Homes for Californians in the New Century Challenges and Opportunities February 7, 2003 Presented by Henry Cisneros

Demographic Change in California

Population Distribution YearTotal White / Non-LatinoLatino African American American Indian Asian- American ,820193,56626,93631,5981,9318, ,422194,55335,30634,6582,47610, E324,926207,14555,15644,7353,20719, E403,686212,99098,22859,2394,40537,589 Source: U.S Census & U.S. Census Bureau Population Division, Population Projections of the U.S., Total Population by Race, Hispanic Origin, & Nativity

Population Projections for California YearDepartment of FinanceCensus Bureau Preferred , ,06331, ,38431, ,95731, ,50632, ,65334, ,37237, ,95841, ,37145, ,44949, , , , ,731- Source: Public Policy Institute of California In Thousands

California Population by Race / Ethnic Distribution Source: Public Policy Institute of California

Population Projections by Race / Ethnicity White 17,18017,42217,73117,90217,96918,12318,21618,22218,14118,005 Latino 9,10110,68912,30113,96415,64317,77820,08522,54725,19928,091 Asian & Pacific Islander 3,3383,9994,6845,3145,8156,4747,1287,7868,4419,092 African American 2,2512,3382,3432,5412,6912,8062,9183,0243,1283,234 American Indian Source: Public Policy Institute of California In Thousands (DOF)

Minority Populations Are Young % of population under 20 Source: Market Segment Research; Population Report, Middle Series, 1996

Minority Households Are Larger WhitesBlacksHispanics Household Size Source: 1998 Current Population Survey

Source: U.S. Dept of Justice, Immigration and Naturalization Service, Annual Report, Jan 99

Over 249, %-- come from Spanish- speaking countries

Source: U.S. Dept of Justice, Immigration and Naturalization Service, Annual Report, Jan 99 Over 194, %-- come from Asian countries countries

Source: U.S. Dept of Justice, Immigration and Naturalization Service, Annual Report, Jan 99

Fact: Minority Families Have More Workers Per Household Households with Three or More Workers, 1990 The Middle Class - 5 County Area Source: Pepperdine University Institute for Public Policy “The Emerging Latino Middle Class” 1997

Growth of the Middle Class: Source: U.S. Census Bureau Total Households African American Households Hispanic Households Asian Households Middle Class Defined: 1989: $23,663 - $36, : $33,001 - $52,174

Projected Owner Occupied Household Growth in Millions AfricanAsian/Total Total American Hispanic Other Minority 10.9 m. 1.8 m. 2.2 m. 1.0 m. 5.0 m. Source: 1998 Current Population Survey

There Is Still a Significant Gap in the Rate of Home Ownership Home Ownership Rate: 4 th Quarter Source: Department of Housing and Urban Development – Office of Policy Development & Research, US Housing Market Conditions, 4 th Quarter 2001

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

More homeless facilities are needed and more beds at existing sites. Concerted efforts are required to bring homeless people in from the streets to safe, clean, and well- managed emergency shelters. Interventions must extend from street outreach to mental health and substance abuse programs. More homeless facilities are needed and more beds at existing sites. Concerted efforts are required to bring homeless people in from the streets to safe, clean, and well- managed emergency shelters. Interventions must extend from street outreach to mental health and substance abuse programs.

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

More units are needed to provide decent apartments for persons with AIDS, persons with medical and emotional disabilities, and mothers with children. That means at least 150,000 units of suitable housing over ten years, or 15,000 incremental units of supportive housing each year. More units are needed to provide decent apartments for persons with AIDS, persons with medical and emotional disabilities, and mothers with children. That means at least 150,000 units of suitable housing over ten years, or 15,000 incremental units of supportive housing each year.

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

Continue large-scale renovation of deteriorated, overly dense public housing through full funding of HOPE VI. Reduce concentrations of poverty by creating smaller-scaled mixed-income developments matched to Section 8 and other programs, to open housing opportunities in neighborhoods with stronger economic prospects. Continue large-scale renovation of deteriorated, overly dense public housing through full funding of HOPE VI. Reduce concentrations of poverty by creating smaller-scaled mixed-income developments matched to Section 8 and other programs, to open housing opportunities in neighborhoods with stronger economic prospects.

