To keep the middle class in California, should developers build homes to rent? Or own?
When you imagine a renter of affordable housing, Christopher McCormick is probably not who comes to mind.
The 38-year-old software developer was on his way to work in early 2020 when he passed an affordable apartment building under construction in Emeryville, California. He was surprised to find that his annual income - $79,400 - qualified him for a below-market-rate one-bedroom unit. The rent was just $2,100 a month - nearly $600 less than similar market-rate apartments. He entered the lottery and, a few months later, moved in.
McCormick's moderate-income apartment is part of California's effort to keep its middle class from moving away. The state has a goal to build 2.6 million new units by 2032 to meet demand and keep costs from further ballooning. Of those, 420,800 are meant to be affordable to moderate-income households, who make between 80% and 120% of the area median income - for a family of four, between $125,050 and $191,750 in Alameda County, and $159,550 and $234,250 in Santa Clara County.
For the most part, the market doesn't build this kind of housing - which is why the state and local governments provide incentives to developers, such as allowing more density or less parking if they include below-market-rate units. Middle-income housing doesn't qualify for the same property tax exemptions that low-income housing does.
Still, five years into its plan, developers in California have built only 22,316 moderate-income units. With high interest rates and rents not growing as some predicted, they say they need more incentives for this type of housing to pencil out financially.
But there's disagreement on where government should intervene: Should it encourage more middle-income homes for people to rent, or to own?
The answer, most housing experts would agree, is both. California needs more of all types of housing to climb its way out of its deep affordability crisis.
Developers tend to favor building rental housing in high-cost areas because it offers steadier cash flow, lower legal risk, and stronger demand from renters who can't afford to buy. Moderate-income housing policy has followed this status quo, largely focusing on renters. Still, even generating support for rental housing incentives has proved an uphill battle.
Two bills this legislative session sought to offer tax breaks for middle-income housing. The first, SB 336 from San Francisco Democratic Sen. Scott Wiener, would have extended a property tax exemption to buildings with units set aside for such renters - a benefit currently reserved for developers serving lower-income renters. On the for-sale side, AB 595, proposed by Democratic Assemblyman Juan Carrillo of Palmdale, would have created a new tax credit for home builders constructing income-restricted homes.
Both bills died. As California faces a $12 billion budget shortfall, legislators balked at most measures that might drain city or state coffers.
But the ideas aren't going away. A version of SB 336 has appeared before the Legislature almost every year since 2019. Many of its backers say it's the kind of structural fix that will help build moderate-income housing at scale.
One of the major backers, unsurprisingly, is a Bay Area developer - Enrique Landa.
His company, Associate Capital, is leading a major redevelopment of the 29-acre Potrero Power Station along San Francisco's waterfront, which will include 2,600 new homes - a third of them at below-market rents. The first building is set to open this fall, with all 105 apartments reserved for moderate-income renters.
"We were only able to do this because we had a larger project that was able to cross-subsidize this effort," Landa said at a Senate hearing in May. "This wasn't a replicable path - but with this legislation, it could be."
But there's a question of whether moderate-income housing offers enough of a discount to justify a major tax exemption.
A recent Bay Area News Group investigation found that outside of extremely high-cost areas, such as San Mateo County and San Francisco, moderate-income units don't always provide a meaningful discount to market rates. Notably, 7% of the moderate-income housing units built in recent years around the Bay Area are vacant - double the vacancy for units targeted at renters making below 80% of the area median income.
Rich Wallach, an affordable housing developer with Burbank Housing in Santa Rosa, said it's critical that any policy that would subsidize moderate-income housing include a provision that rents provide a significant discount.
"The trick to not having vacant units sit is to undercut the market - not be at market," Wallach said.
But other housing activists suspect there's something else at play that explains the somewhat higher vacancy at moderate-income units: an exodus to lower-cost regions.
"Moderate-income families may reach a point in struggling with housing affordability where they just decide to leave the region," said Adam Briones, CEO of California Community Builders, which advocates for access to homeownership. "These are people who want to buy a home, and they absolutely cannot do it in the Bay Area."
That's eventually what happened for McCormick, the Emeryville renter.
"I was giving someone else money without building equity myself," McCormick said.
When he looked into below-market-rate for-sale housing, he found a few options in Emeryville - most were condos, and with the homeowners association fee tacked onto a monthly mortgage payment, plus property taxes, he would have had to pay around $3,200 a month. It was more than he felt he could comfortably afford.
