How Housing Vouchers Can Help Address California’s Rental Crisis

California’s severe shortage of affordable housing has hit low-income renters particularly hard.  Nearly 1.6 million low-income California renter households paid more than half of their income for housing in 2013, and this number has risen 28 percent since 2007.  While the shortage is most severe on California’s coast, many families throughout California struggle to pay the rent (see Figure 1).  A multifaceted approach with roles for local, state, and federal governments is needed to address the severe affordable housing shortage, but the federal Housing Choice Voucher program can play an outsized role. 

California’s high housing costs stretch struggling families’ budgets, deepening poverty and hardship and exacerbating a host of other problems.  For example, 23 percent of Californians are poor, according to Census measures that take housing costs into account, well above the poverty rate of 16 percent under the official poverty measure.  California has 14 percent of the nation’s renter households but nearly 30 percent of the overcrowded renters.  And California has one-fifth of the nation’s homeless people, more than any other state.  A large body of research shows that poverty, overcrowding, housing instability, and homelessness can impair children’s health and development and undermine their chances of success in school and later in the workforce. 

Housing vouchers help some 300,000 low-income California families afford the rent, more than all other state and federal rental assistance programs combined.  Vouchers reduce poverty, homelessness, and housing instability.  By restoring funding for these vouchers, Congress can enable thousands more California families to afford safe, stable housing.They can also help low-income families — particularly African American and Hispanic families — raise their children in safer, lower-poverty communities and avoid neighborhoods of concentrated poverty.  Moreover, so-called “project-based” vouchers can help finance the construction of affordable rental housing in areas with severe shortages. 

Yet the number of vouchers in use has fallen in recent years, even as California’s housing affordability problems have worsened.  Due to across-the-board federal budget cuts enacted in 2013 (called sequestration), 14,620 fewer California families used vouchers in December 2014 than in December 2012.  By restoring funding for these vouchers, Congress can enable thousands more California families to afford safe, stable housing.

Shortage of Affordable Rental Housing Is Severe and Growing

California’s shortage of affordable housing affects families across the income spectrum.  Middle- and high-income families, for example, face longer commuting times and are less likely than Americans elsewhere to own homes.^[2]  Renters, particularly those with low incomes, feel the consequences of the shortage most acutely, however.

Nearly 1.6 million of California’s 4.1 million low-income renter households paid more than half their income for housing in 2013.  (HUD, the U.S. Department of Housing and Urban Development, considers housing unaffordable if it exceeds 30 percent of household income.)  The number of these severely cost-burdened households has grown by 350,000, or 28 percent, since 2007, the year before the Great Depression set in.^[3]  (See Figure 7 below.)

The low-income California renters who struggle to pay for housing include people living on fixed incomes or supporting their families by working low-wage jobs.  Some 57 percent are working households, 43 percent include children, and more than one-third are elderly or disabled.  Close to two-thirds have extremely low incomes, which HUD defines as incomes at or below the poverty line or 30 percent of the area median income, whichever is higher.^[4]  (See Figure 2.)

The shortage of affordable rental housing is most acute along the coastal areas; half of the state’s low-income households with severe rent burdens live in Los Angeles, Orange, or San Diego counties.  Yet a large share of low-income renters in nearly every California county faces unaffordable housing costs.^[5]   (See Figure 1 and Table A-1 in the appendix for county-specific data.)

High Housing Costs Exacerbate Poverty, Hardship, and Homelessness

California’s high housing costs dramatically worsen poverty.  Under the Census Bureau’s official poverty measure, 16 percent of Californians lived in poverty in 2013, but this measure does not take into account differences in living costs across the country or count non-cash benefits such as rent subsidies as income.  After adjusting for these factors, California’s poverty rate jumps to 23 percent, primarily due to high housing costs.^[6]  (See Table A-2 in the appendix for county-specific data.)

