Assembly Hearing Debunks MYTH That "Foreclosures = Housing Affordability"
Wednesday, December 14, 2011
By: Julie Snyder

Three strong themes emerge from testimony by six witnesses

On December 5th, the state Assembly Housing and Community Development Committee heard from economists, for-profit and nonprofit developers, and state agency heads who explained to policymakers the current state of California's housing market. Matt Franklin, president of MidPen Housing Corporation, presented the challenges facing nonprofit housing developers.

Three themes wound through the testimony of the six witnesses:

First -- The continuing glut of foreclosed homes has NOT increased housing affordability for the vast majority of Californians. Franklin pointed out that every household leaving a foreclosed home must find a place to rent, which has increased pressure in the rental market and led to extremely low vacancy rates in some areas. CalHFA executive director Claudia Cappio said would-be homebuyers need steady jobs, outstanding credit, and substantial down payments to have any chance of qualifying for a loan.

In addition, foreclosures have reduced the overall housing supply, as lenders take months, even years, to put the homes back on the market. Lastly, Linda Wheaton with the California Department of Housing and Community Development explained the state suffered from a severe undersupply of homes even at the height of the single-family home building boom. Demand exceeded production by 30,000 units and the largely single-family homes being built did not match Californians' needs. The drop in construction to 46,000 in 2011 has further exacerbated the undersupply.

Second -- Multifamily construction is increasingly important, both to California's economic recovery and to meet the housing needs of residents. According to Wheaton, "rental housing affordability is still one of our biggest housing challenges." Overcrowding increased between 2007 and 2011. Half of all renters live in "unaffordable" homes (those with rents exceeding 30% of their income). Economist Jerry Nickelsburg from UCLA said quicker approval of multifamily development in the growing coastal areas will speed the residential sector's recovery. Even the California Building Industry Association's Richard Lyon acknowledged a "renter era is dawning."

Third -- The state is comprised of numerous housing markets, resulting in a locational mismatch between vacant homes and Californians who need affordable places to live. There are 20-25 different markets in the state, according to Wheaton. Economist Nickelsburg outlined the mismatch between the location of most foreclosed homes -- inland California -- and the demand -- coastal California. This mismatch forces long commutes; doubling-up; and empty, blighted neighborhoods.

Witnesses presented a number of solutions that will help the market recover:

• Quicker approvals of multifamily developments in the coastal regions.
• Preserving the role of redevelopment agencies in funding development of affordable places to live.
• Building smaller apartments and single-family homes with more community space.
• Streamlining regulations that add to development costs, including local, air-quality health impact assessments and the California Environmental Quality Act.
• Creating a dedicated revenue source for the state's housing trust fund, to replace California's nearly depleted housing bonds.

Written testimony and slide presentations from hearing witnesses are available on the Committee's website. 

Contact: Julie Snyder, 916.447.0503 x102 or jsnyder@housingca.org.