So McCormick bought a house in the suburbs - of Pittsburgh, Pennsylvania. For his $310,000, five-bedroom house, he pays a monthly mortgage of $2,800.
Briones sees stories like McCormick's as evidence the state needs to do more to help people buy - not just rent.
"For a rental, the landlord retains the economic benefit," Briones said. "If we subsidize units for a homeowner, that helps to create generational wealth for a moderate-income household."
Rental housing has been the focus of most federal subsidies since at least 1961, when the federal government created the Below Market Interest Rate Program to provide low-interest loans for multifamily rental developers in exchange for affordability restrictions. The focus was further entrenched when former President Ronald Reagan created the Low-Income Housing Tax Credit in 1986, which provided tax incentives to private developers building affordable housing. The program is still the primary tool for financing new affordable housing throughout the country.
But before that, policymakers were thinking of ways to subsidize for-sale product. In 1955, New York passed the Mitchell-Lama program, which allowed for the creation of limited-profit housing companies. These companies could get low-interest-rate financing to cover up to 95% of a project's cost, plus major property tax breaks, which allowed developers to build housing middle-income New Yorkers could afford. In return for the incentives, developers were limited to a 6% profit on dividends (later increased to 7% in 1969.) The program produced over 130,000 units in New York City alone-half of them for-sale.
Today, it'd be unimaginable for developers to envision a mere 6% return. In 2023, homebuilders reported an average gross profit margin of 20.7% in 2023, according to the National Association of Homebuilders.
Alex Schafran, a housing policy researcher, said there are benefits to both renting and owning - but that right now the Bay Area's middle-income households are relegated to the rental market, because home-buying is only possible for the highest earners.
"But everyone should have a real choice," he said. "Regardless of income."
Copyright (C) 2025, Tribune Content Agency, LLC. Portions copyrighted by the respective providers.
Try Our AI Features
Explore what Daily8 AI can do for you:
Comments
No comments yet...
Related Articles
New York Post
an hour ago
- New York Post
Long-shot NYC mayoral candidate sues to get onto final debate stage, claims donors ‘illegally' rejected
Mayoral long-shot candidate Michael Blake is suing the city's powerful campaign finance agency in a last-ditch bid to be allowed onto the Democratic primary debate stage later this week. Blake — arguably the breakout star of last week's first debate — claims the Campaign Finance Board nixed hundreds of valid donations that would have made him eligible for the forum hosted by Spectrum on Thursday night. 'The CFB has acted arbitrarily, capriciously, illegally, and unconstitutionally in doing so,' claims Blake's Manhattan Supreme Court suit. The CFB's 'antiquated' database wrongly rejected nearly 200 donations to Blake's campaign, including one by Public Advocate Jumaane Williams, according to the lawsuit, filed Sunday. The contributions would have made Blake eligible for the city's generous eight-to-one public matching funds program, a threshold for entry into the second and final debate, the suit states. 5 Michael Blake is suing after he said he was 'illegally' booted from the second debate. Pool/ABACA/Shutterstock The former Bronx Assemblyman, during last Wednesday's NBC 4 New York-Politico debate, referenced the fact that he'd been barred from participating in the next forum when asked about his biggest political regret. 'The campaign finance board did not want to meet with us, they said go to court and that's what we are doing,' Blake, an associate pastor at a South Bronx church and former Obama White House aide, told The Post on Monday. 'It is the CFB who made the error and they still have time to fix it. All we are asking for is we deserve to be on the stage Thursday night, we deserve to get matching funds.' The Blake donors were 'arbitrarily' disqualified due to address verification issues, including Williams — himself a candidate currently participating in the CFB matching funds program, the suit alleges. Williams' $250 donation was rejected in the audit 'solely because his apartment was not included,' a field not required by the Campaign Finance Law, the suit claims. 5 Blake, considered a 'breakout' star at last week's debate, says the Campaign Finance Board messed up, and he has actually met the threshold to be on stage at the second and final mayoral debate. AP 5 Public Advocate Jumaane Williams's $250 donation to Blake was nixed by the CFB because it claimed he entered 'a non-residental address.' Stephen Yang 'This audit arbitrarily preliminarily disqualified numerous contributions,' the suit reads, adding that the 'vast majority of such failures are due to the inflexibility of CFB's database fields.' 'The sole reason given by the CFB in denying Michael Blake participation is their conclusory and inaccurate contention that the Blake Campaign did not meet their eligibility threshold based upon matchable dollars raised to date,' the suit claims. 5 'It's surreal,' Blake told The Post on Monday. 'The egregiousness of these errors and the ramifications. Christopher Sadowski Blake, who is polling at 1.5%, is asking for a judge to force the CFB to include him in the debate. The board is required to host primary debates for citywide office elections, under the Campaign Finance Act, but is given broad discretion over who will be on the dais. Candidates either need to raise and spend nearly $2.4 million or pull in more than $250,000 in public matching funds to participate in the second debate. The threshold for the first debate was lower, with only $200,000 needed to be raised and spent to get on Blake sent in his May 19 contribution disclosure, the board at first seemed primed to give out matching funds, even asking for updated bank information. 5 Michael Blake was a former Obama aide and Bronx Assemblyman. James Messerschmidt But the CFB later sent the 'audit letter' claiming he was 78 donors short and included two conflicting contribution dollar totals, according to the suit. The suit also says the CFB was using an arbitrary deadline for when the contribution threshold could be met. 'They are just making up a rule,' Blake said. 'It's surreal. The egregiousness of these errors and the ramifications.'
