October 13, 2015

How to Unlock the Potential of Employee Housing for California Farms

Robert A. Elliottrobelliott21@gmail.com

Table of Contents

I. Introduction- Why Employee Housing?

a) Benefits to Farmers

b) Benefits to Farm Employees

c) Environmental and Social Benefits

II. Employee Housing Administration

a) Housing Ownership

b) Legal Basis (esp. Zoning)

III. Types of Housing

IV. Financing

a) Financing Sources

b) Finance Example

-Fixed Costs

-Operating Costs

-Rent and Utilities

Appendix A. Farmer-Landlord and Employee-Resident Profit Summary

Appendix B. Farm Employee vs. Urban Employee Personal Finances

Disclaimer: This document is for informational purposes only. While the information is accurate to the best of my knowledge, it does not constitute legal, financial, or other advice.

I. Introduction- Why Employee Housing?

Farm employee housing presents a significant underdeveloped opportunity for California farmers, farm employees, investors, and broader society. Employee housing can increase farmer income through rent collection and can help farmers attract and retain long-term laborers. On-farm housing that is much more affordable than any off-farm options will make full-time or part-time farm employment a viable livelihood choice to a wider section of society than is currently the case. The viability of part-time hours will reduce the drudgery often associated with farm labor. Increased availability of manual laborers will allow farmers to depend less on fossil fuel-based technologies and the corresponding debt/risk that such technologies entail. Reduced reliance on heavy machinery will also reduce soil erosion and compaction. Diversified, organic, and/or direct market (local) production often relies more on manual labor than conventional production. Therefore, increased availability of a labor source supports such alternative practices while generating long-term, rural, place-based employment. In addition, employee housing could present a third-party business opportunity for housing developers, consultants, investors, and so forth. That said, third-party business models are beyond the scope of this document. Rather, this document outlines a solid financial and legal basis for farm employee housing development. It includes several scenarios which represent complete systematic approaches, although there are certainly many other ways to conceptualize employee housing development. The legal basis for farm employee housing outlined in this document (the Employee Housing Act) is specific to California, but employee housing could also be broadly applicable outside of the state.

a) Benefits to Farmers

Labor Source: Particularly with respect to diversified production of fruits, nuts, and vegetables farmers often have trouble finding sufficient labor (especially for harvest).1 Many diversified, direct market farms harvest several days per week throughout the growing season. Therefore, such farms are well-suited to offering full-season (or even year-round) part-time employment. Work hours could realistically be increased to full-time by also employing laborers as farmers’ market sales staff. Such part or full-time, livelihood-providing employment is the basis for the farm employee housing concept outlined in this document. Working conditions that are not excessively strenuous added to affordable on-farm housing can help a farmer to attract and retain a long-term, productive, and satisfied workforce.

1 Economic Factors Affecting Diversified Farming Systems, Bowman and Zilberman, http://food.berkeley.edu/wp-content/uploads/2014/09/ES-2013-5574.pdf

Income: Farmers can increase their income through renting out on-farm housing to employee-residents. At a reasonable profit of $100/unit/month, for example, a farm that rents out seven employee housing units would earn $8,400/year in rental profit (refer to “Appendix A” for finances and discussion). This additional profit may help a farm to offset labor costs and hire additional employees, which would in turn allow for increased production/sales and additional rental income. Offsetting labor costs is very significant given that, on average, labor accounts for about 50% of a diversified farm operation's production costs.2

Reduction of Debt: On-farm employee housing can reduce debt-load and, therefore, financial risk for farmers looking to expand their operations. Making manual farm labor more viable reduces a farm’s reliance on capital-intensive equipment and in the process lowers a farmer’s debt-load.

Support for Beginning Farmers: Given that the average age of U.S. farmers is 58,3 it is increasingly important to explore opportunities to lower entry barriers for aspiring farmers. While on-farm housing residents can be farm employees, they could also be beginning farmers. New farmers can benefit greatly from the land access, marketing avenues, equipment sharing, and amassed knowledge of the established farm on which the housing is located. Joel Salatin refers to this arrangement between established and beginning farmers as “stacking fiefdoms.”

b) Benefits to Farm Employees

Makes Farm Work More Attractive: Farm labor is often associated with long hours, drudgery, and destitution, but on-farm housing can help to change that scenario. Farm employees can realize large savings in rent and eliminate their commute. In addition, farmers may choose to offer their workers farm-grown food for low or no cost. Thanks to the Affordable Care Act’s Medicaid expansion, part-time farm employees’ income will qualify them for low to no cost healthcare through Medi-Cal. Taking all of the cost savings into consideration, on-farm housing will allow employees to make a living working 20-25 hours/week at minimum wage (see Appendix B). This limited hour outdoor labor is enough make a gym membership unnecessary but not enough to qualify as drudgery. Affordable on-farm housing can thereby make part-time farm employment a more attractive option for people who may not have previously considered it. For example, many artists, entrepreneurs, etc. may prefer to support their independent pursuits through part-time farm work rather than urban employment (e.g. waiting tables). Also, employee housing can offer substantial benefits to farm support staff (e.g. bookkeepers, chefs, marketers, value-adders). Given the much higher cost-of-living in urban areas (e.g. San Francisco Bay Area), an urban resident would easily have to earn at least double the farm employee’s income to be left with the same amount of spending money in his or her pocket each month. It bears mention that while farm labor is in of itself a viable livelihood choice, living and working on a farm becomes even more practical when a laborer’s spouse or significant other also works (either on-farm or off-farm). The table 2 “The Market Gardener” by Jean-Martin Fortier

3 USDA- Briefing on the Status of Rural America, http://www.usda.gov/documents/Briefing_on_the_Status_of_Rural_America_Low_Res_Cover_update_map.pdf,

in “Appendix B” compares farm employee vs. urban employee finances and assumes a single earner per household.

