HomeMy WebLinkAboutOppose RHNA Mandate and Adopt an Ordinance to Ban Builder's 2000 Main Street,
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File #: 22-1096 MEETING DATE: 12/20/2022
Subject:
Submitted by Councilmember McKeon - Oppose RHNA Mandate and Adopt an Ordinance to
Ban Builder's Remedy Developments
Recommended Action:
Authorize the City Attorney to:
1. Challenge the State's RHNA mandate for Huntington Beach, including its validity and any laws in
support of such a mandate over the City as a Charter City, by taking whatever legal action is
required; and
2. Return to City Council at the City Attorney's earliest convenience with an ordinance banning
"Builder's Remedy" developments from taking place in Huntington Beach. Development without
proper approvals is already not legal in the City, but this Ordinance is essential to make it clear to the
entire community that Huntington Beach will fight any developer that seeks to develop pursuant to
"Builder's Remedy" laws.
City of Huntington Beach Page 1 of 1 Printed on 12/14/2022
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CITY OF HUNTINGTON BEACH
CITY COUNCIL MEETING—COUNCIL MEMBER ITEMS REPORT
TO: THE HONORABLE MAYOR AND CITY COUNCIL
FROM: CASEY MCKEON, CITY COUNCILMEMBER
DATE: DECEMBER 20, 2022
SUBJECT: OPPOSE RHNA MANDATE AND ADOPT AN ORDINANCE TO BAN BUILDER'S
REMEDY DEVELOPMENTS
Since 2018, the State has passed a flurry of housing laws that not only seek to commandeer the
City's local ability (local control and discretion) to zone its territory, but the State also imposes a
host of heavy burdens, unfunded State mandates, and zoning mandates. This includes the 2021
Regional Housing Needs Assessment(RHNA) mandate for Huntington Beach to zone 13,368 units
via the 6th Cycle Housing Element Update. Many have expressed that the "fix"to fight these State
mandates is in Sacramento, i.e., to fix State laws by the Legislature. While this is not untrue, the
fight for local control can still, also be had in the courts.
For perspective, if the City were to honor this 13,368 RHNA by zoning for, and eventually
building for that quota at a 20%affordable threshold, then that would mean that approximately
30,000 new total units of high density housing would be built. This would increase the City's
current housing inventory by approximately 36 percent. These mandates, and the State's
intrusion and commandeering are reckless and unsustainable - both for the City's residents'
livability and the tax and strain on its infrastructure that is all designed and maintained for its
current housing levels.
The 13,368 RHNA is really no mandate at all. It is flawed. While the State claims that its housing
laws have preemptive effect, even over Charter cities, no preemptive effect can be upheld by
laws that are demonstrably flawed and unsupported by evidence, supported by a rational basis.
Earlier this year the California State Auditor released a scathing report that the "The Department
of Housing and Community Development Must Improve Its Processes to Ensure That
Communities Can Adequately Plan for Housing". This scathing report indicates that HCD's
methodology is flawed. This is precisely what the City Attorney had argued to City Council in
2020,that when SCAG/HCD made its RHNA determination for Huntington Beach of 13,368 units,
the State agencies violated their own State laws in their methodology and their application to
Huntington Beach. Huntington Beach is a Charter City and according to the California
Constitution, local zoning has historically been a "municipal affair" subject to Home Rule Charter
City authority. While that local right has eroded over the years with additional invasive State
legislation and unfavorable court rulings, the California Constitution remains and Huntington
Beach's Charter City status must be defended and asserted.
RECOMMENDED ACTION
Authorize the City Attorney to:
1. Challenge the State's RHNA mandate for Huntington Beach, including its validity and any laws
in support of such a mandate over the City as a Charter City, by taking whatever legal action
is required; and
2. Return to City Council at the City Attorney's earliest convenience with an ordinance banning
"Builder's Remedy" developments from taking place in Huntington Beach. Development
without proper approvals is already not legal in the City, but this Ordinance is essential to
make it clear to the entire community that Huntington Beach will fight any developer that
seeks to develop pursuant to "Builder's Remedy" laws.
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o� .* �1� Report 2021-125
FACT SHEET
,tal {Michael S.Tilden Acting State Auditor CONTACT: Public Affairs Office I (916)445-0255
Regional Housing Needs Assessments
The Department of Housing and Community Development Must Improve Its Processes to
Ensure That Communities Can Adequately Plan for Housing
Background Key Findings
• HCD has not sufficiently reviewed and supported housing
In order for California's cities and counties to plan and develop needs assessments.
sufficient housing for their residents,HCD periodically conducts
» It made errors when completing its needs assessments
regional housing needs assessments.For HCD's needs because it does not sufficiently review and verify all of the
assessments to accurately portray current housing needs and data it uses.
anticipate what those needs will be in the future,the » It did not demonstrate that it adequately considered certain
agency relies on data from multiple sources.Some of factors that state law requires for housing needs assessments
these data come from consortia of local governments, in some regions.
some are projections that Finance provides,and others are » It was not able to adequately support the healthy housing
adjustments that HCD develops on its own to account for vacancy rate that it used to adjust the number of new
factors like vacancy rates and housing replacement needs. housing units needed.
• It did not identify a problematic proposal from a region and
inappropriately reduced its needs assessment.
HCD Provides Housing • Although Finance provides reasonable population projections,
Needs Assessments to: FM it has not provided sufficient support for its projections of the
number of households that are likely to be formed in the future.
i
Councils of Governments Counties Without a Key Recommendations
(20 in California) Council of Governments
Generally Every 8 Years (19 in California) • HCD should do the following:
• Every 5-11 Years » Institute a process to ensure that its staff performs multiple
l
reviews of data in its assessments and establish a formal
• process to document its consideration of all factors required
Councils Then Provide HCD Then Provides
Housing Need Allocations Housing Need Allocations by state law in needs assessments.
to Counties and Cities to County and Cities » Perform a formal analysis of healthy housing vacancy rates and
historical trends to inform its adjustments in this area.
» Develop a formal process to review the appropriateness of
Counties and Cities Then Counties and Cities Then data that consortia of local governments submit.
Develop the Housing Element Develop the Housing Element • Finance should conduct and document a comprehensive review
of General Plans of General Plans of some of its assumptions about household formation rates it
uses in projections.
621 Capitol Mall, Suite 1200 I Sacramento, CA 95814 I 916.445.0255 I 916.327.0019 fax I www.auditor.ca.gov
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Regional Housing
Needs Assessments
The Department of Housing and Community
Development Must Improve Its Processes to
Ensure That Communities Can Adequately Plan
for Housing
March 2022
SUPPLEMENTAL
COMMUNICATION
Meeting : /2e2o/22
Agenda item No4 3.3 /22-- /4-41')
REPORT 2021-125
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OCALIFORNIA STATE AUDITOR
621 Capitol Mall,Suite 1200 I Sacramento I CA 95814
{ 916.445.0255 TTY 916.445.0033
For complaints of state employee misconduct,
contact us through the Whistleblower Hotline:
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For questions regarding the contents of this report,please contact our Public Affairs Office at 916.445.0255
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y
Michael S.Tilden Acting State Auditor `cr * 0
lig
March 17,2022
2021-125
The Governor of California
President pro Tempore of the Senate
Speaker of the Assembly
State Capitol
Sacramento,California 95814
Dear Governor and Legislative Leaders:
As directed by the Joint Legislative Audit Committee, my office evaluated the Regional Housing
Needs Assessment (needs assessment) process that the Department of Housing and Community
Development (HCD) uses to provide key housing guidance for the State's local governments. The
availability of sufficient housing is of vital statewide importance, and HCD's needs assessments are
what allow jurisdictions to plan for the development of that housing.Overall,our audit determined
that HCD does not ensure that its needs assessments are accurate and adequately supported.
In reviewing the needs assessments for three regions, we identified multiple areas in which HCD
must improve its process. For example, HCD does not satisfactorily review its needs assessments
to ensure that staff accurately enter data when they calculate how much housing local governments
must plan to build. As a result, HCD made errors that reduced its projected need for housing in
two of the regions we reviewed.We also found that HCD could not demonstrate that it adequately
considered all of the factors that state law requires,and it could not support its use of healthy housing
vacancy rates. This insufficient oversight and lack of support for its considerations risks eroding
public confidence that HCD is informing local governments of the appropriate amount of housing
they will need.
HCD's needs assessments also rely on some projections that the Department of Finance (Finance)
provides. While we found that most of Finance's projections were reasonably accurate, it has not
adequately supported the rates its uses to project the number of future households that will require
housing units in the State. Although these household projections are a key component in HCD's
needs assessments,Finance has not conducted a proper study or obtained formal recommendations
from experts it consulted to support its assumptions in this area. Finance intends to reevaluate its
assumptions related to household growth as more detailed 2020 Census data becomes available
later in the year, but without such efforts, Finance cannot ensure that it is providing the most
appropriate information to HCD.
Respectfully submitted,
77fzeidotai- Zy,........,
MICHAEL S.TILDEN,CPA
Acting California State Auditor
621 Capitol Mall,Suite 1200 I Sacramento,CA 95814 I 916.445.0255 I 916.327.0019 fax I www.auditor.ca.gov
iv Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
Blank page inserted for reproduction purposes only.
CALIFORNIA STATE AUDITOR I Report 2021-125 V
March 2022
CONTENTS
Summary 1
Introduction 3
HCD's Housing Needs Assessment Process Lacks
Sufficient Reviews and Support 11
Recommendations 22
Finance Provides Reasonable Population Projections,
but It Has Not Provided Sufficient Support for Its
Household Formation Projections 25
Recommendations 29
Appendix A
HCD Housing Needs Assessments We Reviewed 31
Appendix B
Scope and Methodology 35
Responses to the Audit
Business,Consumer Services and Housing Agency 37
California State Auditor's Comments on the Response From
the Business,Consumer Services and Housing Agency 41
Department of Finance 43
California State Auditor's Comment on the Response From
the Department of Finance 45
vi Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
Blank page inserted for reproduction purposes only.
CALIFORNIA STATE AUDITOR I Report2021-125 1
March 2022
SUMMARY
The Legislature recognizes that the availability of housing is of vital statewide importance
and that the State and local governments have a responsibility to facilitate the development
of adequate housing.State law requires the Department of Housing and Community
Development(HCD)to conduct assessments to determine the housing needs(needs
assessments) throughout regions in the State.The needs assessments rely on projections
of future population and households developed by the Department of Finance(Finance).
HCD is required to consider certain factors identified in state law and then can adjust the
needs assessments for any of the factors.For example,it makes an adjustment to achieve
a healthy vacancy rate in the housing market and an adjustment to reduce the number
of overcrowded households.Regions use the needs assessments to plan for additional
housing to accommodate population growth and address future housing needs.
HCD's Housing Needs Assessment Process Lacks Sufficient Page 11
Reviews and Support
HCD does not have a formal review process for the data it uses to
determine its needs assessments.As a result,the needs assessments
for two of three regions we reviewed included errors.One data error
reduced a region's needs assessment by nearly 2,500 housing units.
HCD also did not demonstrate that it adequately considered certain
factors when creating the needs assessments of the three regions we
reviewed.For one of those factors,the healthy vacancy rate,HCD did
not perform a formal analysis to adequately support its assumptions.
HCD's insufficient oversight of its process and the lack of adequate
documentation supporting the healthy vacancy rate risks eroding
public confidence in HCD's ability to address the State's housing needs.
Finance Provides Reasonable Population Projections,but It Has Not
Provided Sufficient Support for Its Household Formation Projections Page 25
Finance's projections of the statewide future population are reasonably
accurate,but it did not sufficiently support its projections of the
number of future households.To calculate the household projections,
Finance identifies rates at which it expects individuals in different age
groups to form new households and applies those rates to its population
projections.Although Finance worked with HCD to solicit some advice
from experts when it established these rates, it did not conduct a
formal study or receive clear recommendations to support them.As a
result,Finance cannot ensure that it is providing the most appropriate
information for HCD to include in its needs assessment process.
