Funding Housing Sustainably: The Promise of California Cap and Trade

February 20, 2019

by Oriya Cohen

California has a severe housing shortage. Because of steady population and job growth, poor planning, and local land-use processes that often stifle development, more than half of the state’s renters and over a third of its homeowners cannot afford the cost of housing. The gravity of the situation is forcing collaboration across the environmental, transportation, health, and education sectors. Although California’s housing crisis persists, emerging cross-sector innovations, like the use of the state's cap and trade program for greenhouse gas (GHG) emissions to tackle the housing shortage, provide useful models for other states and localities to follow.

Housing’s environmental cost

Where we live has serious environmental implications. Research shows that suburbs account for half of all GHG emissions in the United States, despite housing less than half of the American population. In California, housing shortages near job centers are driving an outward migration of low- and middle-income families from urban cores to expanding suburbs. The pursuit of affordable housing in less dense neighborhoods with limited employment and transit options is leading to longer and costlier commutes. In a state where transportation-related emissions account for over 40 percent of the state’s total GHG emissions, outward migration pressures threaten both the well-being of families and the state’s ambitious environmental goals.

California policymakers recognize this connection. In 2014, the California Strategic Growth Council launched the Affordable Housing and Sustainable Communities (AHSC) program. Pulling resources from the state’s Greenhouse Gas Reduction Fund, the holding account for cap and trade revenue, the state created a new grant program to fund integrated housing, transportation, and land-use projects that reduce GHG emissions. The program prioritizes affordable housing projects and sets aside at least 50 percent of available funds for projects benefiting communities most burdened by pollution and most vulnerable to its effects. Although the AHSC program’s funding is limited and the program awarded grants to only 43 percent of eligible projects, the funds are critical for catalyzing transformative projects across the state.

Putting cap and trade dollars to work

In the first three rounds of funding, the AHSC program awarded funding to 77 developments in 40 communities, investing more than $701 million into affordable housing, transportation, and land-use projects. These investments helped provide critical funding for 6,443 transit-oriented, affordable homes for low-income families, the majority of whom earn less than 50 percent of the area median income. Each project is leveraging AHSC funds in unique ways to pair housing development with transportation improvements, redevelop vacant land, or integrate wraparound services to meet the needs of vulnerable populations. A few examples from across the state showcase the program’s versatility:

Sierra Village in the city of Dinuba used ASHC funds reserved for rural innovation projects to create 44 affordable housing units powered by solar energy and connected to transit options, including a vanpool program that will transport residents to and from work in the surrounding area.
The Lakehouse Connections development in Oakland is using AHSC funds to invest in a new hybrid bus and several pedestrian and bike improvements alongside the development of 90 affordable housing units.
The Hunter Street Housing development in Stockton is using AHSC funds to revitalize a vacant commercial structure into 74 affordable housing units for veterans with on-site supportive services.

These integrated housing, transportation, and land-use investments have promising environmental benefits. Data projections from the Strategic Growth Council suggest that AHSC investments will eliminate more than 1.6 million metric tons of carbon emissions over the course of awarded projects’ lifetimes. Each year, the projects will remove approximately 11,745 cars from the road and reduce car travel by 134 million miles.

Looking ahead

Although California is a long way from solving its housing crisis or meeting its ambitious carbon emission targets, the AHSC program provides an insightful and innovative example of how blending resources and aligning strategic goals across sectors can generate mutually beneficial results. The AHSC program’s accomplishments prompted the Strategic Growth Council to develop additional programs that leverage cap and trade dollars to fund catalytic cross-sector projects.

One such program, Transformative Climate Communities, empowers California’s most disadvantaged communities to plan and develop projects that reduce GHG emissions and provide additional environmental, health, and economic benefits to their communities. The first $140 million of investment—awarded to Watts (PDF), Ontario (PDF), and Fresno—funded a range of greening, transportation, housing, and economic development projects in each city based on extensive community engagement and participatory budgeting processes.

The success of these programs is inspiring localities across the country to follow California’s lead, even absent cap and trade funding. From Denver’s transit-oriented development fund to New Orleans’s resilient housing strategy, cities are finding innovative ways to integrate environmental and housing investments. As more case studies emerge, other states and localities can leverage an increasingly robust road map for financing and developing sustainable, affordable, and inclusive communities.

Photo by Pung/Shutterstock