Much like unsubsidized market-rate housing, producing housing that is affordable to low-income households requires significant financial resources and technical expertise. Developers of both types of housing must account for projected costs associated with property acquisition and professional service fees, land use approvals required by government agencies, and construction materials and labor.
While both market-rate and affordable housing require significant financial resources and technical expertise, affordable housing developers cannot recuperate their projected costs through the revenue typically earned when a future tenant pays rent. Consequently, affordable housing developers need financing mechanisms offered by federal, state, and local governments to help fill the gap between a development’s projected development cost and its projected cash flow from collected rents.
Affordable housing developers layer multiple sources of funding to help make their developments financially feasible. (In California, developers often layer up to 15 different funding sources!) The Low-Income Housing Tax Credit (LIHTC) Program is a critical financial tool for affordable housing development. Created by Congress through the Tax Reform Act of 1986 and made permanent in 1993, the LIHTC program incentivizes private investors to give equity financing in exchange for reduced tax liabilities once the affordable housing development is complete, or “placed in service.” First, federal tax credits are distributed to state agencies, which then award the credits to affordable housing developers that meet competitive standards set by the state agency. Affordable housing developers that are awarded tax credits can then sell the LIHTC to investors. This investment provides upfront capital that subsidizes development costs and reduces the need for debt financing from lending institutions.
The State Treasurer administers LIHTC through the California Tax Credit Allocation Committee (CTCAC). A qualifying affordable housing development ensures that the development will remain affordable for 15 to 30 years (although state funding programs often require an affordability period of 55 years).
A related agency, the California Debt Limit Allocation Committee (CDLAC), sets the annual debt ceiling for bonds that are used to finance tax-exempt projects like affordable housing developments. California also provides its own programs to finance the development of affordable housing, including the Multifamily Housing Program and the state LIHTC program.
Developers of affordable housing also rely on federal programs that provide funding for the construction, maintenance, and rehabilitation of units, such as project-based vouchers, HOME Investment Partnerships, and Community Development Block Grants (CDBG), as well as programs that provide funding to households through rent subsidies, such as the Housing Choice Voucher program.
Urban Institute – ‘How affordable housing gets built’
FAQs
Affordability depends on both the costs of the housing, as well as the income and/or wages of households. Annual household income needed to qualify for a mortgage on a mid-tier California home in March 2024 was about $235,000—over 2 times the median California household income in 2022 ($85,300).
How to solve the California housing crisis? ›
Exploring New Methods for Constructing and Producing Homes
One potential solution to rising construction costs is exploring industrialized construction methods, including modular construction, panelized construction and 3D printing.
Is California desperate for affordable housing? ›
OPINION – California's housing crisis is large and multidimensional — from a desperate lack of affordable rentals for low- and moderate-income families to an equally severe lack of affordable homeownership opportunities for all but wealthy Californians.
Do I qualify for California affordable housing? ›
To be eligible for the program, a family's gross annual income must be below 50% of the Area Median Income (AMI) in Los Angeles County. Seventy-five percent of new admissions must have gross annual incomes at or below 30% of the AMI. The U.S. Department of Housing and Urban Development (HUD) determines the AMI yearly.
Why is housing so unaffordable in California? ›
Causes. The imbalance between supply and demand resulted from strong economic growth creating hundreds of thousands of new jobs (which increases demand for housing) and the insufficient construction of new housing units to provide enough supply to meet the demand.
How many people in California can't afford housing? ›
Under the classic definition of affordability, 67% of renters are “comfortable” or “doing OK.” However, under the definition Romem and his colleagues created, only 23% of Californians would be able to rent there either comfortably or OK.
Is there really a housing shortage in California? ›
The chronic shortage drives up housing costs, which are the major factors in California's having the nation's highest level of poverty, according to Census Bureau calculations that include living costs, and contributes to homelessness.
What is the root cause of the housing crisis? ›
Housing shortage is root cause of affordability crisis, and it's deepening: report. (TND) — A new analysis from Zillow shows that the nation's housing deficit is deepening. The housing shortage grew to 4.5 million homes in 2022, up from 4.3 million the year before, according to Zillow.
Is housing in California going down? ›
California's median home price is forecast to climb 6.2 percent to $860,300 in 2024, following a projected 1.5 percent decrease to $810,000 in 2023 from 2022's $822,300. Housing affordability* is expected to remain flat at 17 percent next year from a projected 17 percent in 2023.
What is the most unaffordable city in California? ›
Researchers at Chapman University and the Frontier Centre for Public Policy in Canada analyzed 94 major cities in eight countries and determined San Jose, California is the least affordable housing market in the U.S.
“Affordable housing cost” for lower-income households is defined in State law as not more than 30 percent of gross household income with variations (Health and Safety Code Section 50052.5). The comparable federal limit, more widely used, is 30 percent of gross income, with variations.
How to fix housing affordability in California? ›
To encourage housing, state policies require local governments to zone adequate amounts of land for housing – including affordable housing – and the State provides subsidies for some projects.
What is considered low income in California monthly? ›
Very-Low, Low and Moderate-Income Limits
| Household Size | Very-Low Income | Low-Income |
|---|
| 1 | $11,550 or less | $11,551 - $19,300 |
| 2 | $13,200 or less | $13,201 - $22,050 |
| 3 | $14,900 or less | $14,901 - $24,800 |
| 4 | $16,550 or less | $16,551 - $27,550 |
4 more rowsAs of 2022, middle-class household income ranged between $61,270 and $183,810 in the Golden State, according to a recent analysis from personal finance site GoBankingRates. That's roughly a 50% increase from 2012 when middle-class households earned an annual income of $40,933 to $122,800.
What salary do I need to afford a house in California? ›
Looking to enter the homeowners' club in California? If you want to comfortably afford a home in the United States, you'll need to earn an annual income of over $106,000, according to a new report from Zillow.
What is the average cost for a house in California? ›
The average California home value is $786,938, up 7.2% over the past year and goes to pending in around 12 days.
What percentage of people can afford a house in California? ›
Only 15% of California households could afford to buy a home during the third quarter of 2023, according to new figures released by the California Association of Realtors. The new figures represent the lowest home affordability rate since 2007, a news release said.
How do you calculate affordability of a house? ›
Most financial advisors recommend spending no more than 25% to 28% of your monthly income on housing costs. Add up your total household income and multiply it by . 28. At most, you may be able to afford a $1,120 monthly mortgage payment.