Horner Neighborhood Old New

Atlanta, Georgia: Perry Homes

Atlanta, Georgia: Centennial Place

Harbor Point

Norfolk: Diggs Town

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

Lower-Income Renters In Many Areas Cannot Afford Newly Constructed Apartments Source: Charlie Wilkins, Financial Modeling Summary, prepared for the Millennial Housing Commission, Share of AMI Needed to Afford Typical New, 2- Bedroom Unit

More than 5.4 million renter families and elderly pay more than half of their incomes for housing or live in severely distressed housing. Source: U.S. Dept of Housing and Urban Development

57% of all renters – or 20 million households – earn less than $30,000 annually. For them, affordable rent is $750/month or less. Median asking rent for a new apartment is $920/month. 57% of all renters – or 20 million households – earn less than $30,000 annually. For them, affordable rent is $750/month or less. Median asking rent for a new apartment is $920/month.

In order to build units for the 6.4 million households with severe affordability problems, provide capital subsidies for the production of units for occupancy by extremely low-income households. To preserve the current stock of subsidized rental housing, enact exit tax relief via a preservation tax incentive to transfer properties to preservation entities. In order to build units for the 6.4 million households with severe affordability problems, provide capital subsidies for the production of units for occupancy by extremely low-income households. To preserve the current stock of subsidized rental housing, enact exit tax relief via a preservation tax incentive to transfer properties to preservation entities.

It is important to sustain funding for public housing vouchers at the level of 100,000 per year, and to fund expiring contracts on subsidized rental units. Expansion of funding for low-income tax credits assures that a proven and effective program can be a more substantial part of the rental housing equation. It is important to sustain funding for public housing vouchers at the level of 100,000 per year, and to fund expiring contracts on subsidized rental units. Expansion of funding for low-income tax credits assures that a proven and effective program can be a more substantial part of the rental housing equation.

Specialized rental housing, such as the Senior 202 Program, warrants expansion. The national network of highly capable non-profit housing providers is an essential extension of Federal capability to address specific demographic needs. Specialized rental housing, such as the Senior 202 Program, warrants expansion. The national network of highly capable non-profit housing providers is an essential extension of Federal capability to address specific demographic needs.

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

Affordability Pressures Are Mounting as the Moderate-Income Rental Supply Plummets Source: HUD tabulations of the American Housing Survey, prepared for the Millennial Housing Commission Report Change in Affordable Units , in Millions Note: HUD income limits are adjusted for inflation and real income growth for both 1985 and Extremely Low Very LowLowHighModerate

A family with one full-time worker earning the minimum wage cannot afford the local fair-market rent for a two- bedroom apartment anywhere in the country.

In 24 states, households with two full-time minimum wage earners lack the income to cover fair-market rents on such a unit without exceeding the “30% of income” threshold which defines affordability. In 24 states, households with two full-time minimum wage earners lack the income to cover fair-market rents on such a unit without exceeding the “30% of income” threshold which defines affordability.

Multifamily construction slowed in the 1990s despite a population increase. 1970s – 5 million units 1990s – 2.5 million units Multifamily construction slowed in the 1990s despite a population increase. 1970s – 5 million units 1990s – 2.5 million units

Attract private capital to the production of mixed- income, multi-family rental housing through state bond programs.

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

Allocate a flexible new tax credit to stimulate the production of affordable units for homeownership.