Yahoo
2 hours ago
- Yahoo
MN House, Senate convene for special session to pass state budget
Minnesota lawmakers returned to the Capitol Monday morning to complete the state's next two-year budget as agencies prepared to warn thousands of government employees of a potential government shutdown next month. Most of the state government only has funding through the end of June after the Legislature failed to pass the majority of the bills that form the roughly $66 billion state budget by the end of the regular legislative session on May 19. Gov. Tim Walz called a special session so lawmakers can finish their work. State leaders finalized the details in a series of mostly closed meetings over the last few weeks. The Senate and House went into session at 10 a.m. and are expected to finish their work by Tuesday morning. However, there's no guarantee that will happen. Democratic-Farmer-Labor and Republican legislative leaders and the governor may have signed an agreement to finish up the special session by 7 a.m. Tuesday, but nothing can stop other state senators and representatives from introducing amendments and engaging in lengthy debate on controversial bills. Some bills that are part of the budget deal between Walz, the tied House and DFL majority Senate may pass on thin margins. A proposal to end state-funded health insurance for adults in the U.S. without legal immigration status is opposed by many DFLers and may only pass with the support of Republicans and the DFL leaders who signed the agreement. Senate Majority Leader Erin Murphy, DFL-St. Paul, and House DFL Leader Melissa Hortman, of Brooklyn Park, have said they agreed to remove coverage for adults to avert a government shutdown, which would interrupt services on a much larger scale. The immigrant care proposal was the first bill the House took up Monday morning, and representatives continued to debate the matter as noon approached. If the measure passes both chambers, Walz would have a tough time vetoing it. Republicans managed to get DFLers to agree to tie the activation of health care spending to ending MinnesotaCare for around 17,000 adults in the state who came to the U.S. illegally. Meanwhile, GOP lawmakers have expressed reservations about the tax and transportation bills. The tax bill includes an increase to the sales tax on cannabis, and Republican leadership had initially said it wouldn't support any new taxes, and some members may stick to that pledge. There were also questions on Friday about whether a proposal to shift $93 million in sales tax revenue from metro counties to the Metropolitan Council would survive floor votes, as members of both parties might turn on shifting money from local governments to a central planning agency. This is a developing story that will update throughout the day. Letters: It's unfortunate that we can't have certain conversations Gov. Tim Walz calls for special session for Legislature Monday Timeline for Minnesota special session blurry as budget talks continue MN government return to office order kicks in as shutdown layoffs loom Ramsey County: Economic Development Authority to allow flexibility on housing projects
San Francisco Chronicle
2 hours ago
- San Francisco Chronicle
Shoppers are wary of digital shelf labels, but a study found they don't lead to price surges
Digital price labels, which are rapidly replacing paper shelf tags at U.S. supermarkets, haven't led to demand-based pricing surges, according to a new study that examined five years' worth of prices at one grocery chain. But some shoppers, consumer advocates and lawmakers remain skeptical about the tiny electronic screens, which let stores change prices instantly from a central computer instead of having workers swap out paper labels by hand. 'It's corporations vs. the humans, and that chasm between us goes further and further,' said Dan Gallant, who works in sports media in Edmonton, Canada. Gallant's local Loblaws supermarket recently switched to digital labels. Social media is filled with warnings that grocers will use the technology to charge more for ice cream if it's hot outside, hike the price of umbrellas if it's raining or to gather information about customers. Democratic U.S. Sens. Elizabeth Warren of Massachusetts and Bob Casey of Pennsylvania fired off a letter to Kroger last fall demanding to know whether it would use its electronic labels as part of a dynamic pricing strategy. Lawmakers in Rhode Island and Maine have introduced bills to limit the use of digital labels. In Arizona, Democratic state Rep. Cesar Aguilar recently introduced a bill that would ban them altogether. The bill hasn't gotten a hearing, but Aguilar said he's determined to start a conversation about digital labels and how stores could abuse them. 