How to Build Affordable Housing for Low-Wage Workers

Experts expect California’s economy to keep on growing for the foreseeable future. According to the Center for the Continuing Study of the California Economy, the number of jobs in the state will swell from 15.8 million last year to 18.1 million in 2005, a 15% increase.

But statistics can be deceiving. Two million additional jobs do not automatically mean greater prosperity overall. The disquieting fact is, only a select minority of Californians, primarily those engaged in the high-tech sector, will be at the receiving end of this growth. For the burgeoning number of service workers, a decline in family income, measured in real dollars, is their sad future.

In California, especially, the proliferation of low-wage workers--approximately 40% of households fall into the lowest income categories--collides with the state’s skyrocketing cost of housing. A recent report, commissioned by Housing California, warned that waiting lists for subsidized housing are rapidly growing while affordable housing units are being lost to obsolescence, redevelopment and steep rental increases. Except for a scant supply provided by nonprofit housing developers, there is no housing being built for low-wage working families. Furthermore, the California Senate Office of Research reports that of the 186,000 federally assisted rental-housing units currently available, a substantial portion of them are at risk of conversion to market-rate pricing.

A healthy balance between job creation and housing availability requires that one new residential unit be built for every 1.5 jobs created. But in San Francisco, the ratio is 6.5 new jobs to 1 new home; in Los Angeles, it’s 6 to 1; in San Diego and Orange counties, 4 to 1; in Santa Clara and San Mateo counties, 10 to 1. This jobs-housing imbalance, accompanied by a relentless upward pressure on housing costs, has been characterized as “a dark cloud on the horizon” by the chief economist of the state Department of Finance.

State legislators have responded to the crisis with a flurry of proposals, including the introduction of more than 150 bills dealing with housing. Most important, the Legislature included $500 million for affordable housing in the budget signed by Gov. Gray Davis, the largest appropriation for housing in state history. But this allocation, though essential, is only a stop-gap measure.

For the long term, producers of low-wage jobs must shoulder some of the responsibility for providing affordable housing for workers. There is strong precedent in California for requiring developers to cover auxiliary costs generated by their developments. For example, it is customary for residential developers to pay fees to cover at least some of the costs of local public facilities like schools, parks and roads. It follows that commercial developers--hotel, retail, office, etc.--should be required to ameliorate the housing effects generated by their projects through a similar system of “linkage fees.”

The L.A. City Council is considering resurrecting a linkage program that was sidetracked by the recession of the early 1990s. The fees would be deposited into a housing trust fund to help support the preservation and construction of affordable housing. If the council enacts a linkage-fees program, it would join the dozen jurisdictions in California that have done so, including San Diego, the city and county of Sacramento, Palo Alto, Santa Monica and San Francisco, which was the first city to exact housing fees from office development and is now considering extending them to entertainment, hotels and big-box retail.

These fees vary, but in no case do they contribute more than a fraction of the costs for affordable housing. For example, in San Diego, the fees for office development are $1.06 a square foot, hotel $0.64, retail $0.64, manufacturing $0.64, warehouse $0.27 and research and development $0.80. For the last fiscal year, the San Diego fees generated $5.4 million. Setting fees is a political balancing act, weighted at one end by the severity of the housing problem and at the other by a reluctance to discourage economic development. Office fees in Sacramento, for example, are lower than those in San Diego, while San Francisco’s office linkage fees are nearly seven times greater, a fact that has hardly discouraged investors: More than 5 million square feet of office development are currently in the pipeline.

The importance of establishing locally generated funds becomes even more evident if we remember that $1 in local funds leverages $5 to $10 from federal, state, foundation and private sources. The state will dedicate at least $500 million to housing, and it is likely that localities with funds available to match state funds will reap the greatest benefits.

Clearly, it is time for all localities beset by jobs-housing imbalances to develop a housing linkage-fee program. Moreover, the regional nature of the problem, in both economic and social terms, dictates certain actions at the state level: 1) mandate a sliding-scale system for linkage fees proportional to the severity of a locality’s problem; 2) earmark the funds for low-cost housing programs within each locality; and 3) encourage a geographic jobs-housing balance by adjusting linkage fees downward in low-income areas and upward where low-income housing is scarce. This approach would have the important side benefits of reducing road congestion, air pollution and transportation costs for low-paid workers.

The problem is obvious. The prerequisite to California’s economic competitiveness and long-term growth is an adequate supply of housing, not just market-rate housing but housing affordable to low-income families. The solution should be obvious as well. A system of housing linkage fees on commercial development will go a long way to providing affordable housing. They have proven to be a necessary, reliable, flexible, consistent, long-term and fair approach to repairing California’s housing crisis. *