CHC Industry Insight

Industry Insight - June 2021

Note from the Executive Director

It’s that time of year, when all eyes in the Capitol are on the state budget—and the final decisions that must be made by the Governor and Legislature (before midnight on June 15!) about how to use this year’s unexpected surplus to support Californians struggling to recover from the pandemic.

CHC has made our priorities clear: With California’s housing and homelessness crisis only becoming more acute over the last year, we’ve urged state leaders to move quickly to house thousands of vulnerable homeless residents—while accelerating construction of desperately needed affordable homes for lower-income families, seniors, low-wage workers, and veterans.

There are two new funding opportunities for achieving these goals in the Governor’s May Revision and the joint legislative budget proposal, including:

At least $2.2 billion for Project Homekey for the acquisition and rehabilitation of hotels, motels, and apartments to provide homes for 17,000 homeless Californians. (The Legislature has proposed $2.2 billion for the program, while the Governor is pushing for $3.5 billion.)
$1.75 billion for 6,300 units of “shovel-ready” affordable housing facing delays in the state’s backlogged financing system

We know the state will rely heavily on affordable housing providers to build all of these units quickly—and with tens of thousands of vulnerable Californians depending on us, we’re confident our members are up to the task.

But we also know this: Affordable housing developers cannot achieve these goals if new restrictive “skilled and trained” workforce requirements are attached to the use of these funds.

The simple fact is, most California communities already don’t have enough construction workers to meet their housing goals. There’s no real argument about this: A recent report by the labor researchers at Smart Cities Prevail described the state’s construction labor market as “tighter than ever” and concluded California would need to “nearly double” its housing workforce in order to increase housing production.

Attaching strict hiring limits to emergency budget funding would only make this situation worse: It would artificially constrict the already strained labor force—slowing affordable development and bringing construction to a halt in many parts of rural and inland California, where workers meeting the state’s expanding definition of “skilled and trained” are particularly scarce (or don’t exist at all).

Even in major population centers, new hiring restrictions would also undercut the state’s goal of getting these units built quickly and cost effectively. In our conversations across California, contractors tell us that if new hiring rules are added to budget funds, most shovel-ready projects will struggle mightily to attract bids—and the lack of competition will have a major negative impact on project costs, including an 8% expected cost increase in the Bay Area, a 20% cost increase in Southern California, and a 30% - 50% cost increase in regions just outside of major metro areas.

Now is not the time to limit who can compete for high paying construction jobs—or delay shovel-ready projects.

Now *is* the time to get people off the streets and build permanent, high quality affordable homes.

With a week to go before the budget is finalized, we hope the Governor and Legislature are listening.

Sincerely,

Ray Pearl

Executive Director

In Case You Missed It

Last week, the Legislature released their version of the 2021-2022 State Budget. Their proposal includes $1.75 billion to alleviate the backlog in affordable housing construction and $300 million for the preservation of existing affordable housing, also included in the Governor's May Revise. Like the Governor's May Revise, the budget proposes significant funding to address homelessness, including $2.2 billion to Project Homekey and $1 billion in ongoing support for local governments to address homelessness. We are waiting for further details on the final negotiations.
Last week was the deadline for bills to pass out of their house of origin. Several notable housing bills were made into two-year bills:
AB 71 (L. Rivas) which would create a $2.4 billion annual allocation for homelessness and housing by taxing overseas profits of corporations that do business in California.
AB 1135 (Grayson) an effort to create a one-shop to streamline the state’s affordable housing financing system
CHC is continuing, with our state and regional partners, to oppose housing legislation that broadly applies skilled and trained workforce or PLA requirements on affordable housing production without guardrails to ensure there is sufficient access to workers for construction to proceed without extreme delays and at a reasonable cost. This includes:
AB 512 (Holden)
AB 680 (Burke)
AB 950 (Ward)
SB 6 (Caballero)
SB 15 (Portantino)
SB 51 (Durazo)
SB 791 (Cortese)
The Biden Administration announced that its American Jobs Plan infrastructure proposal would include $213 billion in direct funding for affordable housing—and $55 billion for a major expansion of the Low Income Housing Tax Credit. In total, the plan would produce or preserve more than two million affordable homes and create thousands of jobs.
CHC hosted a members only event with HCD Director Gustavo Velasquez and HUD Deputy Assistant Secretary of Multifamily Housing Ethan Handelman.

Affordable Housing in the News

A wave of articles have been published this month assessing the Legislature’s progress toward addressing California’s housing crisis, with most taking a fairly skeptical view of the session thus far. While new state budget investments could be a boon to affordable housing and some legislation has already been signed, the Sacramento Bee notes that it has been four years since the passage of the last major housing production package. When it comes to substantive policy reform, the Bee concludes, “little relief from the Capitol is on the way.”

