable
housing affect health, education, and quality of life for
lower-income households. HUD data from 2012 through 2016
indicates that 1.6 million renter households in the State are severely
cost-burdened; that is, they spend more than half of their monthly
income on housing costs. Of these, more than 98 percent are
lower-income households. Figure 3 illustrates the burdensome
housing costs for a lower-income household. According to HCD,
when Californians are forced to pay a higher percentage of income
toward housing costs, it can have a broad impact on the overall
quality of their lives and the lives of their families, such as health
consequences and a negative impact on children’s academic
performance. For lower-income households, California’s housing
agencies have reported that high housing costs can lead to frequent
moves or force families to live in unhealthy substandard housing.
According to the Terner Center for Housing Innovation at the
University of California, Berkeley, as of June 2020, nearly one
million renter households in California experienced a job loss as
a result of the economic impact of COVID-19, placing households
at risk of housing insecurity and eviction. Further, according to
HCD, housing costs and supply issues particularly affect certain
vulnerable populations, such as persons experiencing homelessness,
people with disabilities, seniors, and farmworker households.
Lastly, more affordable housing benefits everyone. Research
suggests that the potential social and economic benefits of
affordable housing, beyond simple cost savings to residents, include
increased economic activity in the community and reductions in
homelessness, in greenhouse gas emissions, and in costs for medical
care and social services.
State Agencies Play a Significant Role in Supporting Affordable
Housing Development
Developing affordable housing in California is complex and
costly, and it typically requires those who build and rehabilitate it
(developers) to secure funding from more than one source in order
to finance a single project. According to a September 2018 report
by the U.S. Government Accountability Office, the median cost of
building a unit of affordable housing for certain projects completed
between 2011 and 2015 in California was $326,000, whereas the
median cost was $264,000 in New York and $126,000 in Texas.
Project developers secure funding for their projects by applying to
several—often more than four—different organizations, including
private, local, state, and federal entities. In fact, for a selection of
affordable housing projects we reviewed, developers used a variety
of these organizations for financing. Even after securing local and
private funding assistance for a housing project, project applicants
9California State Auditor Report 2020-108
November 2020
often fall short of their financing needs. For example, a developer
may have plans to build an affordable housing project with
112 units, for a total cost of nearly $44 million. Private investors
may provide $6 million in loans and local governments may provide
an additional $13 million in funds; however, the developer must still
cover the remaining $25 million in expenses, in this case, turning
to the State for additional financing to close the gap. Affordable
housing often requires significant financial support from the State
in order for these projects to be financially feasible for developers,
who must agree to maintain these developments at affordable rents
for lower-income households for years after they are built.
Figure 3
Millions of Renter Households in California Have Significant Housing Costs
HOUSEHOLDS
Housing Costs > 30% Monthly Income*
†
Housing Costs > 50% Monthly Income
Monthly Housing Costs (Rent and Utilities) Monthly Housing Costs (Rent and Utilities)
Cost Burden Severe Cost Burden
Cost-Burdened Severely Cost-Burdened
1.6 Million
$4,200 per month
$1,260 +$2,10 0 +
HOUSEHOLDS
3 Million
A four-person household in California that earns
is considered low-income.
Source: 2012 to 2016 U.S. Census Bureau data from the American Community Survey and
HUD 2020 state income limits.
* Includes the 1.6 million households that are severely cost-burdened.
† This monthly income is based on HUD’s median family income for a low-income family of four
(earning between 80 percent and 50 percent of California’s median family income).
The State’s four key housing agencies—HCD, CalHFA, the Tax
Committee, and the Debt Limit Committee—provide financing to
developers and other housing organizations, such as the California
Municipal Finance Authority, for the construction of affordable
California State Auditor Report 2020-108
November 2020
10
housing through tax credits, tax-exempt bonds, and loans, which
we refer to collectively here as financial resources. These state
agencies award significant support for affordable housing through
the development of multifamily housing, such as rental apartment
buildings. Multifamily housing can be a cost-effective way to create
a higher number of affordable housing units in a smaller space. The
State also invests in single-family programs, which typically assist
first-time homebuyers when they purchase a home, but they are not
exclusive to lower-income households. Because the four agencies
award significant financial resources to support multifamily rental
housing for lower-income households, we have focused our analyses
on the programs that emphasize this type of housing development.
Residing within the State Treasurer’s Office, the Tax Committee
and the Debt Limit Committee provide the majority of state
financial resources for affordable multifamily housing projects by
awarding tax credits and tax-exempt bond allocations. State law
designates the Tax Committee to award federal tax credits and
the Debt Limit Committee to allocate the State’s tax-exempt bond
resources. Significantly, because the majority of tax credits are
paired with bond allocations, the two committees make awards
to most of the same projects. For example, if an applicant receives
approval to fund at least half of its multifamily housing project
with tax-exempt bonds, the applicant often also applies for and
receives federal tax credits. The Tax Committee administers the
State’s low-income housing tax credit program, which encourages
the construction and rehabilitation of affordable multifamily rental
housing. In 2019 the Tax Committee awarded $353 million in
federal tax credits, which equates to $3.53 billion because project
owners can take the annual credit each year for 10 years. The Tax
Committee awards these federal housing tax credits to developers
of qualified rental projects through an application process.
Developers typically sell their tax credits to outside investors in
exchange for investment in a project, as selling tax credits reduces
the debt developers would otherwise incur. The Tax Committee
also awards state tax credits to supplement financial resources for
projects that have generally already qualified for federal tax credits
yet still fall short of their total financing needs. In 2019 the Tax
Committee awarded $100 million in state tax credits; however, state
law authorized an additional $500 million in state tax credits in
2020 to support affordable housing. Unlike the federal tax credits,
state tax credits are one-time awards taken over four years and are
not claimed each year for 10 years.
The Debt Limit Committee allocates the State’s tax-exempt bond
resources that help developers of multifamily rental units to acquire
land and construct new units or purchase and rehabilitate existing
units; these resources also support other purposes such as recycling
facilities, landfills, and wastewater treatment facilities. The Debt
11California State Auditor Report 2020-108
November 2020
Limit Committee grants successful applicants for the bond
resources, usually state and local governmental housing agencies
(known as bond issuers), the authority to issue tax-exempt bonds for
the purpose of financing affordable housing projects, up to a certain
monetary limit. These bonds generally are used to fund loans to
developers to build the projects. In 2019 the Debt Limit Committee
awarded $4.6 billion in bond resources for affordable multifamily
housing development projects, which was nearly 90 percent of the
total tax-exempt bonds it awarded.2 Investors purchase these bonds
and do not pay federal income tax on the interest they earn from
their investment.
HCD and CalHFA also provide financial support for multifamily
development. HCD administers a variety of affordable housing
programs including the Multifamily Housing Program, which
assists housing developers by providing deferred payment loans for
the construction of rental housing for lower-income households.
A deferred payment loan enables the developers to obtain the
money they need for development, with most repayment postponed
until the completion of the loan’s term. In fiscal year 2018–19,
HCD reported awarding $1.2 billion in grants and loans to increase
the supply of affordable housing throughout the State. CalHFA
serves as the State’s affordable housing lender, offering financing
to developers for affordable multifamily rental housing projects
by providing long-term loans and facilitating their access to
tax-exempt and taxable bonds. CalHFA issues these bonds and uses
the proceeds to make loans to developers to fund their projects.
In fiscal year 2018–19, CalHFA reported issuing $619 million in
multifamily financing. Unlike the other three housing agencies,
CalHFA is self-supporting and receives the majority of its revenues
from its investments and loan interest payments from borrowers.
Affordable Housing Development Depends Largely on Local Jurisdictions
The State’s ability to meet its affordable housing goals depends
largely on the cooperation of local jurisdictions because they
control key aspects of housing development, such as where
developers can build. Most of California’s 539 local jurisdictions are
cities, and 84 percent of the State’s population lives in cities. Cities
generally oversee housing development within their jurisdictions
while counties have control over the land that is outside of the
cities, termed unincorporated areas. We highlight in Figure 4
the aspects of housing development that local jurisdictions
typically control. However, developers actually build the housing,
2 Table A in Appendix A presents the Debt Limit Committee’s total bond resources awarded for
multifamily affordable housing, single-family housing, and nonhousing projects from 2015
through 2019.
12 California State Auditor Report 2020-108
November 2020
and some aspects of development—such as the condition of
the housing market—are beyond local jurisdictions’ control. The
State recognizes this limitation but still intends local jurisdictions
to undertake all necessary actions, including actions to address
nongovernmental constraints such as land and construction costs,
to facilitate the development of needed affordable housing. In
other words, state law does not explicitly require local jurisdictions
to build homes, but it does effectively require that jurisdictions
make every effort to accommodate needed housing—and given
the amount of control jurisdictions exercise over the development
process, these efforts are essential for building affordable housing.
Figure 4
Local Jurisdictions Control Many Key Aspects of Housing Development
Examples of Standards and Processes That Local Jurisdictions Can Regulate
Design
(of buildings and
their surroundings)
Building materials
(roofing, etc.)
Density
(number of housing units allowed
on each portion of land)
Location
(where developers can build
certain types of housing)
Lot size
(how large or small each
portion of land is)
Parking
(number and type of parking
spaces developers must include)
Building height
Unit sizes
Setbacks
(how close buildings can be
to streets and adjoining lots)
Approval
(if and when developers are
approved to build)
Fees
(how much developers must pay
to build housing, and when they
must pay)
Affordability
(for example, requiring that at
least 20% of units be aordable
for lower-income housholds)
Source: Analysis of state law, local jurisdictions’ municipal codes, and documents from HCD’s website.
HCD oversees local jurisdictions’ efforts to plan for needed housing
in three general stages, which we depict in Figure 5. The first step is
to establish each local jurisdiction’s housing needs, which define the
number of housing units they must plan to accommodate. Based on
population projections and other indicators such as the percentage
of households that are cost-burdened, HCD determines the total
13California State Auditor Report 2020-108
November 2020
number of housing units needed for each of the State’s regional
governments or, in areas where no regional government exists,
for each local jurisdiction itself.3 The needed units are categorized
by affordability: from “very low income” and “low income” units
(affordable housing) to “moderate income” and “above moderate
income” units. In areas where regional governments exist, they
subsequently allocate specific numbers of their needed housing
units to the local jurisdictions within their regions.
Figure 5
The State Oversees Local Efforts to Accommodate Affordable Housing in Three
Key Stages
(often via regional
governments)
Units Needed1Assigns housing
needs to local
jurisdictions
Sites Identified2Reviews local
jurisdictions’
plans to
accommodate
housing needs
HCD Oversight Process
Sites Developed3Monitors local
jurisdictions’
housing
progress
HCD determined a need of roughly
166,000 aordable units for the regional
government—Southern California
Association of Governments—to cover
the time period of 2014 through 2021.
Of this need, the regional government
allocated about 2,500 aordable units
to the city of Menifee, one of nearly
200 member jurisdictions within the
regional government.
HCD approved Menifee’s adopted
housing plan in 2014.
This housing plan included potential sites
for development of those 2,500 affordable
units, analysis of potential constraints on
development, and a schedule of actions
to achieve housing goals.
