Legislation to provide a tax exemption on rental units for moderate-income households dovetails with Governor’s new budget priorities
SACRAMENTO—Assemblymember David Chiu (D-San Francisco) announced Tuesday a bill to incentivize the creation of housing for middle-income Californians. Assembly Bill 1734 would provide a property tax exemption for rental housing units designated for moderate-income households.
“Our housing crisis affects Californians from all backgrounds and walks of life,” said Assemblymember Chiu, Chair of the Assembly Housing and Community Development Committee. “Hundreds of thousands of Californians commute long distances every day because it is too expensive to live where they work. While we continue to fight for housing for low-income Californians, we must also do much more to build housing for the missing middle – our teachers, nurses, firefighters, police officers, retail employees and other workers who struggle to afford housing.”
High rents and home prices in California’s major job markets make finding a place to live extremely challenging for many middle-income earners. Middle-income Californians are significantly rent burdened with 41.5 percent of moderate-income households spending more than 30 percent of their income on rent.
California has taken recent steps to solve the housing crisis by funding housing production for low- and very-low income individuals and working to increase overall housing supply, but a significant gap remains in housing available to middle-income households. Often referred to as the “missing middle,” these Californians make too much to qualify for affordable housing programs but too little to afford market rate housing.
AB 1734 would address this gap in housing availability by providing a property tax exemption to incent the production of middle-income housing units. Developers who receive the exemption would commit the savings to reducing rents to moderate-income levels.
The bill expands the welfare exemption, which currently allows developers that provide housing for low- and very low-income households to forego payment of property taxes. This exemption would be expanded to developers who reserve rental units for tenants who earn between 80 and 120 percent of the area median income (AMI).
Governor Gavin Newsom’s first proposed budget unveiled in January includes two new programs to expand moderate-income housing. He proposed a new investment of $500 million in one-time funding for the development of moderate-income housing by expanding the California Housing Finance Agency’s mixed-income loan program. He also proposed providing $200 million in funding for a new tax credit program targeted at moderate-income housing development. The savings generated by AB 1734 would stretch those dollars further, allowing more units to be built.
To qualify for the exemption in AB 1734, a project must utilize some source of state or local funding, such as bond funding or tax credits. The bill would apply to newly constructed projects with moderate-income units as well as to acquired developments that lower rents from market rate levels to levels affordable to moderate-income households.
Assemblymembers Todd Gloria (D-San Diego), Ash Kalra (D-San Jose), and Buffy Wicks (D-Oakland) are joint authors of AB 1734.
“Low and middle-income Californians are disproportionately affected by California’s housing crisis. As much as we have to build more in California, we must focus our efforts on building housing actually affordable to working people,” said Assemblymember Gloria. “AB 1734 will incentivize the development of housing for the middle-class — people like our teachers, firefighters, and police officers who earn a decent living yet struggle to pay the rent and can’t qualify for subsidies. This is an important and innovative solution that I’m proud to joint author.”
“I’m proud to joint-author AB 1734 with Assemblymember Chiu and help make California a more affordable place to live for our working families,” said Assemblymember Kalra. “While we have made progress to invest in the tools and funding to address our state’s housing crisis, there is still much to be done to ensure that people can afford to live in the communities where they work, especially those who live in our state’s highest cost areas.”
“Low-income households are most at risk from California’s housing crisis, but middle-income households are also suffering from our severe housing shortage,” said Assemblymember Wicks. “Expanding existing tax credits to also cover creation of moderate-income multifamily housing is a simple step to incentivize more homes that California’s middle class can afford.”
The bill is expected to be heard in an Assembly policy committee this month.