Affordable, High-quality Housing: Farm employees would benefit from housing that is much more affordable and likely of higher quality than other high cost and/or substandard housing options.4 Depending on financing terms, on-farm rent or mortgage payments can realistically be around $500/month (refer to “Estimated Monthly Rent and Utilities” section). There is growing interest in living in smaller, less expensive, more energy efficient houses that provide for basic necessities and comforts but that largely leave nature as the living room. Despite this trend, zoning ordinances have historically provided significant hurdles for these small (or “tiny”) houses. Thanks to the Employee Housing Act (see “Legal Basis for Employee Housing” section), agricultural employee housing that complies with the Act's health and safety requirements is not subject to such zoning ordinances.

Increased Rural Job Opportunities: Employee housing makes it easier for farmers to employ laborers and thereby generates farm employment opportunities. There are many people who already desire to earn a rural livelihood and perhaps work in sustainable food production on a long-term basis. In 2010 alone, for example, there were around 80,000 WWOOF volunteers working on farms throughout the world.5 While some of these people become farmers, many others may lack the funds, entrepreneurial drive, or desire to start their own farm enterprise. Part-time (or full-time) farm employment may be a better option for many. California has one of the highest unemployment rates in the nation, and rural areas are hardest hit.6 A well-managed farm can employ one half-time worker for every three acres.7

Further, more people living and working in a rural area serves to strengthen the nearby community’s economy and tax base. One figure from Ohio estimates that a job created in farm production creates an estimated 1.85 to 4.26 additional jobs in the broader economy.8

c) Environmental and Social Benefits

Sustainability: Making manual farm labor more viable can help conserve fertile soils and reduce a farm’s unsustainable reliance on fossil fuel-based technologies. Ecologically-diversified (and/or organic) farming is often more labor-intensive than highly-mechanized monocultures. Therefore, when farm labor becomes a more viable option for farmers and employees, diversified farming becomes more viable. In the U.S. as of the year 2000, “7.3 units of (primarily) fossil energy were consumed for every

4 “(Un)Safe at Home: The Health Consequences of Sub-standard Farm Labor Housing”, California Rural Legal Assistance, http://www.crla.org/unsafe-home-health-consequences-sub-standard-farm-labor-housing

5WWOOF Press Kit Stats, www.wwoof.net/fileadmin/documents/Press_kit_stats.pdf

6 Rural Assistance Center, http://www.raconline.org/states/california

7 Full Belly Farm, http://fullbellyfarm.com/about-us

8 CDS, Local Foods and the Economy, Dellorco, http://www.oberlin.edu/cdsrecyc/localfoods/LocalAg/CDSlocalecon.html

unit of food energy produced.”9 As fossil fuels become less abundant, grow more expensive, and their damage to the environment accumulates, our continued ability to feed ourselves depends on high-yielding, profitable food production systems which minimize fossil fuel reliance. Research suggests that diversified (and/or organic) farms rely less on fossil fuels, emit less greenhouse gases, and can be more productive, resilient, and profitable than conventional farms.10 Although soil conservation in conventional agriculture has improved somewhat over recent decades, a jaw-dropping 1.72 billion tons of topsoil were lost in 2010.11 That’s about 6.5 million pounds lost every minute. Given the huge variation in soil types, crops, and farming practices, diversified and/or organic crop production does not in of itself guarantee reduced soil compaction or erosion. However, diversified farming that uses human labor and small machinery can significantly reduce several key soil compaction and erosion risk factors, including wheel traffic from heavy farm equipment, lack of crop rotation, and loss of organic matter in the soil.12

Community Building: Many people are searching for ways to increase community with others. Well-planned (intentional) communities facilitate cost-sharing and positive social interaction while preserving individual space and privacy. Intentional communities that prioritize sustainable design and living are sometimes referred to as "eco-villages." Other intentional communities may strive to bring individuals with shared interests (e.g. art, music, tech entrepreneurship) into place-based communities. Unfortunately, many aspiring rural communities run into zoning obstacles when trying to locate multiple residences on the same piece of property. As an answer to this challenge, the Employee Housing Act allows up to 12 single-family units (or one 36-bed multi-family unit) on a single piece of property throughout the state of California. Zoning obstacles aside, many aspiring communities have the best of intentions but come up short when trying to make the community financially viable. Employee housing solves this financial challenge by matching rural livelihood seekers with established farms that are looking for hard-working, well-trained workers who can be counted on from one season to the next.