The Housing Continuum Owner Occupied Public Sector Investment First-Time Homebuyer Rental Housing Assisted Housing Public Housing Transitional Housing Private Sector Investment Homeless Shelter

Projected Homeownership Rate: Projected Change U.S. Total66.4 %69.1 %+ 2.7 % African American46.2 %51.1 %+ 4.9 % Hispanic44.5 %49.1 %+ 4.6 % Asian52.6 %55.9 %+ 3.3 % Source: U.S Census

Fannie Mae and Freddie Mac have set homeownership goals for target populations. Minorities New Immigrants Female heads of household Young households Families in redevelopment areas Families in rural areas For example, Fannie Mae’s American Dream Commitment targets:

A FFORDABILITY AND H OMEOWNERSHIP

Affordability Now at Near Record Lows Source: U.S. Census Bureau, Milken Institute Ratio of Median House Price to Median Income Ratio of 3.1 in 1975; 4.1 currently

Affordability: Three Dimensions Mortgage Interest Rates Income Home Prices

Mortgage Interest Rates The decline from 8.05% in June, 2000 to 6.5% currently gives the median income household an 18% increase in its purchasing power. Source: Federal Housing Finance Board (Bloomberg) National Average 30 Year Conventional Fixed Rate Home Mortgage

Household Income Over the last 25 years, incomes have increased steadily. Source: U.S. Census Bureau, Milken Institute. Thousands of $

Household Income vs. Home Prices But in that time period, incomes have grown slower than home prices. Median home prices increased at an average annual rate of 5.9 percent. When home prices rise faster than incomes, affordability suffers. Source: U.S. Census Bureau, Milken Institute. Thousands of $

Home Prices The price of homes is a function of supply and demand: the problems of producing homes constrain the supply of new housing units. Source: U.S. Census Bureau New Privately Owned Housing Units (In Thousands)

Recommended Ratio: 1 new housing unit for every 1.5 jobs created In Fact: California:1 to 3.6 Los Angeles:1 to 5 San Jose: 1 to 7.8

Affordability of Housing by Minorities Median home price, June 2002: $182,600 Source: Bloomberg, U.S. Census Bureau, Milken Institute How much Home can the median household income support? 10 th Percentile 30 th Percentile 50 th Percentile 70 th Percentile 90 th Percentile U.S. Average$ 49,438$ 122,912$ 205,521$ 318,894$ 687,091 African Americans $ 30,954$ 83,182$ 147,345$ 231,385$ 479,081 Hispanics$ 43,665$ 100,638$ 161,977$ 244,771$ 477,752 Home Price is calculated assuming a 20% down payment on a 30 Year Fixed Rate Mortgage with payments equal to 30% of gross annual household.

CityOccupation Average Income Median Home Price Qualifying Income Downtown Los Angeles Teacher$ 38,570$ 333,250$ 111,083 Yorba Linda (Orange County) Firefighter$ 42,300$ 338,500$ 112,883 Palo Alto Police Detective $ 62,230$ 815,000$ 270,667 San Jose Registered Nurse $ 56,650$ 430,000$ 143,333 Home Prices are Beyond the Reach of California’s Middle-Class

Affordability Land Cost Public Role Fiscal Issues Financial Institutions Gentrification Homebuyers Assistance Local Government Homeownership Priorities

Work with local governments who declare homeownership a priority to review land use policies and fiscal structure for middle class and entry level affordability. Consider incentives to encourage states and local governments to create housing trust funds with their own funds and with private resources, in order to supplement Federal programs for homeownership. Work with local governments who declare homeownership a priority to review land use policies and fiscal structure for middle class and entry level affordability. Consider incentives to encourage states and local governments to create housing trust funds with their own funds and with private resources, in order to supplement Federal programs for homeownership.

First-time home buyers, especially immigrant and non- English speaking urban residents, need to be educated and introduced to the fundamentals of homeownership. Housing Fairs – multiple providers of services;Housing Fairs – multiple providers of services; Non-profit neighborhood organizations;Non-profit neighborhood organizations; Training programs for currently non-qualifying homebuyers;Training programs for currently non-qualifying homebuyers; Employer assistance programs;Employer assistance programs; Full participation of banking and mortgage lenders.Full participation of banking and mortgage lenders. Homebuyer Assistance Alliances

Professional & Business Groups In Cooperation With Employers as Employee Benefits Immigrant Self-help Advocacy Groups Community-based Organizations Church Communities Person-to-person Explanations Homebuyer Assistance Alliances