2 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
Finance stated that it intends to reevaluate its assumptions related to
household growth after it reviews 2020 Census data when those data
become available later this year.
Summary of Recommendations
Legislature
To provide HCD additional clarity and guidance in conducting its vacancy
rate adjustments,the Legislature should amend state law to clarify
whether HCD should continue to use a healthy vacancy rate that includes
both rental and owned housing or whether it should determine and use
separate healthy vacancy rates for owned housing and rental housing.
HCD
To ensure that its needs assessments are accurate and do not contain
unnecessary errors,by June 2022 HCD should institute a process to
ensure that its staff performs multiple reviews of data in its assessments.
To demonstrate that its needs assessments are complete and address
all relevant factors,by September 2022 HCD should establish a formal
process to document its consideration of all factors required by state law
in its needs assessments.
To ensure that it adequately supports the vacancy rate adjustments it
makes to needs assessments,by February 2023 HCD should perform a
formal analysis of healthy vacancy rates and historical trends to inform
those adjustments.
Finance
To ensure that the household formation rates that it provides HCD are
appropriate,Finance should,by February 2023,conduct a comprehensive
review of its assumptions about the household formation rates it uses in
projections,and it should document that review.
Agency Comments
HCD and Finance agreed with our recommendations and plan to
implement them over the next year.
CALIFORNIA STATE AUDITOR I Report2021-125 3
March 2022
Introduction
Background
As part of the Legislature's efforts to ensure that the State is planning
for the construction of enough homes to meet its housing needs
and that local governments are facilitating that development,
state law requires the Department of Housing and Community
Development(HCD)to conduct periodic housing needs assessments
to determine existing and projected housing needs throughout
California.HCD fulfills its responsibilities under state
law by creating Regional Housing Needs Assessments
(needs assessments).As Figure i shows,HCD provides Definition of Council of Governments
the needs assessments to councils of governments,
which we describe in the text box,across the State and A voluntary association,generally of county and city
governments,created by a joint powers agreement.
directly to counties that are not in such a council.Figure 2
provides an overview of the councils of government in Source: State law and a council of governments'website.
the State and also shows counties that are not part of a
council.After a council of governments receives its needs
assessment from HCD,it then must allocate the region's
housing needs to the cities and counties within its boundaries.
For counties without a council of governments,HCD provides
allocations to those counties as well as to the cities within them.'
Cities and counties must then develop plans to accommodate
the existing and projected housing need.HCD performs
needs assessments every five to ii years.HCD does not complete
all assessments at the same time and does not always cover the same
period,because it attempts to align the needs assessment process
with other planning processes,such as regional transportation
planning.The three needs assessments that we reviewed are
those of the Santa Barbara County Association of Governments
(Santa Barbara Association),the Sacramento Area Council of
Governments (Sacramento Council),and Amador County.
Needs Assessment Components
State law requires HCD to use population projections developed
by the Department of Finance(Finance)when it completes the
needs assessments.Finance factors into its projections multiple
sources of information,including data from the U.S. Census
Bureau (Census) and records of driver's licenses,births and deaths,
school enrollments,and tax filings. Finance provides state-and
county-level population projections to assist state,regional,
and local planning,among other purposes.Finance also projects the
number of future households,based on the population projections
Counties that receive their assessments and allocations directly from HCD represent just
3 percent of the State's population.
4 Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
and the percentage of people in the population who are expected
to form their own households in the future,which is known as the
household formation rate.
Figure 1
HCD's Housing Needs Assessments Inform County and City Housing Plans
HCD Provides Housing
Needs Assessments to:
Councils of Governments Counties Without a
(20 in California) Council of Governments
Generally Every 8 Years (19 in California)
Every 5-11 Years
•
•
Councils Then Provide HCD Then Provides
Housing Need Allocations Housing Need Allocations
to Counties and Cities to County and Cities
Counties and Cities Then Counties and Cities Then
Develop the Housing Element Develop the Housing Element
of General Plans of General Plans
Source: State law and HCD housing needs assessments.
Table i describes the factors that state law requires HCD to
consider in its needs assessments,including vacancy rates. State
law requires HCD to consider vacancy rates in existing housing and
the vacancy rates for healthy housing markets when developing the
needs assessments.A low supply of housing can result in low
rental vacancy rates,which in turn can lead to housing price
increases.Therefore,HCD adjusts its needs assessments so that
housing markets can achieve a healthy vacancy rate.In some cases,
that adjustment will add to the number of housing units HCD
determines a region needs so that the region can obtain a healthy
vacancy rate. State law specifies that the minimum vacancy rate for
a healthy rental housing market is 5 percent,but the law does not
define the healthy vacancy rate for owned housing.
CALIFORNIA STATE AUDITOR I Report 2021-125 ' 5
March 2022
Figure 2
Most California Counties Have a Council of Governments That Receives Needs Assessments From HCD
DEL
NORTE _ �..�...._._....
SISKIYOU MODOC
Single-County
Council of Governments
Sacramento Area
SHASTA LASSEN Council of Governments
HUMBOLDT TRINITY
Association of
Bay Area Governments
TEHAMA Association of Monterey
PWMAS Bay Area Governments
GLENN BUTTE SIERRA Southern California
MENDOCINO Association of Governments
NEVA I.
cowsA YDBa Counties Without a
LAKE PLACER Council of Governments
VOW EL DORADO
SONOMA NAPA ALPINE
,,gpLLEN'N AMADOA
SOLANO
CALAVERAS
MARIN 1101 '' TUOWMNE
CONTRA IOAOUIN MONO
COSTA
SAN FRANCISCO
ALAMEDA MARIPOSA
SAN MATEO — STANISLAUS
SANTA
SANTA CLARA MERCED MADERA
2
SAN FRESNO
BENITO INYO
MONTEAEY TULARE
KINGS
SAN WISOBISPO KERN
SAN BERNARDINO
ti SANTA BARBARA
VENTURA
LOS ANGELES
ORANGE RIVERSIDE
SAN DIEGO IMPERIAL
Source: HCD housing needs assessment letters.
6 Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
Table 1
Factors HCD Must Consider in Its Assessments
FACTOR DESCRIPTION
Anticipated Population Growth Projection of future population growth in the region.
Household Formation Rate The rate at which individuals form new households
in the region.
Household Size The number of people per household in the region.
Vacancy Rates The percentage of homes available for rent or sale compared
to the total number of housing units,less vacation and
seasonal homes.
Overcrowding The percentage of households that have more than
one resident per room in a housing unit.
Replacement Needs Replacement of housing units lost during the planning
period,such as because of deterioration.
Cost-Burdened Households The percentage of households that are paying more than
30 percent of their income on housing costs.
Units Lost to Emergencies The loss of housing units during a state of emergency
declared by the Governor,such as in wildfires,if the lost
units have not yet been rebuilt or replaced.
Jobs/Housing Balance The relationship between the number ofjobs in a region
and the number of housing units in that same region.
Other Characteristics Other characteristics of the composition of the
projected population.
Source: State law,the Census website,HCD needs assessments,HCD work group reports,and
interviews with HCD staff.
Note: State law does not require HCD to consider these factors for its needs assessments in counties
that do not have a council of governments;however,HCD's practice is to do so.
State law also requires HCD to adjust its needs assessments to
account for long-term housing challenges,such as overcrowding,
which occurs when a housing unit has more than one resident per
room.The Legislature added this overcrowding factor to the needs
assessment process in 2o1.7.HCD must also consider cost-burdened
households,which are households that pay more than 3o percent of
their income for housing costs.When it determines it is appropriate
to do so,HCD includes in its assessments adjustments for cost
burden and overcrowding.Among the sources HCD uses to
determine these adjustments is data that state law requires councils
of governments to provide.The councils provide data comparing the
cost burden and overcrowding for their respective regions with that
of other comparable regions in the United States.HCD then uses this
information to calculate adjustments for each council of governments'
needs assessment.Table 2 shows a hypothetical example of how HCD
incorporates adjustments for the various factors to determine the
number of housing units in its needs assessments.Appendix A shows
the three needs assessments that we reviewed.
CALIFORNIA STATE AUDITOR I Report2021-125 7
March 2022
Table 2
Housing Needs Assessments Contain Many Factors and Adjustments
HYPOTHETICAL EXAMPLE OF HCD NEEDS ASSESSMENT CALCULATIONS
FACTOR/SOURCE PROJECTED
CALCULATION
8-year Population Projection(Finance) 1,500,000
-Group Quarters Population(Finance)* -35,000
Population Needing Housing(Finance) 1,465,000
Household Formation Rate Adjustment(Finance)t: 36.6%average
'a Projected Households(Finance) 540,000
°.° +Vacancy Rate Adjustment(HCD): 2.2% 11,900
0 +Overcrowding Adjustment(HCD): 0.6% 3,200
W
Z +Replacement Needs Adjustment(HCD): 0.5% 2,700
ro Units Lost to Emergencies(HCD)$ —
0
,N., Jobs/Housing Balance(HCD)* —
z
-Occupied Units(Finance) -480,500
Subtotal 77,300
+Cost Burden Adjustment(HCD)§: 0.55% 3,100
Total Needs Assessment 80,400
Housing Units
Source: Auditor review of HCD housing needs assessments.
* This reduction includes individuals housed in prisons and in college dormitories.
t The household formation rate represents the likelihood that individuals in the region's projected
population will head their own households.Finance uses different household formation rates for
different age groups,which we have simplified for illustrative purposes here.
# Factors that state law requires HCD to consider,but that it did not include as an adjustment in the
needs assessments we reviewed.
§ HCD makes the cost burden adjustment only after applying all the other adjustments.
Finally,state law requires HCD to consider housing units that
communities will need to plan to replace.Some housing units
become uninhabitable during the future period covered by the
assessments,such as housing lost due to damage,deterioration,and
house or apartment building fires.State law requires HCD to review
housing replacement needs,and HCD does so by obtaining from
Finance the number of housing units a council of governments or
county has lost over the past io years.HCD then determines the rate
at which the region loses housing units and makes an adjustment
in the needs assessment to replace those houses.In response to
recent wildfires that have destroyed a significant number of houses,
the Legislature added the requirement in 2o18 that HCD must also
consider any housing recently lost during a state of emergency that
the Governor declared.Similar to the cost burden factor discussed
8 Report2021-125 1 CALIFORNIA STATE AUDITOR
March 2022
above,state law requires councils of governments to provide data to
HCD on housing lost during a state of emergency for consideration
in the needs assessments.
Local Actions After HCD Completes a Needs Assessment
After HCD makes a final determination for a needs assessment,
state law requires the council of governments to create housing
needs allocations for the cities and counties within its region.
The council,in consultation with HCD, must develop a proposed
methodology for distributing the allocation.The council of
governments must conduct a survey and ensure public participation
when developing the methodology.The council of governments
establishes a draft allocation and then may hear appeals of the
allocation, if any are raised.It then must make the allocation final
and adopt it.
State law requires local governments,such as cities and counties,
to create plans to meet housing needs.Local governments
must adopt a general plan,which is a blueprint for meeting the
community's long-term vision for the future.Within the general
plans,state law requires local governments to include a housing
element,which contains an analysis of existing and projected
housing needs in their communities.Cities and counties must state
their goals,policies,and programs related to the development of
housing,to accommodate projected housing needs allocated by
their council of governments or HCD. The community,through
the housing element,must attempt to meet these housing needs,
such as by changing the zoning on specific parcels to allow
residential development.
Needs Assessments Can Be Contentious but Are a Critical Component
of Addressing Housing Challenges
Some stakeholders have criticized the needs assessment process
and HCD's needs assessments. For example,some homeowners and
advocacy organizations believe that HCD's needs assessments have
produced higher numbers of housing needs than are reasonable.
