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Despite speculation about bold moves—in a far-left direction, even for this blue state—Gov. Gavin Newsom and legislative Democrats actually landed a budget Thursday that’s surgical about new taxing and spending while still keeping promises to help poor Californians and working families.

Under the $214.8 billion spending plan, the state inched closer to universal health coverage, expanding Medi-Cal to all low-income young adults regardless of immigration status. State lawmakers also charted a course to increase tax credits to the working poor and boost subsidies to middle-income Californians to buy health coverage. There were significant investments in early education and housing, while a portion of the surplus was diverted to pay down pension liabilities.

While Democrats began the year with a surplus of ideas for taxing Californians, only a few strategic levies survived the negotiation process, specifically a fine on individuals who don’t have health insurance under a state mandate. There’s even a little tax relief: Parents, for instance, will get a temporary tax exemption on diapers.

One hitch? The devil is in the details, some which have yet to be worked out. Though Democrats met their deadline for a balanced spending plan, most of the underlying policy to enact the budget wasn’t hashed out—and may not be for weeks. Call it a learning curve: This was the new governor’s first time negotiating with seasoned legislative leaders who know how to count votes. Look for more action in coming trailer bills.

Here’s what you need to know about California’s new budget—including maybe, just maybe, the first steps toward the establishment of a four-year college in the Coachella Valley.

Yes to Health Care for Undocumented Young Adults

The Legislature agreed to the governor’s plan to expand Medi-Cal, the state’s Medicaid program for low-income people, to young adults ages 19-25. It’s a step toward offering free health care to all undocumented adults since the state already makes Medi-Cal available to children regardless of immigration status.

The Senate had proposed going further by offering Medi-Cal to undocumented seniors 65 and older. However, none of the leaders backed offering health care to all low-income immigrants.

The state expects an estimated 90,000 young adults could gain coverage when the benefit begins next year. Already, 76,000 have registered for a limited version of Medi-Cal that covers emergency services and prenatal care available to low-income people regardless of immigration status. The price tag for this expansion? About $98 million a year.

It’s worth noting the state also affirmed its commitment to restoring optional Medi-Cal benefits. During the recession, coverage for audiology, optical, podiatry, speech therapy and incontinence creams had been taken away.

Obamacare Lives: A $695 State Mandate to Carry Health Coverage

Starting next year, California will join New Jersey, Vermont and the District of Columbia in requiring residents carry health coverage or face a $695 state penalty—a fine that will go up each year with inflation.

The state individual mandate aims to replace the federal one that Republicans repealed in their effort to dismantle the Affordable Care Act. The administration says California needs to act, because without a mandate, the number of Californians without coverage—10.4 percent in 2016—will go back up. Separately, a study conducted by the University of California estimated the uninsurance rate will rise to 12.9% by 2023, or 4.4 million people, without state action.

Money raised from the penalties, about $450 million over three years, will be used to give bigger subsidies to those who purchase private insurance through the state’s health coverage exchange, Covered California.

Newsom and lawmakers hope to expand assistance to 190,000 middle-income Californians making between $48,000 to $72,000 a year, according to Health Access California, a health advocacy group.

Fear of Recall = Not Many New Taxes

The budget includes a plan to impose a fee—that still needs to be voted on—of no more than 80 cents a month on each telephone line to help digitize the state’s 911 system, which is still analog. The next-generation system would improve call delivery, better location data and incoming text capability.

Other than that and the health-care mandate, lawmakers opted against most of the new taxes proposed early in the session. In fact, California parents and women will get a sales tax exemption on diapers and menstrual products (though only for two years).

Notably rejected, given the state’s current $21.5 billion surplus, was Newsom’s push for a 95-cent tax on most residential water bills to fund-clean-drinking water initiatives in the Central Valley. Instead, the Legislature worked out a deal to clean up toxic water by diverting money generated from big polluters under the state’s cap-and-trade program.

Some environmental groups questioned using clean air money to pay for drinking water, but supporters reasoned that water is being contaminated with arsenic and other toxic chemicals from the heavy use of fertilizers, so it makes sense to draw the $100 million for cleanup from the agriculture industry’s portion of the greenhouse gas fund.

One issue that won’t be resolved this week is whether California will conform its tax code to match federal changes made by Republicans in 2017. Newsom is relying on the projected $1.7 billion increase in net revenue from that to expand the state’s earned income tax credit, the centerpiece of his anti-poverty agenda.

Assembly Democrats in swing districts are skittish about limiting deductions and losses that can be claimed by some businesses. They know the fate of former Sen. Josh Newman, who was recalled from his Orange County seat after voting to raise California’s gas tax. Tax conformity requires a two-thirds vote in the Legislature to pass, so the pressure is on.