Targeted Mortgage Products First-time Homebuyer Mortgage Assistance Down Payment Assistance; Zero Down-Payment with Fannie Mae and KB Mortgage Company for Teachers, Nurses, Policemen, & Firefighters; “1% down-payment” and low-interest loans sponsored by Fannie Mae or other financial institutions; Bond financing to create low interest loans for moderately-low income families. New ACV initiated and targeted products … SPECIAL LOAN PROGRAMS: The Key to Affordable Urban Home Ownership

An Exclusive Financing Option Through Fannie Mae & KB Mortgage Company - Firefighters - Healthcare Professionals - Teachers - Police Officers Zero Down Zero Closing Cost Targets: Targeted Mortgage Products

U RBAN P ROGRESS AND H OMEOWNERSHIP

Homeownership Traditional Infill Approach Large Sites: –Military Facilities, i.e., Mather AFB –Brownfields –Large tracts,

KB Home at Mather AFB Sacramento, CA 1,716 – 4,028 sq. ft. $239,500 – $344,000

Urban Realities Land cost can be substantially higher than regional suburban alternatives; land configuration and previous uses increase costs Smaller & difficult to develop sitesSmaller & difficult to develop sites Costs and entitlement processes dictate more expensive and/or higher density products

Social conditions can be as complex as the physical sites Older, poorer and more diverse educational institutions Urban Realities

Yet, More American Homeowners Are Seeking Central Locations To Avoid Congestion, Traffic, and Long Commutes To Enjoy a Metropolitan Lifestyle With Downtown Amenities To Be Near Employment Centers To Be Near Familiar Neighborhoods and Close to Family and Community Roots To Participate in Civic Involvements and Greater Citizen Interactions To Have a Distinctive “Village Within the City” Experience with New Home Comforts and Technologies

Village Green Los Angeles, California

Targeted Consumers Want Location and Convenience Young Professionals Empty nesters and retirees First-time homeowners with young families Immigrants Minority homeowners Working families Multigenerational households

Many City & County Governments Have Established the Construction of Homes in Central Areas as a Priority GOVERNMENTS CAN BE HELPFUL: Identifying Sites in Priority Areas Helping Assemble Complex Sites Assuring the Adequacy of Needed Utilities, Transportation, and Other Public Infrastructure Working to Meet Local “Affordability” Objectives Expediting the Approval and Entitlement Process Working with Neighborhood and Community Leaders

Downtown South (So. 7 th St.) Pomona, California

Downtown South (So. 7 th St.) Pomona, California

Downtown South (So. 7 th St.) Pomona, California

School districts School districts Neighborhood leaders Neighborhood leaders Local business Local business Police Police Community colleges Community colleges Corporate partners – i.e. telecom/digital Corporate partners – i.e. telecom/digital Financial institutions - make homeownership a reality Financial institutions - make homeownership a reality Strategic Partnerships: The Key to Urban Projects

Expand the concept of empowerment or enterprise zones to create “homeownership zones.” Encourage local governments to assemble sites, clean up brownfields, create land banks, rehabilitate properties, reconstruct infrastructure, and prepare land for large-scale infill neighborhoods. Expand the concept of empowerment or enterprise zones to create “homeownership zones.” Encourage local governments to assemble sites, clean up brownfields, create land banks, rehabilitate properties, reconstruct infrastructure, and prepare land for large-scale infill neighborhoods.

1. The availability of quality, affordable rental units is important to creating a pipeline of future homeowners: Concluding Points -Preserve and expand the subsidized stock -Expand the availability of affordable market units -Preserve and expand the subsidized stock -Expand the availability of affordable market units

2. In order to enhance affordability, it is critical to expand the supply of affordable for-sale homes: -National Policy: Homeownership Tax Credits -Local Governments: Identify and assist in assembly of sites -Private Builders: Target median price and below -National Policy: Homeownership Tax Credits -Local Governments: Identify and assist in assembly of sites -Private Builders: Target median price and below

3. Mortgage products must be addressed to high growth homeownership markets: -Effective outreach to minority populations -Design of targeted financial products -Give core business priority to the new demographics of homeownership -Effective outreach to minority populations -Design of targeted financial products -Give core business priority to the new demographics of homeownership