VX2026 "Affordable Housing: Is the Model Broken?": Bob Hertzberg’s Ballot-Box Missing Middle Fix
In this excerpt from VX2026's plenary "Affordable Housing: Is the Model Broken?", Robert Hertzberg, the former California State Senate Majority Leader and Senior Advisor at Mission Possible Partnership, moves past the familiar catalog of what's broken toward what he's actually building: a November 2026 ballot measure aimed squarely at the "missing middle" – the working families priced out of both subsidized affordable housing and market-rate ownership (a Revenue Bond to be paid back by homebuyers’ mortgage payments). Read along as Hertzberg lays out the five categories of housing he sees and delivers a verdict on why California's existing housing dollars aren't reaching the people they're meant to. A recording of the entire plenary can be found here.
“The only way you actually come to conclusions is when everybody screams in pain, and it is a deal that everybody is not super happy with, but you are focused on the common good.’ — Robert Hertzberg
Rick Cole: We are going to answer two questions in the brief time afforded this VX Panel One: what is wrong with the system now? And: what can we do to fix it? To take on those interrelated challenges we have a legendary California public servant, former State Senator Bob Hertzberg, and two people who actually develop housing in their different roles—Dan Weinstein of CTI and Ted Grove of Stantec. We are going to talk very practically about the flaws of delivering affordable housing under the current fragmented model, and then very pragmatically about what we can do to fix it.
Bob, you literally put together a team to assemble what is wrong and how to fix it. Start with what is wrong.
Robert Hertzberg: Can I start by defining terms? When we talk about housing, I see five categories.
First, the whole homeless issue of transitional housing and the attendant circumstances around mental health and addiction that so often inform the discussion. We had a discussion with the gubernatorial candidates recently, with Ezra Klein in Oakland, and they gravitated to that issue.
The second is the large issue that was just discussed: affordable housing, which is rental units. Affordable rental units – and all the subsidies, the programs, and the bureaucratic complexity that goes on in those programs, and how difficult it is, as was just articulated.
The third area is keeping people in their homes – whether that is litigation, defense against unlawful detainers, or covenants, making sure they do not expire. You hear politicians talk about this all the time: people are going to lose their homes. So the question is, what is the cost there versus people going onto the street?
The fourth category, the one I have been concentrating on, is the opportunity to get a piece of the rock: home ownership.
And lastly, the whole market-rate issue of both ownership and rental. That is all about fees – the exactions where governments come in and charge you hundreds of thousands of dollars because they are not getting their property taxes, or utilities that take two years to hook up, and all of the practical things associated with that.
The complexities of the rental piece are a big deal. But I left government a few years ago, and I tried when I was in government to focus on the missing middle. It is my judgment that in the housing space the discussion is always about the underserved – all of which is important, all of which forms the foundation of my political values. But I think we have lost so much of the missing middle, the folks who say, "I will never be able to afford a house. My kids will never be able to afford a house. I want to get a piece of the rock. I want the ability to build generational wealth. I am sitting there paying rent for 10 years, making a landlord rich, and I have got nothing."
I could not get a Missing Middle fix done in the Legislature, because quite frankly the political industrial complex surrounding the affordability world has to make sure it gets paid—you cannot do a straight middle-class play. So I have been working pro bono for the last three years since leaving the government. I have a ballot measure that is going to be on the ballot (Proposition #36) in November 2026.
Rick Cole: Let's focus on what led you to bypass the legislature and go directly to the People, because we are going to get to the solution in a minute.
Robert Hertzberg: What led me to it was that we in the legislature did not have solutions for middle class people to be able to get a house. It is that simple. I could talk about the details, but that is it. One of the problems of this complexity that I am trying to solve is getting folks who cannot afford $200,000 down into a house—and into a brand-new house.
Rick Cole: One of the problems you have identified, which is key and which we do not talk about, is that subsidizing the existing supply of housing actually raises the cost. Talk about why you focused on directly getting new homeowners into new construction.
Robert Hertzberg: The problem is supply, supply, supply. If you go out with down payment assistance programs (we have a lot of them; the federal government has some, the state has some) all it does is increase the price of existing stock, because now the down payment is less, and it increases the cost. You have got to increase supply. So I wanted to focus on something that exclusively increased new houses and new builds.
Proposition #36 does two things. One, it avoids the compression on price from the down payment. Two, it gives people a brand-new house, with a brand-new refrigerator and brand-new air conditioning and a brand-new toilet seat. You are not living in your grandma's house when you buy the place, if you are lucky enough to get a place, and then immediately spending a bunch of dough trying to fix it up. You have got a brand-new place. It is a pretty cool thing.
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Rick Cole: Bob, you have already previewed a way of marrying new ownership opportunities with new housing. How does your measure on the November ballot work?
Robert Hertzberg: Let me add a couple of thoughts on some of the impediments first-time homebuyers.
Credit reports. What if something happened in your life three or five years ago and you had a problem on your credit report? These various programs require minimum credit scores, and you are handcuffed by a bad credit score for eight years. What we have done to get around that – again, thinking about the pragmatic question of how you determine someone's actual risk versus whether the credit score is really accurate – is that Fannie Mae, Freddie Mac, and the Comptroller of the Currency tell us we can look at cash flow underwriting to show you can afford it, as an alternative methodology to qualify.
Two, do not limit this to first-time homebuyers. What if you had a house and you lost it, you got a divorce, something happened in your life? If you can afford it, home ownership is critically important.
