Legislation would free up significant financial resources for affordable housing developments by shifting individual project reserves to a pooled statewide model
SACRAMENTO — Senator Josh Becker introduced a bill today to substantially reduce costs for affordable housing projects in the state by enabling affordable housing developers to make the best use of limited financial resources.
“We must do everything in our power to address the affordable housing crisis in our communities, including coming up with creative ways to free up existing resources to build more affordable homes,” said Senator Becker, D-Peninsula. “SB 948 ensures that we address duplicative reserve requirements placed on our affordable housing developers – reserves which have rarely ever been utilized – and frees up the money to go to more pressing needs, like deepening the affordability of a unit or increasing the number of affordable homes that can be funded.”
SB 948 would shift the responsibility to hold a certain amount of money – what are called “transition reserves” – from the individual project level to a pooled reserve model operated by the Department of Housing and Community Development.
Currently, affordable housing developments in the state that receive specific types of rental or operating subsidies, including federal Section 8 project-based housing vouchers, are required to hold a certain percentage of total project costs in a “transition reserve” fund. The reserve requirement was originally designed to serve as a backstop in case an operating subsidy or voucher program expired. The reserve would be available in that instance to provide a funding bridge to the development to find a solution to the loss of subsidy, like loan restructuring or ownership transfer, before having to resort to increasing rents on residents to continue operating.
Transition reserves can range from as low as a few hundred thousand dollars in a small project or a project with a small percentage of affordable units, to over $3 million in a 100% affordable subsidized project. This is a sizable additional cost to projects that are already dependent on scarce affordable housing funding sources to pay for the cost of the actual housing units and services provided to residents.
Field research shows use of these reserves is so low as to be nonexistent. Not a single HCD-funded project has needed to access its transition reserves in the past decade.
SB 948 alleviates the burden on individual projects by eliminating this requirement and instead authorizing HCD to establish a pooled transition reserve that can serve as the financial backstop. The legislation is sponsored by the California Housing Partnership and Housing California.
“SB 948 will immediately reduce costs while protecting tenants and ensuring long-term solvency of affordable homes,” said Matt Schwartz, president and CEO of the California Housing Partnership. “The creation of a systemwide insurance policy to replace large reserves previously locked into individual properties will effectively repurpose tens of millions of dollars a year to help create more affordable homes.”
“The state cannot afford to leave any options on the table if we are to solve the affordable housing crisis. This bill allows the creation of a statewide fund of reserves so that affordable housing developers can make the best use of their limited resources,” said Jack Avery, policy associate with Housing California. “This common-sense solution is an important step towards realizing a California with enough stable, healthy, and affordable homes for everyone.”
SB 948 is expected to be heard in a Senate policy committee this spring.
The text of SB 948 will be available at https://leginfo.legislature.ca.gov/
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