In 2018, California passed a rather progressive housing bill that did not get the attention that it should have. The bill, Senate Bill 2 and authored by Toni Atkins, is known as the Permanent Local Housing Allocation Act. Instead of affecting land use changes or entitlements, SB 2 created a new revenue stream. This revenue stream was a $75 fee on all recorded documents pertaining to the transfer and sale of real property. This is changes to a deed of trust (the document giving a named party control of a property) as well as other such documents. The money is then collected by the state and distributed to the jurisdiction in which the property is located. What this means is that high activity periods in the housing/property market will generate high sums for local jurisdictions to tap into.
To access these funds, jurisdictions are required to create a five-year plan for the use of these funds, similar to how entitlement jurisdictions are requited to create a Consolidated Plan for the Federal HOME Investment Partnership Program and Community Development Block Grant Program. What is different from these programs is that the PLHA program is geared towards the productions of new affordable housing. Jurisdictions can undertake one of ten activities:
- The predevelopment, development, acquisition, rehabilitation, and preservation of multifamily, residential live-work, rental housing that is affordable to extremely low-, very low-, low-, or moderate-income households, including necessary operating subsidies.
- The predevelopment, development, acquisition, rehabilitation, and preservation of Affordable rental and ownership housing, including Accessory Dwelling Units (ADUs), that meets the needs of a growing workforce earning up to 120-percent of AMI, or 150-percent of AMI in high-cost areas. ADUs.
- Matching portions of funds placed into Local or Regional Housing Trust Funds.
- Matching portions of funds available through the Low- and Moderate-Income Housing Asset Fund pursuant to subdivision (d) of HSC Section 34176.
- Capitalized Reserves for Services connected to the preservation and creation of new permanent supportive housing.
- Providing rapid rehousing, rental assistance and supportive/case management services that allow people to obtain and retain housing, operating and capital costs for navigation centers and emergency shelters, and the new construction, rehabilitation, and preservation of permanent and transitional housing.
- Accessibility modifications in lower-income owner-occupied housing.
- Efforts to acquire and rehabilitate foreclosed or vacant homes and apartments.
- Homeownership opportunities, including, but not limited to, down payment assistance.
- Fiscal incentives and or matching funds.
Unlike the larger CDBG program, PLHA is essentially an expanded state-funded HOME program. CDBG is the biggest housing related block grant program – however, eligible activities include community service and economic development activities in addition to housing activities. While there is nothing wrong with funding these activities, the fact that the production of housing has to compete with these other vital day-to day services means that funds do not go to housing production. Current HOME allocations – if the jurisdiction is HUD-designated under CDBG – typically are around $780,000 per year. While this, seems substantial, the reality is that the funds are quickly exhausted. For example, a typical 60-90 unit apartment costs can cost between $600,000 – $800,000 to obtain entitlements and begin the process before construction can begin ($6,667 – $13,333 per unit). This is not including other HOME activities such as down payment assistance, tenant rental assistance, and home rehabilitation. What PLHA does is bolster this funding source with state funds (and includes non-entitlement jurisdictions). Furthermore, PLHA offers flexibility to jurisdictions in how they go about getting housing built. This makes it easier for jurisdictions to fit PLHA funding into their planned housing strategies identified in their respective housing elements.
Creating a second funding stream for predevelopment has the effect of opening the pool of possible projects. There is often little funding to cover these predevelopment activities from traditional federal and state low-income funding sources. As such, projects may ‘stall out’. There might be interest in developing a property that the government or a nonprofit is interested in converting to housing. However, if there is no funding to do preconceptual drawings, architecture and engineering, market studies, traffic studies, and other necessary work before a construction loan is disbursed, then the project will not move forward. Most grant award programs such as the Affordable Housing and Sustainable Communities (AHSC) Program, or the Low Income Housing Tax Credit (LIHTC), are the ‘last’ step in the process. The goal of these programs is to fund the ‘gap’ that exists between current funding and the funding making the project feasible. Therefore, the programs are funding the construction of the unit, but not the predevelopment activities that allow you to construct the unit. By subsidizing predevelopment activities, some of these projects are able to wait for final funding longer, making their likelihood of development higher. That isn’t to say that all projects funded under PLHA will be successful, but it allows for more projects to be “in the pipeline”.
The PLHA program still does not fix the significant funding gaps that exist in affordable housing, which means that most funding programs have more projects than they have funding. However, it takes a huge step forward in help assist with the construction of affordable housing.