High housing costs force low-income families to regularly decide whether to forgo paying rent or utilities or get by with less food, transportation, medicine, or other essentials.  California renter households with extremely low incomes spend 76 percent of their income on housing, on average, compared to 42 percent for the average California renter.^[7]  Nationally, families in the bottom expenditure quartile that pay more than half their income for housing spend 40 percent less on food, 70 percent less on health care, and 66 percent less on transportation than low-income families with affordable housing, Harvard University’s Joint Center for Housing Studies found.^[8]  Evidence also suggests that parents with unaffordable rent burdens invest less in activities and materials that support their children’s development.^[9]

High housing costs also force large numbers of families to double up or squeeze into units that are too small.  California is home to 14 percent of the nation’s renters but nearly 30 percent of its overcrowded renter households.  The problem is most severe among low-income renters: some 587,000 low-income renter households live in overcrowded housing.  Low-income renters in California are more than twice as likely to live in overcrowded housing as low-income renters nationwide.^[10] 

High housing costs are also a major cause of homelessness, as families with unaffordable housing costs are more likely to fall behind on the rent and face eviction or may find it difficult to secure housing if forced to move for other reasons.  California has the nation’s largest homelessness problem:  HUD’s single-night census in 2014 identified 113,952 people in the state who were homeless or living in shelters, the most of any state and 20 percent of the nationwide total (California has 12 percent of the nation’s population).^[11]

In addition, California has one-third of the nation’s chronically homeless (28,200 people) — that is, people who have been homeless repeatedly or for extended periods of time due to serious mental illness, chronic substance abuse, or other health problems.  It also has one of the nation’s most acute concentrations of homeless veterans: the 2014 census found 12,096 homeless veterans in California, 24 percent of the nation’s total.

The single-night census also identified 13,058 homeless children in families, as well as 13,709 unaccompanied homeless children and youth.  Another 279,019 school-age children lived in unstable housing, such as doubled-up with other families, during the 2013 – 2014 school year, according to data collected by the U.S. Department of Education.^[12] 

High housing costs also exacerbate the concentration of poverty, or the clustering of poor people in distressed neighborhoods.  In California’s ten largest metro areas, for example, the number of people living in extreme-poverty neighborhoods (where 40 percent or more of residents are poor) has increased by 24 percent since 2000, to 523,000.^[13]  Minorities — particularly African American and Hispanic families — and children are disproportionately likely to live in neighborhoods of concentrated poverty. 

The problems exacerbated by high housing costs — poverty, overcrowding, housing instability, and homelessness — can impair children’s health, development, and school achievement.  Housing instability and overcrowding impose stress on students, for instance, that can cause them to have difficulty concentrating and contribute to stress-related behavior problems that interfere with academic performance.  Housing instability and homelessness can also cause children to miss school days and change schools, which can create gaps in their learning and hinder the development of their relationships with teachers.  Children in homeless families are more likely than other low-income children to have difficulty completing schoolwork, perform poorly on tests, repeat a grade, or drop out of school.^[14]  A large body of evidence also shows that growing up in neighborhoods of concentrated poverty diminishes children’s school performance and chances of long-term success.^[15]

Addressing Shortage of Affordable Housing Requires Multifaceted Effort

Fundamentally, California’s rental housing costs are high because the supply of rental housing has failed to keep pace with demand.  California’s population growth has slowed from its explosive rates over most of the 20^th century but has remained at or above the national average over the past two decades.  Perhaps more importantly, the share of California households that rent rather than own has risen significantly in recent years, from 42 percent in 2007 to 46 percent in 2013.^[16]  Meanwhile, housing construction has remained relatively flat, particularly in the coastal areas.^[17]  As a result, rental vacancy rates are far below the national average and have fallen sharply since 2010, to levels that are historically low even for California (see Figure 5).  This has produced escalating rents and growing cost burdens for low-income families.

