Blog Affordable Housing

Proposition 1: Yes

September 23, 2026

Max Dubler

by Max Dubler

Introduction

The 2026 Affordable Housing Bond – Proposition 1

This fall, California voters will vote on an $11.25 billion bond measure, Proposition 1, to fund housing programs, including Affordable Housing construction. California YIMBY recommends a “yes” vote on Prop 1.

This analysis is intended to explain what Affordable Housing is, how Prop 1 dollars will be used, and what effect the measure will have.

Analysis

What Does “Affordable Housing” Mean And How Is It Different From Housing Affordability?

When most people talk about “affordable housing” in casual conversation, they are referring to market rate housing that fits within their personal budget or homes that middle class people can afford. That is not how policymakers use this phrase.

In housing policy conversations, “Affordable Housing” is a technical term that refers to price-regulated housing for people making specified incomes (more on this in a moment). Affordable Housing properties usually have a covenant written into the property’s deed that requires the homes to be rented at certain levels of affordability, which is why you’ll sometimes hear Affordable Housing referred to as “deed-restricted Affordable Housing.” Most of this type of “affordable housing” is subsidized by the government, using revenues from taxes and bonds.

“Housing affordability,” on the other hand, refers to the relationship between your income and your rent. If your total monthly housing cost is below 30% of your income, your housing is considered “affordable” to you. If it’s between 30 and 50% of your monthly income, you are “cost burdened.” If it’s over 50% of your monthly income, you are “severely cost burdened.”

Researchers and policymakers measure housing affordability by comparing median incomes to median rents and home prices.

Subsidized Housing

Most housing subsidy programs work by paying the difference between 30% of a tenant’s income and the actual cost (amortized construction, finance, and operations/maintenance costs) of their housing. There are two main ways of doing this: vouchers, which subsidize rents for tenants in privately-owned housing; and Affordable Housing, where the building itself is subsidized.

The Housing Choice Voucher program, commonly known as Section 8, is the largest federal housing subsidy program, serving about 2.3 million households (California YIMBY supports fully funding Section 8.).

Section 8 vouchers subsidize voucher holders’ rent by paying landlords the difference between 30% of the tenant’s income, and the market-rate rent for their home. Only 10% of eligible families receive Section 8 vouchers, both because the program is under-funded, and because the general shortage of market-rate housing makes it hard for voucher holders to find vacant homes. Los Angeles last opened the voucher wait list in 2022, when it got 223,000 applications for 30,000 spots on the list.

Subsidized affordable housing, on the other hand, provides a subsidy to the physical housing structure itself. Tenants in Affordable Housing pay rent based on their incomes. Rent is usually set at 30% of the upper income limit for the unit.

There are different levels of affordability in Affordable Housing, which are set according to the tenant’s family size and income as it relates to the county-level area median income (AMI):

Moderate Income 80-120% of AMI
Low Income – 50-80% of AMI
Very Low Income – 30-50% of AMI
Extremely Low Income 0-30% of AMI

Different housing subsidies define incomes and rents slightly differently. You can see the income limits and rent levels for various state and federal programs in California here. Also, while there is some Affordable Housing for ownership, like Habitat for Humanity houses, most Affordable Housing is for rent.

Because rents are set at 30% of the upper limit of monthly incomes for the unit, many Affordable Housing tenants spend more than 30% of their incomes on rent, making them rent burdened.

The Vast Majority Of Low-Income Californians Do Not Live In Affordable Housing

84% of California’s lower-income households live in unsubsidized, market-rate housing, not income-restricted Affordable Housing. There are about 600,000 total subsidized Affordable Housing units in California, making up about 4% of the state’s 14,880,000 total homes.

California YIMBY believes that we should help these low-income renters by increasing the supply of housing across the board to chip away at the housing shortage, which is the primary cause of unaffordable rents.

The Finance Gap, Or Why Affordable Housing Requires Funding

Before a new apartment is built, its investors and financers use a projection of rents and operating incomes to ensure the project will not lose money over the expected life of the building. Most of the time, the construction and development costs are paid off by a building’s rental income over the first 20 to 30 years of its life, after which rents cover ongoing maintenance and necessary upgrades.

However, lower-income tenants often cannot afford rents that are high enough to pay off the cost of building new homes. This creates a “financing gap” for people who want brand new apartments to be affordable to low-income tenants: someone has to pay the difference between the rents that these tenants can afford and the actual cost of building and maintaining homes for them.

There are two main ways of closing this gap: publicly-funded housing subsidies, and unfunded affordability mandates in new housing projects, which are often referred to as “inclusionary zoning” (IZ) requirements.

Unfunded Affordability Mandates Are Bad Policy That Worsen The Housing Shortage

The stated intentions behind most inclusionary zoning (IZ) — the practice of requiring developers to offer a percentage of new housing units at below-market rents — are good. But cities routinely set the affordability requirements so high that building becomes financially infeasible.

IZ mandates, unless accompanied by external subsidies, rely entirely on market rents to cross-subsidize affordable units, which homebuilders rent at a loss. This cross-subsidy only works if the market rents are high enough to produce the necessary surplus. In other words, IZ mandates are only workable when market rents far exceed the cost of construction, which only happens under conditions of housing scarcity.

In cases where market rents aren’t high enough to allow for cross-subsidization, landowners will usually opt out of building multifamily housing. Perversely, this means IZ can actually exacerbate an area’s housing shortage and lead to more displacement.