Changes to state law that became effective in January 2o19 allow
HCD to account for present unmet housing needs in addition
to future housing needs.Potentially as a result of these statutory
changes,some regions received housing needs allocations that are
more than double the amount of their previous allocations.
We are aware of two lawsuits that challenge HCD's process,
including one that alleges that HCD did not consider all factors as
required by state law.In one lawsuit,the Orange County Council
CALIFORNIA STATE AUDITOR I Report2021-125 9
March 2022
of Governments,which is independent from the larger Southern
California Association of Governments,sued HCD,alleging that
HCD failed to use the appropriate population forecast,failed to
appropriately evaluate household overcrowding and cost burden
rates,and used unreasonable vacancy rates.In the other lawsuit,
several interested individuals and two nonprofit corporations filed
a lawsuit alleging that HCD failed to consider data regarding the
relationship between jobs and housing in its assessment for the
Association of Bay Area Governments,which is the San Francisco
Bay Area council of governments.Both lawsuits are pending final
resolution. To avoid interference,we did not review the needs
assessments for either of the councils involved in these lawsuits as
part of this audit.
The needs assessments affect the planning for housing availability
across the State and are an important but sometimes contentious
component in addressing California's housing crisis.Housing
availability and affordability has become a key economic issue,as the
Legislative Analyst's Office(LAO) reported in 2o19.The LAO noted
that the significant shortage of housing,particularly within coastal
communities,contributed to higher housing costs for Californians.
The LAO also noted that high housing costs increase the State's
poverty rate and,in particular,put low-income Californians at risk
of instability and homelessness.As discussed above,the State's role
in identifying existing and future housing needs to guide the housing
planning process is under public scrutiny.Determining accurate,
appropriate,and defensible housing needs is a key step in facilitating
state and local efforts to plan for housing development.
10 Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
Blank page inserted for reproduction purposes only.
CALIFORNIA STATE AUDITOR I Report 2021-125 11
March 2022
HCD's Housing Needs Assessment Process Lacks
Sufficient Reviews and Support
Key Points
• HCD made several errors when entering data into calculations for its
needs assessments,which reduced the amount of housing needs in the needs
assessments for two of the three regions we reviewed. HCD does not have a
sufficient management review process to ensure that it identifies such errors
before finalizing needs assessments.Without effective review processes,
HCD may be making similar errors in needs assessments for other councils
of governments.
• HCD could not demonstrate that it followed work group recommendations
when it considered the balance between jobs and housing, and did not
maintain consistency in its consideration of housing destroyed during a state of
emergency,when it produced the needs assessments for the three regions we
reviewed. In at least one needs assessment, the omission led HCD to understate
housing needs by not accounting for units that had been destroyed in a wildfire.
• HCD did not adequately support its adjustment to the needs assessments to
address vacancy rates for the councils of governments we reviewed. Despite
the significant effect that HCD's vacancy rate adjustments have on needs
assessments, it has not completed a thorough analysis to determine whether it
used the most appropriate value in its calculations.
• HCD's reviews of comparable regions selected by councils of government have
been inconsistent because the department does not have a formal process for
such reviews.As a result, it did not identify a problematic proposal from a
region and inappropriately reduced its needs assessment.
HCD Has Made Errors When Completing Its Needs Assessments Because It Does Not
Sufficiently Review and Verify Data It Uses
HCD does not have an adequate review process to ensure that its staff members
accurately enter data that it uses in the needs assessments.As Table i shows,state
law requires HCD to consider a variety of information for its needs assessments for
councils of governments,including population projections,housing vacancy rates,and
income data. HCD staff members enter the data the department obtains from various
sources into a spreadsheet for each council of governments and uses the information
to determine the housing needs. However,HCD does not sufficiently review its staff
member's data entries for accuracy.As Figure 3 shows,we noted data entry errors
in two of the three assessments we reviewed.We discuss the other issues presented in
Figure 3,including an inadequate consideration of the relationship between jobs and
housing,in the following section.
12 Report2021-125 CALIFORNIA STATE AUDITOR
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Figure 3
HCD's Errors and Omissions Understated the Needs Assessments for Multiple Regions
Sacramento Council
2019Assessment: 153,512 units needed
• HCD failed to adequately consider the
Jobs/Housing Balance factor.
• HCD used inconsistent years of Census
data for different counties in the Vacancy
Rates adjustment.
Santa Barbara Association • HCD's error in the Vacancy Rates Adjustment
reduced the Cost Burden adjustment.*
2021 Assessment: 24,856 units needed
• HCD failed to adequately consider the
Jobs/Housing Balance factor.
• HCD used one year of Census data instead
of five for the Overcrowding adjustment.
Amador County
• HCD did not identify that the
Santa Barbara Association submitted 2020Assessment: 741 units needed
Census data for the wrong years as part of the Overcrowding adjustment.
• HCD's error in the Overcrowding adjustment • HCD failed to adequately consider
reduced the Cost Burden adjustment.* the Jobs/Housing Balance factor.
• HCD did not demonstrate that it considered
the effect on housing needs from a
destructive fire in 2017.
Source: Analysis of state law,HCD needs assessments,and HCD's 2010 SB 375 implementation work group report.
Note: We were able to determine the impact on needs assessments from some,but not all errors and omissions presented in this figure.For example,
HCD did not collect data on the jobs/housing balance,and therefore we could not quantify the effect of HCD not considering this factor.We discuss
selected errors'impacts on HCD's needs assessments on pages 13 and 22 in the report text.
Because HCD makes the cost burden adjustment after applying the other adjustments,errors that increase or reduce other adjustments also increase
or reduce the cost burden adjustment.
One data entry error resulted in a lower,inaccurate number of
needed housing units in the Santa Barbara Association's needs
assessment. HCD's needs assessment letter explained that its
overcrowding adjustment relied on Census estimates from
five years of survey data.However,HCD had only used Census
data from a one-year estimate when determining the overcrowding
adjustment,which is both less accurate and inconsistent with other
steps in the calculation that used the five-year estimates.HCD
explained that staff members entered data from the wrong table
on the Census website.Had HCD used the five-year estimates as
CALIFORNIA STATE AUDITOR I Report 2021-125 13
March 2022
it intended for this step in its calculation,Santa Barbara's needs
assessment would have included 1,338 more housing units, or about
5 percent more than the inaccurate assessment HCD provided to
the Santa Barbara Association.
HCD made a similar error when using Census estimates to
adjust the Sacramento Council's assessment.It had intended to
use the 2o13-2017 Census vacancy estimate for all the counties
within the Sacramento Council,but it mistakenly entered the
2012-2016 estimate for Sacramento County.This error reduced
the Sacramento Council's needs assessment by 2,484 units.
Although this number represents a small portion of the region's
overall needs assessment of more than 153,000 units,it still
represents homes for individuals and families for which the
Sacramento Council needs to plan to accommodate.
Because HCD did not verify the information the Santa Barbara
Association submitted for its needs assessment,it made an
additional error.HCD incorporates into the needs assessments
some information it receives from the councils of governments,
such as data on overcrowding.The Santa Barbara Association
submitted data on comparable regions'overcrowding rates using
the 2014-2o18 Census data,which HCD then incorporated into
its overcrowding calculation.However,HCD had intended for its
calculation to incorporate 2°15-2019 data.Although this particular
error was not large,it was in addition to the other errors in the
assessments we reviewed,as discussed above.It concerns us that
HCD does not have a formal review process to ensure that these
important housing needs assessments are as accurate as possible.
HCD does not have a formal review process to
ensure that these important housing needs
assessments are as accurate as possible.
We identified these errors,which would be difficult to detect
in documentation supporting HCD's needs assessments,by
comparing the data in the needs assessments to the correct source
documents.Therefore,we expected that HCD would have a robust
process for dedicated reviewers and management to verify that staff
members retrieve and enter the correct data in the spreadsheets.
However,HCD told us that its primary process for identifying
errors in its needs assessments is to send a draft assessment to
each council of governments for review rather than to have HCD
supervisors or other HCD staff members review the drafts.
14 Report2021-125 I CALIFORNIA STATE AUDITOR
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HCD's reliance on the councils of governments for checking the
accuracy of the needs assessments is problematic.As we discuss in
the Introduction,the needs assessment process can be contentious
and draws attention from numerous stakeholders.Therefore,some
councils of governments may be reluctant to propose changes or
corrections to their needs assessments that increase their own
housing needs.In fact,two of the errors we identified inaccurately
lowered the needs assessments,but HCD stated that neither the
Santa Barbara Association nor the Sacramento Council notified
HCD of the errors,and no record we reviewed indicated whether
the two councils of governments noticed the errors at all.
When we brought these concerns to HCD's attention,its deputy
director of housing policy development(housing policy deputy)
stated that the department plans to conduct and document
supervisor reviews of its needs assessments for its next planned
round of assessments in 2023.It is crucial that HCD do so to ensure
that councils of governments plan for the appropriate amount of
housing and to maintain public confidence in the validity of the
State's assessments of local housing needs.
It is crucial that HCD conduct and document
supervisor reviews of its needs assessments
to ensure that councils of governments
plan for the appropriate amount of housing
and to maintain public confidence in the
validity of the State's assessments.
HCD Did Not Demonstrate That It Adequately Considered Certain
Factors That State Law Requires for Housing Needs Assessments
HCD did not demonstrate that it adequately considered two factors
listed in state law when preparing the three needs assessments
we reviewed,which potentially further reduced the reliability of
its needs assessments.The law requires HCD to review data and
assumptions that councils of governments submit for the factors
considered in housing needs assessments, and it allows HCD to
make adjustments to the needs assessments after this consideration.
HCD may accept or reject the submitted information,and it must
issue a written determination on the data assumptions for each
factor and the methodology it will use.
CALIFORNIA STATE AUDITOR Report 2021-125 15
March 2022
Although HCD generally included most of the factors outlined in
state law in the three needs assessments we reviewed, it did not
adequately demonstrate how it considered two factors:the balance
between jobs and housing in the region (jobs/housing balance)
and housing lost in emergencies,such as wildfires.The housing
policy deputy stated that HCD addresses these factors through
its projected household data and other adjustment factors,and
currently documents that consideration with an assertion in its final
needs assessment that it considered all factors specified in state law.
HCD did not adequately demonstrate how
it considered the balance between jobs
and housing in the region and housing
lost in emergencies, such as wildfires.
When we asked HCD about its specific consideration of the
jobs/housing factor,HCD indicated that it relied on a work group's
draft analysis of jobs/housing relationships.However,this analysis
is outdated and provided limited direction for how the jobs/housing
balance would affect needs assessments.The housing policy deputy
stated that HCD had studied the jobs/housing balance factor
in 2010,12 years ago.The analysis noted that the inconsistent data
available between regions makes regional comparisons of jobs and
housing difficult and that statewide standardized employment
data are not available for comparison purposes.Although it did
not recommend specific adjustments for the jobs/housing balance
factor,the 2010 work group indicated that HCD should solicit
specific information from councils of governments to address this
factor.However,HCD did not specifically request such information
from the Sacramento Council,the Santa Barbara Association, or
Amador County—the three needs assessments we reviewed—in
order to determine those needs assessments.
HCD believes that its other adjustments for different factors
also addressed the jobs/housing balance factor.Specifically,
HCD asserted that its adjustments to address low vacancy rates,
high overcrowding,and high cost burdens address jobs/housing
balance issues. However,HCD did not provide an analysis that
demonstrated how,or to what extent,these adjustments address
the jobs/housing balance.The housing policy deputy also noted the
potential for inequitable adjustments for jobs/housing balance
between regions because regions receive needs assessments at
different times but agreed to review data sources and seek academic
perspectives on approaches to account for the jobs/housing balance
16 Report 2021-125 I CALIFORNIA STATE AUDITOR
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in the next round of needs assessments. HCD also agreed that
as part of its review of the jobs/housing balance factor,it would
consider either adding a specific adjustment or modifying its other
adjustments,such as increasing the cost burden adjustment,to
better account for the factor in the future.
