Report 2021-125 All Recommendation Responses

Report 2021-125: Regional Housing Needs Assessments: The Department of Housing and Community Development Must Improve Its Processes to Ensure That Communities Can Adequately Plan for Housing (Release Date: March 2022)

Recommendation for Legislative Action

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.

Description of Legislative Action

As of March 17, 2023, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 1-Year Status: No Action Taken

Description of Legislative Action

As of October 20, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 6-Month Status: No Action Taken

Description of Legislative Action

As of June 3, 2022, the Legislature has not taken action to address this specific recommendation.

California State Auditor's Assessment of 60-Day Status: No Action Taken

Recommendation #2 To: Housing and Community Development, Department of

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.

6-Month Agency Response

HCD has created a review checklist that tracks the submission and verification of data provided by the COG during the consultation phase. The checklist will prompt staff to confirm and verify the data submitted by the COG, as well as the source of the data and any applicable notes as to why the data was either accepted or rejected. The checklist will also include a space for manager review and approval.

In order to ensure the accuracy of data gathered by HCD, and confirm data submitted by the COG, HCD staff have updated needs assessment documents to include application programming interfaces (APIs) which will reduce reliance on copy and paste for certain data sources.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

Create checklist which documents the data submitted by the COG, prompts staff to confirm the accuracy of the data submitted, and documents how factors were considered.

Include data verification and confirmation checks in the RHNA data workbook.

Ensure multiple levels of review, from staff to management, of data inputs and review checklist to ensure completion of checklist and review materials.

Consider implementing new data gathering methods, such as utilizing application programming interfaces (API's) which can reduce errors caused by copy/paste or other manual collection methods.

California State Auditor's Assessment of 60-Day Status: Pending

After additional communication with HCD, it clarified that the list of actions provided in its response are those that it is taking to implement the recommendation. HCD further clarified that the fourth item should state that it is testing new data gathering methods, rather than just considering them.

Recommendation #3 To: Housing and Community Development, Department of

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.

6-Month Agency Response

HCD has established a formal process for documenting its consideration of all factors required by state law in its needs assessment, which will be implemented in a transparent and uniform manner. To document its process, HCD has added explanatory notes describing how every factor required by state law is considered in the Regional Housing Need Determination letter template that is transmitted to the regional councils of government. HCD also incorporated steps into the checklist developed in response to recommendation #1 that prompts HCD to confirm whether the COG has submitted data related to the jobs housing imbalance and state of emergency adjustment factors. This documentation is intended to implement the actions HCD committed to in its March 4, 2022 response to the Auditor's report.

HCD is also planning to go above and beyond the changes the Auditor requested in the 2021-125 Audit. In the coming months, HCD is planning to convene a public process to discuss and identify alternate jobs-housing imbalance data sources, methodologies, and recommended targets. This process will include the convening of a panel of experts with relevant expertise in the field of jobs-housing imbalance, planning, and/or best practices, all as determined, identified, and selected by HCD.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

HCD will establish a formal process for documenting its consideration of all factors required by state law in its needs assessment.

HCD will convene a public process to discuss and identify jobs-housing balance data sources, methodology, and recommended targets. This process shall include a panel of experts with relevant expertise in the field of jobs-housing imbalance, planning, and/or best practices, all as determined, identified, and selected by HCD.

To the extent HCD adopts a jobs-housing balance methodology and recommended targets, HCD will apply such targets or methodology to future determinations. HCD shall use reasonable and good faith efforts to ensure that any methodologies deployed are transparent and uniformly applied.

If and to the extent necessary and appropriate data is available and reliable, as determined by HCD, HCD will make written determinations on whether each region has a current and/or projected imbalance between jobs and housing.

If not provided, HCD will request employment projections from the COG to consider using in any jobs/housing adjustment factor.

If not provided, HCD will request that data from the COG related to units lost during a state of emergency be submitted to HCD. HCD will work with Department of Finance and other agencies to verify data submitted by the COG contains a complete accounting of all units lost during the state of emergency and will incorporate the adjustment factor into all determinations in a transparent and equitable manner.

To the extent HCD adopts a jobs-housing balance data source, methodology, and recommended targets, HCD will formally incorporate such jobs/housing methodology and recommended targets, along with explanatory notes regarding the same into the Regional Housing Need Determination letter template to be transmitted to the regional councils of government.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #4 To: Housing and Community Development, Department of

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.

