Existing law establishes the California Housing Finance Agency within the Department of Housing and Community Development, and authorizes the agency to, among other things, make loans to finance affordable housing, including residential structures, housing developments, multifamily rental housing, special needs housing, and other forms of housing, as specified.

This bill would establish, upon appropriation by the Legislature, the Mixed Income Revolving Loan Program within the agency to provide zero-interest construction loans to qualifying residential, infill housing developers for the purpose purposes of constructing deed-restricted affordable housing. The bill would require the agency to formulate a program administer the program pursuant to specified requirements, including that any loans provided under the program be for the development of multifamily housing projects where a portion of the housing units in the project are set aside to ensure affordability, as specified. The bill would require the agency to be the administrator of the program and to promulgate rules and regulations deemed necessary for the administration and implementation of its provisions.

Existing law establishes the California Housing Finance Agency within the Department of Housing and Community Development, and authorizes the agency to, among other things, make loans to finance affordable housing, including residential structures, housing developments, multifamily rental housing, special needs housing, and other forms of housing, as specified.

This bill would establish, upon appropriation by the Legislature, the Mixed Income Revolving Loan Program within the agency to zero-interest construction loans to qualifying residential, infill housing developers for the purpose of constructing deed-restricted affordable housing. The bill would require the agency to formulate a program for the development of multifamily housing projects where a portion of the housing units are set aside to ensure affordability, as specified. The bill would require the agency to be the administrator of the program and to promulgate rules and regulations deemed necessary for the administration and implementation of its provisions.

Date of Hearing: May 8, 2024

ASSEMBLY COMMITTEE ON APPROPRIATIONS

Buffy Wicks, Chair

ABPCA Bill Id:AB 2665

Author:(Lee) – As Amended Ver:April 15, 2024

Urgency: No State Mandated Local Program: No Reimbursable: No

SUMMARY:

This bill establishes the Mixed Income Revolving Loan Program (Program) at the California Housing Finance Agency (CalHFA) to provide zero-interest construction loans to qualifying infill housing developers to construct deed-restricted affordable housing.

Specifically, this bill:

1. Upon appropriation by the Legislature, establishes the Program within CalHFA to provide zero-interest construction loans to qualifying residential, infill housing developers for the purpose of constructing deed-restricted affordable housing.
2. Requires loans provided under the Program to be for the development of multifamily housing projects where a portion of the housing units in the project are set aside to ensure affordability.
3. Requires the Program to solicit applications from private developers, nonprofit developers, public housing authorities, and other public agencies for the construction and ownership of housing units.
4. Requires an entity seeking loan assistance from the Program to comply with all of the following:
5. At least 20% of the development of housing units in the project to be funded must be affordable for households earning 50% or less of the area median income (AMI) adjusted for household size.
6. At least an additional 10% of the housing units in the project must be affordable for households earning 80% or less of the AMI adjusted for household size.
7. The units described in items (a) and (b) must be subject to a recorded affordability restriction for at least 55 years.
8. Requires CalHFA to promulgate rules and regulations deemed necessary for the administration and implementation of the provisions of this bill.

FISCAL EFFECT:

1. One-time General Fund (GF) cost pressures of approximately $3 million to $4 million for CalHFA to develop and implement the Program. CalHFA indicates it does not currently handle construction financing, nor is this product in line with CalHFA’s business model. Establishing the program is contingent upon an appropriation by the Legislature.
2. CalHFA estimates ongoing GF costs of $740,000 annually for four staff positions to administer and monitor the Program. CalHFA notes they typically receive a 5% administration fee on appropriated program funds. This bill does not provide administrative funding thus requiring the agency to stand up the Program without guaranteed staff. Further, unlike other CalHFA programs, the loans in this program are 0% loans, so loan recycling will not materialize and CalHFA will be reliant on continued appropriations to fund and staff the Program.

According to the Legislative Analyst’s Office, the General Fund faces a structural deficit in the tens of billions of dollars over the next several fiscal years. 