II. Employee Housing Administration

9 “U.S. Food System”, Center for Sustainable Systems, University of Michigan, http://css.snre.umich.edu/css_doc/CSS01-06.pdf

10 “Diversifying Corn-Soybean Rotations”, Iowa State University, http://www.leopold.iastate.edu/sites/default/files/pubs-and-papers/2012-07-diversifying-corn-soybean-rotations.pdf, http://rodaleinstitute.org/our-work/farming-systems-trial/farming-systems-trial-fst-fast-facts

11 “Summary Report: 2010 National Resources Inventory”, U.S. Department of Agriculture, http://www.nrcs.usda.gov/Internet/FSE_DOCUMENTS/stelprdb1167354.pdf

12 “Soil Compaction: Causes, Concerns, and Cures”, Wolkowski and Lowery, http://www.soils.wisc.edu/extension/pubs/A3367.pdf

a) Housing Ownership

Technically, “employee housing” is always owned by the “employee housing operator”, who holds the permit from the California Department of Housing and Community Development. That said, “employee housing” can be defined as either a) the units themselves and the premises upon which they are situated or b) the area set aside and provided for parking of units (e.g. mobilehomes, manufactured homes, travel trailers, or other accommodations provided by employees) (CA HSC 17008(a)1 and 17036(b)2). In other words, an area or lot provided for parking of trailers and manufactured homes is in of itself employee housing. Therefore, employees (or even third parties) can own the housing units without acting as employee housing operators. Ultimately, ownership and rental agreements will be based on mutually-beneficial arrangements for sharing the related work, expense, benefits, and liability. Since one of the central goals of employee housing is to help farmers, this document assumes that the farmers are the employee housing owner-operators and that they can collect rent from their employee-residents. Arrangements by which non-farming (and/or absentee) landowners are the employee housing operators and rent collectors may work well in some cases, but such arrangements are not the focus of this document. From here on out, the word “farmer” is used to mean the employee housing owner, operator, and landlord.

Housing Units Owned by Farmer: Since owning the lots on which housing units are located is enough to classify a farmer as the “employee housing operator”, farmers can choose whether or not to own and manage the actual housing units. The benefit of ownership to farmers is that they retain the equity in the units and the right to sell them. Owners also continue to collect rent for as long as they own the units. Such ownership and management entails additional responsibilities, such as securing financing, finding and buying suitable housing units, permitting and legal compliance, insurance, maintenance, rent collection, and managing rental agreements. Ownership of multiple units involves an increased debt-load, which unavoidably entails some additional risk. With sound planning, however, the additional rental income plus effort saved from reduced employee turnover should far outweigh any additional risk or responsibilities.

Housing Units Owned by Employee: When housing units are owned by employee-residents, farmers only have to invest in and manage the lot infrastructure (e.g. electric, water, road, septic). Some farm employees may already own a travel trailer or manufactured home, and others may opt to buy one. In such cases, employees will find their own financing. They will be responsible for the repairs and modifications necessary to bring the units into compliance with the Employee Housing Act. Most of an employee housing unit’s value to an employee will come through the substantial rent savings when compared to off-farm housing. However, travel trailers and manufactured homes also have value independent from usage as employee housing in that they can be legally parked in RV or mobilehome parks. If the employee-owner paid a fair initial price for the unit and maintained it well during ownership, then the unit should have high resale value (on-farm or off-farm). Granted, the highest resale value for an employee housing unit most likely involves the buyer also using the unit as employee housing on the same farm. Reselling a unit within the first few years of its purchase may result in a small loss of money due to taxes and fees, loan interest and fees, maintenance costs, unit depreciation, and

towing. That said, anyone who remains a farm employee for several years or more would see large rent savings through trailer or manufactured home purchase.

b) Legal Basis for Employee Housing

California state law guarantees farmers the right to provide their employees any type of temporary or permanent on-farm housing that meets the health and safety standards described in the Employee Housing Act, its corresponding regulations, and local statutes (CA Health & Safety Code 17000-17062.5 and CCR 25, ch. 1, subch. 3). More information about the laws and regulations applicable to Employee Housing can be found at http://www.hcd.ca.gov/codes/employee-housing/.

Zoning: Zoning is straight-forward for employee housing in California. For the purpose of all local ordinances, employee housing for five or six employees is considered “residential use" (CA HSC 17021.5). Employee housing consisting of seven or more employees and up to twelve single-family units is considered “agricultural use" (CA HSC 17021.6). No conditional use permit, zoning variance, other zoning clearance, or additional fee is required of such employee housing that is not required of any other similar family dwelling or agricultural activity (respectively) in the same area. In other words, the California city and county zoning ordinances that restrict housing development and dictate what type of housing can be built are not applicable to agricultural employee housing that complies with the Employee Housing Act.

Permits: Employee housing operator permits are given by the California Department of Housing and Community Development. This permit must be renewed annually (unless all the units qualify as “permanent single-family housing” per CA HSC 17030.5a and 17010d). While zoning variances are not required, landowners seeking employee housing should begin the permitting process by talking with city/county health and building departments to make sure that dwellings and civic infrastructure (e.g. septic, roads) comply with state building standards and local standards (assuming such standards do not conflict with the Employee Housing Act (CA HSC 17020a)). In addition, employee housing that is developed per HSC 17021.5 may be subject to certain local regulations specifically regarding residential usage, whereas employee housing that is developed per CA HSC 17021.6 may be subject to local regulations expressly regarding agricultural usage.

Local and state permitting officials exist to ensure public health and safety and to coordinate taxation. They should be considered allies in making sure that employee housing is done properly and safely. Once a landowner submits an application, local health and building departments have from 30 to 60 days to approve an employee housing proposal or deny it by listing specific procedural or substantive defects (CA HSC 17021b1). After local approval, a landowner then applies for a permit to operate employee housing through the California Department of Housing and Community Development.