1-Year Agency Response

HCD has reviewed the academic literature on healthy vacancy rates as well as historical vacancy rates across California and the United States. HCD found two studies, one by the Lincoln Institute of Land Policy (2018) and one by Professor Barry Bluestone, Director of the Dukakis Center for Urban and Regional Policy at Northeastern University (2022). Both studies found strong evidence that healthy vacancy rates are between 6-8% for rental housing and 1.3-2% for owner housing. Using a regression analysis, Professor Barry Bluestone found that these healthy ranges represent the point at which housing costs begin to stabilize and may even decline. Over the next year, HCD is also planning to convene a public process to get additional feedback from experts on a revised vacancy adjustment.

California State Auditor's Assessment of 1-Year Status: Pending

Because the Department of Housing and Community Development has not yet completed its analysis and public process, it has not yet fully implemented this recommendation.

6-Month Agency Response

HCD will conduct research into the academic or industry studies published regarding historical and current vacancy rates, and how they may be used to calculate an accurate vacancy rate to use for the RHNA. If such research is out-of-date or not available, HCD may consider commissioning a study on the topic.

HCD will consult with a panel of experts regarding the academic or industry studies available and determine how to best use the relevant information available to form a target adjustment factor to use in the RHNA.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

HCD will conduct research into the academic or industry studies published regarding historical and current vacancy rates, and how they may be used to calculate an accurate vacancy rate to use for the RHNA. If such research is out-of-date or not available, HCD may consider commissioning a study on the topic.

HCD will consult with a panel of experts regarding the academic or industry studies available and determine how to best use the relevant information available to form a target adjustment factor to use in the RHNA.

HCD will consider both owner and renter vacancy rates going forward and may apply different targets for each based on the conclusions from the research and panel recommendations.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #5 To: Housing and Community Development, Department of

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.

6-Month Agency Response

HCD has established a formal set of criteria and factors that COGs may include in their comparable region analysis, which HCD will use when reviewing the appropriateness of council of governments' proposed comparable regions. This criteria excludes factors that are either identical to or highly correlated with overcrowding and housing cost burden to ensure proposals identify regions with healthy housing markets. This documentation is intended to implement the actions HCD committed to in its March 4, 2022 response to the Auditor's report.

HCD is also planning to go above and beyond the changes the Auditor requested in the 2021-125 Audit. In the coming months, HCD may consult with a panel of experts to get input on the criteria and factors that HCD has developed to assess proposed comparable regions.

California State Auditor's Assessment of 6-Month Status: Fully Implemented

60-Day Agency Response

HCD will establish a formal set of criteria and factors that COGs may include in their comparable region analysis.

In considering acceptable factors, HCD will exclude factors that are either identical to or highly correlated with overcrowding and housing cost burden.

In establishing formal criteria and factors for comparable region analysis, HCD may consult with a panel of experts to get input on what factors are acceptable as measures of comparability but are not correlated with high rates of overcrowding or cost burden.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #6 To: Finance, Department of

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 2020 Census data and other information.

1-Year Agency Response

As additional Census data is released Finance incorporates it within released products after reviewing its projections for counties. Census 2020 data has been used to estimate and revise the January 1 estimate series for the State, counties, cities, and balance of counties, released in early May 2022. Likewise, the State and county estimates released in January 2023 also incorporated the 2020 Census as the starting base.

The delay in the Census Bureau's planned release of the Census 2020 Demographic and Housing Characteristics (DHC) file from late summer 2022 to May 2023 has changed the timeline and plans for the next projections series. Accordingly, the DRU will produce an interim projection series based on as much Census 2020 data as is available for release in spring 2023 (See Projections Page). This interim projection update will then be superseded by a new projection series based fully on a Census 2020 baseline and new assumptions in the spring of 2024.

California State Auditor's Assessment of 1-Year Status: Fully Implemented

6-Month Agency Response

This review continues as additional Census quality metrics are released. Census 2020 data has been used to estimate and revise the Jan. 1 estimate series for the State, and county, city, and balance of counties which was released in early May 2022.

While the next projections series was planned for release in early 2023, the recent announcement from the Census Bureau that the release of the Census 2020 Demographic and Housing Characteristics (DHC) file will occur in May 2023 rather than late summer 2022 has changed the timeline and plans. Accordingly DRU has begun the process to produce an interim projection series based on as much Census 2020 data as is available for release in early 2023 (See Projections Page: https://dof.ca.gov/Forecasting/Demographics/projections/ ). This interim projection update would then be superseded by a new projection series based fully on a Census 2020 baseline and new assumptions in the spring of 2024.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

This review has commenced and will continue over the coming months as Finance releases more estimates and projections and further Census 2020 data becomes available.