Increasing the supply of affordable housing and reducing the harmful impact of high housing costs on low-income families will require a multifaceted approach that includes lowering barriers to private rental housing development, promoting the development and preservation of affordable rental housing, and expanding rental assistance for low-income families.  Local, state, and federal governments have important roles to play; this analysis focuses on the federal role.^[18]

Federal housing assistance programs fall into two buckets:

• Programs that make more housing affordable by increasing the supply of affordable rental housing by providing tax credits, grants, or loan assistance to support rental housing development.  Examples include the Low-Income Housing Tax Credit (LIHTC) and HOME Private Investment Partnerships. 
• Programs that make more housing affordable by lowering the cost of rental housing for low-income families, typically by providing rental assistance directly to families or to public or private property owners who lease units to low-income families at affordable rents.

Programs in both buckets play a vital role in making rental housing affordable to more Californians.

Federal support to expand California’s supply of affordable rental housing is substantial.  For example, developers have used LIHTCs to cover most of the costs of producing or preserving some 304,000 units of affordable rental housing in California since the program’s inception in 1986.^[19]  HOME grants have helped defray the costs of developing and preserving some 57,000 units of affordable housing in California since 1992.^[20]

California’s largest source of rental assistance is the federal Housing Choice Voucher program, which helps some 300,000 low-income California families to afford rent.  The other major federal sources of rental assistance are the Section 8 Project-Based Rental Assistance, Public Housing, Homeless Assistance Grants, Elderly Housing, and Housing for People with Disabilities programs.

Rental assistance and housing production programs complement each other in several ways.^[21]  First, production programs expand the supply of housing in which families can use vouchers or other rental assistance.  This is particularly important in tight rental markets, where owners can easily fill units while refusing to rent to families using vouchers.  Under federal rules, owners of developments supported by LIHTCs or HOME funds may not refuse to rent units to voucher holders.

Second, production assistance alone cannot create housing with rents affordable for the vast majority of low-income families.  For instance, developers using LIHTCs typically can lower rents to a level that is affordable to families with incomes of 50 or 60 percent of the area median but unaffordable to those with extremely low incomes, who make up the large majority of families struggling with housing costs.  Indeed, many families with extremely low incomes use vouchers to rent units in developments produced with the help of LIHTCs, HOME funds, or other production subsidies. 

Third, vouchers provide a flexible and cost-effective alternative to housing production programs, particularly in areas with an adequate supply of market-rate housing.  They are flexible because families may use them wherever there is suitable private market housing.  They are cost effective because they rely on the existing stock of housing.

Federal resources in California, while substantial, have not kept pace with needs.  The number of families with federal rental assistance has increased only marginally since before the Great Recession, even as the number of severely cost-burdened low-income renters has grown by 28 percent (see Figure 7).  Moreover, federal budget cuts since 2010 have reduced resources for producing and preserving affordable rental housing and cut the number of families with federal rental assistance (see Table A-3 in the appendix table).^[22]

Vouchers Are Vital Resource to Address Rental Housing Crisis

While no single resource or policy reform will solve California’s housing crisis, Housing Choice Vouchers play an outsized role.  They help some of the most vulnerable households — low-income seniors and people with disabilities on fixed incomes and families with children — to afford safe, stable housing and make ends meet.  More California families use vouchers to afford stable housing and avoid homelessness than all other sources of rental assistance combined.^[23]  (See Figure 6 above.)   And California has more vouchers than any other state, about 14 percent of the nationwide total.^[24]  California communities use vouchers to help meet local goals such as ending homelessness or boosting the supply of affordable housing; California low-income families can use them to raise their children in safer neighborhoods near good schools. 

300,000 of California’s Poorest Families Use Vouchers

The vast majority of the California families with vouchers are elderly, disabled, or families with children. (See Figure 8)  The state’s voucher holders reflect the diversity of California’s low-income residents:  more than one-quarter are Hispanic and 12 percent are Asian or Pacific Islander, for example.  (See Table A-6 in the appendix for more race and ethnicity data).

