Newsom’s Housing Budget, Explained

Back CalMatters Jan 14, 2019 By Matt Levin

No wonder Gov. Gavin Newsom dropped those hints earlier this week about an upcoming “Marshall Plan” for affordable housing.

Sure, he’d made ambitious campaign promises to combat California’s housing crisis: leading the effort to build 3.5 million units over the next seven years (an unprecedented rate), jacking up state subsidies for housing reserved for lower-income Californians, and easing regulations so it would be easier to build all types of new housing. But what would he deliver?

We got the first glimpses of his plans today, as Newsom unveiled his first governor’s budget. And yeah, it’s a big deal.

For those not intimately aware of the chronology of the state’s fiscal planning process (I’m jealous of you), please remember that these are just proposals. The Legislature may tweak, change, expand or kill many of these.

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Related: Can fee adjustments incentivize more affordable housing projects?

Still, they give you a good idea of Newsom’s priorities to combat what he has called “the issue when it comes to California poverty.”

Here are the key takeaways from Newsom’s first major housing proposals.

Housing’s not taking a back seat to other priorities

Housing advocates frequently criticized former Gov. Jerry Brown for placing the issue on the back burner while focusing on the state’s fiscal health and other priorities like climate change.

No one will accuse Newsom of doing the same.

From major funding increases for affordable housing, to his threat to take away any city’s transportation dollars if it doesn’t meet its housing quota, Newsom’s plans match the audacious ambitions he outlined in the campaign.

“We are not playing small ball with housing,” said Newsom.

Not that his plan includes everything (more on that later), but collectively Newsom’s proposals reveal that housing and homelessness will be at the forefront of his legislative agenda, and will not take a backseat to other campaign promises such as universal health care or early childhood education. At least not yet.

No governor in recent memory has proposed this big a budget boost for housing and homelessness

It takes a lot of money to build housing reserved for lower-income Californians—roughly $330,000 per unit, by one estimate. Affordable housing and homelessness advocates have been complaining for years that they are receiving nowhere near the level of financial support they need from the state.

Newsom’s budget proposals include a major infusion of more than $1.7 billion in one-time and ongoing affordable housing cash. That includes:

  • $500 million in one-time cash for local governments to combat homelessness—of that $300 million will go towards regional planning, and $200 million as awards for cities that build new shelters or permanent supportive housing
  • A quintupling of ongoing cash (from $80 million to $500 million) for the state’s most important low-income housing financing tool, the low-income housing tax credit
  • $500 million in one-time cash for “moderate-income” housing production, or the so-called “missing middle” of housing for California’s middle class; Newsom said he has also urged Silicon Valley firms to match this funding
  • $25 million to get more homeless Californians on federal disability programs

“I have never seen this kind of attention paid in the budget to homelessness and affordable housing issues,” said Anya Lawler, a housing policy advocate for the Western Center on Law and Poverty. “Just the page count alone is a little unprecedented.”

Newsom also said he would appoint a new homelessness czar in the next few days to help coordinate state, regional and local initiatives. Included in the budget is a policy tweak that would allow new homeless shelters to avoid prolonged environmental reviews—a regulatory hurdle that often holds up new housing plans.

Affordable housing advocates caution that they’re waiting to see details—especially how much will actually go towards the production of new housing.

Newsom threatened cities that aren’t building enough housing—and cities are nervous

Cities and the NIMBY homeowners who populate them are often blamed as the biggest obstacle to producing more low-income and market-rate housing.

To incentivize cities to approve more projects, Newsom has proposed $500 million in awards to cities and counties that meet new, short-term housing goals.

The housing quotas assigned to local governments are often laughably flawed. Beverly Hills, for example, met its state-mandate affordable housing target last year with three measly low-income units.

Newsom wants to revamp the whole housing-goal setting process. Statewide, the goals are are going to bigger than what they used to be.

That $500 million is the carrot, and most cities are eager to revamp the seemingly senseless way in which they’re assigned housing quotas. But along  with that carrot could be a thorny stick.

Newsom proposes taking away transportation funding—including revenue generated by the recently enacted gas tax—from cities that fail to meet longer-term housing goals.

Cities are not happy. They say much of housing production is out of their control, and dependent on market conditions and developer proclivities.

“You can’t set a goal that’s not achievable, and then penalize us with transportation dollars that aren’t there,” said Jason Rhine, assistant legislative director for the League of California Cities.

Left unmentioned: rent control, zoning reform, and that pesky ‘3.5 million units’ promise

One number that didn’t make its way into Newsom’s first budget: 3.5 million. That’s how many new homes he has pledged California will build under his watch—a number that most housing experts say is unrealistic. The Newsom administration did not publicly estimate how many new units his new proposals would generate—perhaps an indication that the new governor is distancing himself from the figure.

Also missing from the budget or the governor’s comments: any reference to rent control or stronger tenant protections, despite his earlier pledge that he would try to broker a compromise. In fairness, the budget unveiling might not be the appropriate venue to talk about that. But a source briefed on the budget said that while Newsom’s team expressed enthusiasm for legislators to take up rent control, they weren’t leading on the issue.

Newsom may be taking a wait-and-see approach on the most controversial piece of housing legislation he’ll encounter this year: an attempt to force cities to allow apartment buildings to be built around transit stops. San Francisco Democratic state Sen. Scott Wiener’s second attempt at “zoning reform”—which would strip cities of their ability to block denser housing in areas previously reserved for single family homes—will need Newsom’s support to actually become law.

When asked about Wiener’s new legislation, Newsom said he hadn’t read it yet—the same response he gave to questions about last year’s bill during the campaign. But he did say he “appreciates the spirit” of the bill.

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