Housing Rental: The right to collect rent from employee housing is established by CA HSC 17008(a)(2). Housing can also be rented to agricultural workers that are employed by other farms (CA HSC 17021.6(b) and 17008(a)(2)). That is to say, as long as there are farmworkers in a given region, a farmer can be

confident that there will be tenants to occupy his or her housing. This assurance lowers the financial risk involved in a farmer investing in employee housing. Farmers can tailor rental agreements, employment policies, and farm rules to find win-win solutions for themselves and their employees. Some farmers may choose to find existing templates and/or seek legal advice regarding contracts with employee-residents. In the case where farmers do not own the land which they farm, agreements about rights for employee housing rent collection should be reached with landowners.

Employment: California law (CA Labor Code 1140.4ab) and federal law 29 u.s.c. 203(f) define an “agricultural employee” as one “engaged in agriculture.” The term “agriculture” is also defined by those same sections of the code. In addition to field laborers, it would appear that “agricultural employees” include those who prepare food for market such as on-farm chefs and value-added producers. To comply with the Employee Housing Act, only one resident of a single-family employee household needs to be an agricultural employee. Therefore, a partner/spouse/ roommate can have off-farm employment. While a single part-time farm laborer salary can be sufficient to make ends meet, an additional earner in a household would clearly be a bonus. Specific employment legal considerations and practices are beyond the scope of this document. Suffice to say, a farmer who employs a worker at California minimum wage ($9/hour) can expect to pay $11-12/hour for that worker after including workers’ compensation, FICA (social security and Medicare), unemployment taxes (FUTA and UI), Employment Training Tax, and payroll service fees. The “California Guide to Labor Laws for Small Farms”13 is a great resource for employment related information.

California Environmental Quality Act (CEQA): All housing development in California is potentially subject to environmental review prior to approval. The sustainable nature of employee housing (refer to “Environmental and Social Benefits” section above) is very much in keeping with the spirit and intent of CEQA. In addition, the official California state policy established in the Employee Housing Act strongly encourages the development of employee housing. Therefore, there is a specific CEQA exemption for Agricultural Employee Housing (CA Public Resources Code section 21159.22).

III. Types of Housing

Per CA HSC 17008, employee housing can consist of any type of dwelling that complies with the health and safety standards of the Employee Housing Act and its corresponding regulations. While housing can technically be as simple as elevated tents or retrofitted railroad cars, dwellings designed for longer term human habitation are likely to be more comfortable for residents and easier to bring into health and safety compliance. Ultimately the farmer and farm employees will decide what type of housing they deem to be mutually agreeable, but below are several promising options:

Travel Trailers: can be used as temporary or permanent employee housing as long as they meet the applicable health and safety standards (HSC 17008 and CCR 610). The California Department of Housing

13 “California Guide to Labor Laws for Small Farms”, Alcorta, Beckett, Knox, https://attra.ncat.org/attra-pub/summaries/summary.php?pub=461

and Community Development has permitted travel trailers for use as long-term employee housing in many California counties. Travel trailers offer the benefits of being available, affordable, and pre-equipped with most of the required health and safety systems. They also have a somewhat standardized resale value (per NADA guides and sale price of similar trailers in an area). In other words, their value is not tied to their usage as employee housing, which in turn reduces investment risk for both purchasers and lenders. Travel trailers are not vehicles and are therefore less expensive to purchase, operate, and insure than “motorhomes” (RVs with engines/motors). Travel trailers that are used as employee housing will need to comply with RCIA/ANSI standards and possibly federal, state, or local laws (other than zoning) that specifically regulate travel trailers.

Manufactured (Mobile) Homes: are a great option for increased space and comfort over travel trailers. They are generally (though not always) more expensive to purchase than travel trailers, and they are almost always more expensive to transport and install. Manufactured homes also have a somewhat predictable resale value (based on NADA and Kelley Blue Book values). Even if the upfront price of manufactured homes is higher, lower interest and longer term loans may be available for manufactured homes than for travel trailers.

"Tiny Houses": can be the same size as travel trailers (max. 8.5' x 40') and also be built on a trailer chassis. That said, their classification as a “travel trailer” is optional. While tiny houses may be legally classified as travel trailers (RCIA/ANSI compliant), special travel trailer regulations can be avoided by simply classifying them as generic "employee housing" per CA HSC 17008. Tiny houses are often more stylish, better built, and more customizable than low-end travel trailers. Tiny houses therefore might not raise neighbors' eyebrows like used and/or low-end travel trailers would. The downside of not classifying a tiny house as a “travel trailer” (or manufactured home) is that the owner might have trouble obtaining a legal ownership title. Along the same lines, securing a loan and insurance would likely be more difficult. The resale value of tiny houses that aren’t classified as travel trailers is also uncertain, given that they would only be permitted for usage as employee housing and not off-farm as travel trailers. Many owners will not find such obstacles to be prohibitive, though, given that the financial viability of many tiny houses is based upon their low upfront cost.

Fixed/Permanent Foundation Housing: is another employee housing option. Permanent housing allows for more flexibility in design and construction techniques (e.g. thin-shelled concrete, straw-bale, earth bag). Its main downside is that it ties the house's value to a specific location, which can limit the flexibility of employee housing management.

IV. Financing

a) Financing Sources

The type of employee housing chosen may be significantly influenced by the financing options available at the time. In any case, the key to securing good financing terms is shopping around and negotiating. If a farmer does not have the money for employee housing upfront, he or she may consider one of the following financing options (or others not included herein).