HCD agreed that as part of its review of
the jobs/housing balance factor, it would
consider either adding a specific adjustment
or modifying its other adjustments,such as
increasing the cost burden adjustment,to
better account for the job/housing balance
factor in the future.
The second factor HCD inadequately considered was housing lost
during emergencies. HCD did not consider housing lost during
emergencies in a consistent manner across different regions,
which led it to understate housing needs in the Santa Barbara
Association's needs assessment. State law requires HCD to consider
data and assumptions submitted by a council of governments on
housing lost during a state of emergency declared by the Governor
if that lost housing has not been rebuilt or replaced at the time
of the collection of data for the needs assessment.In 2o17 the
Governor declared a state of emergency in Santa Barbara and
Ventura counties due to the Thomas Fire,which destroyed more
than i,000 housing units and other structures.HCD did not
consider the loss of units caused by this wildfire,as required by
state law,and did not make an adjustment for this factor in the
2021 Santa Barbara Association needs assessment,as it did in
another region,which we discuss below.We believe HCD should
have worked with state and county officials to consider this factor
in the assessment so that the Santa Barbara Association can plan to
address actual housing needs.
HCD's housing policy deputy explained that HCD believes another
factor addresses housing lost to fire emergencies.As we discuss
in the Introduction,HCD determines the replacement rate at
which each council of governments'region loses housing units and
applies an adjustment in the needs assessment to replace housing.
The replacement adjustment reflects the average annual rate of
housing loss over the past io years that a council of governments
needs to replace for units that have been destroyed or demolished,
or are no longer inhabitable.The housing policy deputy stated
CALIFORNIA STATE AUDITOR I Report 2021-125 17
March 2022
that Finance provides it with information on the rate of housing
replacement,such as when there is a fire that requires a building to
be replaced.Although HCD considered replacement units in the
Santa Barbara Association needs assessment,it did not include a
separate consideration for units destroyed in emergencies.HCD's
replacement adjustment identified the average rate that housing is
replaced in Santa Barbara County based on io years of data from
Finance.However,this approach minimized the effect of a wildfire
by combining it with normal years of housing losses,resulting in
less overall housing than actually needed.
Furthermore,HCD's approach to the Santa Barbara Association's
declared state of emergency was not consistent with the approach
it took in another assessment.Specifically, for the Butte County
Association of Governments,HCD worked with county and
state officials,including Finance,when it considered and then
included an adjustment specifically for housing destroyed in the
2018 Camp Fire,for which the Governor also declared a state of
emergency.HCD noted that it included the adjustment for the
Butte County Association of Governments because this fire and
associated housing loss was particularly large.We expected HCD to
consider housing lost in declared emergencies consistently.
It is critical that HCD's actions
increase confidence in the needs
assessment process.
HCD needs to thoroughly document its required consideration
of each factor because the needs assessment process is complex
and can be contentious,drawing significant attention from local
governments as well as interest groups.Therefore,it is critical that
HCD's actions increase confidence in the needs assessment process.
Although state law permits HCD to determine what adjustments,
if any,to make in response to a particular factor,documenting the
specific methodology and determination will enhance transparency
and public trust.It will also allow HCD to more effectively justify
its conclusions to stakeholders and potentially avoid litigation.
It is also important that HCD conduct its needs assessments
consistently across different regions and in compliance with state
requirements, especially when adjusting for sensitive issues such as
wildfire disasters.
18 Report 2021-125 I CALIFORNIA STATE AUDITOR
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The Healthy Vacancy Rate HCD Used in Assessments We Reviewed
Was Poorly Supported
HCD did not provide adequate support for a critical determination
it made about the healthy housing vacancy rate that it used in the
three needs assessments we reviewed,raising questions about
whether HCD can support the rate in its other assessments.State
law requires HCD to consider how councils of governments'vacancy
rates compare with healthy vacancy rates when determining housing
needs assessments.As we discuss in the Introduction,state law
specifies that a healthy vacancy rate for rental housing should not be
less than 5 percent,but it does not specify a healthy vacancy rate for
owned housing,allowing HCD to make that determination.
HCD used a 5 percent healthy vacancy rate for the combined rental
and ownership markets for two of the councils of governments'
assessments we reviewed.'HCD calculated the vacancy rate
adjustment by subtracting the region's overall vacancy rate from the
5 percent healthy vacancy rate.Based on that rate,the vacancy rate
adjustment for the Santa Barbara Association resulted in an increase
of more than 4,00o housing units to the overall housing needs.Even
a i percent difference—higher or lower—can make a significant
difference in the needs assessment.For example,if HCD had used a
i percent higher healthy vacancy rate target,the adjustment would
have increased by 4o percent,to 5,60o housing units.Therefore,it is
important that the rate that HCD uses is adequately supported.
Even a . percent difference—higher
or lower—in the healthy vacancy rate
assumption can make a significant
difference in the needs assessment.
HCD concluded that its choice of a single healthy vacancy rate for
the overall market instead of separate rates for owned and rental
housing was appropriate.HCD stated that in 2018,for the current
round of needs assessments,it began evaluating vacancy rates across
the total number of homes available,a change from its previous
approach of separating the rental and ownership markets before
2 HCD used a 4 percent healthy vacancy rate to perform the adjustment for Amador County—a
county without a council of governments.HCD explained that it used a lower rate for rural areas
because they have a higher proportion of owned housing compared to rental housing and the
ownership market typically has less turnover,and thus fewer homes on average will be empty at
any given time in rural areas than in the State as a whole.
CALIFORNIA STATE AUDITOR I Report 2021-125 19
March 2022
evaluating vacancy rates in each of them.HCD stated that it changed
its approach to reflect the fact that some owned housing becomes
rental housing over time.Conversely,a development may be rented
for an initial period and then sold to owners after a condominium
conversion.However,as shown in Figure 4,the vacancy rates of
the two categories are significantly different—ownership vacancy
was much lower than rental vacancy over the past 15 years.We are
concerned that HCD has not completed a formal analysis to support
its claim that a single healthy vacancy rate was appropriate.
Figure 4
HCD Targeted a Vacancy Rate That Is Between Historical Rates for Rented and Owned Housing
12%
Q..
10 0__
•b-
8
-•4
in O---O •p.
co i ♦6
U.S.rental vacancy rate
-__ HCD's healthy vacancy rate for
`+♦ needs assessments we reviewed*
4 California rental vacancy rate
2
U.S.owned-housing vacancy rate
California owned-housing vacancy rate
0
2005 2010 2015 2020
Source: Data from the Census and HCD websites.
* Before it started using a single 5 percent vacancy rate in 2018,HCD used separate rates for rental and owned housing for each assessment.
When we asked HCD for its support for using the 5 percent healthy
vacancy rate in the assessments,it provided only limited information
that did not adequately support its assumptions.HCD explained that
although it understands that the ownership vacancy rate is
somewhat lower than 5 percent,the literature it reviewed indicated
that a healthy rental vacancy rate is likely somewhat higher than
5 percent,and it believes the 5 percent is defensible for the combined
market.However,HCD did not thoroughly analyze vacancy rates
when it began to use this healthy vacancy rate assumption in 2018.
HCD provided a summary document from a work group it convened
in 2010 that reviewed historical vacancy rates in different regions,
but the work group's summary did not reach a conclusion on a
20 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
healthy vacancy rate.Instead,the summary referenced information
the work group had reviewed,including government reports,and
noted a range of vacancy rates among other states that included
separate rates for owned and rented housing.Additionally,some of
the information was outdated because several of the government
reports the summary cited were published in the 1980s.The
summary also stated that HCD had used the same healthy vacancy
rates—using separate rates for owned and rental housing—
since 2006 and may adjust them for current economic conditions.
Despite the large impact of the vacancy rate adjustment on a region's
total needs assessment,HCD has relied on the 5 percent healthy
vacancy rate without providing adequate support for its approach.
For example,HCD made a vacancy rate adjustment to increase
Sacramento's needs assessment by more than 22,70o units,or nearly
is percent of the total housing needs.Therefore,we expected HCD to
provide sufficient analysis and support for its assumptions underlying
the healthy vacancy rate it used in the assessments we reviewed.
When HCD does not develop a strong analysis with clear justification
for its assumptions,especially those that have significant impact on
the size of its final assessments,it risks making adjustments that are
not reflective of a region's true housing needs.
When HCD does not develop a strong analysis
with clear justification for its assumptions,
especially those that have significant impact
on the size of its final assessments, it risks
making adjustments that are not reflective of
a region's true housing needs.
HCD Did Not Identify a Problematic Proposal From a Region and
Inappropriately Reduced Its Needs Assessment
HCD did not sufficiently review the regions that councils of
governments compared themselves to as part of the needs
assessment process. For two factors in its needs assessments,state
law requires HCD to consider how a council of governments'
regional data compares to that of other similar regions in the nation.
For these factors—overcrowding and cost burden—the law requires
councils of governments to provide data from regions they propose
as"comparable:For the cost burden adjustment,state law requires
councils to provide data from"healthy"housing markets. State law
CALIFORNIA STATE AUDITOR I Report2021-125 21
March 2022
allows HCD to adjust a council of governments'needs assessment
based on these factors,thus allowing communities to plan for more
housing to better address the housing crisis. Under state law,HCD
must consider the information a council of governments submits,
though it does not have to use that information in its final needs
assessment.State law does not provide criteria for the councils of
governments to select comparable regions to propose. However,
in correspondence to the council of governments we reviewed,
HCD recommended that several non-housing factors—such as
population,median income,and jobs per capita—be included
for comparison to help guide councils of governments in their
selections of comparable,healthy regions.
HCD's reviews of comparable regions selected by councils of
government have been inconsistent because the department does
not have a formal process for such reviews.The housing policy
deputy explained that HCD reviews the appropriateness of the
regions that councils of governments propose as comparable
and has rejected a proposal in the past. However, HCD does not
have a documented process to guide its evaluation of councils of
governments'proposals to ensure that its reviews are consistent.
HCD explained that even though it does provide guidance on what
criteria councils of governments could use for their proposals of
comparable regions,it has avoided instituting a specific, formal
review process because state law specifically allows councils
of governments to determine what regions are comparable.
However,state law also gives HCD the ability to reject those same
proposals.Therefore,we believe it is important for HCD to have a
formal process to review the comparable regions that councils of
governments propose so it can ensure that it is using this authority
consistently for different needs assessments.
It is important for HCD to have a formal
process to review the comparable regions
that councils of governments propose so
it can ensure that it is using its authority
consistently for different needs assessments.
The Santa Barbara Association provided HCD with a comparable
region proposal that we found problematic.In January 2021,after
working with HCD to adjust its comparable region proposal,the
Santa Barbara Association provided a memo to HCD explaining that
it based its selection of comparable regions on certain categories,
22 Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
such as population,household size,rent-to-income ratio,age
distribution,and poverty.These criteria resulted in the Santa Barbara
Association choosing regions that were likely experiencing housing
problems similar to its own region because they also had higher,
unhealthy,rates of overcrowding and cost-burdened households
compared to national averages.The use of household sizes and
rent-to-income ratios to select comparable regions was problematic.
For example,the overcrowding rate—reflecting the number of
housing units that have more than one person per room in a
region—is likely higher in a region with a higher average household
size.Similarly,a region with a higher rent-to-income ratio is
likely to have more households with heavy cost burdens.Higher
overcrowding and heavier cost burdens than the national average
indicate that those housing markets are not healthy.