Reporters aren’t having much difficulty finding the source of the ongoing legislative stalemate: “We have kept our broken status quo and have not changed our approach to housing,” Senator Scott Wiener (D-SF) told the Bee, with sound policy ideas to accelerate affordable development continuing to face opposition from a host of stakeholders, including local governments, NIMBYs, construction unions, and many others. One CalMatters story, “Why it’s not easy to build affordable housing in California,” highlighted a recent case in point: AB 1135 (Grayson), a bill to create a one-stop shop for affordable housing financing that was crafted to address cost issues raised in a recent state audit—but still fell afoul of political issues and will not advance this year.

Governor Newsom’s housing advisor, Jason Elliott, shared his own conclusions this month about the state’s perennial housing challenges: “We have the wrong reflex around housing in the state: We start with ‘no,’” he noted at a Capitol Weekly event—saying the time has come for the state’s leaders to shift their paradigm. “Let’s start with ‘yes,’ unless there’s a reason not to build.”

2021 Affordable Housing Finance Top 50 Developers

Congratulations to CHC Members for making Affordable Housing Finance's 2021 Top 50 Developers!

AMCAL Multi-Housing
Meta Housing
USA Properties Fund
Mercy Housing
Chelsea Investment Corp
The Pacific Companies
BRIDGE Housing
Highridge Costa Housing Partners
LINC Housing
Affirmed Housing
Community Housing Works
Related CA
Jonathan Rose Cos.
McCormack Baron Salazar

Federal Update with David Gasson, Housing Advisory Group

If you hear a subtle roar in the background and a not so familiar smell beginning to waft in the air, you are sensing the initial commencement of sausage making within the beltway of Washington, DC. After years of sharing a mythical existence in the company of Big Foot and the Loch Ness monster, “infrastructure” negotiations have actually begun. Along with the negotiations on the FY2022 budget, the next four to six months will either be the most economically & structurally consequential in a generation or the biggest dud since Geraldo opened Al Capone’s vault.

We have already reviewed the introduction of the Affordable Housing Credit Improvement Act (AHCIA) of 2021. We continue to build bipartisan support for H.R. 2573 and S. 1136 and ask that you reach out to the California delegation and ask them to cosponsor the AHCIA. All the resources you need are on the ACTION Campaign’s Advocacy Tools website.

We have now seen the Administrations LIHTC proposal, an additional allocation called the Opportunity Housing Credit Dollar Amount (OHCDA). In calendar years 2022 through 2026, the aggregate number of new OHCDAs would be 118 percent of the aggregate annual number of new OHCDAs under current law (approximately $11 billion annually). A different per capita amount would be applied to each state (as determined by a formula established by the Treasury Secretary in consultation with HUD) that provides higher amounts to states with higher costs of constructing and operating affordable housing.

Housing credit agencies would be required to allocate the majority of their OHCDAs to projects in Census Tracts of Opportunities (CTOs). Under the proposal, a CTO is defined as a tract that is entirely in one or more difficult development areas (DDAs). The proposal also provides for a permanent basis boost of up to 50 percent for buildings in DDAs that receive allocations of either HCDAs or OHCDAs.

So right now you are saying “what?”. While different than the proposal in the AHCIA which seeks to provide a basis boost for developments in high opportunity areas, both proposals focus on the production of affordable housing in areas that would provide better opportunities and outcomes for residents. The OHCDA proposal, while complicated, does express the Administration support for expanding affordable housing production which is important. Yet based on conversations with tax staff on the Hill I would look more toward the AHCIA as the vehicle for LIHTC expansion in the infrastructure conversation.

As of the drafting of this update we have yet to see the introduction of Senator Wyden’s Decent Affordable Safe Housing (DASH) Act. We will likely know much more about this significant piece of housing legislation following the HAG/AHTCC virtual Congressional Housing Forum on June 9^th at which Chairman Wyden will speak. As of now we expect this legislation to include the Middle-Income Housing Tax Credit, potentially an increase in the PAB volume cap, a tax credit and/or basis boost focused on services at LIHTC properties and much more.

I am also confident in my prediction there will be no bipartisan infrastructure proposal and that all legislation will proceed through the reconciliation process. This leaves little margin for error in both the House and Senate and will test the negotiation skills of Speaker Pelosi, Majority Leader Schumer and of course, President Biden. The size of the infrastructure package, what is included and what revenue is raised to help pay for it will all be high-wire acts for the leadership and committee chairs. Reconciliation also poses challenges for our LIHTC agenda as not all of what is included in the AHCIA can pass through the rules of the process. I remain bullish on the increase in the 9% LIHTC, a reduction of the 50% test and the basis boost proposals but after that we are on shaky ground.

The coming weeks and months will be very busy and at times likely put us through the grinder, but the LIHTC and your advocates are well positioned. We are in close contact with the administration, the tax writing committees and our champions are equally focused on our goals for the LIHTC. So, my advice is stay focused on our goals, ignore the noise, the news and talking head predictions of success or failure. Keep up your advocacy, have fun this summer (we all deserve and need some fun) and get ready for DC’s version of Top Chef with way too many cooks in the kitchen.

Thank You CHC Special Event Sponsors