Menifee submitted annual reports to
HCD covering 2014 through 2018 that
indicated it had issued permits for a
total of 24 aordable units over that
time span, according to HCD’s data as
of June 2019.
Example
Source: Analysis of state law, documents from HCD’s website, and the city of Menifee’s housing plan.
3 Regional governments are associations that represent member jurisdictions; they cover areas
ranging from single counties like San Diego to broader regions like the Bay Area, and they can carry
out tasks such as developing regional transportation plans. Areas without regional governments
tend to be lower-population areas.
California State Auditor Report 2020-108
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14
The allocated units that regional governments or HCD assign
to local jurisdictions must satisfy key objectives in state law.
For example, the allocations must increase the housing supply
in all local jurisdictions in an equitable manner, which should
result in each jurisdiction receiving an allocation of units for
lower-income households. These allocations must also direct
fewer lower-income housing units to a jurisdiction if that
jurisdiction already has a disproportionately large share of existing
lower-income households—meaning that jurisdictions with a
larger share of higher-income households should generally plan
to provide more affordable housing than jurisdictions with a
larger share of lower-income households. Another key objective
is that the allocations further “fair housing,” which in part means
addressing disparities in access to opportunity—opportunity for
things like educational attainment and economic mobility that can
support positive life outcomes for low-income families. Overall,
the needs allocation process in state law establishes that each
local jurisdiction must plan to accommodate its “fair share” of
affordable housing.
Housing researchers and others have raised concerns that the needs
allocation process had potential flaws because the process has not
always resulted in each local jurisdiction planning for a fair share
of affordable housing. For instance, in the last needs allocation
cycle that covered 2014 through 2021, Newport Beach was allocated
to accommodate just two units of affordable housing while Lake
Forest, a city in the same county and with a similar population
size, was allocated almost 1,100 units of affordable housing. HCD
recently gained more authority to review regional governments’
allocations of housing need to local jurisdictions to determine
whether the allocations further the objectives in state law. HCD’s
new authority could help the State better ensure that each local
jurisdiction plans for a fair share of affordable housing, but the
allocation cycle the State is entering is in the early stages. As a
result of the potential flaws in the previous cycle, we use indicators
of need, such as severe cost burden for lower-income renters, in this
report to characterize jurisdiction-level need instead of relying on
the unit-specific totals that regional governments allocated.
Once local jurisdictions have received notification of their
allocation of needed housing units, they must make a plan to
facilitate the production of those units. The Legislature intends that
local jurisdictions accommodate their share of needed units and
ensure that housing development provides, at a minimum, the
number of units allocated to each jurisdiction. To do this, every five
or eight years local jurisdictions must adopt housing elements (local
housing plans), which are essentially roadmaps for housing
development. Local jurisdictions must include in these housing
15California State Auditor Report 2020-108
November 2020
plans key information that we describe in the
text box, including specific sites that are suitable to
accommodate all of a jurisdiction’s needed units.
State law requires HCD to review each local
housing plan to determine whether it complies
with statutory requirements.
Finally, local jurisdictions must submit annual
progress reports that describe their progress
in meeting housing needs. HCD receives these
reports and publishes certain data from them,
including the number of affordable units for
which each local jurisdiction has issued building
permits. These annual progress reports also include
updates about whether local jurisdictions have
implemented other aspects of their housing plans,
such as efforts to mitigate barriers to development
and to update local housing ordinances. State
law recently expanded HCD’s oversight and
enforcement authority: in January 2018, HCD
received authority to monitor local jurisdictions
for compliance with their housing plans and with
certain housing laws, and to notify the Office of
the Attorney General (Attorney General) about
noncompliant jurisdictions.
The State Recently Enacted Statutes to Better Promote the
Development of Affordable Housing
The State enacted several statutes in and after 2017 that focus on
increasing affordable housing development. For example, new
statutes have sought to streamline the process for local jurisdictions
to approve certain projects, to increase the number of housing units
developers can request to build for certain projects, and to expand
requirements for local jurisdictions to identify in their housing
plans sites with a realistic potential for development.
While these statutes could have a significant impact on affordable
housing development in California, the State has not yet realized
many of their potential benefits because they have not been
effective for long enough. More importantly, we identified
remaining gaps in state law, which we discuss further in the
report, that if amended, could provide for more affordable housing
development and help address the State’s housing crisis.
Local Jurisdictions’ Housing Plans Must
Describe in Detail Their Efforts to Facilitate
Housing Development
Local housing plans must contain the following:
• An inventory of land suitable for residential
development to meet housing needs for each
designated income level, including lower-income
(affordable) housing needs.
• An analysis of potential and actual constraints upon
housing development, including land use controls,
fees, local processing and permit procedures, and
any locally adopted ordinances that directly affect
the cost and supply of residential development.
• A schedule of actions that address and, where
appropriate and legally possible, remove constraints
to the development of housing for all income
levels, including lower-income (affordable)
housing development.
Source: State law.
16 California State Auditor Report 2020-108
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17California State Auditor Report 2020-108
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Chapter 1
THE STATE LACKS AN EFFECTIVE APPROACH TO
BUILDING ENOUGH AFFORDABLE HOMES
Chapter Summary
California is failing to build enough affordable housing in part
because the State lacks an effective plan for how it will meet the
statewide need for affordable housing. For example, the State does
not have a clear plan describing how or where its billions of dollars
for housing will have the most impact. In fact, the absence of a
comprehensive and coordinated plan allowed the mismanagement
and ultimate waste of $2.7 billion in bond resources to occur with
little scrutiny. These bond resources could have helped support the
construction of more affordable housing. Presently, the State does
not possess the data it needs to determine how much affordable
housing it has supported with its financial resources. The State’s
lack of a coordinated housing plan is also evident in the four
state housing agencies’ misaligned and inconsistent program
requirements, which we found can slow development and increase
project costs. In addition, the Tax Committee’s and Debt Limit
Committee’s review processes are redundant, contributing to the
need to merge these two committees.
The State Lacks an Effective Plan for Using and Overseeing the
Billions of Dollars Available for Affordable Housing
California is falling significantly short of providing enough
affordable homes to lower-income residents, in part because the
State does not have an effective plan for building that housing.
Collectively, the four key state housing agencies reported
awarding billions of dollars each year in financial resources to
support affordable housing; however, without a comprehensive
and coordinated plan between those agencies, the State cannot
ensure that it is maximizing its resources and directing those
resources to areas where they will have the most impact. Based on
population projections and estimates of persons per household,
HCD determined in 2018 that the State needs to add about
180,000 homes each year through 2025, which amounts to more
than 70,000 new units of affordable housing annually. However,
from 2015 through 2019, the State supported the development of an
average of only 19,000 affordable housing units each year.4 Based on
4 Because of the State’s data limitations, we rely on the Tax Committee’s tax credit award data to
represent the amount of state-supported housing units funded from 2015 through 2019. According
to the four housing agencies, the Tax Committee’s data are the most complete and accessible set of
data to use for this purpose because most affordable housing projects receive tax credits.
California State Auditor Report 2020-108
November 2020
18
changes to state law, HCD has developed an updated methodology
for calculating need that now includes factors such as the number
of cost-burdened and overcrowded households. Using this
methodology and more recent federal data, we estimate that the
need for affordable housing is now 125,000 units annually through
2029. If the State does not immediately take action to remedy the
significant shortfall in affordable housing units, the number of
housing units needed annually will continue to grow and could
exacerbate the State’s homelessness crisis and increase the number
of Californians who pay burdensome housing costs.
The State’s current statewide housing plan (state housing plan) does
not clearly demonstrate how the State will build enough affordable
housing. HCD develops and is responsible for implementing
that housing plan, and state law requires HCD to update it every
four years. HCD’s current state housing plan generally meets the
existing requirements in state law. For example, it includes an
evaluation of the housing conditions throughout the State and
strategies and recommendations for addressing the State’s housing
challenges, such as providing options for how the State could
further invest in affordable housing development. However, the
current state housing plan—which HCD last updated in 2018—lacks
key attributes, such as identifying where state resources will make
the most impact and defining outcomes for measuring success, as
Figure 6 shows. Although state law does not expressly require this
information, it is essential for the State to effectively plan how it will
meet the statewide need for affordable housing.
In addition, the State’s current housing plan does not identify
all financial resources available for each housing agency and
the amount of additional resources necessary to support the
construction of the remaining affordable housing units needed.
For example, the current housing plan does not quantify how
much affordable housing the State can support with existing
state resources and how much the State will need to obtain from
other sources, such as federal, local, and private sources. Further,
while the State’s housing plan describes the policy issues relevant
to the housing needs of vulnerable populations, such as people
experiencing homelessness, seniors, individuals with disabilities,
and farmworkers, it does not specifically identify the units needed
for these populations and how the State will fill this need. As HCD
illustrates in the state housing plan, these vulnerable populations
are affected even more significantly by high housing costs and
limited housing availability, and they sometimes encounter barriers
to accessing housing, such as poor credit history or the need for
supportive services. Further, the current state housing plan does
not mention the award activities or capacity of the Debt Limit
Committee, which awards billions of dollars of bond resources
annually, primarily for affordable housing.
If the State does not immediately
take action to remedy the significant
shortfall in affordable housing
units, the number of housing units
needed annually will continue to
grow and could exacerbate the
State’s homelessness crisis.
19California State Auditor Report 2020-108
November 2020
Figure 6
The State’s Housing Plan to Build Affordable Housing Does Not Include Some
Necessary Information
Establishes housing units needed annually
Includes an evaluation of the housing conditions
throughout the State
Identifies major challenges to housing aordability
in California
Establishes strategies for addressing housing
challenges
Identify financial resources available for all housing
agencies for the development of aordable housing
Identify how state resources will contribute to
meeting the statewide need
Identify areas and populations where state financial
resources will have the most impact
Identify outcomes to measure how well the State
has maximized the impact of its funds
Identify how the State will leverage other resources
to meet the remaining gap in need
The State’s Housing Plan
The State’s Housing Plan Does Not . . .
Source: Analysis of HCD’s Statewide Housing Assessment.
If the State is to improve its housing plan, it needs to redefine
the plan’s purpose. The deputy director of housing policy
development indicated that HCD’s state housing plan is primarily a
communication and education tool, not an instrument for guiding
and measuring how state housing agencies award financial resources
for affordable housing. Therefore, the State needs to expand the
purpose of its housing plan and require HCD to provide a roadmap
for how the State is going to build enough affordable housing to
address the severe shortage. The gaps in the current plan may well
have allowed the State to mismanage its financial resources and not
effectively monitor where its resources have been used.
California State Auditor Report 2020-108
November 2020
20
The State Mismanaged $2.7 Billion in State Housing Resources That
Could Have Contributed to More Affordable Housing
The State’s lack of an effective plan has allowed at least one instance
of mismanagement of available resources to occur with little scrutiny.