COMMENTS:

1. Purpose. According to the author:

In order to fund the construction of affordable housing for Californians of all incomes, [this bill] will establish a revolving loan program in CalHFA. By establishing a program that provides zero-interest construction loans to qualified developers for constructing mixed-income affordable housing, the state can continue to work towards its housing goals regardless of budget or financing conditions.

1. Background. CalHFA is the state’s affordable housing bank. CalHFA borrows money from the private financial market at below-market interest rates by issuing tax-exempt revenue bonds. CalHFA passes these interest rate savings on to low- and moderate-income first-time homebuyers and affordable rental housing developers by offering below market-rate mortgages. These bonds are backed only by CalHFA revenues and not by the state GF.

CalHFA provides a variety of programs to assist families with homeownership, primarily through downpayment assistance. In September 2021, CalHFA launched the ADU Grant Program, which provides qualified homeowners up to $25,000 to help cover ADU construction costs, with a focus on homeowners with low incomes, low equity in their homes, and those residing in low-income areas. The fiscal year (FY) 2022-23 budget provided $500 million for CalHFA to create and administer the California Dream for All homebuyer program to provide shared appreciation loans to qualified low- and moderate-income, first-time homebuyers.

This bill creates a new program at CalHFA to provide 0% construction loans to developers that include at least 30% of the units at an affordable cost, allowing the other 70% of the units to charge market-rate rents. The program would be available to private developers, non-profit developers, housing authorities, and other public agencies.

The development projects funded under this bill, where a portion of the units are market rate, would likely not be competitive for traditional state affordable housing funding which favors projects with deeper per unit affordability and higher levels of overall affordability in the development. If market rate developers utilize this funding, without any other state subsidy, the state would benefit from the 30% per development requirement for affordable housing.

The Governor’s January budget for FY 2024-25 proposes to cut $1.2 billion in existing budget commitments to affordable housing programs, including eliminating $500 million for the state Low Income Housing Tax Credit, a core program necessary to fund affordable multi-family housing programs. The last voter-approved housing bond, Proposition 1 from 2018, provided $3 billion for various affordable housing programs, which has been fully spent down.

1. Related Legislation. AB 1053 (Gabriel), of this legislative session, allows an applicant for funding for any multifamily housing program administered by the Department of Housing and Community Development to request a construction loan rather than long term funding. AB 1053 was held on the suspense file in the Senate Committee on Appropriations.

Analysis Prepared by: Jennifer Swenson / APPR. / (916) 319-2081

Date of Hearing: April 10, 2024

ASSEMBLY COMMITTEE ON HOUSING AND COMMUNITY DEVELOPMENT

Christopher M. Ward, Chair

ABPCA Bill Id:AB 2665 (

Author:Lee) – As Introduced Ver:February 14, 2024

SUBJECT: Housing finance: Mixed Income Revolving Loan Program

SUMMARY: Establishes the Mixed Income Revolving Loan Program (the Program) at the California Housing Finance Agency (CalHFA) to provide zero-interest construction loans to qualifying infill housing developers for the purpose of constructing deed-restricted affordable housing. Specifically, this bill:

1. Requires CalHFA to formulate a program for the development of multifamily housing projects where a portion of the housing units are set aside to ensure affordability.
2. Requires the program to solicit applications from private developers, nonprofit developers, public housing authorities, and other public agencies for the construction and ownership of housing units.
3. Requires a developer seeking assistance from the Program to have both of the following:
4. At least 20% of the development of housing units to be affordable housing for households earning 50 percent or less of the area median income (AMI) adjusted for household size; and
5. At least an additional 10% of the development of housing units to be affordable to households earning 80% or less of the AMI adjusted for household size.
6. Requires CalHFA to administer the Program and promulgate rules and regulations deemed necessary for the administration and implementation of the provisions of this bill.
7. Provides that the Program shall be created upon appropriation by the Legislature.

