Maintaining Middle-Income Housing Supply

Much of the discussion about housing trends of late has focused on the highs and lows. On the upper end of things, home prices are booming and not likely to come down soon. Unfortunately, that trend, combined with nationwide housing inventory shortages and increasing rent prices, has made things difficult for lower-income consumers. But what about the housing requirements of those who fall between those two extremes? A new California bill is designed to address the needs of the “missing middle.”

California is home to some of the priciest markets in the country, so living in the state as a middle- or lower-income worker can often mean commuting a long way because home prices near your job are unaffordable. First introduced in February 2018 by Assemblyman David Chiu (D-San Francisco) and Assemblyman Ash Kalra (D-San Jose), Assembly Bill 3152 would grant property tax exemptions to nonprofit housing developers who rent homes in high-cost areas to middle-income renters at a discount. The property tax discount is similar to one that already applies to lower-income rental housing.

Assemblyman Chiu told the Santa Cruz Sentinel, “During the housing crisis, middle-income Californians are in a very tough spot. They don’t qualify for low-income affordable housing, but also can’t afford market rents.”

According to the June 2016 California Apartment List Rent Report, California rental prices have been trending well above the national average since around May 2015. Nor is it just a California problem. A November 2017 Apartment List study reported that nearly half of U.S. renters are “cost burdened,” spending 30 percent or more of their income on rent. When you factor in the massive student debt many Americans are carrying, the path to homeownership becomes elusive. That begs the question—if there simply isn’t enough rental stock to accommodate demand, where does that leave the middle-income consumer who isn’t ready to purchase a home, or simply doesn’t desire to?

“It’s encouraging to see the California legislature focusing on tax credits intended to help the middle-income renter and not just homeowners,” Beth O’Brien, CEO of CoreVest Finance, told DS News. “It’s a clear recognition on how important this segment of the housing stock is to the workforce.  Over time I’d like to see programs like this geared towards a broader group of market participants so that it can have a greater impact on housing investment, but this is a good start.”

Will bills such as California’s Assembly Bill 3152 help ease the pain? Only time will tell.