California has created a dedicated state housing agency to address its growing housing affordability and homelessness crises. The move separates housing responsibilities from an old department that also regulated alcohol, car mechanics, and horse racing, aiming to simplify the state’s fragmented affordable housing finance system.
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A Long-Awaited Shift
After years of rising rents, housing shortages, and widespread homelessness, California is establishing a standalone state housing agency. Previously, housing programs were managed by the Business, Consumer Services, and Housing Agency, a department overseeing unrelated sectors like cannabis, professional licensing, and horse racing.
Ben Christopher of CalMatters reported that the new agency will absorb housing-related entities and introduce an Affordable Housing Finance Committee better to coordinate funding programs under the governor’s control. However, critical funding programs like tax credits and bond allocations will remain with the independently elected state treasurer.
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Governor’s Restructure Plan
Earlier this year, Governor Gavin Newsom proposed splitting the existing department into two: one dedicated to housing and homelessness and another for unrelated business services. With no veto from the Legislature by July 4, the plan took effect. Newsom’s spokesperson, Tara Gallegos, noted, “This is the first administration to make this a part of our everyday conversation; putting a magnifying glass on the issue of homelessness and finding ways to address it effectively.”
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Why It Was Needed
Experts widely agreed the reshuffle was overdue. Ray Pearl, executive director of the California Housing Consortium, stated, “A Cabinet-level secretary who will sit with other Cabinet secretaries, whose purview will be housing, that is elevating the agenda to the highest level.” The old setup saw affordable housing managers operating alongside unlikely counterparts like the California Horse Racing Board, causing inefficiencies.
Affordable housing projects faced complications navigating multiple agencies for different funding sources. Sarah Karlinsky of UC Berkeley’s Terner Center pointed out, “Many, many states have what is essentially a housing finance agency that controls the majority of affordable housing funds.” California’s split system was unique and problematic.
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Barriers Still Ahead
Despite this restructuring, key funding mechanisms like tax credits and bond programs remain under the treasurer’s control. The Little Hoover Commission, an oversight agency, called this a significant flaw, recommending a formal deal between the governor and treasurer to streamline applications.
Matt Schwartz, president of the California Housing Partnership, said, “There’s going to be a bit of diplomacy” to create a unified funding application. Affordable housing advocates stressed caution before combining all bureaucracies, as existing application systems run by the treasurer already work efficiently.
A working group is due to propose a consolidated application by July 1, 2026, coinciding with the official dissolution of the current agency and upcoming statewide elections to replace both Newsom and Treasurer Fiona Ma.
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Lingering Doubts
While some see the agency as a solid first step, skepticism remains. Sen. Christopher Cabaldon remarked during a March hearing, “Simply saying that it’s going to cause more focus, that it will be streamlined, that it will cause leadership-level action, but how?” The true test will come when the new agency confronts the bureaucratic complexity and cost delays head-on.
A Terner Center study estimated that each additional funding source adds four months and over $20,000 per unit in project costs. California already builds public housing at more than 2.5 times the cost per square foot compared to Texas and Colorado, highlighting the scale of the challenge.
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Next Moves and Stakes
The new agency will consist of existing housing-focused departments and an Affordable Housing Finance Committee tasked with aligning programs under Newsom’s purview. However, without control of the largest funding sources, the agency’s success will depend on collaboration with the treasurer’s office and upcoming legislative decisions.
Pearl emphasized caution, saying, “The process is not broken and doesn’t need fixing. Let’s get the agency set up.” Meanwhile, a long-awaited unified funding application remains the “bureaucratic holy grail,” with hopes it might finally materialize through this overhaul.