We found that the Debt Limit Committee let roughly $2.7 billion in
bond resources expire from 2015 through 2017. These bond resources
could have helped finance thousands of units of affordable housing
and potentially made an additional $1 billion in total tax credits
available for that purpose, since those tax credits are contingent on
a bond allocation. Despite the magnitude of this mismanagement,
the Debt Limit Committee did not disclose the $2.7 billion loss in its
public meeting minutes and corresponding documents, and during
our audit, committee staff struggled to identify and explain the
extent and cause of the loss. The loss itself, the lack of transparency,
and the staff’s inability to account for the loss of resources we
observed at the Debt Limit Committee indicate that a holistic
strategy to maximize and measure the impact of affordable housing
resources is sorely needed in the State’s housing plan.
Over several years, the Debt Limit Committee made questionable
allocation decisions that led to the waste of the $2.7 billion. Federal
law makes a certain amount of tax-exempt bonds available to
each state annually to use for affordable housing and some other
purposes for a limited time. The Debt Limit Committee’s mission is
to ensure that these bonds are fully and efficiently used to finance
projects and programs that provide maximum public benefit and
contribute to the economic vitality of the State. According to the
Debt Limit Committee’s estimated public benefits summaries from
2012 to 2014, it allocated bonds in a lump sum to the California
Pollution Control Financing Authority (Pollution Control) in
December of those years in an attempt to preserve bonds that would
be unused at the end of the calendar year (totaling $3.5 billion) and
that, per federal law, would have expired if not transferred to a bond
issuer for future use. We refer to these unused bonds as remaining
resources. Bond issuers then have up to three years to put remaining
resources to use before they expire. The expired $2.7 billion was
part of the $3.5 billion the Debt Limit Committee allocated as lump
sums to Pollution Control from 2012 through 2014 (expiring in 2015
through 2017, respectively). Because Pollution Control used only
$800 million of the $3.5 billion within three years, the remaining
resources expired and were no longer available for any purpose.
The Debt Limit Committee made decisions that contradicted its
legislative priorities as documented in committee staff reports, the
ongoing demand for bonds, and the past use of bonds. Attention
to these factors would have helped ensure that the Debt Limit
Committee was allocating the finite resources where they were
most needed and most likely to be used. However, the Debt Limit
The Debt Limit Committee did
not disclose the $2.7 billion loss
in its public meeting minutes and
corresponding documents,
and during our audit, committee
staff struggled to identify and
explain the extent and cause
of the loss.
21California State Auditor Report 2020-108
November 2020
Committee had information at the time that the usage of some
of the bonds the committee allocated for nonhousing purposes
was low for the types of projects that Pollution Control finances
due to industry changes. In fact, staff reports from the 2012, 2013,
and 2014 committee meetings indicated that staff recommended
against providing Pollution Control with additional financial
resources in those years because it already had billions in unused
resources allocated to it from prior years. At the same time, the
Debt Limit Committee noted in its staff reports from January 2011
through January 2014 that promoting affordable housing was a
legislative priority and noted in its 2011 through 2013 public benefits
summaries that demand for bonds for affordable multifamily
housing was robust during the years of its questionable allocations
to Pollution Control. The Debt Limit Committee also provided
some of its remaining resources to housing at the end of each year
from 2012 through 2014, and unlike Pollution Control, the housing
issuers used the majority of the resources allocated to them during
this period. If the committee had allocated bond resources based on
demand and past use of bonds and assigned more of the remaining
bonds for affordable housing purposes, it might have avoided
substantial waste. In 2015 and 2016, the Debt Limit Committee
allocated all remaining bond resources to housing and nearly all
of those resources were used.
Although the Debt Limit Committee developed a new policy
intended to prevent the waste of available bond resources in the
future, it does not include adequate reporting provisions. During
our audit, the Debt Limit Committee staff could not explain why
management made the decisions that led to the $2.7 billion loss of
bond resources. The committee did not document the reasoning
behind the decisions, and the management who made them have
left the committee. The current executive director said that she
became aware that the Debit Limit Committee lacked an adequate
process for tracking remaining resources when she started her
position in February 2020, and has developed a policy to prevent
this type of waste from happening again. However, while the Debt
Limit Committee’s current policy includes a process for tracking
remaining resources and reporting it on its website each month, it
lacks reporting provisions to disclose them in its public meetings,
where it makes decisions to allocate these resources. Further, the
Debt Limit Committee should develop a methodology for basing its
decisions on demand for bond resources, use of previously allocated
bonds, documented legislative priorities, and risk of allocated bonds
being lost.
Even with these changes, the State’s housing plan still needs to
identify all financial resources available for supporting affordable
housing, including bonds allocated by the Debt Limit Committee.
As long as the State’s housing plan lacks information about the
If the committee had allocated
bond resources based on demand
and past use of bonds and
assigned more of the remaining
bonds for affordable housing
purposes, it might have avoided
substantial waste.
California State Auditor Report 2020-108
November 2020
22
extent of available affordable housing resources, a strategy for
their optimal use, and an assessment of their impact, the State
will lack assurance that all of its housing agencies are effectively
using their financial resources to increase the supply of affordable
housing. Further, including this information in the plan can help
inform local jurisdictions and developers about the available
financial resources.
The State Needs to Determine Where Its Resources Will Make the
Biggest Impact
The State’s current housing plan does not identify where the
State’s financial resources can have the most impact, and we found
disparities in awards among certain counties. By not identifying in
its housing plan where state resources will have the most impact
and thereby lead to more affordable housing, the State may have
allowed certain counties with the highest indications of need for
affordable housing to receive disproportionately lower amounts of
available state resources. The State has established that affordable
housing is needed in all its geographic areas. Using federal data
on severe cost burden, rental overcrowding, and rental housing
availability (indicators of need), we identified counties with the
highest need for affordable housing. For example, residents in
San Bernardino County had among the highest indicators of
need for affordable housing: nearly 47 percent of its lower-income
renter households are spending more than half of their income on
housing—a severe cost burden. We then explored the distribution
of awards from the Tax Committee from 2015 through 2019
because tax credit projects make up the majority of affordable
housing supported by the State. To provide a uniform measure of
the distribution of tax credit awards, we used tax credit-supported
units compared to total population.5 Our analysis found that tax
credit awards in San Bernardino County were disproportionately
low during this period: the county’s share of the total tax
credit-supported affordable units statewide was only half as great
as its share of the state population. We found examples of similar
situations in several other counties—Butte, Kern, Marin, Riverside,
Santa Cruz, and Stanislaus; these counties also had high indications
of need yet fewer tax credit-supported units compared to their
share of the State’s population.
Seven other counties—Amador, Calaveras, Inyo, Modoc, Mono,
Tehama, and Trinity—had no tax credit awards or applications at
all from 2015 through 2019. Although these are smaller, more rural
5 Table B in Appendix B presents the Tax Committee’s tax credit awards—including federal and
state tax credits—and units supported by those awards by county from 2015 through 2019.
Nearly 47 percent of San Bernardino
County’s lower-income renter
households are spending more
than half of their income on
housing—a severe cost burden.
23California State Auditor Report 2020-108
November 2020
counties, their indicators of need were significant, with between
18 percent and 43 percent of their lower-income renter households
paying more than half of their income on housing. State law
requires that a certain portion of tax credits must be reserved for
rural areas, but the Tax Committee has not attempted to recruit
developers to apply in counties with few to no tax credit awards.
While the Tax Committee has conducted application workshops
and participated in housing conferences throughout the State, these
workshops were typically held in larger cities, such as Los Angeles,
Sacramento, and San Diego.
The distribution of tax credits in some counties is disproportionate
to their share of the State’s population partly because the Tax
Committee does not actively solicit applications from those areas
that are not applying. Although the Tax Committee maintains data
on the number of applications it receives, the tax credits it awards,
and the affordable housing units it supports, it has not used this
information to identify disparities by geographic region, which
is essential for ensuring that affordable housing is being built in
all areas of the State. The Tax Committee considers geographic
distribution when awarding some of its tax credit projects, but it
has not done so for the majority of tax credit projects. Using these
data and other factors, such as indicators of need, would enable the
Tax Committee to identify areas of inequitable distribution. The
executive director of the Tax Committee stated that not all areas
of the State are receptive to affordable housing and this could be a
reason for low application and award activity. However, she agreed
that tracking applications and awards by geographic areas would
be helpful to the committee, and it could use that information
to encourage more applications and provide more awards to
underrepresented areas.
Although the Tax Committee is open to tracking its geographic
impact, the state housing plan should also identify all available
resources and their distribution statewide. If HCD identified in
the state housing plan where state resources would make the most
impact, the Tax Committee and the other state housing agencies
would possess valuable information about underrepresented areas
statewide, and they could set goals for focusing on those areas.
The State Currently Lacks the Data Necessary to Develop a
Comprehensive and Coordinated Plan
The State does not have the data to determine how much affordable
housing it has supported with its financial resources. For example,
the State lacks a unified data system across state housing agencies
that tracks applications, type and amount of funding awarded,
number of units created, and project location for all housing
The distribution of tax credits in
some counties is disproportionate
to their share of the State’s
population.
California State Auditor Report 2020-108
November 2020
24
awards. HCD indicated it could be beneficial to include this
information in the state housing plan, but that it would be difficult
to accomplish without these data. However, HCD needs to collect
this information to identify how state resources are contributing to
meeting the State’s housing need and to measure how well the State
has maximized the impact of its financial resources.
The deputy director of housing policy development explained that
existing data do not show the total amount of funding the four
state housing agencies have contributed to a particular affordable
housing project. The agencies often award financing for the same
projects, but they do not use a common method for identifying
the projects they fund, such as a common identifier. As a result,
if HCD reports funding 100 affordable housing units and the
Tax Committee reports funding 100 affordable housing units, it
is unclear how many homes the State has actually added to its
supply—100, 200, or some number in between. We found the same
problem when we analyzed data obtained from these agencies.
One consequence of these data limitations is that HCD cannot
fully assess progress toward meeting goals established in the state
housing plan and the amount and types of housing the State should
support using a particular level of funding.
HCD has an opportunity to improve the State’s limited housing
data. Effective January 2020, state law now requires the state
housing plan to include a housing data strategy that identifies the
data useful for enforcing existing housing laws and informing
state housing policymaking and an evaluation of data priorities.
By passing this law, the State recognized a need for more
consistent housing data statewide, data that also provide a better
understanding of the involvement of all state agencies in the
development of affordable housing. The State’s new data strategy
could include a common method for identifying every state-funded
affordable housing project and thus understanding their different
funding sources. The law requires HCD to include representatives
from the California Department of Technology, metropolitan
planning organizations, local governments, and relevant academic
institutions and nonprofit organizations with relevant expertise in
the workgroup that will develop the data strategy. While the law
does not require HCD to include the other state housing agencies in
this workgroup, the deputy director of housing policy development
at HCD indicated that it intends to include them. However, state
law also does not specifically require that data on the State’s
financial resources for affordable housing be a component of
the data strategy. Without data on the real impact of affordable
housing resources, the State will continue to struggle to gauge how
successfully its housing agencies are meeting Californians’ needs
and continue to leave millions with burdensome housing costs.
HCD has an opportunity to improve
the State’s limited housing data.