Most California voucher households that can work do work.  Some 85 percent of voucher households that are not elderly or disabled include an adult who works, has worked recently, or is likely subject to a work requirement through another program.^[25]

Households using vouchers could not otherwise afford California rents.  Almost two-thirds are below the poverty line and 87 percent fall below 150 percent of poverty.  Some 95 percent have very low incomes, defined as below half of the area median.

Over 90,000 voucher holders live in Los Angeles County.  Many others live in other populous coastal counties such as San Diego and Alameda.  But vouchers also help families in less populous rural counties: in Tulare and Kern Counties, for instance, 2,775 families and 3,087 families, respectively, use vouchers to afford housing.   (Table A-4 in the appendix shows the number of vouchers by county.) 

Vouchers Reduce Poverty, Overcrowding, and Homelessness

Vouchers and other rental assistance lifted an average of 660,000 Californians, including 230,000 children, out of poverty each year from 2009 to 2012.^[26]  Vouchers produced the lion’s share of this effect.  By reducing rental costs, they allow families to devote more of their limited resources to food, medicine, transportation to work, and other essentials.  Program rules also ensure that families will not be overcrowded and that their rental units meet basic safety standards.

Vouchers are extremely effective at reducing homelessness and housing instability and play a critical role in many California communities’ efforts to eliminate homelessness.  Among families with children at six study sites, vouchers cut the share of families living on the streets, in shelters, or doubled up with others by almost 80 percent, a rigorous study conducted between 2000 and 2004 found (see Figure 9).  Vouchers also reduced the share of families in overcrowded housing by more than half and reduced the number of moves that families made by almost 40 percent.^[27]

A more recent major study found that families living in homeless shelters who received vouchers were 56 percent less likely than homeless families receiving no extra help under the study to experience another episode of homelessness over the next 20 months.  They also were 55 percent less likely to report incidents of domestic violence, 42 percent less likely to have their children placed in foster care or live temporarily with other family members, and 27 percent less likely to have difficulty affording adequate food.^[28]

Many local housing agencies in California target vouchers to reduce homelessness, usually as part of a community strategic plan.  One example is the Home for Good Campaign in Los Angeles, which brings together public and private sector partners to end homelessness among veterans and chronic homelessness among people with disabilities.  Vouchers are a critical part of this campaign:  the Housing Authority of the City of Los Angeles has dedicated over 5,000 vouchers to the homeless or formerly homeless and another 2,200 to a broader group, including the homeless, who need supportive services to live independently.  Some 500 of the vouchers are dedicated to homeless veterans ineligible for Veterans Affairs Supportive Housing (VASH) vouchers, which are targeted at the federal level to homeless veterans; these 500 vouchers fill a critical gap in assistance.^[29] 

Families Use Vouchers to Raise Children in Safer, Lower-Poverty Neighborhoods

Vouchers broaden families’ choices of housing and neighborhoods, enabling them to choose the options that best meet their needs — for example, to escape a crime-ridden neighborhood or move to an area with better schools or job opportunities.  

In California (as in most of the country), poor African American and Hispanic children are disproportionately likely to grow up in neighborhoods of concentrated poverty, which can compromise their health, development, and long-term academic and economic success.  In California, vouchers are effective at helping poor minority households avoid these neighborhoods and live in areas with lower poverty. 

Using a housing voucher cuts California children’s chances of growing up in extreme-poverty neighborhoods (where 40 percent or more of the population is poor) by nearly one-third for poor African Americans and Hispanics.  Poor African American and Hispanic children in California using vouchers are roughly twice as likely to live in low-poverty neighborhoods (where less than 10 percent of the population is poor) as poor African American and Hispanic children in California overall.  