Paying Debt and Rainy-Day Saving

Lawmakers embraced the governor’s proposal to use some of the surplus to make extra pension payments, a step Newsom says is necessary to tame the state’s $256 billion retirement liability for state workers and teachers.

The Legislature approved supplemental payments of $3 billion to the California Public Employees’ Retirement System and $1.1 billion to the California State Teachers’ Retirement System for the state’s portion of unfunded liability.

To relieve school districts across the state, the Legislature will contribute a total of $3.15 billion toward paying down their liabilities and reducing their payroll contribution rates. One difference is where it will go.

Previously, Newsom had all the extra payments going to the teachers' pension fund—a reaction, in part, to teachers strikes that erupted as he took office. Now a portion of that money will be doled out to CalPERS. The change was made in recognition that while teachers are members of CalSTRS, many other school employees from janitors to bus drivers belong in the state’s other public-employee pension fund.

Besides paying down California’s “wall of debt,” as former Gov. Jerry Brown called it, the state is shoring up for a downturn—or in Newsom-speak, “building budget resiliency.” The new budget carries a roughly $20 billion reserve from several rainy-day funds. This amount, while hefty, would be easily wiped away in a downturn. According to the Legislative Analyst’s Office, the state would need as much as $40 billion to cover the budget in a moderate recession.

Big Spending on Housing

With new commitments topping $2 billion, the budget represents the most important action the governor has taken so far on housing and homelessness. The lion’s share will target the state’s homeless population, including $650 million in grants for cities and counties to build and maintain emergency shelters, and $100 million for wrap-around care for the state’s most vulnerable residents. Another $500 million will go toward quintupling the size of the state’s affordable housing financing fund, plus hundreds of millions earmarked for cities to update their often outdated housing plans.

While lawmakers and Newsom have agreed to cut big checks, it’s not clear who’ll get the money, and with what strings attached. Big-city mayors and lawmakers want homelessness grants directed towards the state’s largest 13 cities, while Newsom wants to spread out the money to include counties.

Newsom also wants to deny transportation funds to cities not building enough housing. As of Thursday, lawmakers were still negotiating a scaled-back version of the proposal. Another Newsom proposal that speeds construction of homeless shelters by sidestepping environmental laws also remains unresolved.

Lending a Hand to Working Families

Expanding California’s earned income tax credit has quickly become one of Newsom’s signature anti-poverty programs, because it gives a cost-of-living refund to low-income working families. Lawmakers are poised to triple the program from $400 million to $1.2 billion to provide a $1,000 refund for families with children under 6 and expand income eligibility from $24,950 to $30,000.

Anti-poverty advocates had wanted Newsom to include undocumented workers who file with individual taxpayer identification numbers instead of Social Security numbers. That proposal did not make the final version of the budget. Still, the administration estimates the current expansion will increase the number of beneficiaries from 2 million to 3 million households.

The budget also will make it easier for low-income families with children to qualify for assistance, increasing the CalWORKs asset limit to $10,000 and the motor vehicle exemption to $25,000—changes that will allow people to save and hang on to cars that can get them to work.

And parents of all incomes will get a longer paid family leave to care for new babies—eight weeks, up from the current six weeks, starting in July of next year. The goal will be to boost the benefit to 90 percent of most wages, up from the current maximum of 70 percent.

The K-14 Kids Did All Right

As required by law, the lion’s share of the budget goes to public schools, with nearly $102 billion in state money to be pumped into California classrooms and community colleges, plus another $389 million in a special reserve fund for schools. Though the figure is an all-time high, California is still viewed as lagging in per-pupil spending, in part because of the high cost of living.

Democrats are also demanding more stringent oversight of charter schools, which can operate like private schools, tend to be non-union and have proliferated in big cities such as Oakland and Los Angeles. Newsom proposed prohibiting charter schools from blocking or disenrolling special-education students who require more support for disabilities. Lawmakers readily embraced that change.

The budget includes $300 million to build more kindergarten classrooms in an effort to boost full-day kindergarten programs. Newsom had initially proposed $750 million but that was reduced after a study found most part-day kindergarten programs are in wealthier communities.

After-school programs will get a $50 million boost over the $600 million or so the state is currently spending. The money will help cover the cost of minimum wage increases enacted during Brown’s tenure.

So Did the Little Ones

In emphasizing early education, Newsom and lawmakers agreed to expand day care and preschool slots by the thousands while investing in training for child care providers.

Newsom gets $50 million in seed money to start child savings accounts for college and post-secondary education. He initially asked that all of it go toward pilot projects with First 5 California and local governments, but the Legislature is designating $25 million to that. The other $25 million will create a state program with the Scholarshare program in the Treasurer’s Office.

