California Housing Projects Face ‘Financing Drought’ After Proposition 5’s Defeat

The future’s looking grim for affordable housing projects across California.

Housing developers and advocates hung their hopes on Proposition 5, a measure rejected by voters that would have made it easier to raise local funding for affordable housing and public infrastructure projects. Meanwhile, as President-elect Donald Trump prepares to take office, no one expects the federal government to dole out more money for subsidized housing.

“We can’t sugarcoat the fact that this is a significant setback,” said Susannah Parsons, director of policy and legislation at All Home, a Bay Area housing justice advocacy group. “We are running low on public funds for housing. We are facing significant headwinds.”

Housing took center stage in state and national elections this November as more Americans feel the pinch of rising rents and a shortage of affordable housing. However, the results of the election have California affordable housing developers concerned that a shortage of public funds will put a stop to some of their projects.

According to a May report from the Metropolitan Transportation Commission, almost 41,000 affordable homes and apartments in the Bay Area are in the pre-development phase, meaning developers still need a certain amount of funding — collectively, about $9.7 billion — to start construction. Without that money, the projects sit idle as other funding sources, sometimes contingent on each other, disappear.

Proposition 5 could have unleashed more funding by lowering the threshold for approving local bond measures for housing and infrastructure from a supermajority of 66.67% to 55%.

Sarah Karlinsky, research director for the UC Berkeley Terner Center for Housing Innovation, likens the complicated funding structures for affordable housing to a layer cake.

“There are many different sources of funding for affordable housing at the state level and different departments and parts of the government that control different pieces, and then affordable housing developers kind of have to knit all of them together,” she said.

Karlinsky said there will be increased competition for what funding is still available, while projects that can’t get enough will be pushed further into the future.

“We know it’s going to be extremely challenging because it’s been hard enough as it is,” said Noni Ramos, CEO of Housing Trust Silicon Valley, an affordable housing development financing organization. “Now we’re in a position where it’s going to be even harder to do this work.”

The defeat of Proposition 5 was a particularly big blow because it was one of the only large-scale funding efforts put to voters after a Bay Area-wide $20 billion housing bond and a statewide, billion-dollar housing bond both failed to get to the ballot.

Still, there were some successes at the local level. San Francisco voters overwhelmingly approved Measure B, a $390 million bond that includes funding for homeless shelters. Los Angeles voters approved Measure A, a sales tax initiative that would raise an estimated $1.1 billion per year for housing and homelessness efforts.

As proponents and opponents seek to understand why Proposition 5 failed, they agree that the measure’s complicated nature was its biggest setback.

When voters don’t understand a measure and how it would impact them, they are more likely to vote against it, according to Mark Baldassare, statewide survey director for the Public Policy Institute of California.

“The people who put it on the ballot really did not promote what it was in a way that connected the dots for people,” he said.

Proponents fear that the opposition campaign may have swayed voters at a time when people are concerned about high costs. While Proposition 5 would not have increased taxes, it would have made it easier for bond measures to pass locally, potentially meaning higher property taxes. Opponents said the proposition was “deceptive” and that it would “trick voters into approving the tax-hike measure.”

“I think voters vote for measures that benefit the social good when they feel more flush,” Karlinsky said. “They may not feel like they have anything left over for others.”

Susan Kirsch, a Proposition 5 opponent and the director of the Catalyst Institute for Local Control, an organization focused on local control in housing development, was relieved that voters rejected the measure. She feared its passage might have meant higher taxes for people like her, a home-owning senior living on a fixed income.

“We know that there’s already more people moving out of the state because of California’s high taxes,” she said. “I would feel much more vulnerable in terms of how those taxes would keep coming in.”

As for future elections, affordable housing developers and advocates are regrouping and debating whether to reintroduce a regional or statewide bond measure or a version of Proposition 5.

Heather Hood, the vice president of affordable housing advocacy group Enterprise Community Partners, said the onus is on local agencies and organizations like hers to plan for future funding.

“In the face of the federal administration, we’re going to need to be more efficient with our dollars and mightier with our will,” she said. “It seems to me that we’ve collectively managed to be divided and nit-pick at each other, and we don’t have time for that anymore.”