Is Prop 5 missing the point? Voters may undo CA's Constitution for easy bond money, when smarter alternatives exist
Of the many ways to fund a housing project, bonds are the least efficient. Yet RM4 would have saddled Bay Area homeowners with more than $48 billion in taxes to pay off housing bond debt, with little to show for it. In his breakdown of what went wrong, Marin Post’s Bob Silvestri asks if BAHFA considered intelligent housing solutions that cost much less than bonds—developer tax credits, for example, or low-risk private housing debt insurance.
Without going into great detail about housing finance, this type of general obligation bond is arguably one of the least efficient ways to use public funds to subsidize housing development.
For example, housing tax credits, which are a form of financial leverage, produce far more bang for the buck, in part because of the economic multiplier effects from privately financed real estate development that offset most if not all of the cost of the tax credits provided by the government agency. And, all of the funding goes directly toward project costs without paying for a government agency middleman.
(Note: The creation of a new tax credit does not require a bond. Tax credits are not public debt so there is no” interest” or other costs associated with public debt. Credits are a direct subsidy to a developer if and only if they present a "qualifying" project and those qualifications can be as strict and specifically targeted as desired, i.e., for low-income units, “missing-middle” units, etc.
A developer that is granted tax credits typically sells those credits to a corporation or a syndicator for cash that goes to subsidize the project costs. This credit would be in addition to the existing federal and state tax credit programs and be tailored for the needs of the San Francisco Bay Area. This new program would have to be approved by the state legislature.)
Another method that is certainly more efficient is using bond funds to “insure” private housing project development debt by private banks and other investors. This method maximizes the financial leverage by orders of magnitude to produce the greatest number of housing units from any given amount of funding. And, considering that the rents for low-income (Section 8) units are pretty much guaranteed because waiting lists for low-income units that accept rental vouchers are many years long, the risks of default are minimal; lower than market rate developments.
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