EXISTING LAW:

1. SB 2 (Atkins) Chapter 364, Statutes of 2017 establishes a recording fee on certain real estate transactions and directs 15% of the funds generated from the Building Homes and Jobs Act toward creating mixed income multifamily residential housing for lower to moderate income households. (Health and Safety Code (HSC) Section 50470)
2. Authorizes CalHFA to make and publish rules and regulations to make development loans, construction loans, property improvement loans, and mortgage loans. (HSC 51101)
3. Allows the following types of housing developments and residential structures to be eligible for mortgage loans made with the proceeds of bonds:
4. Housing developments and residential structures financed with bonds of the agency guaranteed by the federal government;
5. Housing developments and residential structures financed with bonds of the agency that are guaranteed, or the time payment of principal and interest of which is insured, by an agency of the state or by a private insuring entity authorized to engage in that business;
6. Housing developments and residential structures, the mortgage loans on which presently are or are expected to be guaranteed, insured, or coinsured by the federal government;
7. Housing developments and residential structures, the bonds or mortgage loans on which are presently, or are expected to be, insured or guaranteed in whole or in part by an agency of the state, including the California Housing Finance Agency, a political subdivision of the state, or by a private insuring entity authorized to engage in that business, or by any combination thereof, in percentages determined by the agency; and
8. Housing developments and residential structures financed by a loan made by the agency to a qualified mortgage lender, if both of the following conditions are met:
   1. The loan to the qualified mortgage lender is a general obligation of the mortgage lender; and
   2. The qualified mortgage lender is a member of, or a subsidiary of a member of, the Federal Deposit Insurance Corporation or of the Federal Savings and Loan Insurance Corporation.
9. Housing developments and residential structures financed by tax-exempt bonds for which a bond reserve fund is created which complies with the terms and conditions of the agreement or agreements with agency bondholders. (HSC 51104)

FISCAL EFFECT: Unknown.

COMMENTS:

Author’s Statement: According to the author, “In order to fund the construction of affordable housing for Californians of all incomes, AB 2665 will establish a revolving loan program in the California Housing Finance Agency. By establishing a program that provides zero-interest construction loans to qualified developers for constructing mixed-income affordable housing, the state can continue to work towards its housing goals regardless of budget or financing conditions.”

CalHFA: CalHFA is the state’s affordable housing bank. CalHFA borrows money from the private financial market at below-market interest rates by issuing tax-exempt revenue bonds. CalHFA passes these interest rate savings on to low- and moderate-income first-time homebuyers and affordable rental housing developers by offering below market-rate mortgages. These bonds are backed only by CalHFA revenues and not by the state General Fund. CalHFA also provides downpayment assistance in the form of deferred, “silent second” mortgages (i.e., the borrower makes no monthly payments but repays the loan at sale or refinance) for families who need extra assistance achieving homeownership. CalHFA receives 15% of the funds generated by SB 2 (Atkins, Chapter 364, Statutes of 2017) for the Mixed Income Program (MIP) for the purposes of creating mixed-income, multifamily residential housing for lower- or moderate-income households. The 2019-2020 Budget provided an additional one-time $500 million investment into the MIP program. CalHFA also received $150 million for Home Purchase Assistance from Proposition 1 bond funds to provide first and junior loan options for low- to moderate-income families, including low to zero interest rate down payment assistance loans. In September 2021, CalHFA launched a new program to help homeowners finance ADUs. The ADU Grant Program will provide qualified homeowners up to $25,000 to help cover construction costs, with a focus on homeowners with low incomes, low equity in their homes, and those residing in low-income areas. The 2022-23 budget also provided $500 million for CalHFA to create and administer the California Dream for All homebuyer aid program. This program will provide shared appreciation loans to qualified low- and moderate-income, first-time homebuyers.

