With affordable housing ranking as a major issue in nearly all of California, the Davis administration and the Legislature responded this year with a gigantic increase in funding for housing programs. However, they did not adopt the significant policy changes supported by the building industry and some housing advocates, and the governor even vetoed one of the few important housing bills approved by lawmakers. Housing programs will receive about $570 million of this year's state budget — up from about $60 million the previous year, and from almost nothing during the Wilson and Deukmejian administrations. Most of the money is in the form of one-time allocations and much is targeted at affordable rentals for low-income families. Farmworkers in need of decent housing were a priority, as were first-time homebuyers with low and very-low incomes. (See accompanying chart on Page 15.) "I think this is a very important first step, and this is an immediate step because the money is available now," Housing and Community Development Director Julie Bornstein said. "We think it can have a pretty significant impact." Marc Brown, co-director of the California Housing Law Project, said the fact that professionals and businesses are now worried about the effects of high housing costs forced state leaders to act. "I think it's a culmination of the housing crisis reaching the middle class," said Brown, a longtime activist for low-income housing who cheered the spending increases. "It's a culmination of the business community seeing how the housing crisis can impede or slow business growth. … I've always said that until the business community starts taking this seriously, we're going to be in the wilderness as far as housing policy is concerned." However, many business leaders contend the state's housing policy remains in the wilderness. "You cannot subsidize your way out of this dilemma," said Allan Zaremberg, president of the California Chamber of Commerce. Zaremberg and other members of the Job-Center Housing Coalition (a rapidly growing collection of business and development interests, labor, housing advocates and poverty groups) urged three major policy changes during the recently completed legislative session: reform of construction defect liability, environmental regulatory relief, and changes to the way local government is financed. State lawmakers approved none of those policy changes, and approved few of the many "smart growth" proposals aimed at regional approaches to the housing crisis. The Numbers Get Bigger Detractors say the new and expanded housing programs will provide only 10,000 to 15,000 new and refurbished units. Noting that the state's money is intended to provide partial funding, Bornstein pegged the number of new and rehabilitated units at 50,000 to 75,000. Either way, the housing gap would still grow. Several recent reports have concluded that California needs to build about 100,000 more housing units than it currently builds every year simply to keep pace with population growth. From 1990 through 1999, residential building permits averaged 110,000 units annually — roughly half the number of units permitted during the 1970s and 1980s, according to the California Budget Project, an independent research and policy analysis organization. Moreover, permits for multi-family residences dropped by 70% during the 1990s, at least partly because of "NIMBYism," said Jean Ross, the Budget Project's executive director. Earlier this year, the Budget Project identified the immediate need for 500,000 affordable rentals in metropolitan areas of California. Indeed, a shortage of rentals combined with rapid job growth raised the average monthly rent for a two-bedroom apartment in the Bay Area to more than $2,000 in June, up 28% in one year, according to a recent UCLA Anderson Forecast. Ross called the state appropriations a good first step because they will help households left out of the private market, and because the spending is important symbolically after so many years of minimal funding. "Clearly, a problem that has been years in the making can't be solved with a single year's spending," Ross said. But Timothy Coyle, senior vice president of the California Building Industry Association and a former HCD director under Gov. Wilson, said no amount of government spending will remedy the problem. "The magnitude of the housing problem in California demands more than just funding," Coyle said. "Home builders think you've got to look at what is contributing to a huge supply shortfall." Coyle lamented the defeat of AB 2343 (Ducheny). The bill would have exempted from the California Environmental Quality Act certain infill housing developments of up to 200 units in urban areas. The bill never made it out of the Assembly Natural Resources Committee after some environmental groups and environmental justice advocates decried the proposed CEQA loophole for projects that could bring hundreds of people and cars to already crowded areas. But Coyle said, "The California Environmental Quality Act was never meant to be a legal tool for NIMBYs to block houses." Opposition to infill drives exurban development, he said. Bob Johnston, a professor in the UC Davis Department of Environmental Science and Policy, likened the state's housing allocations to "trying to drain the ocean with a spoon. … The fact of the matter is, we're way behind in California," he said Johnston said lawmakers should put teeth