Top 5 California Markets for Affordable Housing Construction

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The topic of California’s housing affordability crisis is not new in the U.S. In March 2020, a report from the California Housing Partnership indicated the population of affordable rental units needed in California was at an overwhelming 1.4 million. Due to the dire housing shortage in California, the homeless population is rapidly growing in the state, as the White House’s Council of Economic Advisors estimated 47% of the country’s homeless to be in California.  

Following this crisis, several financing initiatives have been picking momentum recently across the state to encourage more development. From these initiatives, some markets have already started effectively addressing the crisis, while others have not. This article highlights California’s top five markets where housing construction affordability is improving, based on data from Yardi Matrix.

  • San Francisco

Rents in San Francisco have repeatedly appeared among the highest across the country. In February 2020, the average rent rate in San Francisco was at $3,150, putting it in second place countrywide after Manhattan. The metro’s high cost of living was continually pushing people out to the broader Bay Area. 

However, the San Francisco market had 22 fully affordable developments, bringing the total to 2,482 units underway as of March.  This accounted for more than a quarter of the total multifamily construction pipeline. The largest project in progress in the metro area is the Chinatown Community Development Center’s Ping Yuen at 838 Pacific Ave. The project features a full rehabilitation and renovation of a 12-story, 200-unit property initially constructed in 1962. 

  • Central Valley

In February 2020, the Central Valley had the lowest rental rates averaging at $1,167 per month compared to California’s major metro areas. The market also features more than a quarter of the market’s units that are in fully affordable properties, although upward pricing pressure drove the need for additional deliveries. Central Valley’s rents surged by 6.9% in 12 months ending February 2020. In that period, only two affordable projects totaling 116 units came online. While only 426 units were in progress as of March 2020, it accounted for nearly 20% of the market’s multi-housing development pipeline. 

Meanwhile, the second phase of Sierra Vista in Stockton with 100 units, owned by AHDC and the Housing Authority of San Joaquin, is one of the largest developments in progress in Central Valley, whose construction kicked off in August 2019 and is set to be ready in mid-2021. The first phase with 115 units was delivered in February 2020.

  • Inland Empire

The Inland Empire market has significantly lower housing costs compared to nearby Los Angeles. As of February 2020, the average monthly rental rate was $1,592, compared to L.A.’s $2,391. The Inland Empire market experiences unique challenges, with significantly lower wages due to the area’s high concentration of manufacturing, retail, and logistics jobs. 

Affordable housing in the Inland Empire had a relatively huge presence in the metro area as of February 2020, with about 30,000 units online, which accounted for 19.2% of the total inventory. Despite only 69 units being delivered in 2019, 2020 was expected to be more dynamic, with 773 units expected.

One of the largest projects in the area was the Orange Housing and C & C Development’s Mission Trail, which featured an 81-unit community at 32585 Mission Trail in Lake Elsinore whose construction began in early 2019. The project’s $26.2 million costs were provided by the City of Lake Elsinore and Bank of America. 

  • East Bay

In February 2020, the East Bay market had the fourth-highest average monthly rents in California behind San Francisco, the South Bay, and Los Angeles. Although it’s less expensive than some of its neighbors, affordability is becoming more severe within the area. However, a limited share of 506 of the 4,099 units delivered in 2019 was in fully affordable communities. At the start of March 2020, 1,778 affordable units were underway, indicating a stronger outlook. The units were set to be delivered before the end of 2020 to add housing capacity desperately needed across the East Bay. 

  • Orange County

Several of Orange County’s cities came under fire for declining to adhere to the new affordable housing requirements. Despite that, many parts of the market continued to reject demands from the state. However, Orange County’s affordable housing was growing as of March. In Early March, 732 units were expected, accounting for slightly above 14% of the multifamily development pipeline in March. Moreover, a joint venture between AMG, Jamboree Housing, and The Pacific Cos in mid-2019 commissioned the 419-unit Metro Senior park, the largest project in progress set to be delivered in 2020. 

Work cited.

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