Lenders with a social, environmental, and/or farm-based mission (e.g. Slow Money, CA FarmLink, Self-Help FCU, Beneficial State Bank, Kiva Zip) may offer employee housing loans (and on fair terms). Such loans could be considered personal, business, or real estate.

Manufactured homes and travel trailers can often be seller-financed through a "retail installment contract." If the homes are to be employee-owned, the employee-owners will likely have to obtain "chattel" financing, whereby the manufactured homes (or travel trailers) are considered to be movable personal property rather than real estate.

A farmer-landowner may opt to take out a loan on the equity in their home/land.

Conventional mortgage loans may be an option, although most traditional banks likely lack experience in lending for employee housing and may therefore be reluctant to do so. In general, a manufactured home owner must also own the land the home is on in order to finance the home with a real estate mortgage. In such a case, mortgage financing may be available for landowners looking to buy manufactured homes.

Farm/agricultural lenders may offer financing. There may also be some loans available for employee housing as affordable housing.

State, federal, and private loans (or even grants) may be available for employee housing. “Manufactured homes are eligible for government-insured loans offered by the Federal Housing Administration (FHA), the Veterans Administration (VA), and the Rural Housing Services (RHS) under the U.S. Department of Agriculture”.14

Some farmers or employees (e.g. chefs, musicians, entrepreneurs) may even be able to partially or fully fund housing purchase through grants, start-up funding, or crowdfunding (e.g. Kickstarter, Indiegogo).

b) Finance Example

The following employee housing finance example is designed to be informative for both employee housing lenders and unit/lot owners. It is meant to be useful for estimation but may not

14 Frequently Asked Questions, U.S. Department of Housing and Urban Development, http://portal.hud.gov/hudportal/HUD?src=/program_offices/housing/rmra/mhs/faqs

represent all applicable costs. Below each table are explanations of the table rows and columns. The example makes the following assumptions:

Seven housing units are purchased, and they are all installed in the same area on a single farm.

Depreciation rates will vary greatly depending on the particular housing unit. Employee housing finances would still be strong even if the units retained no resale value, although substantial resale value is likely. Estimated depreciation and earned equity are discussed in Appendix A.

Custom-built homes include any type of unit that is not classified as either a travel trailer or a manufactured home. Travel trailers in this example are classified as “trailer coaches” and not as “camp trailers.”

Estimated Employee Housing Fixed Costs (per Unit)

Travel Trailer Manufactured Home Custom-Built Home

Hypothetical Financing Source

California Farm LinkFinanced by seller

through “retail installment contract”

Financed by business loan from Beneficial

State Bank

Purchase Price ($) 12,000 30,000 23,000

CA Sales/Use Tax ($) (assumes 8.75%)

1,050 2,625 NA

Title Transfer Fee ($) 15 9815 NA

Est. Towing, Pre-buy Inspection, and Set-up ($)

500 (not financed)

3,000 (financed with unit)

NA

Housing Lot Infrastructure ($) (electric, water, septic, roads) ($25,200 total)

3,600/unit

(total)

3,600/unit16

(total)

3,600/unit

(total)

Down Payment ($) (20% of unit purchase price)

(2,400) (6,000) (4,600)

15 “Private Party Sale for a Home on Local Property Tax with HCD Certificate of Title” CA HCD, http://www.hcd.ca.gov/codes/forms/HCDRT804.pdf

16 Lot infrastructure will not likely be financed by the manufactured home seller, but the actual terms for the lot loan should be as good as (or better than) those of a retail installment contract. Therefore, calculating the lot loan with the same terms as the home loan should not significantly affect the financial estimate.

Loan Fee ($)

2% of (financed costs – down payment)

Unit Owned by Farmer-Landlord

285.30

(0.02 x $14,265)NA 25017

Unit Owned by Employee (minus lot infrastruct.)

213.30

(0.02 x $10,665)NA 250

Total Financed Costs ($) (Includes loan fee)

Unit Owned by Farmer-Landlord

14,550.3018 33,323 (includes inspection, towing and set-up)

22,250

Unit Owned by Employee (minus lot infrastruct.)

10,878.3019

29,723 (includes inspection, towing and set-up)

18,650

Interest Rate7%

(Fixed)6.79% (Fixed)

3.25% (Variable, based on

Prime Rate)20

Loan Term 3 years 20 years 5 years

Monthly Loan Payment ($)21

Unit Owned by Farmer-Landlord

449.26 254.17 402.28

Unit Owned by Employee

335.88 226.71 337.19

Unit Purchase Price:

17 Application fee plus loan and documentation fee (Beneficial State Bank, http://beneficialstatebank.com/ContentDocumentHandler.ashx?documentId=19191)

18 Unit purchase price + sales tax + title transfer + lot infrastructure + loan fee – down payment

19 Unit purchase price + sales tax + title transfer + loan fee – down payment

20 For the sake of simplicity, we assume interest rate stays fixed at 3.25% throughout the loan term

21 Calculated with online loan calculator at http://www.bankrate.com/

Housing unit purchase price is pre-tax and includes any repairs necessary to bring the unit into Employee Housing Act compliance.22

Travel Trailer: In a single 2014 search on www.rvtrader.com, around one hundred new or used travel trailers at or below $12,000 were listed for sale within 100 miles of San Francisco. Repairs or modifications may be required to bring a trailer into compliance with the Employee Housing Act. If the trailer seller owes back taxes or fees on the trailer, then the sales price should be lowered accordingly.

