SACRAMENTO, Calif., – The Assembly Housing and Community Development Committee today approved Assembly Bill (AB) 71, a measure authored by Assemblymember David Chiu (D – San Francisco) that will create an ongoing, permanent state funding source for affordable housing by eliminating the state mortgage interest deduction on vacation homes. The bill received aye votes from all five of the committee’s Democratic members.
“We need to be sure that all Californians have roofs over their heads before we provide tax breaks to help some people with two homes,” said Assemblymember Chiu. “We need a reliable, permanent funding stream to support production of affordable housing that the market simply will not build.”
The state mortgage interest deduction for vacation homes results in a revenue loss to the state of approximately $300 million annually. AB 71 would redirect those savings into the Low Income Housing Tax Credit (LIHTC) program to build housing that is affordable for low- and moderate-income families.
State investment in affordable housing has been cut by $1.7 billion a year because of the elimination of redevelopment agencies and the exhaustion of 2006 voter-approved housing bonds. California is the sixth largest economy in the world but after factoring in housing cost it has the highest poverty rate in the nation. Virtually no low-income Californians, who make up 38 percent of the state’s population, can afford their local housing costs. Nearly 70 percent of low-income and very-low income households spend more than 50 percent of their income on housing costs, according to the McKinsey Global Institute.
The legislature is responding. In the 2-year legislative session that began in December, over 100 bills have been introduced in the Assembly that touch on housing; State Senators have introduced at least 30 bills. These totals are greater than in the entire preceding two-year legislative session. The high volume of bills this year is a testament to the impact of the housing crisis across the state – and demonstrate a commitment to address it.
“For too long, California has maintained a backward housing policy where taxpayers spend $300 million annually to subsidize vacation homes for some Californians while funding for affordable homes has been slashed and one in three families struggles to afford any place to live,” said California Housing Consortium Executive Director Ray Pearl. “We are encouraged by the Assembly Housing and Community Development Committee’s support for AB 71 to reverse declining investment in affordable homes so crucial to our state’s future and our economic growth.”
The LIHTC program is one of the only remaining sources of funding available for affordable housing development in the state, making it competitive and overprescribed. By eliminating the vacation home mortgage interest deduction and simultaneously increasing the annual state tax credit allocation by $300 million, California could leverage $1 billion dollars in new federal resources and create affordable homes each year for low-income Californians and while generating significant job growth.
“The Assembly Housing Committee’s vote to approve AB 71 today brings us one step closer to the creation of more than 3,000 affordable homes and 7,000 new jobs annually by using additional state tax credits to leverage $1 billion dollars in new federal resources,” said Matt Schwartz, President & CEO of California Housing Partnership. “This new investment in an incredibly efficient private-public partnership is a down payment toward helping local communities address the shortfall of more than 1 million affordable homes that are needed to house California’s workforce.”
Other legislators have signed on to join the effort to advance AB 71 including Assemblymembers Rob Bonta (D-Oakland), Ash Kalra (D-San Jose) as joint authors and Assemblymembers Phil Ting (D-San Francisco), Kevin McCarty (D – Sacramento), and Speaker pro Tem Kevin Mullin (D-San Mateo) as co-authors.
In addition to AB 71’s creation of a permanent funding source for affordable housing, Assemblymember Chiu and his Assembly colleagues have introduced proposals to protect immigrant tenants, make it easier for local jurisdictions to vote to fund affordable housing, incentivize local governments to complete upfront planning and environmental review and approve housing permits to increase housing production, enhance the enforcement of existing state housing laws by the State Attorney General, and provide rental assistance to homeless Medi-Cal recipients.
AB 71 bill now heads to the Assembly Revenue and Taxation Committee.