More Free College and Help for Student Parents

Newsom and legislators delivered on a $45 million promise to fund a second year of tuition-free community college for first-time, full-time students at campuses participating in the state’s College Promise program.

Other big winners include students with children, who will be eligible to receive grants of up to $6,000 to help cover their families’ living expenses. The budget boosts by about 15,000 the number of competitive Cal Grants—a significant jump, but far less than the 400,000 qualified students who applied for the state scholarships last year and didn’t receive them.

The University of California and California State University systems will receive money to increase enrollment, and waive tuition during the summer to help low-income students graduate faster. Lawmakers also set aside funds for campuses to combat hunger and homelessness, strengthen veterans resource centers, and provide more mental health counseling. A center at the University of California San Francisco is getting a $3.5 million earmark for dyslexia screening and early intervention.

Backers of the state’s controversial new online community college fended off an effort to slash the college’s funding, clearing the way to enroll its first class this fall. And CSU will get $4 million to study five possible locations for a new campus: Stockton, Chula Vista, San Mateo, Concord and Palm Desert.

Lots for Police Training; a Little for Police Records

Reflecting the Legislature’s focus this year on reducing police shootings, the budget includes $20 million to train police officers on de-escalation tactics, and how and when to use force. Outside the budget, bills to set a tougher standard for police to use deadly force and require more officer training are advancing through the Legislature, reflecting a compromise between civil rights advocates and law enforcement groups.

Attorney General Xavier Becerra’s office will get $155,000 to implement the new state law he’d been resisting: making law-enforcement misconduct records public. Becerra will also have to report to the Legislature on how many requests his office processes, and how much time is spent on that. A judge ruled in May that Becerra must produce the records; previously he had said he would not release them until the courts clarified whether he had to.

Powering Down to Cope With Wildfires

Besides beefing up the state’s firefighting capability and disaster preparedness, California will add powering down to its to-do list for coping with climate change-driven wildfires.

The budget doles out $75 million to state and local agencies whenever investor-owned utilities decide to shut off electricity during red flag weather warnings. One note: The Assembly added language to track how the money is used.

CALmatters reporters Matt Levin, Felicia Mello and Laurel Rosenhall contributed to this report. CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

A month after being inaugurated, Gov. Gavin Newsom used his State of the State speech on Tuesday, Feb. 12, to make his strongest showing yet that Jerry Brown is no longer in charge.

He proposed scaling back two of Brown’s legacy projects—a high-speed train and a pair of tunnels to move water from north to south. He rescinded Brown’s deployment of California National Guard troops to the Mexican border. He voiced support for education and housing policies from which Brown stayed away.

All leaders want to distinguish themselves, so it’s no shock that Newsom is carving his own path. California’s last several governors took office vowing to right the perceived wrongs of their predecessors. Brown himself, in his first term, was a change agent.

But they were Democrats replacing Republicans, or vice versa. Newsom is the first Democrat to follow a Democrat into the California governor’s office in more than a century—and the friendship between the Brown and Newsom families goes back generations. That creates a challenge that other recent governors have not faced: Newsom must pay homage to the legacy of his predecessor while also establishing his own vision.

It’s not an easy needle to thread—as evidenced by Newsom’s response when asked if he is breaking away from Brown’s course:

“We’re building on a lot of the work that’s been done,” he said in a brief interview after the speech. “We’re just being more sober about it, more deliberative about it, more focused and more transparent.”

At this early stage in his governorship, here are five key ways Newsom is differentiating himself:

Border Patrol: Early last year, President Donald Trump asked border-state governors to beef up their National Guard troops along the Mexican border. Brown responded by saying California troops wouldn’t enforce immigration laws or “build a new wall.” But he agreed to add 400 troops, saying they would focus on combating transnational crime.

Newsom rolled back Brown’s order this week, reassigning most of the troops from the border to areas threatened by wildfire and illegal marijuana grows. Those remaining at the border “will focus on stopping criminals smuggling drugs and guns through existing border checkpoints,” Newsom said in his speech. “This is our answer to the White House: No more division, no more xenophobia and no more nativism.”

High-speed rail: Since his first stint as governor in the 1970s, Brown has advocated for a new high-speed train to connect northern and southern California. He took steps more recently to support the project by negotiating funding for it from California’s signature climate change program. “I make no bones about it,” Brown said last year. “I like trains, and I like high-speed trains even better.”

Newsom said Tuesday that he has “nothing but respect for Gov. Brown’s and Gov. Schwarzenegger’s ambitious vision.” But he derided the current plan for a train from San Francisco to Los Angeles, saying it “would cost too much and take too long.”

Instead, Newsom embraced a more limited rail line, from Merced to Bakersfield. He also announced a new chairman for the rail authority, Lenny Mendonca, and a plan to post rail spending publicly online, a step meant to hold the administration accountable for cost overruns.