Manufactured Home: In a brief Internet search, the least expensive new manufactured home model found cost $19,799.23 Used manufactured homes can be found from around $5,000, but they likely need a lot of repairs to bring them into compliance with the Employee Housing Act. Many new low to mid-priced manufactured homes are available for under $30,000. The $30,000 includes basic accessories and “trailer skirt.” Long-term financing from traditional bank or sellers may be difficult to find for used (pre-owned) manufactured homes. Therefore, this estimate assumes that the manufactured home is purchased new at $30,000.

Custom-built Home (Generic Employee Housing): Thetinylife.com blog estimates the average cost of an owner-built tiny house at $23,000.24 Some basic owner-built fixed-foundation homes may also be affordable at this price, especially if the owner-builder contributes his/her own labor.

Sales/Use Tax:

Travel Trailer: Sales tax in California ranges from 7.5% to 10% of the trailer’s purchase price. The specific sales/use tax rate depends on the city and county where the trailer for sale is primarily located (situs).

Manufactured Home: When not classified as real estate, manufactured homes are subject to sales/use tax.25

Custom-Built Home: Sales tax is not applicable if the unit is classified as real estate rather than personal property. Real estate is taxed through local property taxes.

Title Transfer Fee:

22 Trailer owners may be able to deduct portions of loan interest, depreciation, sales tax, maintenance, registration fees, and insurance from income taxes (if itemized deductions come to more than the standard deduction). Farmer-owners may be eligible for business-related deductions.

23 http://www.mobilehomesdirect4less.com/trumh-dempsey/

24 The Tiny Life Blog, Mitchell, http://thetinylife.com/tiny-house-infographic/

25 “Manufactured Homes: Frequently Asked Questions”, California State Board of Equalization, https://www.boe.ca.gov/proptaxes/faqs/manfacthomes.htm#4

Travel Trailer: There is a one-time title transfer fee of $15.

Manufactured Home: There is a one-time title transfer fee of $35.

Custom-Built Home: Titles may not be available for other/generic employee housing. If titles are available, though, fees will be on a case-by-case basis.

Towing Cost and Pre-buy Inspection:

Travel Trailer: Towing cost will vary depending on the distance of the sale location from the site of the employee housing installation. The trailer may need to be towed to a DMV office for physical inspection prior to licensing and registration. If the trailer buyer does not own a suitable vehicle for trailer towing, he or she will have to either rent such a vehicle or pay someone for towing service. It’s possible that a seller may deliver a trailer at no cost, but if not, a high-end estimate for one-time towing cost is $500. Getting a trailer inspected by someone who knows a lot about travel trailers will more than pay for itself. Any pre-buy inspection fees are grouped with towing costs for the purposes of this estimate.

Manufactured Home: Both set-up and transport will be more expensive for manufactured homes than for travel trailers. Towing and set-up cost is highly variable and depends on factors such as: whether or not there is a “take-down” cost, whether or not the home seller throws in a deal on set-up and/or transport, how far the unit needs to be delivered from sale to installation, the type of accessories installed, whether the unit is a single-wide or double-wide, and the company hired for set-up. The $3,000 estimate assumes a new single-wide home and includes: $500 for delivery to dealer, $280 for accessory installation, $2,000 for set-up, and 30 miles towing at approximately $7.50/mile.26 Given that towing and set-up are integral parts of a manufactured home sale, this estimate assumes that they are financed by the seller.

Custom-Built Home: This document’s financial estimate for custom-built homes assumes that they are constructed on-site. Therefore, there are no additional towing or set-up costs that are not included in the price of the home.

Down Payment:

This estimate assumes a down payment of 20% of the housing unit’s purchase price. Some lenders may want the down payment to represent a percentage of the entire financed costs (not just purchase price), while other lenders may not require a down payment at all. Loan payments will be lower with a higher down payment and higher with a lower down payment.

Employee Housing Lot Infrastructure:

Housing lot infrastructure refers to roads, electricity, water access, and sewage disposal. The cost of this infrastructure can vary somewhat depending on the type of housing unit to be installed, but for the sake of simplicity this estimate uses the same lot infrastructure cost across unit types. Employee

26 $7.50/mile estimate based on several online forums and http://www.boe.ca.gov/pdf/pub47.pdf

housing units can be put on a permanent foundation or concrete platform if desired. Doing so would increase total lot infrastructure cost. It’s possible that all of the necessary lot infrastructure could be financed along with the housing unit purchase loan.

Roads: Usage of pre-existing roads is clearly preferable, but it may be necessary to extend short stretches for employee-resident parking access. Depending on soil characteristics, such extension may be as simple as keeping the area mowed or it might require dumping a little gravel.

Electricity (Grid-based): Electricity can be pulled from a grid connection or from off-grid installations. As fossil-fuel based electricity becomes more expensive and renewable technologies (esp. solar) drop in price, renewable power may be available at costs equal to or lower than grid power (especially in sunny parts of California). Grid-based electricity hook-ups would not be a significant fixed cost for housing lots.

Electricity (Off-grid): Off-grid systems would require substantial upfront investment. With longer-term and/or non-conventional financing, however, such an investment would represent no additional financial burden. Some solar panel financing plans (e.g. “power purchase agreements”) eliminate upfront investment by the homeowner. Alternatively, off-grid power infrastructure could be purchased outright and potentially financed through the same loan as the housing units. Other financing and even tax incentives that are specific to alternative energy may also be available. The $75/month budgeted for grid-based utilities could be collected by the farmer from employee-residents in order to pay off the off-grid infrastructure.