25California State Auditor Report 2020-108
November 2020
The State’s Cumbersome Processes Can Unnecessarily Slow Down
Affordable Housing Development
The State’s lack of a coordinated housing plan is also evident
in the four housing agencies’ misaligned and inconsistent
program requirements, which create unnecessary obstacles
for developer applicants. These unnecessary inconsistencies
can slow down development as well as drive up costs, another
factor that can interfere with the State’s efforts to better meet its
goals for affordable housing. Although all of these agencies have
programs with the same goal—to support multifamily housing
for lower-income households—many of the State’s requirements
are misaligned among the housing agencies because each agency
generally developed its requirements without coordinating with the
others. State law clearly states the need to maximize the amount
of state resources available for affordable housing and to minimize
the administrative costs and simplify the financing systems for
developing such housing, yet the agencies have not attended to
this guidance. We also found that the redundancy of the Tax
Committee and Debt Limit Committee reviewing and approving
applicants’ financial resources separately for the same project
is unnecessary.
Building affordable housing is complex and costly, and developers
often must secure funding from multiple financing sources to cover
the costs of a single project, including a combination of public
and private financial resources. As we noted in the Introduction,
at the state level, currently four separate agencies provide project
applicants with financing to help develop affordable housing.
Further, applicants can obtain resources from multiple agencies
for a single project. However, project applicants must meet each
different set of application deadlines and requirements to qualify
for those financial resources, and they often apply to at least two of
these agencies for financial resources to cover the cost of a single
project. We found that when they established their requirements,
the agencies did not coordinate with one another. As Table 1 shows,
the multifamily housing programs at each of the four agencies have
different eligibility requirements for the same types of projects.
For example, although every agency requires applicants to provide
evidence of prior experience with affordable housing development,
the amounts and types of experience required of applicants differ
across all four agencies. This lack of standardization is inefficient
for developers and generally unwarranted given that these are all
multifamily programs with similar goals.
In addition, HCD has not coordinated its deadlines with the other
agencies, which can prolong the application process and delay
housing development. We found that the Tax Committee and Debt
Limit Committee generally had similar deadlines for reviewing
Building affordable housing is
complex and costly, and developers
often must secure funding from
multiple financing sources to cover
the costs of a single project.
26 California State Auditor Report 2020-108
November 2020
applications and making awards. Further, CalHFA has aligned
many of its deadlines with those of the Debt Limit Committee,
which met six times to allocate bond resources for affordable
housing in 2019. In contrast, HCD currently only awards funds
semiannually for its multifamily housing program. Thus, if an
applicant does not submit the application by one of these deadlines
or does not receive approval in the current cycle, the project may
be delayed by at least six months. Although data limitations at
these agencies do not allow us to determine how often these delays
happen, such inconsistencies are unnecessary and can delay the
development of needed affordable housing. According to HCD’s
deputy director of financial assistance, HCD’s deadlines are
sensitive to the Tax Committee’s application deadlines for certain
tax credits, which have historically occurred twice a year. However,
the majority of the Tax Committee’s tax credits are awarded more
frequently throughout the year. HCD’s failure to align its deadlines
with those of the other housing agencies creates additional
administrative barriers for applicants and the resulting delays can
drive up costs and slow down affordable housing development.
Table 1
The State’s Housing Agencies Require Developers to Adhere to Varying Eligibility Requirements When Applying for
Financing for a Single Multifamily Project
CALHFA HCD TAX COMMITTEE DEBT LIMIT COMMITTEE
EXAMPLES OF PROGRAM
REQUIREMENTS
MULTIFAMILY
HOUSING PROGRAM
LOANS
MULTIFAMILY
HOUSING PROGRAM
TAX CREDITS
PAIRED WITH BONDS
(MULTIFAMILY HOUSING)
BOND RESOURCES
FOR RENTAL PROJECTS
(MULTIFAMILY HOUSING)
Evidence of housing need
and demand X X X X
Evidence of local approval X X
Evidence of financial
feasibility X X X X
Evidence of prior project
experience X X X X
Evidence of compliance with
construction standards X X X X
Source: Analysis of state laws and agency documentation.
= The requirement is inconsistent with all other state agency requirements.
= The requirement is consistent with at least one other state agency standard.
Project applicants can incur additional expenses during the time
it takes to secure the multiple sources of funding. For example,
developers must acquire rights to the land for housing development
before beginning the state application process, and according to
27California State Auditor Report 2020-108
November 2020
housing studies, delays could carry high land-holding costs such as
property taxes and insurance fees. In addition, a study published
by the Terner Center for Housing Innovation at the University of
California, Berkeley noted that sometimes developers also enter
into contractual agreements with major investors who require a
guaranteed annual return in exchange for investing in the housing
project; therefore, the longer it takes developers to navigate these
approval processes, the higher the amount eventually owed to
these investors. Lastly, project applicants may also have to bear
additional costs related to the process of reapplying to an agency
if their initial application is denied, such as the costs of obtaining
updated market studies to meet program requirements, staff time
for preparing a new application, and application fees. Ultimately,
these additional costs may discourage developers from building
more affordable housing.
Nevertheless, despite the requirements in state law to do so, HCD
has failed to coordinate with other housing agencies and eliminate
inconsistencies in the requirements of their multifamily housing
programs. State law specifically requires HCD to coordinate its
multifamily housing requirements with other major housing
funding sources, including the Tax Committee. HCD’s deputy
director of financial assistance noted that the department set out
to align its requirements with the other committees, but over time
HCD and the Tax Committee independently refined their program
requirements to address policy priorities. However, HCD’s failure
to align its requirements with those of the other agencies as state
law requires creates additional obstacles for developers who build
affordable housing, making it more difficult for the State to meet
housing needs. Further, the State enacted a law in September 2020
to require HCD to align its multifamily housing program with
five of its similar programs, including aligning funding cycles and
application rating and ranking, by January 2022. We believe HCD
should also align these requirements and funding cycles with those
of the other agencies.
Although state law does not require CalHFA to align its
requirements with those of the other housing agencies, CalHFA
requires applicants to use the same application as the Tax
Committee and Debt Limit Committee. According to CalHFA’s
chief deputy director, some of its requirements are inherently
more stringent than the other state housing agencies because
its loans must generally be paid back before other debt holders.
Further, it must uphold its obligations to bond holders, maintain
its credit ratings, and ensure that it can recover loan payments to
stay self-funded. However, he indicated that CalHFA participates
in monthly coordination meetings with HCD, but is open to
working with the other agencies to align their requirements
to the extent feasible.
Ultimately, the additional costs
related to reapplying for financial
resources if initially denied, may
discourage developers from
building more affordable housing.
California State Auditor Report 2020-108
November 2020
28
Moreover, because the Tax Committee and Debt Limit Committee
approve financing for the same projects—the majority of tax
credits are paired with bond allocations—the differences in their
multifamily program requirements are unnecessary. We expected
the two committees to coordinate eligibility requirements and
reduce unnecessary administrative burden on project applicants.
We find this lack of coordination of particular concern because
the differences increase the possibility that the two committees
will unnecessarily come to different conclusions when approving
financial resources for the same project. Although limited data at
both committees again prevent us from determining how often this
happens, we found a few recent instances that illustrate this problem.
Because of differences in the way each committee prioritized the
list of project applications they reviewed, in January 2020 the Tax
Committee approved at least six projects that a month later the Debt
Limit Committee did not approve. Because certain tax credits from
the Tax Committee are contingent upon a bond allocation award
from the Debt Limit Committee, these projects did not receive any
financing from either committee at that time. Although applicants
can and generally do reapply and may eventually be awarded the
financial resources for their projects, these delays can increase costs
to applicants and set back the construction of affordable housing.
We found that the committees’ explanation for inconsistent
requirements is unreasonable. Debt Limit Committee staff
indicated that the differences in requirements were caused by
the Debt Limit Committee’s inability to update its regulations
in a timely manner to stay consistent with the Tax Committee.
However, we found that the Debt Limit Committee did not
make changes even when it had the authority to do so. The Tax
Committee and the Debt Limit Committee each adopt their
own program regulations and are each responsible for making
amendments to these regulations to align with changes to law
and to respond to the changing nature of the affordable housing
market. While the Tax Committee is exempt from the standard
regulation-setting process that most state agencies must follow, the
Debt Limit Committee does not share this exemption but instead
has special authority to issue regulations as emergency regulations
without complying with emergency procedures and thereby
bypass the lengthier standard process. This authority for setting
emergency regulations exceeds the standard authority granted to
other state departments in that the committee need not justify the
use of emergency regulations. Although the Debt Limit Committee
used this emergency regulation-setting process, for example to
clarify definitions, it generally did not use this process to align
its requirements with the Tax Committee in recent years. Debt
Limit Committee staff indicated that they were not aware that they
could use their authority to issue emergency regulations to update
requirements. The current executive director, who was appointed
Although applicants generally do
reapply and may eventually be
awarded the financial resources
for their projects, these delays can
increase their costs and set back
construction.
29California State Auditor Report 2020-108
November 2020
to her position in February 2020, is now aware of the authority to
do so. Even without knowing of and using this authority, the Debt
Limit Committee could have used the standard regulation-setting
process to align the program requirements, but it generally did
not use this process to align its requirements either. As a result,
the Debt Limit Committee did not make recent efforts to remove
unnecessary inconsistencies with its requirements and the Tax
Committee. This is unacceptable and may have resulted in slowed
production of affordable housing in California.
Consequently, it is not surprising that developers we interviewed
reported challenges with obtaining state funding and expressed
a need for a system that consolidates and coordinates multiple
housing resources into one centralized process. For example, one
developer noted that a significant barrier with multiple sources of
funding is that every awarding entity has a different application
process with different deadlines and different rules. For each of
these processes, there are additional costs associated with meeting
the different requirements. Further, many developers acknowledged
that it would be much easier if the requirements aligned with one
another. The State could thus benefit from having a standard set of
requirements, consistent deadlines, and a single application process
for its multifamily housing programs, which not only would reduce
the likelihood of delays for applicants but also could increase the
State’s supply of affordable housing.
The Debt Limit Committee and Tax Committee Should Be Consolidated
The process wherein two agencies review applications for the
same housing projects and separately determine eligibility when
the financing is integrally linked is, in several respects, redundant
and thus may contribute to inefficiencies. The two committees
make awards to most of the same projects because the majority
of affordable housing tax credits are paired with bond allocations.
Additionally, the Tax Committee and the Debt Limit Committee
have similar membership, such as the State Treasurer and
representatives from HCD, CalHFA, and the State Controller’s
Office. These committee members often discuss the same projects
in consecutive meetings in what amounts to a duplication of effort.
Further, the two committees’ redundant application approval
processes do not add value, and their review of applications
varied in thoroughness. The Tax Committee and the Debt Limit
Committee review the same general project information and
require similar, if not identical, documentation—such as market
studies—from applicants for the majority of project application
components. While the Tax Committee’s current review processes
are generally more thorough, those of the Debt Limit Committee
A significant barrier with multiple
sources of funding is that every
awarding entity has a different
application process with different
deadlines and different rules.
