California cities and counties soon will be able to count middle-income apartment conversions toward their affordable housing quotas under a bill Gov. Gavin Newsom signed Tuesday, Sept. 28.

The “workforce housing” legislation was one of 28 housing bills Newsom signed Tuesday, the governor’s office said.

The measure, Assembly Bill 787, is expected to incentivize local governments to adopt an innovative “missing middle” program that converts market-rate complexes into middle-income housing in exchange for property tax breaks.

“Too many communities across California have become unaffordable for ordinary folks,” the bill’s author, Assembly member Jesse Gabriel, D-Woodland Hills, said in a statement. “This legislation will help to ensure that working people — including the nurses, teachers, firefighters and grocery workers who’ve helped us through the pandemic — can afford to live in the communities where they work and serve.”

While the bulk of affordable housing programs are aimed at poor and extremely poor households, middle-income workers like office staff, restaurant, theme park and retail employees often are forced to commute long distances because they can’t afford housing closer to where they work.

Under the newly developed program, a quasi-public entity called a joint powers authority issues tax-free bonds to buy apartment buildings, then limits future tenants to middle- and low-income residents and charges rent based on their income.

In most programs, two-thirds of the units are limited to tenants earning 80-120% of the median income, or $94,600 to $96,000 a year for a family of four in Los Angeles County and $107,550 to $128,050 a year for a four-person household in Orange County. The remaining third is reserved to residents earning less than 80% of the median income.

On average, the rent amounts to 35% of the tenant’s gross income.

The buildings are freed from paying all property taxes for the life of the bonds, making it possible for operators to lower the rents. The city or county ends up owning the building once the debt is paid off.

The program has been wildly popular with some cities in the Bay Area and in Los Angeles and Orange counties. So far, 30 relatively new apartment buildings have been converted into workforce housing. Twenty-six of those conversions occurred during the past 10 months.

Affordable housing advocates, city housing staff and at least one consultant have criticized the program as risky, questioning whether rent will cover management fees and maintenance costs and whether cities will acquire run-down buildings at the end of the program. Some critics also questioned whether rent reductions are sufficient to justify the cost to taxpayers.

But allowing cities to claim conversions in their annual housing reports to the state could be a strong incentive to adopt such programs. Faced with a housing shortage, homelessness and rampaging housing costs, state housing officials greatly increased housing quotas for the coming eight-year cycle.

Under the half-century-old Regional Housing Needs Assessment program, or RHNA, local jurisdictions are required to plan for adequate housing at all income levels. The RHNA quota for the six-county Southern California region tripled to 1.3 million new homes. Of those, nearly 224,000 must be affordable to middle-income households.

Local leaders have protested the new RHNA quotas, and in June, a coalition of Orange County cities sued the state over their state-mandated housing goals.

Only conversions to low- and very low-income housing can be counted toward a community’s RHNA quota under current law.

AB 787 allows middle-income conversions to be counted for up to 25% of moderate-income housing quotas. The measure takes effect in January.

“Finding ways to convert existing multifamily properties to enable long-term rents that are affordable to low- and moderate-income households for the long-term is critical,” said Ben Metcalf, a former state housing director and currently managing director of UC Berkeley’s Terner Center for Housing Innovation. “I’m glad to see Assembly Bill 787 signed into law.”

Orange County affordable housing advocate Cesar Covarrubias, executive director of the Kennedy Commission, questioned whether workforce housing programs go far enough to provide rents that are affordable to most families.

“In general, I think these are good programs,” Covarrubias said. “But I don’t think it addresses the most critical need, which is the low- and very low-income categories.”