HCD accepted the comparable regions the Santa Barbara
Association proposed,which likely lowered the needs assessment
from what it would have been had HCD used healthy housing
markets for one of the adjustments.HCD explained that it views
its role as providing guidance to councils of government in
their process of selecting comparable regions,rather than being
prescriptive.However,our concern is that the Santa Barbara
Association specifically used certain criteria that resulted in it
selecting unhealthy housing markets,which HCD acknowledges is
an approach that has led it to reject other councils'comparisons.
Had HCD compared the Santa Barbara Association to regions with
cost burden rates closer to the national average,we estimate that
its needs assessment would have increased by 47o housing units to
about 25,300,or an increase of 1.9 percent.Without a consistent
process to review the criteria that councils of governments
propose to identify comparable regions,HCD may be allowing
some regions to plan for less housing than they otherwise should.
Recommendations
Legislature
To provide HCD additional clarity and guidance in conducting its
vacancy rate adjustments,the Legislature should amend state law
to clarify whether HCD should continue to use a healthy vacancy
rate that includes both rental and owned housing or whether it
should determine and use separate healthy vacancy rates for owned
housing and rental housing.
CALIFORNIA STATE AUDITOR I Report2021-125 23
March 2022
HCD
To ensure that its needs assessments are accurate and do not
contain unnecessary errors,by June 2022 HCD should institute a
process to ensure that its staff performs multiple reviews of data
in its assessments,including data that staff members input and
councils of governments submit.
To demonstrate that its needs assessments are complete and
address all relevant factors,by September 2022 HCD should
establish a formal process to document its consideration of all
factors required by state law in its needs assessments.
To ensure that it adequately supports the vacancy rate adjustments
it makes to needs assessments,by February 2023 HCD should
perform a formal analysis of healthy vacancy rates and historical
trends to inform those adjustments.
To ensure that it does not reduce its needs assessments based on
inappropriate information provided by councils of governments,
by June 2022 HCD should develop a formal process to review the
appropriateness of councils of governments'proposed comparable
regions,including identifying the criteria it will consider when
reviewing councils of governments proposals.HCD should
use this formal process and criteria to consistently evaluate the
appropriateness of the proposals to ensure that they identify regions
with healthy housing markets.
24 Report2021-125 I CALIFORNIA STATE AUDITOR
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Blank page inserted for reproduction purposes only.
CALIFORNIA STATE AUDITOR j Report2021-125 25
March 2022
Finance Provides Reasonable Population
Projections, but It Has Not Provided Sufficient
Support for Its Household Formation Projections
Key Points
• Finance's population projections are the basis of HCD's needs assessments,
and they are generally accurate. Projections for counties with less than
25O,OOo residents were less accurate than for counties with more than i million
residents, but the accuracy of projections has improved over time.
• Finance also creates projections of the number of future households in the
State by county.Although HCD uses the household projections in its needs
assessments, Finance has not conducted a rigorous analysis to support the
household formation rates it uses for the projections.
Finance's Population Projections Have Generally Been Accurate
The basis of housing needs assessments are population forecasts that Finance
produces.State law requires Finance to produce short-and long-range projections
of the population,and it does so for the entire State and its counties.To develop its
population projections,Finance projects future births,deaths, and migration,or
movement into and out of the State,to determine the State's future population by
county.HCD then uses the projections for five to io years into the future in its needs
assessments,depending on the period the assessment covers.3 To review the accuracy
of Finance's previous population projections and their potential impact on HCD's needs
assessment process,we compared the statewide population projections for 2020 that
Finance published in 2oii to Census data for 2020.We found that its projections were
overestimated by just 2.7 percent.The variables that affect population estimates,such as
the number of deaths,births,and migration,are not constant values and are difficult to
predict precisely;therefore,we considered Finance's statewide projections reasonable.
We also reviewed the process and data that Finance uses to make its projections and
found that it is appropriate.Finance has programmed the software that it uses to make
projections to identify and remove illogical results and fix errors in the results.Finance
staff members also perform reviews of these projections.Staff members compare the
projections to previous projections to ensure that there are no unexpected or dramatic
changes.Finance also stated that managers review the results before the department
provides the data to HCD.
When we reviewed Finance's county-level projections over several years,we noted that
their accuracy varied.The projections Finance made in 2011 for the 2020 population
were less accurate in counties with less than 25O,OOo residents than in counties with
3 HCD's needs assessments we reviewed are for eight to io years in the future,ranging from 2o29 to 2031.
26 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
more than i million residents.For example,Finance projected
that Colusa County's 2020 population would be nearly 25,000,
but the actual population according to the 2020 Census was only
about 22,000,a difference of 12 percent.In contrast,Finance
projected that Orange County's 2020 population would be
3.2 million,and the actual 2020 population was 3.19 million,a
difference of 0.4 percent.However,we reviewed subsequent
projections that Finance published in 2013,2o16,and 2oi9 of
2020 county populations and found,as would be expected,that its
2019 projections were more accurate.
Finance plans to account for 2020 Census results when making
its next population projections in 2023.When we asked Finance
about the differences that we identified in its projections compared
to Census data,it had already begun reviewing those differences
in preparation for its next population projections.In fact,it had
identified a series of events and changes that may have affected the
accuracy of its projections in specific counties.For example,Finance
noted that its projection for Mono County was inaccurate due to
population reductions resulting from staffing changes at a military
facility in that county.Further,it explained that it overestimated
international migration into Imperial County,leading to differences
between the Census data and its projection.As a result,Finance told
us that it plans to make adjustments in its approach for projections
as it incorporates 2020 Census data into its next population
projections,which it expects to release in early 2023.
Finance plans to make adjustments
in its approach for projections as it
incorporates 2020 Census data into
its next population projections.
Finance Has Not Adequately Supported Rates It Uses to Develop
Household Formation Projections
Finance did not have a rigorous process to support its projections of
the number of households in each region,despite the importance
of this data in determining a region's housing needs.One of the
factors that HCD's needs assessments include are the projections
of the number of households that Finance expects in future years
in communities across the State. Finance estimates the number of
expected households by identifying a household formation rate for
different age groups in each county.The household formation rate
CALIFORNIA STATE AUDITOR I Report 2021-125 27
March 2022
represents the likelihood that individuals in particular age groups
will have their own households.HCD applies the rate by age group to
the population projections to estimate the number of households that
will exist in the future in a region.Because local governments will
need to plan housing to accommodate these new households,HCD
includes this expected new demand in its needs assessment process.
We expected Finance to use household information in the
2oio Census as its basis for projecting household formation
rates,as 2010 data forms the basis of its current set of population
projections.4 However,Finance explained that instead it estimated
current household formation rates using information from
earlier Census data as well as the 2010 Census.Specifically,
Finance projects that Californians will be increasingly likely to
form their own households in the coming years until household
formation rates reach levels seen before 2010. Finance explained
that before 2010,more people were willing to live independently
than do currently. However, Finance noted the 2010 Census
identified a relatively low household formation rate,which may
have resulted from cultural,demographic, or economic changes,
such as the Great Recession that began in 2007.According to
Finance,its household formation rate reflects an assumption that
household formation patterns in California will increase over time
to pre-2olo levels—those before that recession,when people were
more likely to own homes or take on fewer roommates.
Finance did not formally study how
Californians would form households;
rather, its household formation rates
were the result of deliberations among
members of the advisory committee.
However,Finance did not formally study how Californians would
form households.In partnership with HCD in 2014,it solicited
advice from some experts participating on the 2015-2025 Statewide
Housing Plan Technical and Research Advisory Committee(advisory
committee)to guide its decisions on household formation rates.
Finance noted that its household formation rates were the result
of deliberations among members of the advisory committee.
4 Finance expects to receive detailed 2020 Census information by county in August or September 2022.
It plans to release new population projections,which will include information that accounts for
the effects of the COVID-19 pandemic,in January or February 2023.
28 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
This advisory committee is different from the work group
mentioned previously that HCD convened in 2010 that discussed
vacancy rates. However,our review of available documentation
from the advisory committee found that it did not make any
conclusions about household formation rates.The advisory
committee also did not provide Finance any formal guidance,
analysis,or report on household formation rate trends.
In 2o1.5 and 2016,Finance and HCD staff members reached out to
several university professors and other experts from the advisory
committee to discuss household formation rates.In a series of
emails,staff members from Finance and HCD communicated with
experts to discuss factors that may affect household formation
rates,such as changes in young adult behavior after the Great
Recession and slowing immigration and birth rates.This discussion
also reflected concerns about relying on 2010 Census data,because
the data reflected conditions during a recession.As part of these
conversations,HCD and Finance proposed to the experts several
different household rate trends,one of which Finance now uses.
Although Finance believes its household formation rates are
reasonable,these discussions do not constitute a thorough analysis.
Given that this rate is an important component of the household
projections that Finance used for multiple years,we expected
Finance to better support the assertion that it is using the most
appropriate rate.For example,Finance could have documented
an analysis of historical household formation trends,a review of
academic literature,and its consideration of all factors relevant
to household formation rates to demonstrate that its household
projections are defensible.
Slight changes to household formation
rates, which directly increase or
decrease the number of projected
households, can change HCD's needs
assessments by thousands of units.
Needs assessments can change significantly depending on the
accuracy of Finance's assumptions.Slight changes to household
formation rates,which directly increase or decrease the number
of projected households,can change HCD's needs assessments by
thousands of units.For example,if HCD's needs assessment for
the Santa Barbara Association used household formation rates
i percent lower,the region's needs assessment would decrease by
CALIFORNIA STATE AUDITOR Report 2021-125 29
March 2022
17.5 percent,or about 4,350 fewer units of housing.5 Similarly,if the
needs assessment used i percent higher household formation rates,
the needs assessment would increase by as many units.
Finance plans to reevaluate its household formation rates soon.
Finance believes the household formation rates it uses are still
reasonable because available Census data generally indicated that
it was still a reasonable expectation for household formation rates
to increase in the future and that it would make sense to wait to
formally reevaluate its assumption after detailed 202O Census
data is available.Finance also explained that its assumption
that household formation rates will grow over time helps it to
avoid projecting that recession-era economic issues and housing
affordability problems will persist and affect household growth
indefinitely in the State.However,without a formal comprehensive
review of more recent demographic and economic information,
Finance cannot adequately assure the public,stakeholders, and
HCD that it is providing the most appropriate household formation
rates that HCD includes in the critical needs assessment process.
Recommendations
Finance
To ensure that the population projections it provides to inform
HCD's needs assessments are as accurate as possible,by
February 2023 Finance should review its projections for the
counties with the most significant projection inaccuracies and
adjust its methodology as necessary based on 202O Census data
and other information.
To ensure that the household formation rates that it provides
HCD are appropriate, Finance should,by February 2023,conduct
a comprehensive review of its assumptions about the household
formation rates it uses in projections,and it should document
that review.
5 The Santa Barbara Association's current needs assessment calculates the number of projected
households using a set of eight household formation rates for different age groups,ranging from
n percent for residents is through 24 years old to 72 percent for residents who are 8s and older.
Finance explained that older residents have a higher household formation rate because they are
likely to be financially independent and thus live in their own households.
30 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
We conducted this performance audit in accordance with generally accepted government auditing
standards and under the authority vested in the California State Auditor by Government Code
section 8543 et seq.Those standards require that we plan and perform the audit to obtain sufficient,
appropriate evidence to provide a reasonable basis for our findings and conclusions based on the audit
objectives.We believe that the evidence obtained provides a reasonable basis for our findings and
conclusions based on our audit objectives.