'Grocery stores study when people go shopping the most. And so you might be able to see a price go down one day and then go up another day,' Aguilar told The Associated Press. Researchers say those fears are misplaced. A study published in late May found 'virtually no surge pricing' before or after electronic shelf labels were adopted. The study was authored by Ioannis Stamatopoulos of the University of Texas, Austin, Robert Evan Sanders of the University of California, San Diego and Robert Bray of Northwestern University The researchers looked at prices between 2019 and 2024 at an unnamed grocery chain that began using digital labels in October 2022. They found that temporary price increases affected 0.005% of products on any given day before electronic shelf labels were introduced, a share that increased by only 0.0006 percentage points after digital labels were installed. The study also determined that discounts were slightly more common after digital labels were introduced. Economists have long wondered why grocery prices don't change more often, according to Stamatopoulos. If bananas are about to expire, for example, it makes sense to lower the price on them. He said the cost of having workers change prices by hand could be one issue. But there's another reason: Shoppers watch grocery prices closely, and stores don't want to risk angering them. 'Selling groceries is not selling a couch. It's not a one-time transaction and you will never see them again,' Stamatopoulos said. 'You want them coming to the store every week.' Electronic price labels aren't new. They've been in use for more than a decade at groceries in Europe and some U.S. retailers, like Kohl's. But they've been slow to migrate to U.S. grocery stores. Only around 5% to 10% of U.S. supermarkets now have electronic labels, compared to 80% in Europe, said Amanda Oren, vice president of industry strategy for North American grocery at Relex Solutions, a technology company that helps retailers forecast demand. Oren said cost is one issue that has slowed the U.S. rollout. The tiny screens cost between $5 and $20, Oren said, but every product a store sells needs one, and the average supermarket has 100,000 or more individual products. Still, the U.S. industry is charging ahead. Walmart, the nation's largest grocer and retailer, hopes to have digital price labels at 2,300 U.S. stores by 2026. Kroger is expanding the use of digital labels this year after testing them at 20 stores. Whole Foods is testing the labels in nearly 50 stores. Companies say electronic price labels have tremendous advantages. Walmart says it used to take employees two days to change paper price labels on the 120,000 items it has in a typical store. With digital tags, it takes a few minutes. The labels can also be useful. Some have codes shoppers can scan to see recipes or nutrition information. Instacart has a system in thousands of U.S. stores, including Aldi and Schnucks, that flashes a light on the digital tag when Instacart shoppers are nearby to help them find products. Ahold Delhaize's Albert Heijn supermarket chain in the Netherlands and Belgium has been testing an artificial intelligence-enabled tool since 2022 that marks down prices on its digital labels every 15 minutes for products nearing expiration. The system has reduced more than 250 tons of food waste annually, the company said. But Warren and Casey are skeptical. In their letter to Kroger, the U.S. senators noted a partnership with Microsoft that planned to put cameras in grocery aisles and offer personalized deals to shoppers depending on their gender and age. In its response, Kroger said the prices shown on its digital labels were not connected to any sort of facial recognition technology. It also denied surging prices during periods of peak demand. 'Kroger's business model is built on a foundation of lowering prices to attract more customers,' the company said. Aguilar, the Arizona lawmaker, said he also opposes the transition to digital labels because he thinks they will cost jobs. His constituents have pointed out that grocery prices keep rising even though there are fewer workers in checkout lanes, he said. 'They are supposed to be part of our community, and that means hiring people from our community that fill those jobs," Aguilar said. But Relex Solutions' Oren said she doesn't think cutting labor costs is the main reason stores deploy digital price tags. 'It's about working smarter, not harder, and being able to use that labor in better ways across the store rather than these very mundane, repetitive tasks,' she said.