Republicans, long opposed to the new train, welcomed Newsom’s tack. State Sen. Shannon Grove of Bakersfield, who will soon take over as the Senate Republican leader, thanked Newsom for scaling back the project and making spending on it more transparent. “That was very responsible,” she said. “I’m pleasantly surprised.”

Water: Newsom also wants to scale back Brown’s controversial plan to carve two massive tunnels through the Sacramento-San Joaquin Delta to move water to Southern California. Instead, as he said during the campaign and reiterated in his speech, he wants to build one tunnel.

The idea was quickly embraced by Assembly Speaker Anthony Rendon, who said he’s “been skeptical of the two tunnel approach for a while. Rethinking it and retooling it makes a lot of sense.”

To help carry out Newsom’s vision, the governor appointed a new chair for the state water board, replacing Brown’s pick, Felicia Marcus, with his own: Joaquin Esquivel.

Education: When it comes to keeping track of how students are performing at California public schools, Newsom and Brown have very different views. Brown repeatedly rejected the idea of developing a database to track student performance over time, saying he disagreed with a focus on test scores and feared the data could be abused to support prejudice. Newsom is embracing a long-term student database as a way to measure which programs advance student learning.

“We need clear and achievable standards of transparency, more information sharing, and accountability for all public schools,” he said.

Newsom used the speech to announce his pick to lead the state Board of Education, naming Linda Darling-Hammond to the post. A former Stanford professor, she is an expert in teacher training and has chaired the state’s Commission on Teacher Credentialing for the last eight years.

Housing and homelessness: Tackling California’s extraordinarily high cost of housing—and the related epidemic of homelessness—was never a top priority for Brown. Even as he left office, he said he didn’t think there was much the state could do make homes more affordable.

Newsom wants to change that by holding cities accountable for building affordable housing. He already sued the city of Huntington Beach for not building enough, and said in his speech that he wants to meet with 47 other cities that aren’t meeting their housing requirements.

Newsom also announced that he is establishing a new commission on homelessness, to be led by Sacramento Mayor Darrell Steinberg.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Politics

Astronomical prices are forcing a rising share of California families to postpone buying a house. As a result, the state’s record-low homeownership rate has been a boon to one growing segment of California’s housing market: single-family home rentals.

Between 2005 and 2015, the number of owner-occupied homes in California shrunk by nearly 64,000 units, according to the Public Policy Institute of California. Meanwhile, the number of renter-occupied homes increased dramatically: California now has 450,000 more homes used as rentals than it did a decade ago. Compare that to the 1990s, when the number of rented homes grew by less than 120,000, while the state added 700,000 homes owned by the people who live in them.

The rising tide of single-family rentals has renewed attention on where the rent payments that nearly 2 million Californians make each month are going. Lawmakers and first-time homeowner advocates have been scrutinizing a relatively new form of landlord: private investment firms that snapped up thousands of homes during the foreclosure crisis and now rent them out. With nearly one in four California homes now purchased in all-cash, these well-financed institutional investors have also been blamed as unfair competition against families bidding on starter homes.

So how much are institutional investors impacting California’s housing prices? The data says not so much now.

Institutional investors accounted for less than 2 percent of California single-family home sales last year.

Typically, the term “institutional investor” refers to private investment firms that buy dozens of residential properties with the explicit aim of generating a steady income stream through rentals. They often invest the money of wealthy individuals and public pension funds, like those established for California state workers and teachers.

The best example is Blackstone, a publicly traded Wall Street firm that barreled into the country’s single-family home market in the depths of the Great Recession in the late 2000s. Through its residential investment-focused subsidiary, Invitation Homes, Blackstone is now the largest owner of single-family homes nationwide. In California, the company owns about 13,000 homes.

But firms such as Blackstone have stopped buying wide swaths of California homes. According to the real estate data firm ATTOM Data Solutions, which defines institutional investors as entities that buy 10 or more homes in a given year, institutional investors accounted for less than 2 percent of the state’s single-family home and condo sales in 2017.

That’s a pretty steep drop from as recently as 2012, when institutional investors accounted for about 7 percent of sales.

Why the decline? California no longer has a glut of cheap houses that can be easily gobbled up in foreclosure auctions. A sustained economic recovery and a lack of new-housing construction has sent housing prices skyrocketing. It’s now too expensive for institutional investors to buy lots of California homes. Blackstone’s Invitation Homes bought only 82 California houses last year.

“The low inventory and homeownership rates are good (for investors) if they own the property—it means more renters,” says Daren Blomquist, senior vice president at the real estate data firm ATTOM. “But it’s bad if they’re trying to acquire more properties.”