Three, your point about the paperwork and the bureaucracy. Any time a regular individual has to talk to the government, you need a PhD in bureaucracy. It is so hard. So what we did was give the banks a half-point origination fee and Community Reinvestment Act credit to deal with the back of the house. The bank makes the loan, and you never have to talk to a loan officer. It is like when you go buy a new General Motors car—you do not have to go to Detroit to get your $1,000, you just get it off the price at the dealer. Super consumer-friendly ways to make it happen.
And lastly, any time you are doing new construction you have the issue of liability. There are two sides to the trade. You have got the money, but can you make a deal? Do you want to buy a house? Will a developer develop? So I capped legal fees in this deal, and we included the right repair for construction defects, because no one wants to build.
Now, all of a sudden, we have created a new environment where developers want to develop, bankers want to lend, and buyers can actually buy a place. Creating that architecture is the reason I have no opposition. It really weaves this together and works, and it builds 190,000 brand-new houses in California, according to a UCLA study. That could be a conversion of an office building or a shopping center. It could be a row house, a condo. It could be anything. It is ownership and new. That is what matters—ownership and new—and you do not have the limitations of a program like the one at the state Department of Housing and Community Development, where you do not just have to be a first-time homebuyer, you have to be a first-generation homebuyer.
I want something that every person can look to and relate to. These are important values, but we are trying to change the game to something that is aspirational. We do not see it on the ballot and we do not see it among voters. It is all these people bickering and fighting over whatever they are fighting over, versus, "Hey, we are going to take care of you in a way that works for you." That is the framework of what we are doing.
Basically, it is 3 percent down, and they are not taxpayer bonds. No taxpayer liability—the ballot says no state or local taxpayer costs. We are going to foundations, investors, and other people who buy bonds at 2 or 3 percent. So you go to your bank, get a traditional loan, whatever that loan is, and you get a 2 or 3 percent second trust deed. You pay both of them every month. I can show you the numbers. We have gone all around the state, and it works. It is a pretty elegant solution that has taken five years in the making to get to, but I am pretty happy about it.
Rick Cole: You laid out five different challenges at the outset. Let's leave aside for the moment the fifth one, market-rate housing. How could you apply your method of comprehensively tackling missing-middle home ownership to the other three? What is the magic of getting people in a room, working out the research, looking at the data, hammering out something that makes sense, and actually getting it on the ballot? What is it that you learned through that process of brain damage, both as a state senator and then once out of government? What would it take to assemble similar approaches to the other three challenges?
Robert Hertzberg: I have done this about half a dozen times. I did it on privacy and in other areas. I did it when I was Speaker of the Assembly, and I did it in the Senate on many, many issues. What we have done in order to be successful is go out and get some funders, and put all the various interest groups in a room. Because the way the process works in government – you have been through this a lot – you have no time to really do the deep dive and the big think. Everybody just goes out and plays who is your friend on this side and who is your friend on that side, and literally it takes years. It took us two years on privacy. It took two years on initiative reform, and we spent $2 million on initiative reform. We had the former chief justice and others in the room, and you do polling and research and economic research. It is all about the homework, and cobbling together those people to build that coalition.
With respect to this housing piece, I pretty much did it on my own. I raised $800,000 for lawyers and economic analysis and polling to figure out how to put this thing together, and a gazillion meetings, calling everybody independently. But it is an inside/outside strategy that I have found to be successful, where you really spend the time and do the deep dive. You cannot just come in and have some group introduce a piece of legislation or an ordinance, because they all write it in a way that protects themselves. The only way you actually come to conclusions is when everybody screams in pain, and it is a deal that everybody is not super happy with, but you are focused on the common good.
Rick Cole: Bob, any thoughts about that model, its potential, as well as its challenges?
Bob Hertzberg: I introduced the bill and then turned it over to [then-Senator Sydney] Kamlager, then got it off the floor when we had that big fight with [Senator Anthony] Portantino. That was a crazy time.
Look, I think the funding mechanism is important, but I think the implementation is crap. I know people are going to be upset with me for saying that, but there are so many people at the trough making so much money on the deal that the cost kills us politically when you are at a million a door, whatever the numbers are. We are not inspiring confidence in the electorate in terms of its success, and the consequences are dealing with us every day in this election right now. It is a big problem.
It was a great vision, and ultimately the revenue stream is important, but I am deeply disappointed about how it is being implemented. To me, we have got to go back to the table and figure it out. The challenge I have in all of these things is that the political industrial complex controls all this stuff, and everybody has got some fee or something they are trying to figure out, which runs the costs up tremendously and slows the production of taking care of folks.
Rick Cole: I want to salute you, Bob, for the incredible effort to put together a practical solution to one of our big problems, and to raise $10 million to put it on the ballot. Does it have a number yet.
Robert Hertzberg: The California Middle Class Home Ownership Act, Proposition #36, will be on the ballot. You will see it—the first one up.
Rick Cole: If there is any important takeaway here, it is to figure out how we find the common ground, because the current system is not working. As Bob emphasized, we are all going to have to give up a little for the solution, so that our children and our grandchildren can afford to live here, and so that the fourth-largest economy in the world has a firm foundation of housing security for the 40 million people who live here.
Tags: Affordable Housing, Home Ownership, Missing Middle, Bob Hertzberg, California Legislation, Ballot Measure, Housing Finance, Middle-Class Housing, CEQA, Housing Policy, VX2026
