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• “Affordable Housing” is a convenient marketing term developed by the Reagan and Bush Administrations since the early 1980s as a vehicle to “de-ghetto” urban cities.
• The “non-profit” component is a small, temporary intermediary and used as a shield which for-profit developers, banks, large contractors, lawyers, syndicates, consultants, and management hide behind. 81% of affordable housing is eventually owned by for profit companies.
• “For-profit” investor take can range from 4 to 6%. The average yield was 4.75% in 2019 and 2022 interest rates are considerably higher.
• “Affordable Housing” is not affordable to build. Too many middlemen taking a cut with costs hitting almost a million per 2 bedroom unit in Los Angeles.
 
• “Low Income” is defined by Federal Housing Authority (H.U.D.) and its corporate alliances. Low income to them is not what you think of as low income. It’s really “middle income.” Alameda County’s average median income is close to 130,000 dollars and HUD bases income on AMI.
• Covenants(agreements between the building owners, managers and local authorities to maintain the tax-break status of the project)will eventually expire allowing units to suddenly ramp up to prevailing market-rate rents.
• An applicant typically needs to have strong credit, clean records, proper immigration status, and have 50–80% of the average mean income of Alameda County. That’s $52,000 to $83,000. Homeless individuals and independent students easily fall out of these income brackets and rarely qualify.
• Corporate developers(frequently out of state)and building owners make money from massive tax breaks, overcharges and excessive management fees. They can also mismanage finances and force the LLC into insolvency, which can accelerate the transfer to market rate. This is called “planned foreclosure.”
• Corporate developers, thanks to HUD and IRS rules, are able to skirt union labor laws, only have to pay minimum wage, many times don’t pay healthcare and are allowed to avoid local zoning and permit laws.
• Investors are typically for-profit banks looking to get 10 years of tax breaks on their federal taxes.
• “Affordable Housing” and “Opportunity Zones” are corporate marketing corporate constructs that allow investors to drive up square-footage values of distressed areas and make a killing in tax breaks and capital gains when they sell.
• “Affordable Housing” creates more “un-affordability” due to higher rents and creates MORE homelessness. Developers often target minority neighborhoods with suppressed real estate values- sometimes already devastated by 1960’s urban renewal and “go for the kill shot.”
• “Affordable Housing” projects eventually turn to market-rate-sometimes as quickly as 15 years. Los Angeles is having a massive rollover to “for-profit” as the covenants expire.
• Owners(typically a limited liability LLC) of an LIHTC project do NOT have to abide by rent control laws and in 2022 alone can raise rents 3 times the allowed rent-control increase limit of Berkeley. They are allowed to chase increases in median income(raised thanks to Piedmont, Pleasanton and North Berkeley Hills incomes) and raise rents 8–10%!
• High-cost developments using portions of the City’s general obligation bonds (Measure L’s astounding $650 million dollars) will not just cost $200 million-it will be close to double that amount. Making bond underwriters, banks and hedge funds wealthy with interest payments that may DOUBLE the cost. You can review the costs of any borrowed money here.
• The city taxpayer will pay standard amortized interest payments on a schedule. The loans the city provides “affordable housing” corporate developers are “simple interest” and are NOT amortized nor do they have a payment plan. The LLC is expected to pay the loan back at their discretion. That means taxpayers are losing money on the loan instantly.
• City services endure increased usage and load on services and public assets but these LLC developments get massive breaks and are little value add to tax revenue-just like UC Berkeley.
• Berkeley already shakes down developers of housing for millions a year with a $46,000 per unit “mitigation” fee(1986 Inclusionary Housing Ordinance ) OR allows developers to sneak in a few “below market rate” units to avoid the fee. The Inclusionary Ordinance has already proven to be more efficient at building units faster and cheaper than LIHTC.

“Affordable Housing” is and always has been a cynical play on words to provide safe marketing for an array of investors, politicians, “non-profit” shell corporations, LLC landlords, and private beneficiaries to transfer public money and property outside the control of the taxpayer. The system is legally and financially byzantine and complicated-rife with blind spots to take advantage of poor IRS, local and state oversight. As typical of privatization efforts, the tax-paying voter and city solvency is most at risk and the problem it purports to solve progressively gets worse as interest payments overwhelm revenue. 

 

OUR MANDATE, YOUR HEADACHE 

Mayor Arreguin argues that building this extraordinary number of units has been mandated by state law but as the president of ABAG(Association of Bay Area Governments) and the head of the ABAG executive board, the Mayor accepted the Bay Area’s RHNA target of 441,176 new housing units and deliberately increased Berkeley’s share of the load on our behalf. RHNA targets, as mandated by state, are near impossible targets written and designed by state legislators who are in the tank for corporate developers and the construction lobby. Most notoriously, Scott Wiener of San Francisco, helped to pass legislation penalizing cities which do not build fast enough with workarounds that allow the State of California to run blocking tackle for developers on local zoning laws. 

On closer review the RHNA allocation percentages benefits “low-income” to “above-moderate” household incomes, with the caveat that “low-income” already is HUD’s vocabulary for middle income as per county’s adjusted AMI. There is no mention of the most-in-need resident or homeless. The RHNA mandates are high density, zoning-rule busting, oversight-ducking projects designed to maximize profits for corporate investors and developers. 

THE REVENGE OF THE ARISTOCRACY 

At best, Progressive advocates do not understand the historical background of the LIHTC Housing Credit System and have found themselves hitching their caboose to a supply-side, Reagan-era solution which has allowed for the government to unload its public assets and responsibilities into private hands. Sadly, HUD Director Jack Kemp’s solution of transferring ownership of public housing and control was meant specifically for the residents not for corporate buyers. Today, almost all LIHTC projects have no purchase or lease-to-own options with renters being at the mercy of the new “rentier class.” 

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Editor's note: For a longer version of this analysis see this on Medium.