California State Auditor Report 2020-108
November 2020
30
are not. For example, the Tax Committee generally conducts two
levels of review of competitive applications and consistently tracks
appeals from applicants. In contrast, the Debt Limit Committee’s
review of applications was not well documented. In fact, according
to a program manager at the Debt Limit Committee, the committee
performed two levels of review in the past but has lacked staff
to continue this practice. In the end, we found no need for
two separate committees to review the same project applications
and approve or reject that financing. Therefore, the Legislature
should consolidate these committees into one by eliminating the
Debt Limit Committee and delegating its authority for allocating
bonds to the Tax Committee. The two committees have the
same executive director, and she agreed that there should be only
one committee.
Recommendations
Legislature
To ensure that the State can identify the extent to which its
financial resources are supporting its mission to provide a home
for all Californians, the Legislature should require HCD to prepare
an annual addendum to the State’s housing plan and report to the
Legislature, beginning January 2022. The addendum should include
up-to-date information and identify the following:
• All financial resources for each housing agency for the
development of affordable housing.
• The number of affordable units those resources are expected to
build annually compared to the annual units needed, including
units for individuals experiencing homelessness, those with
special needs, seniors, and farmworkers.
• The amount of financial resources the State will need to obtain
from other sources, such as federal, local, and private sources, to
meet the remaining gap in needed units.
• Where the State’s financial resources will have the most impact
based on geographic distribution, population, and indicators
of need.
• Outcomes to measure how well the State is maximizing the
impact of its financial resources to meet the annual units needed,
including measuring whether it has reduced cost burden and
overcrowding, and increased housing availability.
31California State Auditor Report 2020-108
November 2020
To ensure that the State has sufficient data to determine how much
affordable housing it has supported and to maximize the impact
of its funds, the Legislature should require HCD to develop the
housing data strategy component of its housing plan with input
from the Tax Committee and CalHFA. At a minimum, the housing
data strategy should include the following:
• A strategy for assigning a unique identifier to state-funded
affordable housing projects so that multiple funding sources can
be tracked for each project, such as all agencies using a single
application process for multifamily housing programs.
• An evaluation of data priorities to measure the distribution and
impact of state-awarded funds for affordable housing, such as
number of applications, type and amount of funding awarded,
number of units created, and project location.
To ensure that the State awards financial resources for housing in
a more timely and efficient manner, the Legislature should create a
workgroup including the Tax Committee, HCD, CalHFA, and other
industry representatives such as private lenders and developers, and
require it to do the following:
• Develop consistent program requirements for determining
eligibility for awarding financial resources to multifamily housing
projects, to the extent feasible.
• Align application deadlines for multifamily housing programs.
• Design the requirements and deadlines to best accomplish the
goals outlined in the state housing plan and addendum, with
the intent to maximize affordable housing built and to remove
administrative barriers.
• Update their respective regulations to reference the new program
requirements and deadlines.
To reduce administrative redundancy and streamline a portion
of the funding process, the Legislature should eliminate the Debt
Limit Committee and transfer its responsibilities to the Tax
Committee, including reviewing applications and allocating bond
resources. To ensure a thorough application review process, the
Legislature should also require the Tax Committee to develop a
sufficient quality control process for reviewing applications for
bond resources, including multiple levels of review.
California State Auditor Report 2020-108
November 2020
32
Tax Committee
To ensure that the allocation of bonds aligns with the State’s
housing priorities and that its awards process is sufficiently
transparent, the Tax Committee should, by May 2021, establish
regulations to do the following:
• Consistently allocate bonds based on factors including
demand for bond resources, use of previously allocated bonds,
documented legislative priorities, and risk of allocated bonds
being lost.
• Document and disclose annually in its public meetings and on its
website the extent of any bonds lost, the purpose for which the
bonds were allocated, and the rationale for the allocation.
To ensure that tax credit awards are targeted to areas that require
the most support from the State to finance affordable housing, the
Tax Committee should immediately identify areas from which
it has not received applications or areas with fewer awards per
population and use that information to inform regulatory changes
to attract more affordable housing developers to those areas.
33California State Auditor Report 2020-108
November 2020
Chapter 2
THE STATE HAS NOT ENSURED THAT LOCAL JURISDICTIONS
ACCOMMODATE NEEDED AFFORDABLE HOUSING
Chapter Summary
The State is facing a severe shortage of affordable homes in
part because local jurisdictions can create barriers that make it
harder to build those homes. Local barriers to affordable housing
development—such as restrictions on the number of units developers
can build on a portion of land or lengthy processes for approving
developers’ projects—are one reason that local jurisdictions reported
issuing building permits (permits) for only about 11 percent of their
needed affordable housing units as of June 2019. As we describe in the
Introduction, each of the State’s 539 local jurisdictions is responsible
for planning to accommodate a portion of the State’s needed
affordable housing units, and state law requires jurisdictions to adopt
local housing plans that include sites that accommodate needed units
and actions to address barriers to development.
However, state law is not strong enough to ensure that local
jurisdictions actually mitigate these barriers—even on the sites they
identify for affordable housing. In addition, HCD’s limited oversight
is insufficient and its authority does not permit it to ensure that all
local jurisdictions follow through with their plans to accommodate
affordable housing. An effective appeals process for developers—such
as through the creation of a state appeals board—could help ensure
that local jurisdictions approve eligible affordable housing projects
in a timely manner and provide the units for which they plan. More
broadly, the State needs a comprehensive approach to facilitating
more affordable housing development that does not rely on significant
state financial resources if it wants to meet affordable housing goals.
Without substantial actions to address these issues, the State will
continue to face a patchwork of local housing policies and efforts that
ultimately limit Californians’ access to affordable housing.
Local Jurisdictions Can Create Barriers to Affordable Housing
Local jurisdictions can create significant barriers to affordable
housing development, as we show in Figure 7, given the degree of
control they exercise over development. These barriers influence the
availability of affordable housing. Local jurisdictions in general have
not developed enough affordable housing and certain local jurisdictions
have developed far fewer affordable homes than others have. This
underdevelopment 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
California State Auditor Report 2020-108
November 2020
34
spend more than half of their incomes on housing costs—a severe cost
burden. Yet local jurisdictions statewide reported issuing permits for only
about 11 percent of their needed affordable housing units as of June 2019,
even though they reported having issued permits for 81 percent of the
units needed for households in the highest income category, as we
show in Table 2. Given the time covered in this planning period, generally
from 2013 through 2024, we would expect local jurisdictions statewide
to have met at least half of the affordable housing need. Although other
factors may contribute to local jurisdictions’ underdevelopment of
affordable housing, ensuring that jurisdictions mitigate barriers to
affordable development is essential for making that development
financially feasible and for encouraging developers to build affordable
homes where California critically needs them.
Figure 7
Local Jurisdictions Can Create Barriers That Limit Affordable
Housing Development
Potential Local Barriers to Affordable Housing Development
Local jurisdictions may have approval processes that delay or
prevent approval of aordable housing projects.
Approval Process Standards
Local jurisdictions may limit the number of aordable housing units
that developers can build per acre. Restrictions on building height
and other standards can also limit density.
Density Standards
Local jurisdictions may impose significant fees that add costs to
aordable housing projects.
Fees
Local jurisdictions may require developers to provide more parking
spaces and to build parking garages, all of which can drive up costs
and limit the land available for housing.
Parking Standards
Local jurisdictions may limit the amount and quality of land
designated for aordable housing.
Zoning Standards
Source: Analysis of state law, documents from HCD’s website, and a variety of research from sources
such as the Legislative Analyst’s Office and the Terner Center for Housing Innovation at the University of
California, Berkeley.
35California State Auditor Report 2020-108
November 2020
Table 2
Local Jurisdictions Have Not Met Housing Needs, Especially for Lower-Income Households
VERY LOW
Income Units
(Units affordable to
households earning 50 percent
of area’s median income or
below, which likely includes
about 26 percent of all
households statewide)
LOW
Income Units
(Units affordable to
households earning 51 percent
to 80 percent of area’s median
income, which likely includes
about 15 percent of all
households statewide)
MODERATE
Income Units
(Units affordable to
households earning 81 percent
to 120 percent of area’s
median income, which likely
includes about 16 percent of all
households statewide)
ABOVE MODERATE
Income Units
(Units affordable to
households earning
121 percent of area’s median
income or above, which likely
includes about 43 percent of all
households statewide)
Statewide need
(in units) allocated to
local jurisdictions*
278,500 185,500 205,000 488,000
Total units reported in
building permits
(as of June 2019)
26,000 25,500 66,000 395,000
Percentage of need met
(as of June 2019)9%14%32%81%
Combined percentage
of need met
(as of June 2019)
11%
Source: Analysis of HCD’s Annual Progress Report permit summary data as of June 2019, federal income distribution data, and state law.
* This statewide need represents HCD’s sum of all units assigned to local jurisdictions, which covers different time periods based on each region but
generally covers years between 2013 and 2024. For example, the Southern California Association of Governments’s portion of this need—which
applies to all of the local jurisdictions in that region—covers the time period of 2014 through 2021. As a whole, the State was more than halfway
through the time covered for this need as of June 2019—meaning we would expect local jurisdictions statewide to have met at least 50 percent
of the need in each category above.
The supply of affordable homes varies depending on where
Californians live even though indications of high need exist in
almost every area of the State. As we describe in the Introduction,
state law generally establishes that each local jurisdiction must plan
to accommodate its “fair share” of affordable housing. Nevertheless,
local jurisdictions across the State have developed vastly different
amounts of affordable units funded by the Tax Committee, which
supports most state-financed affordable housing. For example,
as we show in Figure 8, San Marcos has received Tax Committee
funding for more than 2,200 affordable units. In contrast, the
adjacent city of Encinitas—with a population almost two-thirds
as large as San Marcos’s—has received funding for just 29 such
units. The difference between these cities is especially significant
considering that in Encinitas about 60 percent of lower-income
renter households spend at least half of their incomes on rent,
which is much higher than San Marcos’s rate of 35 percent.
36 California State Auditor Report 2020-108
November 2020
Figure 8
Two Neighboring Cities in San Diego County Have Developed Significantly Different Amounts of Affordable
Housing Despite High Indicators of Need
Encinitas
29
62,000
Affordable units funded
by the Tax Committee
60%Severe cost-burden
rate for lower-income
renter households
0.5 Affordable units
per 1,000 population
Population
San Marcos
2,287
95,000
Affordable units
funded by the
Tax Committee
35%
24.0 Affordable units
per 1,000 population
Population
(national average is 33%)
Severe cost-burden
rate for lower-income
renter households
(national average is 33%)
Source: Analysis of active projects data from the Tax Committee from 1987 through October 2019, 2020 household population data from the
Department of Finance, and 2012 to 2016 cost-burden data from the U.S. Census Bureau.
Note: We present an interactive dashboard for viewing additional detail about local jurisdictions’ state-supported affordable housing development
and indicators of housing need at http://www.auditor.ca.gov/reports/2020-108/supplemental.html.