Those all-cash offers beating out would-be homebuyers aren’t coming from large investment firms anymore. Wealthy “mom-and-pop” landlords—families that can afford to buy another house and rent it out as an investment—now dominate the single-family rental market. Among all single-family rentals nationally, about 80 percent are owned by individuals that rent out just one or two homes, according to ATTOM.

But aren’t institutional investors keeping houses off the market—and doesn’t that drive up prices?

Institutional investors aren’t keeping enough homes off the market statewide to blame them entirely for California’s astronomical housing prices. But in certain markets—especially in areas hit hard by the foreclosure crisis, such as the Central Valley and in the Inland Empire—it’s impossible to pretend they have no influence.

Among cities with at least 100,000 residents, Sacramento has seen the most properties sold to institutional investors since 2007, according to ATTOM’s data—about 6 percent of all homes sold in the city during that time span. Just down Interstate 10, San Bernardino and neighboring Rialto have seen the largest share of their housing stock bought by institutional investors, at roughly 10 percent.

Firms have largely stayed away from Bay Area cities, where the foreclosure crisis was less acute, and where housing prices are among the most expensive in the country.

“We do not believe our activity impacts prices at any level,” a spokeswoman for Blackstone subsidiary Invitation Homes wrote in response to questions.

Institutional investors have targeted the typical starter home in these cities—three-bedroom, two-bath houses at a price point that a few years ago could have been afforded by younger families. So in some cases, would-be first-time homebuyers are now renting in places they may have bought just a few years ago.

Still, the stock owned by investment firms in these areas is much lower than in places such as Atlanta or Phoenix, where private firms have been responsible for nearly one in four home purchases. And young families are more likely to be renting single-family homes from smaller landlords.

Proposed laws to help first-time homebuyers have stalled

Reports of institutional investors making all-cash offers on California homes caught the attention of state Sen. Ian Calderon, a Democrat from Whittier, when he was attempting to move out of his apartment and purchase his first house last year. While the 32-year-old lawmaker acknowledges that institutional investors don’t own a large chunk of California’s housing stock, he says he’s concerned their influence is yet another hurdle for young homebuyers to overcome.

“I just want to be able to have more information about these firms, and ultimately I want to advantage first-time homebuyers,” said Calderon. “I want to make sure that people aren’t getting screwed.”

Multiple attempts by Calderon to impose more transparency on institutional-investor activity while blunting their ability to make all-cash offers have not gone far in the Legislature. Two years ago, a bill that would have forced homeowners to wait 90 days before selling to large institutional investors failed to clear both chambers with that provision intact.

Last year, a bill that would have required investors who own more than 100 properties in California to register with the state and provide detailed information on their activities again failed to reach the governor’s desk. Caldeorn says there’s a good chance that bill will be resuscitated this year.

The California Apartment Association, which represents landlords across the state for both multifamily and single-family units, has opposed much of Calderon’s legislation, arguing that much of the information it seeks is available in public stock exchange filings. That’s mostly true, but that only applies to publicly traded firms, and the data is not in the most accessible format.

Landlords also say Calderon’s bill doesn’t address the root cause of the problem.

“The bottom line here is about supply,” said Debra Carlton, lobbyist for the California Apartment Association. “There’s just not enough housing to go around, so you end up in these unfortunate situations where people can’t buy and can’t afford a place to rent.”

A previous story investigated another player with a greater effect on California’s housing market—foreign buyers. CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues

One way or another, two words are likely to dominate the complicated politics of California’s housing crisis in 2018: rent control.

On Thursday, Jan. 11, state lawmakers are slated to hear a proposal from Assemblyman Richard Bloom, a Democrat from Santa Monica, that would allow cities to dramatically restrict what landlords can charge tenants year over year.

The bill couldn’t even get a hearing last year amid intense opposition from landlords. But looming over legislators’ heads this time around is a potential ballot initiative supported by tenants’ rights groups that would do much of the same. If the bill stalls, there’s a good chance you’ll see the rent-control question on your November ballot.

What should an average Californian know about a rent control debate poised to gobble up so much political oxygen? Here are five key points:

1. Under current state law, a wide swath of California’s housing stock can’t be placed under rent control.

Rent-control or rent-stabilization policies come in different shapes and sizes, depending on the city in which you may find them. Some place a hard cap on how much a landlord can raise rents year over year, while others may be indexed to inflation. Currently, 15 California cities have some form of rent control on the books, including major population centers like San Francisco, Los Angeles and Oakland—and one Coachella Valley city, Palm Springs.

But current state law prohibits any locality in California from imposing rent control on properties built after 1995. That’s the year the state passed the Costa-Hawkins Act, which also prohibited cities that already had rent control laws on their books from updating them for new properties. Thus in Los Angeles. rent control only applies to buildings constructed before 1978, and in San Francisco, rent control only applies to buildings built before 1980. Palm Springs’ ordinance only covers properties built before April 1979, among other exclusions.