Construction loans: Lenders view construction loans as risker than conventional loans and charge higher interest rates. Interest rates for construction loans are currently at 6%. To combat inflation, the Federal Reserve has set higher interest rates and though the Federal Reserve has signaled it may adjust interest this year, inflation continues to be high. This bill would create a new program at CalHFA to provide 0% construction loans to developers that include at least 30% of the units at an affordable cost, with at least 20% of the units affordable housing for households earning 50% or less of AMI and at least an additional 10% of units affordable to households earning 80% or less of AMI. The other 70% of the units in the development could charge market-rate rents. The program would be available to private developers, non-profit developers, housing authorities, and other public agencies. State affordable housing finance programs provide long term loans or equity investments in housing that is affordable to households that make 80% of AMI or less. This program, if created, would fund a development where a portion of the units are market rate. These projects likely would not be competitive for traditional state affordable housing funding which favors affordable housing with deeper per unit affordability and higher levels of overall affordability in a development. If market rate developers utilize this funding, without any other state subsidy, the state would benefit from the 30% per development requirement for affordable housing. To qualify, the affordable units should be deed restricted for 55 years, consistent with other affordable housing programs and other state and local policies (local inclusionary, Density Bonus Law, by right streamlining). The committee may wish to amend the bill to clarify this requirement.

Efforts to Consolidate and Streamline State Housing Programs: The state provides funding for affordable housing production through Low Income Housing Tax Credits and long-term loans in that infuse equity into the development. In the past few years, the Legislature has attempted to streamline affordable housing funding, to reduce the complexity and time for developers. Affordable housing developers often cite the need to apply for multiple programs to fund one affordable housing development as a cost driver to development. State housing programs are administered by HCD, CalHFA, the Tax Credit Allocation Committee (TCAC), and the Strategic Growth Council. In an effort to streamline funding, the Legislature passed AB 484 (Daly), Chapter 434, Statutes of 2020 which required HCD to create a combined notice of funding availability (NOFA), commonly called the Super NOFA, for multiple overlapping programs that fund multi-family rental housing for lower-income families. Last year, AB 519 (Schiavo), Chapter 742 required TCAC, HCD, and CalHFA to convene an Affordable Housing Finance Workgroup to make recommendations to develop a common application process for the programs they administer on or before January 1, 2027.

Budget Challenges: Although final revenues are not in, the Legislative Analyst’s Office estimates that the state is facing a $58 billion budget deficit. The Governor’s January budget proposes to cut $1.2 billion in existing budget commitments to affordable housing programs, including eliminating $500 million for the state Low Income Housing Credit, a core program necessary to fund affordable multi-family housing programs. The last voter-approved housing bond, Proposition 1 from 2018, provided $3 billion for various affordable housing programs, which has fully spent down.

Arguments in Support: According to the California Apartment Association, “In an effort to meet the demand for affordable housing for lower income households, the 2023-2024 budget provided over $3 billion in funding for housing and homelessness programs. However, there are other models of providing deed restricted affordable housing for low income families that don’t require capital outlays from the state’s coffers. States such as Maryland, New York and Rhode Island have experimented with publicly funded below market construction loans to spur development. AB 2665 would be California’s approach to incentivize developers to break ground on new housing projects by easing their initial capital expense.”

Arguments in Opposition: None on file.

Committee Amendments:

• Require affordable housing created by the program in this bill to be deed restricted for 55 years.

Related Legislation:

AB 1053 (Gabriel) of 2023 would have allowed an applicant for funding to request a construction loan rather than long term funding. This bill was held in Senate Appropriations Committee.

REGISTERED SUPPORT / OPPOSITION:

Support

California Apartment Association

California Community Builders

Culver City Democratic Club

East Bay YIMBY

Grow the Richmond

Housing Action Coalition

How to ADU

LeadingAge California

League of California Cities

Mountain View YIMBY

Napa-Solano for Everyone

Northern Neighbors

Peninsula for Everyone

People for Housing Orange County

Progress Noe Valley

San Francisco YIMBY

San Luis Obispo YIMBY

Santa Cruz YIMBY

Santa Monica Democratic Club

Santa Rosa YIMBY

South Bay YIMBY

Southside Forward

Streets for People

Urban Environmentalists

Ventura County YIMBY

YIMBY Action

Opposition

None on file.

Analysis Prepared by: Lisa Engel / H. & C.D. / (916) 319-2085