Water: City water access may be an option, but employee housing is more likely to be connected to well water. Housing lot water hook-ups will entail installing some extra pipe but with proper planning should not represent a major fixed cost.

Sewage: As for sewage disposal, a septic system will likely be required. If a farm’s existing septic system does not have enough spare capacity to accommodate employee housing sewage, then a farmer will have to either upgrade the existing system or purchase an additional one. While septic system costs depend on many factors (e.g. design, size, soil type), a realistic estimate for a professionally-installed septic system that can accommodate up to 12 employees is $5,000. Based on multiple Internet discussion forums, a low-end estimate for septic system life expectancy is 20 years.

Lot Infrastructure Total: While road, electric, and water infrastructure costs will vary greatly from farm to farm, this document’s estimate budgets $25,200 as a maximum total cost. This high-end estimate is based on the lot rent that a farmer would collect from 7 employees over 36 months at $100/month. Loan terms longer than 3 years would allow for higher expenditure on lot infrastructure, although it is likely that the cost would be significantly under $25,200. Any of the $100/month lot rent that is not spent on lot infrastructure becomes profit for the farmer. It bears repeating that the $25,200 lot infrastructure estimate does not include investment in off-grid power infrastructure.

Loan Interest, Terms, and Fees:

Travel Trailer: While there are countless ways to finance any type of employee housing unit (see “Financing Sources” section for a few options), this document’s estimate assumes that a travel trailer is financed by a loan from California Farm Link. Such a loan generally has a 3-year payback term at 7% fixed interest.27

Manufactured Home: Average manufactured home loan terms for the year 2012 were: 20% down, 20-year term, 6.79% fixed interest.28 This estimate assumes seller-financing through a “retail installment contract.” It also assumes that there is no additional loan fee because loan processing costs are all part of the sale of the unit.

Custom-Built Home: Loan terms for custom-built employee housing will be highly unpredictable. This estimate assumes the unit is financed through a business loan from Beneficial State Bank. Such a loan generally has variable interest based on the prime rate (e.g. 3.25%) and a 5-year loan payback period.29

Estimated Employee Housing Operating Costs (per Unit)

Travel Trailer Manufactured Home Custom Built Home

Annual Tax (property or vehicle) ($) (assumes 1.5% of unit value/year)

$15/month $37.50/month $28.75/month

Employee Housing Operator Fee

$4.63/month $4.63/month $4.63/month

Unit Maintenance ($) (2% of purchase price per year)

$20/month $50/month $38.33/month

Lot Infrastructure Maintenance (Road, water, septic, and electric)

$32.28/month $32.28/month $32.28/month

27 “Get a Farm Loan”, California Farm Link, http://www.californiafarmlink.org/farm-financing/9-access-to-capital

28 “Manufactured Housing Consumer Finance in the United States (2014)”, Consumer Financial Protection Bureau, http://files.consumerfinance.gov/f/201409_cfpb_report_manufactured-housing.pdf

29 “Commercial Lending”, Beneficial State Bank, http://beneficialstatebank.com/ContentDocumentHandler.ashx?documentId=19191

Insurance NA $40/month NA

Total Monthly Operating Costs

$71.91/month$164.41/month $103.99/month

Regular employee housing operating costs include general unit maintenance, lot maintenance, annual taxes and fees, and insurance. If the housing unit is owned by a farmer, he or she will recover these costs through the rent collected from employee-residents. Even if an employee owns the housing unit, the farmer-landlord will likely have to pay for lot maintenance, the employee housing operator fee, and property taxes that may be linked to the land. Again, such expenses can be recovered by the farmer through rent collection. If the housing unit is employee-owned, then the employee who owns it will have to pay for some of the operating costs (e.g. travel trailer taxes, unit maintenance, insurance) directly. All that said, for the purposes of overall rent estimation, it doesn’t matter whether farmer-landlords or employee-residents are responsible for the operating costs.

General Taxes and Fees (Annual):

Travel Trailer: For the sake of taxation, travel trailers are generally considered to be vehicles. Therefore, license, registration, and various city/county fees are collected by the CA DMV and take the place of property taxes. The Employee Housing Act offers a rare exception whereby travel trailers can be used as permanent housing. Hypothetically, the trailers should not be subject to double taxation. That is to say, the travel trailer owners should not owe both DMV fees and local property taxes. In practice, which form of taxation is used will likely be on a case-by-case basis. With respect to DMV fees, the 2015 annual trailer license fee is 0.65% of the trailer value. The registration fee is $46/year. Additional city/county fees depend on the trailer location and range from $24 to $47/year. Small travel trailers (no more than 16’ in length)30 can be classified as “camp trailers” and are eligible for reduced fees and registration requirements through “permanent trailer identification” (PTI) (CA Vehicle Code 242). “Trailer coaches” are not eligible for PTI. DMV fees come to an average of $160/year ($13.33/month). With respect to property taxes, we can assume 1.5% of $12,000 or $180/year ($15/month). Both tax rates are comparable, but this document’s estimate will assume the higher of the two ($15/month).