Respectfully submitted,
� f
MICHAEL S. TILDEN,CPA
Acting California State Auditor
Date: March 17, 2022
CALIFORNIA STATE AUDITOR 1 Report 2021-125 31
March 2022
Appendix A
HCD HOUSING NEEDS ASSESSMENTS WE REVIEWED
The chair of the Joint Legislative Audit Committee(Audit
Committee) directed the California State Auditor(State Auditor)
to conduct an emergency audit to examine HCD's regional housing
needs determination process.We reviewed three of HCD's
regional housing needs assessments:the Sacramento Council,the
Santa Barbara Association,and Amador County.We provide those
assessments in tables A.1 through A.3 to give context to the findings
in our report.As noted in the Introduction,for counties without a
council of governments, HCD also provides allocations of housing
needs to the county and cities within it.Table A.4 provides the
allocation HCD provided to Amador County and the cities within
that county.In contrast,the councils of governments provide
allocations of housing needs by income category to their member
counties and cities.
HCD did not provide consistent details in the three assessments
reviewed,and as a result,there are some differences among the
assessments we display below.The time covered by the assessments,
and the total housing needs that communities must accommodate,
vary. HCD does not complete all assessments at the same time
and does not always cover the same period because it aligns the
needs assessment process with other planning processes,such as
regional transportation planning.The total regional housing needs
assessment corresponds to the time period displayed either in
the assessment header as in the case of the Sacramento Council,
or in the population projection.
32 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
Table A.1
HCD Regional Housing Needs Assessment for the Sacramento Council
SACRAMENTO COUNCIL:
JUNE 30,2021-AUGUST 31,2029(8.2 YEARS)
STEPS TAKEN TO CALCULATE AMOUNT
REGIONAL HOUSING NEEDS
Population: August 31,2029(Finance June 30,2029, 2,844,860
projection adjusted+2 months to August 31,2029)
-Group Quarters Population -57,315
Adjusted Household Population 2,787,545
Projected Households Minus South Lake Tahoe* 1,021,005
+Vacancy Rate Adjustment (2.23%) 22,730
+Overcrowding Adjustment (0.60%) 6,111
+Replacement Needs Adjustment (0.50%) 5,105
-Occupied Units Estimated(June 30,2021) -908,396
+Cost Burden Adjustment 6,957
Sixth Cycle Regional Housing Needs Assessment Total 153,512
Housing Units
Source: HCD's needs assessment for the Sacramento Council.
* South Lake Tahoe is not in the Sacramento Council planning area,but it is included in Finance's population
and household projections for El Dorado County.Discussions between HCD,the city of South Lake
Tahoe,the Tahoe Regional Planning Agency(TRPA),and the Sacramento Council have resulted in the
determination that the households projected by TRPA for the 2021-2029 needs assessment cycle
(445 units)should not be included in the needs assessment determined for the Sacramento Council region.
Table A.2
HCD Regional Housing Needs Assessment for the Santa Barbara Association
SANTA BARBARA ASSOCIATION:
PROJECTION PERIOD(8.6 YEARS)
STEPS TAKEN TO CALCULATE AMOUNT
REGIONAL HOUSING NEEDS
Population: February 15,2031(Finance June 30,2031, 488,190
projection adjusted-4.5 months to February 15,2031)
-Group Quarters Population -27,525
Adjusted Household Population 460,665
Projected Households 160,850
+Vacancy Rate Adjustment (2.51%) 4,030
+Overcrowding Adjustment (6.44%) 10,359
+Replacement Needs Adjustment (0.50%) 804
-Occupied Units -152,576
+Cost Burden Adjustment 1,389
Sixth Cycle Regional Housing Needs Assessment Total 24,856
Housing Units
Source: HCD's needs assessment for the Santa Barbara Association.
CALIFORNIA STATE AUDITOR I Report 2021-125 33
March 2022
Table A.3
HCD Regional Housing Needs Assessment for Amador County
AMADOR COUNTY:
PROJECTION PERIOD(10.9 YEARS)
STEPS TAKEN TO CALCULATE AMOUNT
REGIONAL HOUSING NEEDS
Population: September 15,2029(Finance June 30,2029, 40,090
projection adjusted to September 15,2029)
-Group Quarters Population -4,405
Adjusted Household Population 35,685
Projected Households 15,330
+Vacancy Rate Adjustment (0.04%) 6
+Overcrowding Adjustment (0%) 0
+Replacement Needs Adjustment (0.50%) 68
-Occupied Units -14,697
+Cost Burden Adjustment 34
Sixth Cycle Regional Housing Needs Assessment Total 741
Housing Units
Source: HCD's needs assessment for Amador County.
Table A.4
HCD Distribution of Regional Housing Needs Allocation for Amador County
REGIONAL HOUSING NEEDS ALLOCATION
BY INCOME CATEGORY
JURISDICTION VERY LOW LOW MODERATE ABOVE TOTAL
MODERATE
Amador County 189 123 140 289 741
Total
Amador 1 1 1 2 5
lone 30 20 25 42 117
Jackson 27 23 24 64 138
Plymouth 7 5 5 13 30
Sutter Creek 15 12 13 34 74
Unincorporated 109 62 72 134 377
Amador County
Source: HCD's needs assessment for Amador County.
34 Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
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CALIFORNIA STATE AUDITOR I Report2021-125 35
March 2022
Appendix B
SCOPE AND METHODOLOGY
The Audit Committee directed the State Auditor in October 2021
to conduct an emergency audit to examine the regional housing
needs determination process.The audit was approved under Joint
Legislative Audit Committee Rule 17.Recognizing that Rule 1.7's
cost limitations prevented us from satisfying all objectives of the
emergency audit,we focused our work on the first three objectives
contained in the emergency audit request.The table below lists
those objectives and the methods we used to address them.
Audit Objectives and the Methods Used to Address Them
AUDIT OBJECTIVE METHOD
1 Review and evaluate the laws,rules,and Reviewed relevant laws,rules,regulations,policies,and procedures related to the housing
regulations significant to the audit objectives. needs assessment process.
2 Assess Finance's process for developing • Reviewed Finance's calculation process for its most recent set of projections and
population projections used by HCD.Determine assessed the reasonableness of its process and the information Finance uses to generate
what changes Finance made to its projections its projections.
in response to economic and demographic • Assessed Finance's planned modifications to future projections based on COVID-19
changes caused by the pandemic as well as new impacts and found them to be reasonable.Finance intends to update its projections in
Census information.Evaluate historical accuracy January or February 2023 to take into account recent Census data that reflects reduced
of Finance's population projections. births and increased deaths due to the pandemic in 2020 and early 2021.
• Compared Finance's past population projections to 2020 Census data to assess
their accuracy.
3 Evaluate HCD's process for developing regional • Reviewed the process HCD used to create three needs assessments for the Sacramento
housing needs determinations to ascertain Council,the Santa Barbara Association,and Amador County,and determined which
whether it complies with state law and results factors listed in state law it considered,and whether its consideration was appropriate.
in appropriate calculations.Assess whether HCD . For the same three assessments,which HCD completed after changes to state law
properly used vacancy rates for rental markets in 2018,reviewed each adjustment HCD made in the assessments and determined the
and for the entire housing market. relative impact of the adjustments on the overall assessment.
• For the three assessments we reviewed,assessed HCD's support for the 5 percent
healthy vacancy rate it uses for the overall housing market,including reviewing
available historical information and economic research.
Source: Audit workpapers.
36 Report 2021-125 I CALIFORNIA STATE AUDITOR
March 2022
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CALIFORNIA STATE AUDITOR I Report 2021-125 37
March 2022
uin
State of California
ism BUSINESS, CONSUMER SERVICES AND HOUSING AGENCY
BC S H Gavin Newsom,Governor
Lourdes M.Castro Ramirez,Secretary
March 4, 2022
Michael S. Tilden*
Acting State Auditor
California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814
RE: Agency Response to 2021-125 Regional Housing Needs Assessments: The
Department Of Housing And Community Development Must Improve Its
Processes To Ensure Communities Can Adequately Plan For Housing
Dear Mr. Tilden:
Thank you for the opportunity to review and provide comments to the audit pertaining to the
Regional Housing Needs Assessment(RHNA) process led by the Department of Housing and
Community Development(HCD).
As noted, the state's RHNA process requires consultation with Councils of Governments and
intensive data analysis to determine the housing needs for regions. We appreciate that the audit
found that HCD follows a sound methodology in administering this responsibility and offers C
some process improvement recommendations.
Attached you will find a detailed response from HCD summarizing the additional resources and
process improvements that are underway including increasing staff and standardizing
documentation processes.
The Business, Consumer Services and Housing Agency(Agency) and HCD are committed to
maximizing opportunities for all Californians to have a stable, affordable place to call home.
If you have any additional questions for my team at Agency or HCD, please contact us at your
convenience.
Sincerely,
Lourdes Castro Ramirez, M.A.
Secretary
500 Capitol Mall,Suite 1850,Sacramento,California 95814(916)653-4090 www.bcsh.ca.gov
Alcoholic Beverage Control Appeals Board I Department of Alcoholic Beverage Control I California Horse Racing Board I Department of Real Estate
California Housing Finance Agency I Cannabis Control Appeals Panel I Department of Finandal Protection and Innovation I Department of Consumer Affairs
Department of Fair Employment&Housing I Department of Housing and Community Development I Department of Cannabis Control
California Interagency Council on Homelessness
* California State Auditor's comments appear on page 41.
38 Report 2021-125 CALIFORNIA STATE AUDITOR
March 2022
°TD"" o STATE OF CALIFORNIA-BUSINESS,CONSUMER SERVICES AND HOUSING AGENCY GAVIN NEWSOM,Governor
t 0 •,�� DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
74- • ,1 OFFICE OF THE DIRECTOR
7 2020 W.El Camino Avenue,Suite 500
o va. Sacramento,CA 95833
fi''Ltpoxfi° (916)263-7400/FAX(916)263-7417
March 4, 2022
Michael S. Tilden
Acting California State Auditor
621 Capitol Mall, Suite 1200
Sacramento, CA 95814
RE: Regional Housing Needs Assessment
Dear Mr. Tilden:
This is the California Department of Housing and Community Development's (HCD)
response to the Regional Housing Needs Assessment (RHNA) audit conducted by the
C California State Auditor. HCD is pleased to see the audit found no significant problems
with the methodology or instances of double counting. The auditor also identified that
statutory changes that allow HCD to provide adjustments to the existing and projected
regional housing needs have resulted in larger determinations.
Still, the audit found opportunities for process improvements and HCD is committed to
implementing those recommendations. HCD has already added more staff to the RHNA
team and, in partnership with our internal audit team, continues to improve the quality of
our determination process. HCD remains confident in its approach to the 6th Cycle RHNA
Determination both from a legal and methodological perspective. HCD is also confident
that, in particular following the auditor's review, process and quality control improvements
will be beneficial moving forward.
The audit recommendations and HCD's responses are below.
Recommendation 1 (Quality Control/Quality Assurance): To ensure that its needs
assessments are accurate and do not contain unnecessary errors, by June 2022 HCD
should institute a process to ensure its staff perform multiple reviews of data included in
its assessments, including data that staff input and councils of governments (COGs)
submit.
• Response: HCD agrees with the first recommendation (page 25 of 38) and will
complete documenting the process by the proposed deadline. HCD has started to
create additional process documents to aid in implementing this recommendation.
HCD is committed to more accurately determining the housing need moving
forward and values the improved process suggestions.
Recommendation 2 (Jobs Housing Factor and Units Lost): To demonstrate that its
needs assessments are complete and address all relevant factors, by September 2022
CALIFORNIA STATE AUDITOR I Report 2021-125 39
March 2022
r0000"o"ko STATE OF CALIFORNIA-BUSINESS,CONSUMER SERVICES AND HOUSING AGENCY GAVIN NEWSOM,Governor
roo
DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
k
m g' OFFICE OF THE DIRECTOR
o� 2020 W.El Camino Avenue,Suite 500
Sacramento,CA 95833
°1LreoRK'r (916)263-7400/FAX(916)263-7417
HCD should establish a formal process to document its consideration of all factors
required by state law in its needs assessments.
