Oakland officials have a new take on a controversial housing program that hasn’t always delivered the affordability it promised struggling renters.
Across California, cities have signed on to a financing plan in which market-rate apartment buildings are bought and supposedly re-rented at rates affordable to teachers, nurses, and other middle-income workers. Instead, the deals often financially enriched bond investors and developers while delivering meager rent discounts — and causing local governments to lose millions in property taxes, an investigation by this news organization found.
With rents on the rise again in Oakland, the city is giving the program a second look. But unlike other cities, many which signed onto the program when it was new and untested, officials here are benefiting from the lessons other cities have learned. They are adding guardrails they hope will prevent the program from becoming another financial giveaway.
“The two main issues we’ve seen with past deals were around accurately capturing the public benefit and ensuring the financial sustainability of the deals,” Oakland Senior Policy Analyst Caleb Smith said in a statement. “These proposed guidelines are a set of foundational standards for middle-income housing projects that can demonstrate public benefits that clearly outweigh the associated costs.”
Bond-financed middle-income housing deals first started in California around 2019. In these deals, a private sponsor — typically a developer or real estate investor — identifies market-rate property to buy, then partners with a state agency that can issue municipal bonds — debt issued by state and local governments. The agency issues the bonds and becomes the property’s owner. The project sponsor is paid a fee for its work arranging the deal.
Because the property is then owned by a government agency, it becomes exempt from property taxes. The city where the project is approved also must sign off on the deal to ensure the property tax exemption, which can be worth hundreds of thousands of dollars annually.
In theory, the project sponsor uses the savings on property taxes to limit the rents to levels affordable to those making between 80% and 120% of the area median income — between $87,550 and $134,250 for a single person in Alameda County, for example.
But several of these middle-income projects failed to provide meaningful savings to tenants, despite the thousands in forfeited property taxes, this news organization found. Investors contest this, saying that many of the projects have provided tenants relief from market-rate rents.
A few of these bond-financed projects, saddled with excessive debt and less rent growth than expected, have also fallen into financial distress.
In the meantime, the projects sponsors and financiers have reaped millions. The 13 middle-income housing deals in the Bay Area generated $25 million in upfront fees to project sponsors, and another $48 million in commissions to bankers and law firms that issued the bonds. Interest collected by bonds investors is also exempt from state and federal income taxes, which is a major advantage in California, where the rate on income can be as much as 50% for high earners.
According to a recent report from ApartmentList, San Francisco rents increased 12% in the last year, as AI workers moving to the city created a renewed demand for housing. If this tech boom is anything like the last, the rent growth could spill over into Oakland, where rents have begun to climb again after a years-long slump.
With residential real estate prices still deflated in Oakland, the city sees an opportunity to acquire struggling market-rate properties at a discount and convert them into income-restricted housing via the bond-financing model.
But rather than targeting renters earning up to 120% of the area median income, Oakland would focus solely on those at or below 80%. The projects also must demonstrate that the value of the rent savings to tenants is at least 110% of the forfeited property taxes. Fees for project administrators would also be capped at 3% of the property’s value.
The city would also run the program as a pilot, allowing no more than 600 units to be acquired and converted to middle-income housing. City staff estimate that Oakland could lose around $960,000 a year — not insignificant in a city that is relying on voters to pass a $40-million-a-year parcel tax in 2026 to help close a major budget deficit. Other taxing agencies, such as the Oakland Unified School District and Alameda County, would lose up to $1.32 million per year in property taxes. Together, it would be upwards of $68 million across the lifetime of a 30-year-bond.
Over the years, a number of private companies had approached Oakland about bond-financing deals, but the city didn’t bite. It began looking into the program again in 2024 after it was approached by The Martin Group, an Oakland real estate company, which proposed acquiring a 224-unit property near Lake Merritt in downtown Oakland via the middle-income bond-financing model. The Martin Group ended up abandoning the plan, and purchased 19th & Harrison with private financing in 2025 for $61 million in January 2025, almost half what the property had been assessed at just a year earlier.
Oakland’s stricter rules may reduce the program’s appeal to developers. Companies involved in these middle-income housing deals successfully fought off a 2022 effort in the state legislature to regulate the industry, claiming that tighter rent caps would make projects impossible to finance.
As Oakland sees more recently built apartment buildings offered for sale, there could be a potential for more of these ‘middle-income’ deals, Smith said. The city is reviewing a proposal to acquire 4400 Martin Luther King Jr. Way, a 57-unit student housing project where construction has ground to a halt for the last year, under the bond-financing model.