Using vouchers to move to low-poverty neighborhoods can produce long-term gains for children.  A recent ground-breaking study found, for example, that children in families that used vouchers to move to low-poverty neighborhoods had significantly higher rates of college attendance, lower rates of single parenthood, and higher incomes if they move early in life.^[30] 

Vouchers Help Communities Develop and Preserve Affordable Housing

California’s supply of rental housing has failed to keep pace with demand, particularly along the coastal areas, thereby driving rents to unaffordable levels.  As explained above, vouchers help some 300,000 California families — including thousands who were formerly homeless and had little or no income — to secure stable housing in spite of the high cost.  But expanding the availability of affordable rental housing is essential to solving California’s rental housing crisis.

Indeed, vouchers can be challenging to use in California communities with the lowest rental vacancy rates and highest costs, not least because property owners may be reluctant to rent units to voucher holders when there is strong private market demand for their units.^[31]  Constructing or rehabilitating new affordable housing, dedicated to low-income households, can offer additional housing options to voucher holders and non-voucher holders alike. 

Fortunately, federal rules enable vouchers to support housing development for low-income families; this strategy is particularly important in California communities with tight markets and high housing costs.  Most vouchers are “tenant-based” — that is, the voucher follows the family.  But housing agencies can tie a share of their vouchers to particular housing developments.  Under this strategy, known as “project-basing,” the agency contracts with a property owner to make the units with vouchers available to families who qualify for the voucher program.

Project-based vouchers can help finance an affordable housing project, lowering the risk for owners and investors and increasing the feasibility of many projects.  They can also attract additional private investment to developments, especially if the project is using LIHTCs.^[32]  In many areas the rent levels offered in LIHTC-funded units are lower than the maximum rent a voucher pays, so dedicating project-based vouchers to these projects can generate additional income that can be used to attract more investment, thereby creating more units than under a LIHTC-financed project without project-based vouchers.^[33]  In short, vouchers can provide a double benefit to communities, helping create more affordable housing units while ensuring that some of these units remain affordable to households that most need them.

Orange Grove Gardens in Pasadena, California, is a good example of a successful development where project-based vouchers were used for financing.  The development includes 38 two- and three-bedroom apartments for low-income families with children, who can find it difficult to afford the larger housing they need while working a low-wage job.  The energy-efficient project was built using a combination of funding sources, including LIHTC and project-based vouchers.  Vouchers attracted almost half a million dollars of private investment to the project.^[34] 

Fewer California Families Using Vouchers Due to Federal Cuts

The number of California families using vouchers fell by 14,620 between December 2012 and December 2014 due to federal budget cuts known as sequestration enacted in March 2013. 

Some 76 of the 92 California agencies that administer vouchers reduced the number of families they assisted, ten of them by 10 percent or more.  (See Table A-5 in the appendix for reductions by agency.) 

Funding Congress provided in 2014 and 2015 enabled agencies to restore some of the lost vouchers.  The President’s fiscal year 2016 budget would restore the rest, renewing all vouchers in use and funding an additional 67,000 vouchers nationally.  It would set aside 30,000 of these vouchers for homeless families, veterans who cannot receive HUD-VASH vouchers, victims of domestic and dating violence, and preventing the separation of low-income children and their families due to a lack of adequate housing.^[35]

Conclusion

Alleviating California’s housing affordability crisis will require action by all levels of government and the private sector to both boost housing production and help struggling families afford homes.  Housing Choice Vouchers are a critical part of the solution and the largest funding source available to California for this purpose.  Yet vouchers have been cut in recent years, worsening the crisis.

Congress could make modest progress toward helping more California families afford housing by restoring funding for the remaining 67,000 vouchers that have been lost nationally due to sequestration.  Congress should consider targeting a substantial share of such vouchers on people with urgent needs, including families with children and veterans experiencing homelessness.  If Congress provided funding for these vouchers, California could expect to receive a large share of them. A large proportion of the vouchers lost due to sequestration were in California, and California has a very large homeless population.  As California continues to see housing prices outpace what low-income families can afford, these restored vouchers would be a lifeline for thousands of Californians.

Appendix