• Response: HCD is committed to continuous process improvement and providing
public documentation of the processes we implement. While HCD does consider Q
all factors described in statute, HCD agrees with the second recommendation
(page 26 of 38) and has already initiated the creation of additional process
documents to aid in implementing this recommendation.' HCD will complete the
documentation process by the proposed deadline.
Recommendation 3 (Vacancy Rate): To ensure that it adequately supports the vacancy
rate adjustments it makes to needs assessments, by February 2023 HCD should perform
a formal analysis of healthy vacancy rates and historical trends to inform those
adjustments.
• Response: As the auditor's report states, the Legislature did not specify what
vacancy rate to use for ownership housing. Given that housing units can fluctuate
between renter and home ownership, and acceptable rental vacancies could be
higher than 5 percent, HCD's 5 percent target rate for total housing stock vacancy
is a reasonable application of the statute. However, HCD agrees with the third
recommendation (page 26 of 38)and will complete a formal analysis of trends and
compile updated research on this topic by the proposed deadline.
Recommendation 4(Comparable Region Analysis): To ensure that it does not reduce
its needs assessments based on inappropriate information provided by councils of
governments, by June 2022 HCD should develop a formal process to review the
appropriateness of councils of governments' proposed comparable regions, including
identifying the criteria it will consider when reviewing councils of governments' proposals.
HCD should use this formal process and criteria to consistently evaluate the
appropriateness of the proposals to ensure that they identify regions with healthy housing
markets.
• Response: HCD agrees with the fourth recommendation (page 26 of 38) and, by
the proposed deadline,will formalize a technical assistance document outlining the
comparable regions process, as well as a list of criteria HCD will use when
t At the time of this drafting, under confidentiality provisions related to litigation and mediation,
HCD is unable to publicly share the details of how it intends to establish a more formal process
to document its consideration of all factors in its needs assessments.These confidentiality
provisions are anticipated to be lifted contemporaneously with the current publication date of
this audit. Should the Auditor require,though HCD does not believe it to be necessary, HCD will
supplement this response with the additional information it currently is unable to disclose.
40 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
co'am "",.off STATE OF CALIFORNIA-BUSINESS,CONSUMER SERVICES AND HOUSING AGENCY GAVIN NEWSOM,Governor
V G
DEPARTMENT OF HOUSING AND COMMUNITY DEVELOPMENT
OFFICE OF THE DIRECTOR
6 v 2020 W.El Camino Avenue Suite 500
Sacramento,CA 95833
°4tnOiit"• (916)263-7400/FAX(916)263-7417
reviewing comparable region proposals. Though HCD can accept or reject data
provided by COGs, HCD also recognizes the inherent challenge of COGs
identifying regions that meet both the undefined concept of comparable and having
a healthy housing market given the extent California's housing crisis.
Sincerely,
Gustavo F.Velasquez
Director
CALIFORNIA STATE AUDITOR I Report2021-125 41
March 2022
COMMENTS
CALIFORNIA STATE AUDITOR'S COMMENTS ON THE
RESPONSE FROM THE BUSINESS,CONSUMER SERVICES
AND HOUSING AGENCY
To provide clarity and perspective,we are commenting on the
response to the audit from the Business,Consumer Services
and Housing Agency(agency) and HCD.The numbers below
correspond to the numbers we have placed in the margin of
the response.
The agency and HCD mischaracterize our conclusions.Our report Q
does not state that HCD follows a sound methodology when
developing needs assessments.Rather,we identified several problems
with HCD's methodology,such as its limited review of staff members'
data entries and a lack of adequate consideration of factors required by
state law.
As we state on page i4, HCD could not demonstrate it adequately Q
considered two factors required by state law in the needs
assessments we reviewed. Specifically,for the jobs/housing
balance in the region,it relied on outdated information during its
consideration and did not follow up with regions as it intended.
For housing lost in emergencies,HCD did not consistently consider
this factor across different regions.As a result,HCD understated
housing needs in the Santa Barbara Association's needs assessment
and potentially reduced the overall reliability of the assessment.
HCD asserts that the 5 percent target rate for total housing stock
vacancy is a reasonable application of state law.However,as we note
on page 19,HCD did not adequately analyze healthy vacancy rates
when it began to use this healthy vacancy rate assumption in 2018.
We are concerned that HCD has not completed a formal analysis to
support its claim that using the same healthy vacancy rate for both
rental and owned housing was appropriate.
42 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
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CALIFORNIA STATE AUDITOR I Report 2021-125 43
March 2022
*wrT GA
a " z
III
it
DEPARTMENT OF Gavin Newsom ■ Governor
%----,P F I N A N C E 1021 0 Street,Suite 3110• Sacramento CA 95814•www.dotca.gov
March 4, 2022
Michael Tilden*
California State Auditor (Acting)
621 Capitol Mall,Suite 1200
Sacramento, California 95814
Re: Department of Finance Response to Draft Audit 2021-125
Dear Michael:
The California Department of Finance has received the California State Auditor's (CSA)
draft findings concerning the Regional Housing Needs Assessment Process.The below
response addresses CSA's findings and recommendations on Finance's household
projections.
CSA first recommends that Finance review its population projections for counties after
2020 Census data are made available. As this is a standard practice for any
demographer updating population projections after the release of a new decennial
Census and the department intends to conduct this review as it always has, we agree
with CSA's recommendation.
Finance's household projections rely on projecting trends in household formation from
the 1990, 2000, and 2010 Censuses to 2030. They are intended to show what might
happen if these trends continue into the future.There are various reasons why patterns
of household formation may be different in the future, such as economic changes, the
impact of new government policies, as well as imbalances between housing supply
and demand. As these are not generally predictable,we periodically reevaluate trends
and assumptions, particularly after the release of a new Census; thus, we agree with the
Auditor's second recommendation that Finance review assumptions used in projecting
household formation rates after the release of the necessary detailed Census 2020 data
later this year.
CSA also recommends that Finance document this review. Each decennial Census is an
opportunity to reevaluate and reexamine models and assumptions. Much of Finance's
analysis and deliberation has traditionally been internal. Finance agrees with the
Auditor's recommendation and will explore ways to more fully document existing
processes.
Finally, as the audit notes, Finance reasonably limits its reliance on Census 2010 data for Q
its household projections because that census occurred during the unique—and
temporary—economic conditions present in the wake of the Great Recession. In
consultation with an advisory committee composed of demographers and other
experts in academia, government, and the private sector, Finance's process also
California State Auditor's comment appears on page 45.
44 Report2021-125 I CALIFORNIA STATE AUDITOR
March 2022
reflects the long-run trend evident from the 1990 and 2000 Censuses by using the
average of 2000 and 2010 Census headship rates as a reasonable proxy for this trend.
Furthermore, Finance notes that the methods used for the current DOF household
projections are informed by analysis of as much recent American Community Survey
(ACS) data as possible to evaluable changes in household formation since the
2010 Census. Comparisons of Finance's earlier projected headship rates and ACS data
indicates that the assumptions underlying the projections are reasonable; and that use
of Census 2010 based rates exclusively would have resulted in household under-
projection.
Thank you for the opportunity to review this draft report. If you have any questions,
please contact Walter Schwarm, Chief Demographer.
Sincerely,
Keely Bosler
Director
CALIFORNIA STATE AUDITOR I Report2021-125 45
March 2022
COMMENT
CALIFORNIA STATE AUDITOR'S COMMENT ON THE
RESPONSE FROM THE DEPARTMENT OF FINANCE
To provide clarity and perspective,we are commenting on Finance's
response to our audit.The number below corresponds to the
number we have placed in the margin of the department's response.
Finance overstates our report's conclusions.We did not make a
determination that Finance's reduced reliance on 2010 Census data
was reasonable.As we indicate on page 27,Finance explained that
its household formation rate reflects an assumption that household
formation patterns will increase over time to pre-2oio levels,and
on page 28 we note that some experts Finance contacted expressed
concern that 2010 Census data reflected recession conditions.
We further note on that page that Finance asserted to us that its
household formation rates are reasonable based on these and other
considerations.However,Finance did not provide us a documented
analysis to demonstrate that the household formation rates it used in
its projections were reasonable.
Moore, Tania
From: Keith Diggs <keith@yesinmybackyard.org>
Sent: Tuesday, December 20, 2022 12:38 PM
To: CITY COUNCIL; supplementalcomm@surfcity-hb.org
Cc: ComplianceReview@hcd.ca.gov; housing@doj.ca.gov
Subject: Agenda Item #33 - Ordinance to Ban Builder's Remedy Developments
Attachments: 221220 CFHE_YL Letter to Huntington Beach re Builder's Remedy (1).pdf
Hello,
Please find attached a letter from YIMBY Law regarding item 33 on tonight's agenda.
Keith Diggs
Legal Manager
703-409-5198
414:„
YES IN MY
BACK YARD
SUPPLEMENTAL
COMMUNICATION
Meeting Date: /,2/ 7d0,3
Agenda item No.; 33 ((,g
-/09(0)
1
Campaign for Fair Housing Elements
CQ;; fairhousingelements.org Y I M BY
LAW
City Council of Huntington Beach
Via email: City.CounciIC surfcity-hb.org; SupplementalCommPSurfcity-hb.org:
Cc: ComplianceReviewC@hcd.ca.gov; housing@doj.ca.gov
December 20, 2022
Re: Agenda Item #33 - Ordinance to Ban Builder's Remedy Developments
To the City Council of Huntington Beach:
We see that the City intends to "[a]uthorize" its city attorney to prepare "an ordinance
banning'Builder's Remedy' developments from taking place in Huntington Beach."
The builder's remedy(Gov. Code § 65589.5(d)) suspends local control as applied to
affordable housing projects in cities, such as Huntington Beach, that have failed to
adopt a compliant housing element. As part of the Housing Accountability Act, the
builder's remedy"appli[es] to charter cities."(Id., subd. (g).) Courts have upheld the
HAA's preemptive effect. (California Renters Legal Advocacy& Educ. Fund v. City of San
Mateo (2021) 68 Cal.App.5th 820, 846-51.)
Like a so-called sovereign citizen, the City has no basis for declaring itself exempt from
State law. The proposed plan is illegal, and we warn the City not to execute it.
Govern yourselves accordingly,
Keith Diggs
Legal Manager, YIMBY Law
keith(hyimbylaw.org
Moore, Tania
From: Fikes, Cathy
Sent: Monday, December 19, 2022 9:37 AM
To: Agenda Alerts
Subject: FW: NO on Item#33, 12-20-22 Council meeting.
From: Dan Jamieson<danjamieson4@gmail.com>
Sent:Saturday, December 17, 2022 2:58 PM
To:CITY COUNCIL<city.council@surfcity-hb.org>
Subject: NO on Item#33, 12-20-22 Council meeting.
Dear HB City Councilmember:
Please vote NO on Councilmember Item#33, during the 12-20-22 Council meeting.
Concerns about the RHNA housing allocation echo strongly among HB residents, regardless of political
leanings. The new Council majority's attention to this issue is welcome.
However, engaging in protracted litigation with the state is a losing proposition and ultimately, in my view, will
limit the City's ability to influence policy coming out of Sacramento and limit the ability of the City and the
SCAG to push reform of the RHNA process.
The Councilmember Item notes that local control has eroded in recent years with unfavorable court rulings and
additional state legislation. Some of this legislation is specifically designed to include charter cities in state
mandates. Much as our City might like to retain full control of housing policy, it is Sacramento that writes the
laws. No one city attorney can overcome that disadvantage.
Rather than engage in a scorched-earth litigation strategy over RHNA,the City would be better served in
making a good-faith effort to get its Housing Element in compliance, and working with other cities and
jurisdictions, and state authorities, in addressing any shortcomings in the RHNA process (of which, I agree,
there are several).
