California’s middle income housing program has grown substantially in the last three years and currently includes over 12,000 units. The program has sought to reduce rents for middle income renters by exempting these developments from property taxes and passing the savings on to renters. Three quasi-governmental organizations known as Joint Powers Authorities (JPAs) administer the program with cities approving all property acquisitions. Thus far, JPAs have partnered with at least 26 California cities to purchase over 46 developments, typically luxury apartment complexes, using this model.
In their report, the authors conclude that the program’s projected rent reductions were highly uncertain and less than the projected loss in property tax revenue. The report concludes that the middle income housing program disadvantages low-income communities of color by diverting revenues from K-12, community colleges, and other government services. The research team also found that the program suffers from lack of accountability, high property acquisition costs, and excess risk.
Key findings include:
- The rent reductions and long-term viability of middle income developments are dependent on several undependable assumptions and vary widely by development.
- The benefits of middle income developments are speculative. Current public spending in education and public services that are potentially reduced by this program yield a greater social benefit.
- No third party is responsible for regulating or monitoring compliance. Reputational and financial interests may adequately incentivize parties to comply with their agreements.
- Middle income developments cost more to taxpayers in total lost tax revenue than the rent savings they produce.
- Cities approve or disapprove of property acquisitions using dubious assumptions, and incomplete or cherry-picked information.
- Other taxing authorities are rarely consulted or informed of revenue losses until after the deal has been finalized.
- The program includes unusually high transaction fees.
- Few cities that we interviewed considered the equity implications of these transactions.
The research team of Truman Braslaw, Sonia Schrager, Bailey Schweitzer, Joseph Testa, and Haley Tiu completed their detailed analysis of the middle income housing program as part of their Masters of Public Policy coursework and were advised by Dr. Charlotte Hill. The researchers utilized mixed methods in their study, including conducting over 26 expert and city official interviews, document analysis of several legal and regulatory documents, review of city staff reports, modeling rent benefits and tax loss using publicly available data on the Electronic Municipal Market Access website, and analyzing property values and market conditions using Costar. The work was completed at the request of the California Housing Partnership to inform their advocacy work on AB 1850 (Ward) which aims to regulate the middle income housing program.
Truman Braslaw: Truman is a JD/MPP candidate studying the intersection of law and public policy. He focuses on housing, education, and economic inequality.
Sonia Schrager: Sonia is an MPP student with an interest in social policy. Her work has focused on education, housing, child welfare and families, inequality and social justice, and the social safety net.
Bailey Schweitzer: Bailey is an MPP student focused on local government policy. He is most interested in how cities can use limited resources, like land, more efficiently and equitably.
Joseph Testa: Joseph is an MPP student and was a high school social science teacher and school leader before attending GSPP. He holds a Master of Arts in Political Science and is a licensed real estate salesperson in California.
Haley Tiu: Haley is a data scientist with a particular interest in the intersection between data and people. At GSPP Haley has turned her focus to policy issues related to housing and climate change, aiming to analyze these issues from an economic and quantitative perspective.
image credit: Luke van Zyl