Some local jurisdictions may develop insufficient amounts of affordable
housing because they or their constituents are opposed to it. Local
opposition to housing development has long been a major obstacle in
California’s efforts to provide affordable housing. People may be opposed
to housing development generally or affordable housing in particular for
a variety of reasons, such as perceptions that development will increase
traffic or that it will change the residential character of a city. This
opposition can take different forms, including citywide referendums: for
instance, according to HCD, residents in Palo Alto placed a measure on
the local ballot in 2013 that overturned a unanimous city council decision
37California State Auditor Report 2020-108
November 2020
to allow for a 60-unit affordable housing development for seniors.
However, local jurisdictions that are not openly resistant to affordable
housing can also limit development, wittingly or unwittingly,
through the many aspects of the development process they control.
In fact, local jurisdictions can create a number of different barriers
to affordable housing development that contribute to the State’s
overall shortage of affordable homes as well as its shortage of
affordable housing in particular jurisdictions. For example, local
jurisdictions may limit the number of units developers can build,
they may require that developers pay large fees, or they may have
processes that delay or prevent approval of affordable housing
projects. These barriers can ultimately make affordable housing
development infeasible, such as by imposing costs that may
discourage developers from building or by directly limiting the
number and affordability of the units that developers do build.
Barriers that add costs are especially problematic for affordable
projects because these projects are often more difficult to make
financially feasible in the first place.
We observed concrete examples of these potential barriers in some
of the cities we reviewed. In analyzing primarily publicly available
information from four pairs of cities of similar populations and
locations—Aliso Viejo and Cypress, Norwalk and Santa Monica,
Huron and Taft, Brentwood and Pittsburg—we found significant
differences in some of their housing policies that may have
contributed to their varying levels of affordable development.
For example, Santa Monica’s default density standards—the
number of units allowed per acre—allow developers to build
more housing units per acre than Norwalk’s standards do in
each of their multifamily residential zones. In their high-density
residential zones, for instance, Santa Monica generally allows up
to 48 units per acre for affordable housing projects compared to
Norwalk’s maximum of 30 units per acre. Norwalk also requires
an additional building permit—a “conditional use permit”—for
certain multifamily housing such as buildings that exceed the
city’s height limit of 35 feet. This type of requirement allows local
jurisdictions more discretion in approving housing projects and can
be a constraint on development. In contrast, Santa Monica does
not appear to require that type of permit for multifamily buildings
in its multifamily residential zones, where it allows up to 45 feet in
height for affordable projects. Further, Norwalk’s default parking
standards require developers to provide parking spaces in a garage
and to include as much as eight times the number of parking spaces
that Santa Monica’s default standards require for certain projects,
potentially increasing costs for developers. Ultimately, differences
like these may be one reason Santa Monica has facilitated much
more affordable housing development than Norwalk has: HCD’s
data indicate that from 2014 to 2018, Santa Monica reported
Local jurisdictions that are not
openly resistant to affordable
housing can also limit development,
wittingly or unwittingly,
through the many aspects of the
development process they control.
California State Auditor Report 2020-108
November 2020
38
permits for nearly 500 total affordable units whereas Norwalk
reported permits for just four affordable units—even though
Norwalk has a larger population than Santa Monica does and both
cities have indications of high need.
Barriers to Affordable Housing Persist in Part Because State Law Is Not
Strong Enough to Ensure That Local Jurisdictions Mitigate These Barriers
The State has recently enacted several statutes that could have
a significant impact on affordable housing development, as we
note in the Introduction. However, local jurisdictions can still
create barriers to affordable housing—such as barriers related to
density and to approval processes—because state law is not yet
strong enough to ensure that local jurisdictions mitigate these
barriers. As we describe in the Introduction, local housing plans
are jurisdictions’ roadmaps for housing development, and HCD is
responsible for reviewing each of these plans when jurisdictions
adopt them every five or eight years. The plans must include
sites suitable for affordable development and actions to remove
potential barriers to development where possible. However, the
requirements in state law contain gaps that allow these barriers to
persist, even for the sites local jurisdictions identify for affordable
housing. Because HCD’s review process for local housing plans
largely focuses on whether jurisdictions have included appropriate
analyses or met minimum requirements in state law, its approval of
these plans does not necessarily mean that local jurisdictions have
done everything possible to mitigate barriers to needed affordable
housing. For example, HCD’s status report from September 2020
indicates that all eight of the cities we reviewed have had compliant
housing plans since at least 2016, even though we identified
potential barriers in some of the cities that may have contributed to
their low amounts of affordable housing development.
Perhaps most critically, state law’s default standards for allowable
density are likely too low even though increasing density could
provide more affordable homes. Density determines how many
housing units can exist on a given amount of land, and higher-
density housing can both provide more homes and make affordable
housing more financially feasible for the developer. State law
establishes default densities of at least 10 to 30 housing units per
acre, generally based on a local jurisdiction’s proximity to urban
areas, which local jurisdictions can adopt for potential affordable
housing sites without including further justifications in their
housing plans. These default standards likely affect densities
in many local jurisdictions; the median maximum density
standard among local jurisdictions statewide was 24 units per
acre for multifamily housing according to a survey of more than
270 jurisdictions that the Terner Center for Housing Innovation at
State law’s default standards
for allowable density are likely
too low even though increasing
density could provide more
affordable homes.
39California State Auditor Report 2020-108
November 2020
the University of California, Berkeley, published in 2018. Indeed,
two cities we reviewed clearly aligned their densities with the State’s
default standards. But cities we reviewed with more affordable
housing development tended to allow higher densities and go
beyond the minimum requirements in state law. For instance,
Aliso Viejo allowed up to 50 units per acre on its main potential
affordable housing sites and subsequently developed almost 400
units of Tax Committee-funded affordable housing at 50 units per
acre on those sites. However, that amount of affordable housing
would have exceeded the standards in nearby Cypress, which only
allowed up to 30 units per acre on its potential affordable housing
sites. Cypress reported issuing permits for fewer than 20 total units
of affordable housing from 2014 through 2019.
Increasing the default densities in state law has little downside.
Although several local jurisdictions have opposed state-mandated
density increases in the past because of concerns around local
control, community character, and other issues, the default densities
of 10 to 30 units per acre that we describe above are not mandates. If
local jurisdictions provide justifications in their housing plans that
HCD approves, such as compelling evidence that lower densities can
accommodate housing needs based on past development experience,
they can still adopt lower densities for the sites they identify for
affordable housing. Therefore, increasing these default densities
would not unduly restrict local control. More importantly, the
existing default densities—which became effective in January 2005—
may compromise the State’s efforts to increase affordable housing
development. In fact, the densities of particular projects can
sometimes be several times higher than the State’s default standards;
for example, we identified Tax Committee project applications
that specified densities such as 82 units per acre for a Santa Ana
development, 90 units per acre for a Fresno project, and 117 units
per acre for a project in Mountain View. Despite recent changes to
state law that expanded developers’ ability to apply for increases
above local jurisdictions’ maximum allowable densities, jurisdictions
can still create a barrier to affordable development by maintaining
low maximum densities. Raising the default densities in state law,
even modestly, is an efficient way to encourage more critically
needed affordable development on each portion of land that local
jurisdictions identify for affordable housing.
We found that state law is not strong enough to prevent local
jurisdictions from undermining affordable housing projects with
lengthy and uncertain approval processes. For instance, although
state law has multiple statutes that streamline local approval
processes for certain affordable housing projects—limiting local
jurisdictions’ time and discretion in approving the projects—
these statutes do not necessarily apply to all potential affordable
housing sites that local jurisdictions identify in their housing plans.
The existing statewide default
housing densities—which became
effective in January 2005—
may compromise the State’s
efforts to increase affordable
housing development.
California State Auditor Report 2020-108
November 2020
40
Specifically, one statute contains several eligibility requirements
that may exclude some affordable developments from streamlined
approval—for example, that qualifying projects cannot be located in
a coastal zone, which can cover significant portions of some cities
and include sites local jurisdictions select for affordable housing.
Another statute requires streamlined approval only for certain
sites, such as sites that jurisdictions have included in consecutive
housing plans without attracting development. If it expanded these
eligibility criteria to guarantee timely and nondiscretionary approval
of affordable projects on all sites that local jurisdictions identify in
their housing plans for affordable housing, the State could mitigate
a potential barrier that sometimes significantly delays or prevents
affordable development. For instance, according to HCD, the city
of Simi Valley has taken at least three years and several hearings to
review a project that would provide 84 affordable homes on a site
the city has identified to accommodate affordable housing, despite
the fact that the city has identified no adverse impacts of the project
on public health or safety during that review. These are delays that a
streamlined review might have prevented.
Concerns about expanding streamlined approval processes do not
outweigh the benefits of providing timely development of needed
affordable housing. According to the deputy director of housing
policy development at HCD, local jurisdictions have argued to
HCD that streamlined approval requirements reduce a local
community’s ability to provide input for new housing developments
and that reducing local input is problematic because the State lacks
insight into local conditions. However, projects with streamlined
approvals typically must be consistent with local jurisdictions’
objective standards, such as design review standards, meaning that
jurisdictions can still set basic requirements for these projects.
Further, local jurisdictions already select their own potential
affordable housing sites, describe in their housing plans overall
environmental constraints to development, and have the option
to perform formal environmental reviews of areas before projects
seek approval. Therefore, local jurisdictions could choose and plan
sites in a way that alleviates issues with streamlined approvals.
Several housing studies have acknowledged that streamlined
review processes facilitate housing development. In addition, we
spoke with representatives of a housing nonprofit organization and
a homebuilder association who both indicated that streamlining
reviews at the local level could improve affordable housing efforts.
The Legislature should require that local jurisdictions mitigate key
barriers in the near term, and it should require that HCD undertake
a more holistic evaluation of potential barriers in the long term.
Specifically, as we describe in this section, the Legislature could
begin by increasing the default densities in state law and expanding
current streamlined approval processes. These are the most
Representatives of a housing
nonprofit organization and a
homebuilder association indicated
that streamlining reviews at the
local level could improve affordable
housing efforts.
41California State Auditor Report 2020-108
November 2020
significant barriers we identified where clear gaps in state law exist
despite recent legislation. However, other potential barriers—such as
the amount and quality of land that local jurisdictions designate for
affordable housing, the parking requirements they impose, and the
fees they charge developers—may still persist because of other gaps in
state law. In the long term, the State could evaluate the effectiveness
of recent legislation and require that local jurisdictions adopt a set of
default housing standards that mitigate all potential barriers on sites
they identify for affordable development unless the local jurisdictions
include an adequate plan to accommodate needed affordable units
using different standards. Encouraging more development on sites
that local jurisdictions identify for affordable housing is critical
to achieving the State’s housing goals; without ensuring that
jurisdictions have policies that encourage necessary development
on those sites—sites that are the basis for how jurisdictions plan for
needed housing—there is little reason to expect the State can provide
enough affordable homes for Californians.