into the housing fair share law. Right now, there is neither a big enough hammer nor sweet enough carrot to get cities and counties to provide the housing specified by regional planning bodies such as the Southern California Association of Governments and the Association of Bay Area Governments. The Housing and Community Development department has always shied away from forcing apartments on communities. But the state could withhold funding, such as highway money, if a city or county refuses to approve necessary housing. Or the state could offer incentives, such as distributing sales tax on a per capita basis or letting cities and counties keep a larger portion of property tax from residential developments, he said. "We need structural change in California. The incentives are backwards," Johnston said. The Structure Remains There has been no shortage of reports describing a government financing system that favors retail development over all other land uses. A conference committee established to follow up on recommendations of the Assembly Speaker's Commission on State and Local Government Finance made little progress despite — or maybe because of — weekly meetings attended by dozens of interest groups. The conference committee failed to reach a consensus on what problems exist, and eventually settled on doling out $212 million in one-time funds to local governments. The Legislature did pass SB 1621 (Alarcon), which addressed some of the housing element issues Johnston addressed. The bill would have limited local governments' ability to declare moratoria on multi-family housing development. It also would have required cities and counties to zone enough land to meet the jurisdiction's fair-share housing needs in all income categories. Not surprisingly, the League of California Cities and California State Association of Counties opposed the bill, which they called an onerous mandate that would constrain local flexibility to deal with local land-use issues. In this case, Gov. Davis sided with local government. "Providing more housing is a critical need. I am reluctant, however, to use the coercive power of state government to further impinge on the rights of local communities to make their own best decisions on land use matters," Davis said in his veto message. He also pointed to the huge increase in housing allocations. Bornstein, however, said the budget augmentations do get at some of the very issues Coyle and Johnston identified. The $110 million Jobs-Housing Balance Program provides financial incentives for cities and counties that approve more housing, especially high-density housing, projects that use existing infrastructure and developments near transit stations, she said. The department's largest program, the $188 million Multifamily Housing Program, gives infill projects top priority, she said. Also, money is available for adaptive reuse of commercial structures and for mixed-use projects. And the department stands ready to provide research and presentations to support local officials confronted with opposition to multi-family housing projects. "This is certainly not the last step. It's not even a middle stop, but it is a first step. Our task now is to make sure the developers out there, profit and nonprofit, know about the resources that are available and see us as a business-friendly agency," Bornstein said. Get ‘Em Next Year No one expects the housing issue to go away. High housing prices continue to generate news coverage almost everywhere in the state. About 30 brand new state lawmakers will arrive in Sacramento, many of them fresh from making land use decisions at the local government level. Bornstein conceded that the way local government zones land and how local government is funded deserve a hard look. "Under our current revenue structure, there is an incentive against housing," she lamented. The chamber's Zaremberg and other members of the Job-Center Housing Coalition vow to continue advocating for local government finance changes, regulatory relief and construct defect reform. That last issue is critical, developers say, because liability concerns make it nearly impossible to get financing for condominiums and townhouses, which are important under just about everyone's definition of "smart growth." While complaining about the influence of trial lawyers and "entrenched environmental interests" in Sacramento, the CBIA's Coyle said he grows more optimistic that state leaders will tackle the issues. Brown, of the Housing Law Project, said recent successes and a receptive Capitol have generated momentum for meaningful changes. Senate President Pro Tem John Burton (D-San Francisco) and Assembly Speaker Robert Hertzberg (D-Van Nuys) have carried the flag for housing programs for years, Brown said. He expects some sort of CEQA exemption for infill housing will return for consideration next year. And Brown hopes the Legislature will make some of this year's one-time augmentations an annual part of the state budget. Contacts: Julie Bornstein, Housing and Community Development Director, (916) 445-4775. Marc Brown, California Housing Law Project, (916) 739-6293. Jean Ross, California Budget Project, (916) 444-0500. Allan Zaremberg, California Chamber of Commerce, (916) 444-6670. Timothy Coyle, California Building Industry Association, (916) 443-7933. Bob Johnston, UC Davis Department of Environmental Science and Policy, (530) 752-3015. HCD website: www.hcd.ca.gov