A bit of background: After some cities responded to tenants’ concerns about rising rents in the 1970s and 80s by adopting rent-control ordinances, real estate interests first tried to stop them in the courts. Unsuccessful there, they focused on the Legislature. Bills to pre-empt local rent control would routinely pass the Assembly and then die in the Senate, held up by then-Senate President Pro Tem David Roberti, a West Hollywood Democrat. The year after he was termed out of office, Costa-Hawkins passed by a one-vote margin.

Both Bloom’s bill (as it is currently written) and the initiative would fully repeal Costa-Hawkins, massively expanding the number of properties on which cities could impose rent control. That includes single-family homes, which Costa-Hawkins also excluded from rent control protections. (Palm Springs’ ordinance currently excludes “buildings consisting of four units or less containing one unit occupied by the owner as his/her primary residence.”)

2. Most economists—left- or right-leaning—think rent control is bad.

Economists have a hard time agreeing on most things, but regardless of partisan leaning, most economists say rent control is not great policy. Even prominent progressives like Paul Krugman have expressed opposition.

Rent control is quite literally the textbook example of a “price ceiling,” and undergrad economics textbooks will often feature problem sets with questions about what’s wrong with rent control. The classic microeconomic downsides include killing the incentive to build more housing, causing landlords to neglect maintenance and repair, and inflated prices for non-rent-controlled units. A poll of ideologically diverse economists found that only 2 percent agreed with the statement that rent control had a positive impact on housing affordability in cities like New York and San Francisco.

3. Scholars in other fields are generally bigger fans. And if you took away rent control, the results could be disastrous for affordability.

Many urban planners and other scholars studying gentrification and displacement cite rent control as an effective policy to keep long-time residents in the communities in which they live and work. And because rent control has become so deeply embedded in the housing markets of some cities, taking it away—no matter how economically inefficient it may be—could spell disaster for current residents.

The Bay Area Council Economic Institute—a business-aligned policy think tank—ran a simulation of 20 policy changes that could improve or worsen housing affordability in San Francisco. The policy that would make things worst? Getting rid of rent control, which they found would plunge 16,000 households into an unaffordable housing situation.

4. One of the best studies of rent control shows that it primarily benefits older households—at the expense of households without rent control.

There actually aren’t a ton of empirical studies looking at how rent control plays out in practice. But a groundbreaking Stanford University study released last year on San Francisco’s rent-control experience has shed new light on who wins and loses from the policy.

Looking at a roughly 20-year span of proprietary rental and migration data, the study authors found that rent-controlled tenants age 40 or older saw average savings of nearly $120,000 from rent control; by contrast, younger rent-controlled tenants only saved an average of $40,000.

That’s because younger households were more likely to move out of rent-controlled apartments because of various life milestones—a new job, a new family, buying a house in the suburbs, etc.

5. The study also found that rent control paradoxically fueled gentrification, as landlords converted units to condos.

The Stanford study found that rent controlled buildings were 10 percent more likely to be converted to a condominium or some other type of non-rental property, as landlords searched for ways to evade the law. Those units being drawn off the market partly drove up rental prices for tenants searching for apartments in San Francisco. In this sense, the study authors argue, rent control paradoxically contributed to the well-publicized gentrification the city has experienced over the past few decades.

While the study also found that rent-controlled tenants were more likely to stay in the city than tenants without rent control, the gap may not be as wide as you think. After 10 years, about 11 percent of tenants without rent control were living at the same San Francisco address. Tenants with rent control? Just 13 percent stayed put.

The rent control bill will be heard by the Assembly Housing and Community Development Committee on Thursday, Jan. 11 at 9 a.m., and will include a public comment period. You can watch the hearing—which should be pretty lively as far as legislative hearings go—here.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics. For more of Matt Levin’s housing coverage, check out the CALmatters podcast “Gimme Shelter.” Jimmy Boegle contributed to this version of this article.

Published in Local Issues

California leads the nation once again in a statistic no state wants to boast about.

When the cost of living is factored in, the Golden State has the highest poverty rate in the country. More than 20 percent of its residents struggle to make ends meet, according to recently released Census figures. That’s nearly 8 million people.

Unfortunately for Californians, this year’s poverty numbers are not an aberration. The Census began releasing state-by-state results for its “supplemental poverty measure” in 2011, in an attempt to improve upon the outdated and heavily criticized official poverty statistics.

In the less sophisticated “official” measure, a family of four in San Francisco or Los Angeles or San Diego faces exactly the same poverty threshold—$24,339 annually—as a family in rural Mississippi. That’s despite the fact that you can rent a three-bedroom, two-bathroom, 1,200-square-foot house in Horn Lake, Miss., for the same price ($850 per month) as half a living room in the Bay Area.