HCD has expressed some concerns about developing default
standards to mitigate potential barriers to affordable housing,
but doing so is possible and could encourage the development of
needed affordable homes. The deputy director of housing policy
development at HCD indicated that developing useful default
standards would be difficult given the diversity and nuances of
local jurisdictions. However, HCD has already published several
specific best practices for local jurisdictions, such as requiring
no more than one parking space per unit for certain projects,
allowing building heights of at least three stories for multifamily
housing, and considering factors such as proximity to transit and
competitiveness for Tax Committee funds when selecting potential
affordable housing sites. Further, the current default densities in
state law show that it is possible to identify specific, flexible default
standards. Because addressing all potential barriers to development
would likely require further research, and because HCD has already
identified best practices for mitigating many barriers, we believe
the Legislature should task HCD with determining appropriate
default standards that would help ensure that local jurisdictions are
facilitating the development of necessary affordable housing.
The State Has Not Ensured That Local Jurisdictions Follow Through
With Their Plans to Accommodate Affordable Housing
Even if local jurisdictions developed effective plans to remove
affordable housing barriers, HCD’s limited oversight is insufficient
and its lack of authority does not permit it to ensure that all local
jurisdictions are following through with those plans, which we
depict in Figure 9. As we note in the Introduction, HCD received
authority in January 2018 to monitor local jurisdictions for
Encouraging more development on
sites that local jurisdictions identify
for affordable housing is critical to
achieving the State’s housing goals.
California State Auditor Report 2020-108
November 2020
42
compliance with their local housing plans and with certain housing
laws. This monitoring can result in HCD issuing written findings
and revoking its approval of local jurisdictions’ housing plans;
that penalty makes them ineligible or less competitive for certain
state housing and infrastructure funds and may encourage some
local jurisdictions to address HCD’s findings, although the penalty
could well be less effective in areas already resistant to developing
affordable housing. Ultimately, HCD has only one current option
to fully enforce its findings when local jurisdictions are persistently
noncompliant: it can notify the Attorney General for possible
litigation. To improve its oversight, the State needs an adequate
and timely enforcement mechanism—such as an appeals process
for developers—for situations in which local jurisdictions fail to
approve eligible affordable housing projects.
Figure 9
The State Does Not Ensure That Local Jurisdictions Follow Through With
Their Housing Plans
Local jurisdiction fails to facilitate
development of aordable housing
Local jurisdiction unlawfully
delays or denies an affordable
housing project that meets
state and local requirements.
Local jurisdiction takes actions
inconsistent with its housing
plan, such as adding new
barriers to affordable housing.
Local jurisdiction fails to take
actions outlined in its housing
plan, such as failing to remove
barriers to affordable housing.
Examples
HCD does not proactively
identify or investigate
all such cases.
HCD lacks authority to ensure that local
jurisdictions allow developers to build
aordable housing in a timely manner.
Source: Analysis of state law and HCD documents pertaining to its oversight of local jurisdictions.
Despite the importance of its oversight, HCD has scrutinized
only a portion of the local jurisdictions that have not provided
the affordable housing described in their housing plans. Although
HCD’s progress report data as of 2019 suggest that at least 470—or
43California State Auditor Report 2020-108
November 2020
87 percent—of the State’s local jurisdictions were not on track to
provide needed affordable homes, HCD’s public lists of enforcement
actions indicated it had followed up with fewer than 110—or about
20 percent of all local jurisdictions—as of July 2020. We identified
several local jurisdictions HCD had not yet reviewed even though
they reported especially low affordable housing development;
the city of Lathrop, for example, reported zero permits for
affordable units from 2016 to 2018 even though it reported
permits for 850 units of more expensive housing and has some
of the highest indicators of need in the State. By failing to review
some local jurisdictions with especially low affordable housing
development, HCD has allowed those jurisdictions to continue to
provide minimal affordable housing without state investigation or
enforcement actions. That lack of review also limits HCD’s ability
to identify specific causes of underdevelopment and to provide
technical assistance to local jurisdictions that may need it.
HCD’s oversight of local jurisdictions has been limited in part
because it does not proactively and comprehensively identify
local jurisdictions to review. HCD’s current review process is
largely complaint-driven; it is based mainly on inquiries HCD
receives rather than on information it collects each year from local
jurisdictions about their progress in meeting housing needs—
including permits they have issued for affordable housing. When we
asked HCD about its approach to this oversight, its deputy director
of housing policy development indicated that its current process is
complaint-based primarily because of a lack of time and resources.
However, HCD could take a targeted approach to this oversight by
identifying and following up with the local jurisdictions that have
the most severe lack of affordable housing development and the
highest needs. Further, the deputy director stated that HCD wants
to be more proactive about identifying local jurisdictions to review,
and that using information local jurisdictions report about their
affordable housing development—if coupled with other metrics
such as indications of highest need for affordable housing—is a
viable option for developing a targeted and proactive approach to
this oversight.
However, even when HCD’s reviews identify local violations that
require state enforcement, its two primary enforcement options—
revoking its approval of local housing plans and referring cases for
potential litigation—do not always ensure that local jurisdictions
allow developers to build affordable housing in a timely manner.
When local jurisdictions are persistently noncompliant, HCD’s
only real enforcement option is to notify the Attorney General for
possible litigation. Since 2018, when HCD received authority to do
that, we identified only one such case it had referred to the Attorney
General as of August 2020—a case that resulted in litigation against
the city of Huntington Beach. In that instance, HCD alleged that
HCD’s public lists of enforcement
actions indicated it had followed
up with fewer than 110—or
about 20 percent of all local
jurisdictions—as of July 2020.
California State Auditor Report 2020-108
November 2020
44
Huntington Beach had adopted barriers, such as reduced densities, that
were inconsistent with its previously approved housing plan; as a result,
the legal complaint indicates that HCD sent Huntington Beach a letter in
2015 informing the city that these changes nullified HCD’s prior approval
of the housing plan, and that the city also faced a related lawsuit that year
brought by affordable housing advocates. Yet according to the complaint
it took another letter from HCD in November 2018, which found that
the city’s housing plan remained out of compliance, followed by litigation
from the State in 2019 before HCD finally found the city’s housing plan in
compliance with state law in early 2020, nearly five years after the city’s
purported initial violation. This litigation approach can be time-intensive
and ultimately inadequate for ensuring local jurisdictions’ timely
compliance with their housing plans and with state housing laws—
especially regarding approval of specific affordable housing projects.
We found cases of specific project delays that also demonstrate
the consequences of HCD’s lack of enforcement authority. For
example, HCD has been monitoring an affordable housing project in
Simi Valley—which we mention in the previous section—that the city
has been reviewing for more than three years; HCD indicates that
during this review, the city identified no adverse impacts. According
to a July 2020 letter that HCD sent to Simi Valley, the city had held
four hearings in 2020 alone to consider approving the project and had
postponed a potential fifth hearing multiple times. HCD noted that at
the most recent hearing, the city’s attorney indicated that the city could
not, in any legally defensible manner, disapprove the project, yet the city
council seemed disinclined to approve the project based on aesthetic
concerns and ambiguous safety concerns. However, HCD’s oversight
over the course of three letters from December 2019 through July 2020
to Simi Valley essentially amounted to encouraging approval of the
project and warning the city that denying the project risks violating state
law, which could result in a referral to the Attorney General. Requiring
streamlined reviews for projects on all sites that local jurisdictions have
selected for affordable housing, as we discuss in the previous section,
could have helped resolve this issue—the project was proposed on a site
Simi Valley had identified in its housing plan for affordable housing.
We also found cases in which local jurisdictions appear to be holding
up affordable projects that qualify for streamlined reviews under
state law. For instance, the city of Encinitas appears to have at least
delayed—and perhaps prevented—development of a project that
HCD indicates was eligible for streamlined review and was located
on a site the city had identified in its housing plan for affordable
housing. HCD noted in a February 2020 letter to Encinitas that the
city had acted inconsistently with state law by requiring extensive
additional information—such as a traffic study—from a developer who
proposed an apartment complex on a site Encinitas had designated
for affordable housing. According to HCD, Encinitas was required by
law to grant streamlined reviews for projects that included affordable
HCD lacks enforcement authority—
for example, it has been monitoring
an affordable housing project
in Simi Valley that the city has
been reviewing for more than
three years.
45California State Auditor Report 2020-108
November 2020
units on that particular site—meaning that it could review the
apartment complex for compliance with objective standards, such as
design standards available to the developer before submittal of the
application, but it could not conduct a discretionary review. Although
we do not question the value of local jurisdictions’ input into the
housing development process, Encinitas had already selected the site
in question to accommodate affordable housing and HCD’s letter
indicates that Encinitas’s extensive requests for additional information
were inconsistent with the streamlined review process state law
requires. Further, HCD stated in the February letter that the developer
subsequently withdrew its application for the project. In its letter,
HCD encouraged the city to work with the developer and indicated
that failure to come into compliance with state law might result in
a referral to the Attorney General. However, litigating such cases
after the fact is unlikely to provide as much benefit as a more timely
enforcement process would.
Establishing a timely and fair appeals process for affordable housing
developers could help provide more timely development in areas that
are unreasonably delaying or preventing it, as we detail in Figure 10.
One potential approach is to allow developers of eligible affordable
housing projects to appeal to a state appeals board within HCD when
local jurisdictions have not approved their projects in a timely manner,
and to grant that appeals board the authority to approve such projects
when they have met state and local standards. An appeals board could
expedite development of needed affordable housing and add more
certainty to the development process.
Several states have already adopted statewide appeals boards to rule on
local housing decisions, and California has considered a similar bill in
the past. Massachusetts allows affordable housing developers to appeal
local decisions to a state housing appeals committee under certain
conditions, and it requires the committee to hear an appeal within
20 days of receiving the applicant’s statement. California considered
legislation in 2003 that would have created a five-member committee
within HCD, including at least one local representative, to hear appeals
from developers of affordable housing and potentially overrule local
denials of their projects. Ultimately the bill prompted concerns about
jurisdictions’ local control and whether such a committee would be
constitutional, and the bill did not become law.
To be effective, a state appeals board would need to address such
concerns over local control while also providing timely and enforceable
decisions. To acknowledge local control and help ensure that an
appeals board would be constitutional, the Legislature could—in
addition to requiring local representation on the appeals board—limit
the scope of the appeals process, such as by allowing developers to appeal
only if their projects are located in local jurisdictions that have the most
severe lack of affordable development relative to need or in jurisdictions
Several states have already adopted
statewide appeals boards to rule
on local housing decisions, and
California has considered a similar
bill in the past.
46 California State Auditor Report 2020-108
November 2020
that have a history of noncompliance. However, an appeals board
would also need to render timely decisions that allowed developers
of qualifying, beneficial projects to build affordable homes as soon as
feasible. That would likely require the Legislature to place time limits
on the board’s reviews and on any subsequent legal challenges, and to
ensure that the board’s decisions are enforceable.
Figure 10
An Effective Appeals Process Could Help Ensure That Local Jurisdictions Approve Eligible Affordable Housing
Projects in a Timely Manner
Developer Seeks to Build on a Site
the Jurisdiction Has Identified for
Aordable Housing
With Our Recommendations
Affordable housing
projects may not
receive streamlined
reviews, depending
on the site.
Streamlined Reviews
All Reviews Streamlined
Litigation
Project Approved
Project Delayed or Denied
Project Delayed or Denied
Project Delayed or Denied
Current Process
Discretionary Reviews
If local jurisdictions’ delays
or denials of projects are
unlawful, the only option
to ensure project approval is
time-intensive litigation,
which can take 1+ years .