Failure to obtain Housing Element compliance could result in lost state funding and possibly open the door to a
"builders remedy" that could be far worse than the current plan to meet the Housing Element.
I would respectfully suggest the Council majority hold off on a "sue-the state strategy," and if unable to move
the current housing plan, consider further tweaks to that plan, including allowing some residential development
on land zoned for industrial, and continue to work toward full compliance.
Sincerely, SUPPLEMENTAL
Dan Jamieson COMMUNICATION
Huntington Beach Meelitg lam: d al abP09-d-
Agenda Nam No.; 33(9-0 109C0)
Moore, Tania
From: Russell Heine <abele56156@mypacks.net>
Sent: Saturday, December 17, 2022 9:49 PM
To: CITY COUNCIL
Subject: Congratulations on election AND your Contract With Huntington Beach Voters
To the Huntington Beach City Council,
Congratulations on your recent election.
My name is Russ Heine and I am a resident of Yorba Linda, but an alumni of Huntington Beach in
the 70's.
We took note of your"contract with Huntington Beach Voters", which includes the greenlight for
the Huntington Beach city attorney to aggressively push back on state housing mandates.
Congratulations, and we are hoping your actions will be an inspiration for the Yorba Linda city
council to take similar actions.
Your city attorney likely has this information, but I have attached information about three groups
in the state that are aggressively pushing back on arbitrary state mandates.
Keep up the good work representing your citizens!
Respectively ,
Russ Heine
////////////////////////////////////////////////////////////
To The Yorba Linda City Council
My Name is:
Lived in Yorba Linda for Years
Yorba Linda received an arbitrary number of mandated dwelling units that was unsupported by factual
analysis of true housing needs.
There are a number of organizations throughout California that are currently taking action to oppose these
arbitrary actions.
We believe that Yorba Linda should:
- Look at ways to mitigate the large number of High Density clusters in the city
AND
- Assess ways to participate in organized activities that are ongoing throughout the state to rollback these
arbitrary mandates
Three groups , in particular, have merit and are gaining momentum.
All host regular zoom meetings to share information about what other locales are doing and Rlan next steps.
SUPPLEMENTAL
1. Community Catalysts for Local Control COMMUNICATION
https://catalystsca.org/partners/
Meeting Date: /0,0/6 as
Agenda Item No.; 33(aa - 690
A statewide grassroots network of volunteers and elected officials promoting solutions to affordable housing
that is properly supported by infrastructure and the wishes of the neighbors and communities in which the
housing is built.
Partnering with cities such as Palos Verdes, Lakewood and Paramount that are taking legal remedy to oppose
the housing mandates as unconstitutional.
Organizing a multi-city effort to take legal remedy to challenge the HCD housing# development methodology
and force use of correctly calculated housing needs #s.
Support needed:
- 10 cities willing to participate in the HCD law suit and/or supporting the legal action
- Registered members supporting the movement
- Donations
2. Livable California
https://www.livablecalifornia.org/mission/
A statewide non-partisan, nonprofit that advocates for empowerment of local governments to foster equitable,
livable communities and truly affordable housing.
Bringing a strong consistent voice to Sacramento, via lobbyists, to advocate for the views of our members and
allies
Working to assure self-determination of local government
Support needed:
- Cities willing to join in efforts to influence state housing laws
- Registered members supporting the movement
- Donations
3. Our Neighborhood Voices
https://ourneighborhoodvoices.com
California neighborhood leaders organizing a 2024 ballot campaign to bring back our ability to speak out about
what happens in our own neighborhoods. Working to overturn SB 9 & 10 and return to local control via a
statewide voter initiative on the ballot in 2024.
Support needed:
- Cities willing to support efforts to overturn arbitrary state housing laws
- Registered members supporting the movement and assist in efforts to gather signatures in 2023 to place this
initiative on the state ballot
- Donations
More extreme housing mandates are already being planned in Sacramento. If cities and citizens don't take
action NOW our state will be forever changed.
Signed
2
Item 33 will most certainly result in the city incurring significant fines for "challenging" and defying state
laws. Huntington Beach does not exist in a vacuum. Like it or not,we are part of the State of California and
subject to its housing laws. Most of the council members have had little education,to date,regarding how and
why housing mandates exist. We have already paid millions of dollars to fines that could have gone to good
use in our city for defying housing statutes. Continued defiance will not be productive or in the best interests of
the residents of Huntington Beach.
Item 34 regarding the RWG report appears to be political payback at its worst. I sincerely doubt the legality of
this city council "waiving" the Attorney Client privileges of the prior council. The report,previously made
public, explains to Huntington Beach residents why over 1.5 Million dollars had to be paid to former employees
and litigants who were the subject of age discriminatory tactics by the City Attorney. A desire to cleanse Mr.
Gates'record to facilitate his future political aspirations is entirely inappropriate. Mr. Steele,unlike Mr. Gates,
has many decades of Municipal Law experience and training. The point of the report was to educate the council
and serious issues came to light. Sweeping problems under the rug is not in the best interests of the City and its
residents.
I hope the City Council will fully deliberate and consider the need for, effects and ramifications of the above
proposals,with the focus on serving the best interests of the City and its residents.
Sincerely,
Linda Sapiro Moon
SUPPLEMENTAL
COMMUNICATION
meeting DOI /?/O/O d--
Agenda Item Pon. 3-?l 2 — ID q(Q)
2
Moore, Tania
From: Linda Moon <Isapiro048@gmail.com>
Sent: Monday, December 19, 2022 3:54 PM
To: CITY COUNCIL
Subject: 12-20-23 City Council Agenda
Dear Mayor Strickland and City Council Members:
I have been a resident and homeowner in Huntington Beach for 48 years and maintained a law office in
Huntington Beach for 40 years until my retirement. I have followed the work of the City Council for many
years. I understand that the new City Council majority is anxious to make changes and put its mark on the
city's future. I fear, however, that several of the Councilmember Items on the December 20, 2022 agenda were
hastily thought out and could have negative impacts on the city. I urge your careful consideration and measured
approach in moving forward with these proposals. Of greatest concern to me are the following:
Item 11 would raise the salary of the current City Attorney, who had no training or experience in Municipal
Law prior to coming into office, beyond that of all but one other City Attorney in the state, many of whom are
far more experienced, and from wealthier communities. While the City Attorney should be fairly compensated,
the current proposal is concerning.
Item 26, prohibiting anonymous complaints against businesses and requiring in-person filing will be
intimidating to the public and have a chilling effect on legitimate complaints regarding potentially dangerous
Code violations. The public should not be made to fear retaliation or retribution for reporting dangerous
conditions or be required to appear in person during business hours, something impossible for many
residents. The City Code Enforcement employees can quickly determine whether reports are valid or
frivolous. The proposal makes an upfront assumption that all reports are wrongful. The opposite should be
true. Code enforcement practices should best serve the residents, employees and customers, not make them
targets and endanger the safety of reporters and their families.
Item 27 seeking to raise political campaign contribution limits beyond the inflation standards previously
established will result in an unfortunate scenario in which only candidates with wealthy and corporate
supporters can possibly be elected. This is a recipe for council corruption and the elimination of diversity on
the city's governing body.
Item 28 appears to be an inappropriate gift of public funds for the cost of a CEQA Environmental Impact
Review, which would ordinarily be paid by the event sponsor. The benefit to the city in hosting that event does
not warrant the cost proposed.
Item 29 smacks of a full-on attack on services to the homeless. I suggest that the Council avail itself of the
knowledge of your competent staff to become educated regarding state laws protecting the homeless and the
benefits of the services now provided, before seeking to dismantle them.
Item 30 regarding the Orange County Power Authority may be better considered after full reporting on the
status of the Community Choice Power Aggregate and its potential for reducing dangerous greenhouse gasses
and saving money for consumers. As noted by the County Audit serious concerns exist regarding the current
operation of the OCPA. But throwing the baby out with the bathwater may not be the best strategy.
1
Kennedy
C O M M I S S I O
December 20, 2022
www.kennedycommission.org
17701 Cowan Ave.,Suite 200
Irvine,CA 92614
949 250 0909
Mayor Strickland and Councilmembers
City of Huntington Beach
Council Chambers
2000 Main Street
Huntington Beach, CA 92648
RE: Item 33- OPPOSE RHNA MANDATE AND ADOPT AN ORDINANCE TO BAN
BUILDER'S REMEDY DEVELOPMENTS
Dear Mayor Strickland and Councilmembers:
The Kennedy Commission(the Commission) is a broad-based coalition of residents and community
organizations that advocates for the production of homes affordable for families earning less than
$27,000 annually in Orange County. Formed in 2001,the Commission has been successful in
partnering and working with Orange County jurisdictions to create effective housing and land-use
policies that have led to the new construction of homes affordable to lower-income working
families.
As the City Council considers item 33, the request to challenge Huntington Beach's RHNA and
create an ordinance banning "Builder's Remedy" developments, The Kennedy Commission urges
the Council to comply with state and local housing laws and requirements that aim to increase
affordable housing in Huntington Beach.
Due to the City's lack of production of affordable homes, lower-income families continue to have a
great challenge in finding affordable housing options in Huntington Beach. According to the 2021-
2029 Housing Element draft, there are a total of 32,415 renter-occupied households in Huntington
Beach, and 44.3% of renter-households in the city spend thirty percent or more of their gross
income on housing costs. Additionally, 48.5%of the City's renter households spent more than fifty
percent of their gross income on rent. Approximately 38.8% of households have incomes below
80% of the area median income, of which the majority are renters. Low-income renters in the city
cannot afford the average cost of rent in Huntington Beach, which is $2,401. Low income residents
are in urgent need of housing at extremely low, very low, and low income levels.
The shortage of affordable housing in Huntington Beach is due to the City's past noncompliance
with Housing Element commitments. Furthermore,the City has failed to address housing
development in a balanced and equitable manner. In the 5th cycle, the city was allocated 1,353 units,
of which 533 were required to be lower-income units. From 2013-2021, the city approved only 117
units, or 22%, of the 533 low and very low-income units required. In comparison, the city exceeded
its moderate and above-moderate RHNA requirements. The city approved 294 units (119% of the
248 unit moderate RHNA requirement) and 2,754 units (481%of the above moderate RHNA
requirement of 572 units)1.
1 City of Huntington Beach 2013-2021 Housing Element
Page 2 of 2
In addition to the current deficit in housing for lower-income households, the City should plan for
the allocation of new units affordable to lower-income households for the 6th cycle. The 6th cycle
RHNA numbers have been allocated to jurisdictions throughout the county. The City of Huntington
Beach has been allocated 13,368 housing units, of which 5,845 are required to be lower-income
units2. We ask that the City focus its efforts and resources on addressing the dire affordable housing
needs that have not been met in Huntington Beach.
In order to provide housing in a more balanced manner, the Commission recommends that
the city adopt its 2021-2029 Housing Element. The Housing Element should include robust
and effective housing programs and should identify affordable housing sites to address
affordable housing requirements on the production of the lower-income segments. We request
that the city prioritize the creation of affordable homes for extremely low-,very low-, and low-
income households to truly address housing needs not being addressed by the housing market
in Huntington Beach.
The Commission looks forward to partnering with the City to increase housing opportunities for
lower-income residents in Huntington Beach. Please keep us informed of any updates and meetings
regarding strategies to increase affordable homes for lower-income households in the city. If you
have any questions, please feel free to contact me at(949) 250-0909 or
cesarc@kennedycommission.org.
Sincerely,
Cesar Covarrubias
Executive Director
cc: Ms. Megan Kirkeby, Acting Deputy Director, Housing Policy Development, CA HCD
Mr. Paul McDougall, Housing Manager, CA
HCD PublicLands@hcd.ca.gov
2 City of Huntington Beach 2021-2029 revised Housing Element draft,2022.