California has been the poorest state in the nation under the vastly more sophisticated “supplemental” poverty measure since the alternative statistic was created. (Mississippi is poorest under the old measure.) It’s not even really that close: Florida has the second-highest rate, at 18.7 percent.

The supplemental poverty measure is calculated using a three-year moving average, so year-over-year changes can’t swing a state’s poverty rate one way or another all that much. The Census uses data dating to 2011 to calculate the cost of living, so even the improved poverty rate could be underestimating how big of a drain housing has been on California’s poor. The biggest jumps in housing costs—like those we’ve seen in Sacramento and other mid-size California cities in recent years—typically apply to a relatively small percentage of renters finding new apartments. But ask any California renter whether they’d rather be paying 2011 rents or 2017 rents, and they’ll ask you for the keys to the DeLorean as soon as possible.

What, exactly, is the role of housing in California’s poverty problem? There are a couple ways to answer that question, none perfectly satisfactory.

One method: What would poverty look like if everyone in California had cheaper rents?

Researchers at the Public Policy Institute of California, which has developed its own California-specific alternative poverty measure, tried to simulate an answer to that question. Researchers there ran a model of the state’s poverty rate with every Californian bearing a cost of living similar to that in Fresno County, where a family of four making about $25,000 a year would not be considered poor. 

The result? The overall poverty rate would drop dramatically (from about 21 percent to 14 percent), with nearly 2.4 million Californians lifted above the poverty line. The effect is most pronounced among children, who are disproportionately likely to live in higher-cost regions of the state. The child poverty rate drops nearly 8 percentage points—about 717,000 kids—once the cost of living is lowered.

Relocating every poor family in the state to Fresno is, well, not a practical policy consideration. And housing subsidies for low-income families currently make only a small dent in the poverty rate, at least compared to some other safety-net programs. (Advocates for the poor argue that’s a great reason to dramatically expand housing subsidies.)

A group of researchers at Columbia University re-created the Census supplemental poverty measure for all states with data stretching back to the late 1960s. Under this measure, California started looking considerably different from the rest of the United States in the early 1980s.

But notably, while California’s supplemental poverty rate has remained significantly above the national average in recent years primarily because of housing costs, in absolute terms, the state is actually in better shape than it was in the early 1990s, when more than one in four Californians lived below the poverty line—and the recession of the early 1990s paled in comparison to the Great Recession of the late 2000s.

That’s partly because of the significant expansion of federal and state povertyprograms to California families in the past three decades. In 1991, researchers estimate, such programs reduced California poverty by about four percentage points. In 2014, those same programs (and new ones) cut hardship by twice as much.

CALmatters.org is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues

People in half of California’s households struggle to afford the roof over their heads. Home ownership—once a staple of the California dream—is at its lowest rate since World War II. Nearly 70 percent of poor Californians see the majority of their paychecks go immediately toward escalating rents.

As of this writing, state lawmakers are debating a long-delayed housing package.Here’s what you need to know about one of California’s most vexing issues.

Just how hard is it to buy a home in California?

Hard. Really hard—both compared to how hard it is in other states, and how hard it was for previous generations of Californians to buy homes.

While it’s always been more expensive to be a homeowner in California, the gap between us and the rest of the country has grown into a chasm. The median California home is now priced 2 1/2 times higher than the median national home. As of 2015, the typical California home costs $437,000, easily beating the likes of Massachusetts or New York. Only Hawaii had more expensive houses.

Despite relatively low mortgage rates, exploding housing prices have caused California’s homeownership rate to dip significantly. Just more than half of California households own their homes—the third-lowest rate in the country, and the lowest rate in the state since World War II.

It’s not just housing prices that are affecting homeownership rates. Studies have found that student debt, rising income inequality and changing housing preferences among younger Californians are also at play.

Rents didn’t dip during the recession—and now are soaring

Rental costs across the state are some of the highest in the country. While listed housing prices dipped dramatically in the wake of the Great Recession, rents in California remained relatively stable before soaring in recent years in hot markets.

Across the state, the median rental price for a two-bedroom apartment is about $2,400, the third-highest in the country. But statewide figures water down how absurd the situation is getting in urban coastal markets, where the vast majority of Californians live. The median rent for a two-bedroom apartment in San Francisco reached more than $4,000 this year.

“It may cost more to live here, but they pay you more”

That’s somewhat true—median earnings for Californians are higher than the national average, and are significantly higher in regions, like the Bay Area, with tremendously pricey costs of living.

But on average, income over the past two decades has not kept pace with escalating rents.

The problem here is not just housing. Income inequality and wage stagnation in California also hinder low- and moderate-income households’ ability to pay for a home.