Appeals Process
If developers of certain affordable housing
projects wanted a timelier alternative to
litigation, they could appeal to a state
board for project approval when local
jurisdictions’ delays or denials of projects
have been unreasonable.
Generally must approve within
2-6 months if project meets standards
Project Approved
Generally must approve within
2-6 months if project meets standards
Such as a state appeals board
Can take 1+ years to approve
Project Approved
Source: Analysis of state law, court decisions, and information from HCD.
47California State Auditor Report 2020-108
November 2020
Most importantly, an effective appeals process could help fill a
critical gap in the State’s oversight of individual affordable housing
projects. Currently, litigation is an inadequate process for ensuring
that all local jurisdictions approve eligible affordable housing
projects, especially when developers may abandon projects because
of the time required for such litigation. An appeals process could
be a timelier, more uniform option to ensure project approval
when local jurisdictions have denied or delayed certain projects
that clearly meet reasonable standards and that would benefit
lower-income households. California now faces an extreme,
statewide affordable housing crisis along with local barriers to
addressing that crisis, and this necessitates further action. An
appeals process to overturn local jurisdictions’ unreasonable
delays or denials of affordable housing projects could help provide
Californians with critically needed affordable homes.
The State Needs to Better Leverage Local and Private Resources to
Build Affordable Housing
The State needs a comprehensive approach to facilitating more
affordable housing development that does not rely on significant
state financial resources if it wants to provide enough affordable
homes for Californians. In addition to the limits of state funding
that we discuss in Chapter 1, several of the cities we reviewed
indicated in their most recent housing plans that they had limited
funding with which to assist affordable housing development. If it
wants to address these issues and meet its affordable housing goals,
the State must take ambitious actions to spur local and private
investment in affordable housing development.
We identified potential strategies for leveraging private investment
in affordable housing that the State could explore on a broader
level. For instance, HCD notes in its guidance to local jurisdictions
that one strategy for encouraging more housing development is
to promote “mixed-use” development—in which housing units
can coexist with commercial uses in the same project, such as
apartments existing above ground-floor stores or restaurants.
According to HCD, mixed-use development allows commercial
revenue to act as an internal project subsidy: in other words,
mixed-use development can leverage private investment to
make housing more financially feasible to build. For example,
Santa Monica included many mixed-use sites among the potential
affordable housing sites it identified in its local housing plan, and it
subsequently reported approving multiple mixed-use projects with
affordable units that did not appear to be receiving Tax Committee
funding. Although state law requires local jurisdictions to analyze
in their housing plans whether their potential sites can provide
for a variety of types of housing, it does not explicitly require that
California now faces an extreme,
statewide affordable housing
crisis along with local barriers
to addressing that crisis, and
this necessitates further action,
such as an appeals process.
California State Auditor Report 2020-108
November 2020
48
jurisdictions encourage mixed-use, affordable housing development
on their selected sites. However, this strategy may encourage
more development of affordable housing without significant state
subsidies, and it could be part of HCD’s plan for meeting affordable
housing needs beyond the limits of state funding.
Similarly, inclusionary policies, which generally require developers
of more expensive housing to include a certain percentage of
affordable homes within their projects, is a potential strategy for
local jurisdictions although not a state requirement. As we show
in Table 2, development of above-moderate-income housing vastly
exceeds affordable housing development. Requiring some affordable
homes in more expensive developments could help address this
disparity and subsidize affordable housing without necessarily using
state resources. In fact, many local jurisdictions have already adopted
such policies: about 30 percent of jurisdictions had inclusionary
requirements in place according to the Terner Center for Housing
Innovation survey published in 2018. The eight cities we reviewed
varied in the degree to which they required or did not require
inclusionary housing, but we found an example of an inclusionary
policy that likely facilitated affordable housing development.
Santa Monica, which generally requires that between 5 percent
and 20 percent of multifamily rental housing units in a project
be affordable, depending on level of affordability, appears to have
approved a significant number of affordable units that developers
paired with more expensive units in the same project. However,
inclusionary policies can be controversial because they place
restrictions on developers, and some researchers have argued that
these policies may reduce overall housing development. Nevertheless,
if it pursued a statewide inclusionary requirement, the State could
reduce potential drawbacks of such a policy by requiring it only
when a local jurisdiction had already met its goal for housing in the
above-moderate-income category but had not yet met its affordable
housing goals. HCD could assess these policies and consider
including a broader inclusionary housing strategy in its housing plan.
Regardless of these and other strategies, local jurisdictions
ultimately have significant knowledge of and control over
development in their localities—and incentivizing them to do
everything possible to facilitate development of affordable housing
may be an effective approach to achieving state goals. However, the
State’s current housing-related incentives for local jurisdictions are
limited. For example, the State has conditioned certain funds, such
as housing and infrastructure grants, on whether local jurisdictions
adopt HCD-approved housing plans; but as we note earlier in this
chapter, that compliance does not necessarily mean that local
jurisdictions have mitigated all barriers to development or have
actually accommodated needed affordable housing. Further, a
new statute will give a competitive advantage to local jurisdictions
Requiring some affordable homes
in more expensive developments
could help address this disparity
and subsidize affordable housing
without necessarily using
state resources.
49California State Auditor Report 2020-108
November 2020
that HCD designates as prohousing based on their adoption of
various local policies—such as zoning more sites for housing
development than state law requires—when these jurisdictions
apply for funding from specific housing and infrastructure
programs. However, neither state law nor HCD’s framework paper
from October 2019 indicate that these incentives will be based
directly on quantity of affordable housing development, such as the
number of affordable units for which local jurisdictions have issued
permits. Moreover, the current funding programs that could be
affected by a local jurisdiction’s prohousing status are substantially
housing-focused and offer only small scoring boosts for prohousing
policies—meaning that the incentives may not be appealing to
local jurisdictions that are opposed to housing development in the
first place.
In fact, we did not identify any significant nonhousing financial
incentives for local jurisdictions that the State currently conditions
on the amount of affordable housing that jurisdictions approve.
However, the Legislative Analyst’s Office and housing researchers
have explored the possibility of the State offering flexible or
nonhousing funds to local jurisdictions based on the housing
units they develop. For instance, the Legislative Analyst’s Office
discussed in a report for the fiscal year 2019–20 Governor’s Budget
that the State could allocate certain transportation funds—which
it noted are the largest funding stream to cities over which the
State has control—based on jurisdictions’ progress in meeting
housing goals. HCD even wrote in its state housing plan that the
State should make a portion of funding available, proportional
to a local jurisdiction’s affordable housing permits, in the form of
flexible funding for projects that serve a community benefit, such
as libraries and parks. Further, at least two regional governments—
in San Diego and the Bay Area—have used housing development
as a factor in award processes for some regional transportation
and community funds they disburse to local jurisdictions. These
regional governments, by linking nonhousing projects like local
street maintenance or transportation planning to housing criteria,
may incentivize housing development in local jurisdictions that
are reluctant to accommodate affordable housing. Conditioning
nonhousing funding on local housing development does present
challenges; for example, the Legislative Analyst’s Office noted
that some factors—such as landowners’ decisions and the health
of the economy—are outside of local jurisdictions’ control but
significantly affect home building. Nevertheless, we believe the
Legislature should consider approaches like these at the state
level, which could complement increased state oversight and help
address the widespread underdevelopment of affordable housing
that results in part from insufficient efforts by local jurisdictions to
accommodate that housing.
Housing researchers have explored
the possibility of the State offering
flexible or nonhousing funds to
local jurisdictions based on the
housing units they develop.
California State Auditor Report 2020-108
November 2020
50
Recommendations
Legislature
To help ensure that all local jurisdictions mitigate key barriers to
affordable housing in the near term, the Legislature should amend
state law to do the following:
• Increase the existing default densities for affordable housing,
currently set at up to 30 units per acre, to a level that ensures that
local jurisdictions make every reasonable effort to accommodate
needed affordable housing units on sites they identify in their
housing plans. Because other standards, such as maximum
building height, can also limit density, the Legislature should
also require that local jurisdictions’ development standards allow
developers to build the densities that jurisdictions specify for
each potential affordable housing site in their housing plans.
• Require that local jurisdictions allow a streamlined review
process with limited discretionary action for affordable housing
projects on a site that a local jurisdiction has identified in its
housing plan to accommodate affordable housing units.
To ensure that local jurisdictions make sufficient efforts to
facilitate the development of needed affordable housing in the long
term, the Legislature should require HCD to develop and submit
to the Legislature specific and objective standards—for example, a
maximum number of parking spaces required per housing unit—
for how local jurisdictions can mitigate barriers to lower-income
housing development across all the potential barriers they control,
such as zoning and parking. HCD should tailor these standards
to ensure that local jurisdictions implementing them have made
it feasible for developers to build the housing necessary to meet
lower-income housing goals. The Legislature should also require
that HCD consult with local jurisdictions; regional governments;
and affordable housing developers, advocates, and researchers in
determining these standards. The Legislature should consider this
information when developing legislation to mitigate additional
affordable housing barriers: for instance, it could require local
jurisdictions to adopt the standards for all potential affordable
housing sites in their housing plans unless they provide reasonable
justifications for using different standards.
51California State Auditor Report 2020-108
November 2020
To facilitate timely and needed affordable housing development in
local jurisdictions that are not approving it, the Legislature should
amend state law and consider the constitutionality of establishing
an effective appeals process for developers of affordable housing
projects. For example, it could consider doing the following:
• Create an appeals board within HCD to resolve disputes over
affordable housing projects in a timely and fair manner. The
Legislature should specify that the appeals board include at least
one representative from local jurisdictions.
• Allow a developer of an affordable housing project to appeal to
the appeals board if the local jurisdiction in which the developer
has proposed the project is not on track to provide its needed
lower-income units, if the project would contribute significantly
to the local jurisdiction meeting that need, and if the local
jurisdiction has unreasonably denied or delayed the project.
• Require the appeals board to render decisions on appeals in a
timely manner and to approve an appeal for a project if it meets
the criteria above and is consistent with state and local standards.
• Specify parameters for any subsequent litigation that challenges
or enforces the state appeals board’s decisions so that these
decisions are enforceable and developers of affordable projects
meeting reasonable standards can build as soon as is feasible.
To better leverage local and private resources and develop more
affordable housing, the Legislature should consider amending state
law to award a significant amount of nonhousing or flexible funds,
such as existing transportation funds, to local jurisdictions based
on the number of lower-income housing units they have approved
relative to their needs allocation.
HCD
To ensure that all local jurisdictions make sufficient efforts to
provide affordable housing, HCD should, by June 2021, develop and
implement procedures for actively monitoring local jurisdictions that
are not on track to provide the needed lower-income housing units
included in their housing plans. Specifically, HCD should identify
local jurisdictions with severe underdevelopment of affordable
housing and indications of high need for that housing, and it should
initiate reviews of those local jurisdictions that include steps to
identify why they are not developing needed affordable housing. HCD
should then provide technical assistance or take enforcement actions
as necessary to help resolve any issues it identifies.
52 California State Auditor Report 2020-108
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