☆ Perspective: Regional bond would be a big flop for housing affordability crisis
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California finance expert Tom Rubin analyzes MTC's proposed $10–20 bn bond measure, which would chuck some greenbacks at jurisdictions in the name of developing/preserving affordable housing. Not only does the measure lack clear performance metrics (um, are we talking 100 or 10,000 units produced?), but it neglects key market problems—suggesting instead we hand gov't (more) cash to figure everything out. An Opp Now exclusive.
Opportunity Now: Is it just us, or does the Metropolitan Transportation Commission's latest proposal to invest—cough—$10–20 billion in “affordable housing” in California feel a bit déjà vu? This isn't the first time they've attempted something like this, right?
Tom Rubin: MTC has been working on this big housing bond concept for years now.
Pre-Covid, their plan via CASA was to provide $2.4 billion annually in housing from about 12 different sources. However, there wasn't much information made available about how many houses CASA would reap, and when. What made the situation even more difficult was, since it was officially a private sector thing (involving community groups and nonprofits, although public interests were represented at the table), there were not open meetings and records weren't publicly available. Nevertheless, CASA died for a couple of reasons, COVID being one of them.
Now, MTC has several alter egos. One of them is known as the Bay Area Housing Finance Authority (hereafter BAHFA). BAHFA can put ballot measures before the public, and they don't have to fulfill as many requirements as far as specifying what the measures would do. For the newly proposed “regional housing bond measure,” MTC took this same route. They put it under BAHFA's name.
ON: Is their proposal with this bond measure any clearer than CASA's?
TR: Here are highlights of what we know: it's a pretty large nine-county bond issue. I've seen $5, $10, and even $20 mentioned as far as the first round of funding. Oddly enough, this is not very much money considering its claims to produce, preserve, and protect affordable Bay Area housing.
Overall, this measure is difficult to pin down because they haven't put it in writing anywhere how many new homes it'd create—or what specifically the money is supposed to accomplish. So it's hard even to assess the bond, since we don't know what it would produce. In my opinion, the absolute first requirement for any measure is stating its purpose: its desired end result (in quantified terms).
ON: It sounds like the measure's a big ol' question mark in terms of pragmatics. In theory, though, how would you assess a regional bond claiming to create and protect “affordable housing”?
TR: A problem with this measure is that it's predicated on the idea that we simply need more housing, and the market will fix itself. But we don't have a shortage of housing. Market-rate housing appears to be very ample. No, we have an affordability problem and a homelessness problem. These are all related but not in a simple, easy manner.
Moreover, MTC's proposal assumes that jurisdictions will be able to make use of bond funds in whatever ways best benefit their communities. This just isn't the case due to the expectations of State government. Here's what's going on. The State of California simultaneously demands that local governments solve the housing crisis (including, most prominently, affordability problems) and makes difficult/wipes out their efforts. This is, of course, quite counter-intuitive.
When Jerry Brown was governor and we had a State funding crisis, he grabbed a lot of money from local governments. Local redevelopment authorities were wiped off the face of the Earth so that the State deficit could be covered. However, at this time, the State was also heavily investing in financing housing through grants to local government (which they aren't now).
Today, we're left with top-down mandates to build and preserve affordable housing—and, if this measure passes, more funds to do so—but only in specific ways the State approves. Cities and counties have lost a great deal of their power to create housing they think is effective. Instead, they're being told by the State, “You must do it in this way.” This happens via the Regional Housing Needs Allocation (or RHNA), an incredibly flawed process that has very little to do with housing needs and where they exist.
ON: How does a city's needs allocation affect their efforts to develop market-rate housing?
TR: As published by the Embarcadero Institute, RHNA is an inherently bad model based on New York history that has nothing to do with us. RHNA's housing targets are arbitrary and may not suit cities and their needs. For instance, even though our State population isn't growing right now, the needs allocations haven't changed. So this is really straining local jurisdictions, who obviously want to build affordable housing but have trouble meeting the targets. And if a city can't live with the RHNA, they must let developers basically do whatever they want (through what's called the “builder's remedy”). The whole process is very stupid to watch.
So to reiterate: simply giving jurisdictions more money by passing this MTC bond won't solve housing affordability. Instead, it'd be much more beneficial to cut through some red tape like State-mandated housing needs allocations.
ON: Let's fast-forward and imagine this regional housing bond gets approved by voters. What's the impact, if anything?
TR: I've done some analysis. If this went through, as I see it, there would be some definite winners and losers among the counties. The losers? Smaller counties like Sonoma. They would wind up paying in taxes to cover the bond debt service around twice as much as the portion of bond revenues that they'd receive. And the sure winners would be larger counties, particularly Santa Clara. They'd end up big money-makers, getting far more back in terms of dollars from the bond than they'd be paying.
ON: Interesting. This isn't an argument we're hearing often from folks in smaller counties.
TR: I don't think it's been made very clear to them. I don't think these counties realize how they'll be harmed; and if they realize, do they have much of an opportunity to object? Here's what's tricky about it: the way the measure is structured, even if a county votes it down, it may still go through (in which case, they must pay in). So it'll be interesting to see how everything works out.
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