Subsidizing High-End Housing for Middle-Class Renters

In response to the ongoing housing affordability crisis, "some California government agencies are purchasing buildings, usually luxury ones, and doing the opposite of most real estate buyers. They’re lowering the rent," reports Andrew Khouri. "The programs are geared toward middle-income workers — including police officers, teachers and nurses — who make too much to qualify for most traditional subsidized housing but still struggle to afford a place near their work, according to government authorities and the private partners involved."

The programs work through "a unique financial model that involves local property tax subsidies" using government agencies known as joint powers authorities. "The most active authorities purchasing buildings are the California Statewide Communities Development Authority, or CSCDA, and the California Community Housing Agency, or CalCHA, which launched the first program in 2019." As government entities, the agencies don't pay property taxes, allowing them to charge lower rent to tenants. In places with such programs in place, "building-wide rent declines have averaged about 10% from what the previous owner charged, with greater decreases seen for the lowest income units." 

"Joint powers authorities, which issue and manage bonds on behalf of local governments that join as members, help fund the middle-income programs. They issue bonds and use the proceeds to purchase a property, as well as pay the private companies that arrange the financing and manage the buildings."

But some cities are reluctant to start similar programs. "The Los Angeles City Council is awaiting a staff report on the possibility of joining. In Northern California, the San Jose City Council declined to participate after city staff concluded 'the risks and costs of joining ... outweigh the potential benefits.'" 

Meanwhile, "cheaper rent can be found in many of the cities where the programs operate, raising scrutiny of the affordability the program administrators are marketing." An analysis by the California Housing Partnership "found that the new rent, even when reduced, was higher than the citywide average for an apartment with the same number of bedrooms." While the concept is creative, says Jacky Morales-Ferrand, director of San Jose's housing department, "we want to make sure there is significant public benefit when we forgo property tax."