But in certain markets, even extremely high incomes aren’t enough to blunt the cost of housing. In San Jose, where the current median income is nearly $100,000, renters can still expect to pay 40 percent of their monthly income on rent, according to an analysis by real estate data firm Zillow.

Cities are being gentrified—as is the entire state

It’s difficult to measure things like “gentrification” and “displacement”—when the arrival of higher-income, higher-educated residents in a community results in the expulsion of longtime lower-income residents. But there’s little question change is happening rapidly across many California cities.

Researchers at UC Berkeley found that more than half of low-income households in the Bay Area are at risk of, or already experiencing, gentrification. It’s not just lower-income communities bleeding households; higher-income neighborhoods are losing their lower-income members as well. And in places like the Boyle Heights neighborhood of Los Angeles, gentrification protests have exposed escalating tensions between longtime Latino residents and new, predominantly white arrivals.

Where are these low-income people going? Increasingly, out of state.

From 2000 to 2015, the state lost nearly 800,000 residents with incomes near or below the poverty line. Nearly three-quarters of those who left California since 2007 made less than $50,000 annually.

The leading destination for California’s poor? Texas.

Rising rents are causing more homelessness

Housing costs are just one factor in the complex tangle of reasons people become homeless. California actually has fewer people experiencing homelessness now than it did a decade ago. But there’s little question rising rents are linked to more Californians living in cars and shelters, and on the streets—especially in the greater L.A. area.

While the vast majority of states saw a dip in their homeless population between 2015 and 2016, California saw an increase of about 2,400 people, according to statistics compiled by the U.S. Department of Housing and Urban Development. California accounts for about 12 percent of the nation’s population—but more than 20 percent of the nation’s homeless live here.

Recent numbers from Los Angeles County, where the number of people experiencing homelessness grew 30 percent over the past two years, have prompted cries for more eviction protections and rent control. Zillow recently estimated that a 5 percent increase in rent would result in an additional 2,000 homeless Los Angelinos. In 2016, rents grew an average of 4 percent there.

Millennials, Mom and Dad, and avocado toast

Nearly a decade removed from the depths of the Great Recession, 38 percent of California’s 18- to 34-year-olds still live with their parents, according to U.S. Census data. That’s roughly 3.6 million people—more than the entire population of Chicago.

Again, housing costs are not the only thing keeping junior from moving out. Student debt, disappearing labor markets and delaying marriage are also contributing to the trend

It’s a statewide problem

The extremes of the state’s housing crisis are concentrated in the Bay Area and greater Los Angeles, but the challenge is truly statewide. A widely cited report by the consulting firm McKinsey Global Institute found that in every metropolitan area in the state—from Fresno to Palmdale to Salinas—at least 30 percent of residents could not afford local rents.

The intense pressures of housing costs in coastal urban centers are spilling into inland cities—like those in the Coachella Valley. While San Diego, San Francisco and L.A. top the list of toughest rental markets in the country, cities like Sacramento and Riverside recently have experienced the largest year-over-year increases.

The housing crisis has major repercussions for the economy

Big business is also feeling the pinch of California’s housing crisis.

The McKinsey Global Institute found that housing shortages cost the economy between $143 billion and $233 billion annually—not taking into account second-order costs to health, education and the environment. Much of that is due to households spending too much of their incomes on the rent or mortgage and not enough on consumer goods.

Even the attractive salaries and lavish perks of Silicon Valley don’t make up for the local housing market, as young tech talent flees to the relatively inexpensive climes of Austin or Portland. Nearly 60 percent of Los Angeles companies in a recent University of Southern California survey said the region’s high cost of living was affecting employee retention.

It won’t be getting better anytime soon

The state estimates that it needs to build 180,000 homes annually just to keep up with projected population growth, and keep prices from escalating further out of control.

Unfortunately, for the past 10 years, the state has averaged less than half of that. In no year during that span did California crack the 100,000 barrier.

There’s fierce debate over how long it takes low-income residents to benefit from the construction of new market-rate housing; a renter on the wait list for housing vouchers won’t take much comfort in the luxury condos being built in downtown Oakland or Los Angeles. While California faces an affordable housing gap at nearly all but the highest income levels, the low-income housing shortage is most severe.

According to the nonpartisan Legislative Analyst’s Office, helping just the 1.7 million poorest Californians afford homes would cost $15 to $30 billion a year. The Los Angeles Times estimated that the three marquee bills being considered by lawmakers would provide less than 25 percent of that total.

This is an excerpt of the project “Californians: Here’s Why Your Housing Costs Are So high.” For the full report, go to calmatters.org. CALmatters is a nonprofit, nonpartisan media venture explaining California policies and politics.

Published in Local Issues