Already, Census 2020 data has informed the process of developing Jan. 1, 2022 state, county, city, and balance of county estimates. Those estimates were released in early May 2022. (See attached exhibits). In addition, following conversations with the California Department of Public Health, DRU provided a reweighted projection file for years 2020-2023 using the race/ethnic distributions from the 2020 Decennial Census PL 94-171 redistricting data to better track COVID-19 vaccinations.

The next projections series was planned for release in early 2023. The recent announcement from the Census Bureau that the release of the Census 2020 Demographic and Housing Characteristics (DHC) file will occur in May 2023 rather than late summer 2022 has changed the timeline and plans. Over the next several months DRU will adjust the existing projections to better reflect the limited amount of Census 2020 data that now exists. This interim projection update would then be superseded by a new projection series based fully on a Census 2020 baseline and new assumptions in the fall of 2023.

California State Auditor's Assessment of 60-Day Status: Pending

Recommendation #7 To: Finance, Department of

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.

Annual Follow-Up Agency Response From September 2023

As stated in the Department of Finance's 12-month response to CSA's recommendations, DOF fully implemented the recommendation that it review the household formation assumptions and document that review because DOF had established a workgroup, reviewed existing trends, performed preliminary modeling, and prepared a draft of a guiding document for external review. A CSA auditor requested additional information concerning the external review that was not available at the time of the 12-month response. That information will be completed at an October 11, 2023 meeting and DOF will provide the resultant materials and recommendations to CSA shortly thereafter.

California State Auditor's Assessment of Annual Follow-Up Status: Fully Implemented

1-Year Agency Response

DRU's Household Projections workgroup has discussed and examined a variety of assumptions and trends likely reflected in the next vintage of household formation rates. This includes reviewing existing trends, preliminary modeling, and evaluation of previous headship rates using Census 2020 PL94-171 and American Community Survey data. The workgroup has completed the final assumptions and a guiding document has been sent for external review).

California State Auditor's Assessment of 1-Year Status: Pending

Pending completion of the external review process that the Department of Finance referred to in its response.

6-Month Agency Response

DRU's Household Projections workgroup has discussed and examined a variety of assumptions and trends likely reflected in the next vintage of household formation rates. This includes reviewing existing trends, preliminary modeling, and evaluation of previous headship rates using Census 2020 PL94-171 and American Community Survey data. The workgroup is beginning work on the final assumptions and a guiding document with the goal of sending to external review by mid-October.

While we anticipated the release of the Census 2020 DHC file in late summer 2022, the Census Bureau's decision to delay this file until May 2023 alters the timeline. The file was to provide the data necessary to calculate headship rates from Census 2020 and allow preliminary estimation and projection of household formation rates. With its delay, DRU will examine methods that rely solely on the ACS 5-year data to produce, much like the underlying population projections, interim household projections that will span the gap until the Census 2020 data is available. DRU is in the process of organizing a panel of demographic, housing, and other experts to review preliminary rates and assumptions, and provide feedback. These steps will be documented and compiled in a report that will be available. These modified steps are on track to be completed in early 2023.

California State Auditor's Assessment of 6-Month Status: Pending

60-Day Agency Response

DRU has formed a Household Projections workgroup which will discuss and characterize the assumptions and trends likely reflected in the next vintage of household formation rates. This includes reviewing existing trends. Continued discussion, preliminary modeling, and evaluation of previous headship rates using Census 2020 PL94-171 and American Community Survey data will occur throughout the spring and summer in this workgroup and the final assumptions will be codified in a guiding document.

While we anticipated the release of the Census 2020 Demographic and Housing Characteristics (DHC) file in late summer 2022, the Census Bureau's decision to delay this file until May 2023 alters the timeline. The file was to provide the data necessary to calculate headship rates from Census 2020 and allow preliminary estimation and projection of household formation rates. With its delay, DRU will examine methods that rely solely on the ACS 5-year data to produce, much like the underlying population projections, interim household projections that will span the gap until the Census 2020 data is available. DRU plans to organize a panel of demographic, housing, and other experts to review preliminary rates and assumptions, and provide feedback. These steps will be documented and compiled in a report that will be available on the DRU web page. These modified steps are on track to be completed in early 2023.

California State Auditor's Assessment of 60-Day Status: Pending

All Recommendations in 2021-125

Agency responses received are posted verbatim.