In fact, the very logic of IZ is flawed. The construction of more housing, including more market-rate housing, benefits the public by creating vacancies in the cheapest homes. But IZ is premised on the notion that developers reap all the benefits from building new housing, and that the public needs a mechanism for extracting some benefit of its own. In the process, IZ ends up needlessly discouraging the production of a good that California needs more of. Further, IZ places the entire financial burden of funding subsidized housing on renters who live in multifamily housing while letting the truly wealthy — who overwhelmingly live in single-family homes they own — off the hook. (One analysis found that each inclusionary unit costs renters $800,000 in excess rent.)

Instead of requiring market rate renters to bear the cost of housing subsidies, the state should subsidize affordable housing itself.

This brings us to the Affordable Housing bond, which would provide significant funding for subsidized housing.

What Will This Bond Do?

If voters approve the bond, the state of California will issue $11.25 billion in general obligation debt, to be repaid from existing state tax receipts, and use the revenues to fund the following:

New Construction ($8.05 billion)

$5.1 billion to the Multifamily Housing Program, the main state fund for building Affordable apartment complexes.
$1.15 billion to supportive housing administered through the MHP program. “Supportive housing” is Affordable Housing with on-site social services, usually reserved for people leaving homelessness.
$600 million to the CalHOME Program, which supports for-sale Affordable Housing, often built by Habitat for Humanity.
$450 million to the Joe Serna, Jr. Farmworker Housing Program.
$200 million for the Tribal Housing Grant Program for tribal housing.
$350 million for student housing, divided between the UC and CSU systems.
$200 million for an Affordable Housing Innovation Fund to support local pilot programs.

Acquiring, Upgrading, and Recapitalizing Existing Housing ($950 million)

$750 million for the Portfolio Reinvestment Program, which renovates and re-capitalizes existing Affordable Housing.
$200 million for a program to be created by the Legislature that will buy existing market rate housing and convert it to Affordable Housing.

Other Purposes ($2.25 billion)

$500 million for the Home Purchase Assistance Fund to provide down payment assistance.
$500 million for the Infill Infrastructure Grant Program, which funds things like sewer upgrades, street improvements, and site preparation necessary to facilitate affordable and mixed-income infill housing.
$1.25 billion for home loans for veterans.

So what will all this money do in practice?

The Infill Infrastructure Grant Program Is Good

Established in 2019, the Infill Infrastructure Grant Program provides state gap funding for capital improvement projects like sewer upgrades, street improvements, and site preparation necessary to facilitate affordable and mixed-income infill housing. Its purpose is to facilitate infill housing construction, and funding it is a good use of public money.

This brings us to the new construction funding, which is the bulk of the bond.

This Bond Will Build About 43,700 Affordable Homes

How many homes will this bond build? Affordable Housing developers expect to take the $8 billion in bond funding and leverage it to get about four times as much money from the federal government using the Low Income Housing Tax Credit (LIHTC), a major source of Affordable Housing funding. A UC Berkeley analysis of Affordable Housing construction costs in California found that “in 2023, it cost approximately $708,000 to develop one [new construction] subsidized housing unit funded with Low Income Housing Tax Credit (LIHTC) equity in California.” If we are able to secure federal funds and build at 2023’s development cost, the production funding in bond will produce about 57,000 new Affordable Homes for low-income Californians.

Given the increase in construction and interest costs since 2023, the Legislative Analyst’s Office estimate that “the bond funds would provide subsidies for up to 40,000 multifamily rental units, as well as about 2,500 units for farmworkers and about 1,200 beds for university students” seems accurate.

$500 Million In Down Payment Assistance Could Drive Up Home Prices

California housing is expensive because there are not enough homes to accommodate everyone who wants to live here. Allocating $500 million for down payment assistance to help homebuyers buy existing homes on the open market will increase demand.

Absent new supply, this could increase competition for scarce housing and drive up home prices. The buyers who get the assistance will win, at the cost of driving up prices overall.

Investing $950 Million In Existing Housing Is Good, But Won’t Reduce Rents

Building lots of new homes is the only way to durably reduce housing costs across the board in high-demand regions like California.

Spending $950 million to rehabilitate existing Affordable Housing, and buy existing market rate housing and restrict the rents, will help the current and future residents of those buildings. But these funds will not expand the housing supply, and so will not bring down rents.

Pro-Housing Voters Should Vote Yes

Publicly-funded housing subsidies for low-income Californians who cannot afford market-rate rents are a good thing, and they should be more widely available. Many of the programs this grant will fund are excellent. Pro-housing voters should vote YES on Prop 1.

To make sure we get as much value from this investment as possible, the state legislature should reduce the complexity of securing funding by offering true “one stop shop” financing for qualifying projects, create streamlined entitlement and permitting processes that do not impose additional costs, and use some of the Affordable Housing Innovation Fund money to fund the Affordable Housing portion of large projects subject to Inclusionary Zoning.

Policymakers should also follow the overwhelming evidence that new market rate housing induces a “moving on up” effect that particularly benefits tenants in inexpensive older buildings, and enact broad zoning and permitting reforms that will allow limited subsidy dollars to go further and help more tenants.

Further, the Affordable Housing industry should stop lobbying against common-sense zoning and permitting reforms that will reduce housing costs by expanding the supply of new unsubsidized homes for middle-class families at no cost to taxpayers.