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Funding Gap Analysis

Overview

The State of California is making an incredible effort to meet the challenges of climate change, including serving as a climate leader and blazing the path for other states to follow. This includes the development of highly aggressive state-wide climate goals. If leaders are serious about meeting these goals, every resident, business, and government agency must make substantial investments in infrastructure and the built environment; the affordable housing community is no exception.

Housing affordability levels in California are extremely low, necessitating a greater supply for affordable housing. The push to meet climate goals puts an already strained affordable housing community under even more pressure. Despite this, the community is innovative and have led the way in many green building and renewable energy efforts over the last 3 decades. Many affordable housing developers acknowledge the need to meet the State’s climate goal and strive to do so without sacrificing affordability. However, our analysis shows that more financial support is required for California to accomplish its dual goals of housing affordability and climate mitigation. Affordable housing and energy advocates must stand together in their efforts to organize more resources to build more affordable, higher-performance housing.

This analysis provides an overview of California’s climate goals alongside the current funding available to upgrade and build said affordable housing and the amount of money required to fill the funding gap. The effort is timely because of the new infusion of funds that will be coming into California from the Federal Inflation Reduction Act of 2022 (IRA), presenting an opportunity for California to harness funding to address this gap.

Summary of Findings

The annual funding gap to decarbonize California’s affordable housing stock is $2.2 billion per year, or a total of $48 billion through 2045.

California’s climate goal requires all buildings to be net zero by 2045, which includes all affordable housing. California’s current climate plan is more aggressive than any other state’s.

California’s climate goal requires all buildings to be net zero by 2045, which includes all affordable housing. California’s current climate plan is more aggressive than any other state’s.

There are 1.6 million existing affordable housing units, while the state is on track to create another 440,000 new units by 2045.

At $25,000 per unit for 94,454 units, the actual funding required per year to upgrade the complete affordable housing stock is $2.4 billion per year. The current funding is $220 million per year.

If state leaders do not increase energy and housing funds for decarbonization, we calculate that on top of typical rent increases, the rents of existing non-deed restricted units will likely be increased by approximately 8% to raise the capital required to fund decarbonization.

  • The current energy package for California provides $1.1 billion through its Equitable Building Decarbonization Program over the next 5 years for decarbonization of affordable housing.
    • California’s climate goal requires all buildings to be net zero by 2045, which includes all affordable housing. California’s current climate plan is more aggressive than any other state’s.
  • In total, the state needs to decarbonize 2 million units. 
    • There are 1.6 million existing affordable housing units, while the state is on track to create another 440,000 new units by 2045.

  • If current funding remains consistent for the next 20 years, the state will decarbonize 176,000 affordable housing units, which is significantly less than the 2 million units in need.

    • The average cost to decarbonize a housing unit in California is $25,000. At the current funding levels of $1.1 billion, the state can decarbonize 8,800 affordable housing units per year.

  • In order to decarbonize 2 million units by 2045, the state needs to decarbonize 94,454 units per year. 

    • At $25,000 per unit for 94,454 units, the actual funding required per year to upgrade the complete affordable housing stock is $2.4 billion per year. The current funding is $220 million per year.

  • Rents of existing non-deed restricted units will likely be increased by approximately 8%

    • If state leaders do not increase energy and housing funds for decarbonization, we calculate that on top of typical rent increases, the rents of existing non-deed restricted units will likely be increased by approximately 8% to raise the capital required to fund decarbonization.

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