Manufactured Homes: Subject to either an “in-lieu tax fee” or local property taxes.31 Local property taxes are applicable for all manufactured homes first sold on or after July 1, 1980. Home owners can voluntarily convert manufactured homes first sold before July 1, 1980 from in-lieu taxation to local property taxation. Most manufactured homes will therefore be subject to property taxes. Such taxes provide a source of revenue for city and county governments from

30 Vehicle Code Section 242, CA Department of Motor Vehicles, https://www.dmv.ca.gov/portal/dmv/detail/pubs/vctop/vc/d1/242

31 “Manufactured Homes: Frequently Asked Questions”, California State Board of Equalization, https://www.boe.ca.gov/proptaxes/faqs/manfacthomes.htm#4

employee housing. The general property tax rate throughout California is limited to 1% of a property's assessed value, but there may be other taxes or fees necessary to pay off any voter-approved general obligation bonds or other indebtedness which could result in a slightly higher overall property tax rate.32 To err on the side of caution, this estimate uses a total property tax rate of 1.5%. Each local government will determine the specifics of how to assess and collect such property taxes per CA HSC 17021.5 (residential) and CA HSC 17021.6 (agricultural).

Custom-Built Homes: Section 17021.5 of the Employee Housing Act provides that housing of 5 or 6 employees will be taxed as residential usage whereas CA HSC 17021.6 provides that housing of 7 or more employees and up to 12 single-family units will be taxed as agricultural usage. Local governments will determine how exactly to apply residential and agricultural regulations to collect property taxes from employee housing. For the sake of simplicity, this estimate uses 1.5% for all employee housing (whether residential or agricultural).

Employee Housing Operator Fees:

Travel Trailer: Employee housing is subject to annual operating fees, which are paid to the California Department of Housing and Community Development. As of 2014, the minimum annual Employee Housing Act permitting fee is $200 plus $27 per employee for whom housing is provided (or $27 per recreational vehicle lot provided for employees) (CA HSC 17036(b)(2)). The annual permit fee for seven travel trailer lots would be $389 or $56/employee/year.33

Manufactured Home: Employee housing operator fees are the same as those for travel trailers ($389 for seven units).

Custom-Built Home: This estimate assumes that the employee housing operator fees for custom-built employee housing are the same as for travel trailers and manufactured homes ($389 for seven units).

Employee Housing Unit Maintenance:

Housing unit owners should budget sufficient funds for employee housing maintenance. Any over-estimate of costs will result in a reserve fund for unforeseen expenses. Annual maintenance should be fairly routine, given that any unit used for employee housing has already passed applicable health and safety standards determined by the Employee Housing Act.

Travel Trailer: Most online travel trailer maintenance estimates include the tow vehicle and assume lots of travel. A largely stationary travel trailer used for employee housing, on the other hand, would require little towing-related maintenance (and its usage would be more like that of

32 “Manufactured Homes: Frequently Asked Questions”, California State Board of Equalization, https://www.boe.ca.gov/proptaxes/faqs/manfacthomes.htm

33 Employee housing may qualify as “Permanent single-family housing” (CA HSC 17010d, 17030.5a) and thereby be given a longer permit period and not require annual renewal. For the sake of simplicity, the employee housing in this document is not classified as “permanent single-family housing.”

a manufactured home). This estimate assumes a maintenance cost of 2% of the trailer value per year.

Manufactured Home: Surveys of manufactured (mobile) home residents estimate average maintenance costs at 2% of the home’s value each year.34

Custom-Built Home: For the sake of simplicity, this estimate assumes maintenance of 2% of the unit’s value each year. That said, maintenance costs for owner-built houses may be lower given that the owner has in-depth knowledge of how the house is constructed and can thereby save costs by doing many repairs themselves.

L ot Infrastructure Maintenance :

Lot infrastructure maintenance will be similar for all types of employee housing units. For the sake of estimation, this document assumes that all infrastructure will be replaced completely after 20 years (either gradually or all at once). This estimate uses the high-end figure of $25,200 for the initial lot infrastructure purchase in 2015. Using the U.S. long-term average inflation rate of 3.3% per year, we estimate how much new infrastructure will cost in the year 2035 and then divide that into a monthly per unit cost: (1.033^20 * $25,200) / 7 units / 240 months = $28.71/unit/month. In addition to its depreciation costs, a septic system requires regular pumping and cleaning. Based on information from multiple online forums, an estimate for regular septic system pumping and cleaning is $300/year ($3.57/unit/month). A high-end total estimate for lot infrastructure maintenance is therefore $32.28/unit/month (28.71 + 3.57).

Insurance:

Travel Trailer: While being towed, travel trailers will likely have liability insurance through the tow vehicle, although the tow vehicle owner should check to make sure. It may not be cost effective to purchase comprehensive coverage for inexpensive and/or used trailers, so this estimate does not factor in travel trailer insurance. That said, comprehensive insurance might be a good idea for higher-value trailers, and it’s possible that such insurance would be required by a lender. Some farmers may have general/landowner liability insurance that would cover damage to trailers while used as housing.

Manufactured Home: An experienced towing company with its own insurance will likely tow a manufactured home from its sale location to where it will be installed as employee housing. Home owners may choose to buy liability and/or comprehensive insurance for its usage as a residence. Some lenders may require such insurance as a condition of the loan. A June 2015 Progressive Insurance online quote estimated a comprehensive plus $50,000 liability insurance policy at $384/year. The estimate was based on a new 60’ x 16’ fully skirted, tied down, single-wide manufactured home owned by a 33 year-old in Santa Rosa, CA. The cost is increased if the insurance is paid in multiple installments. This document’s financial estimate uses a conservative value of $480/year.

34 “Manufactured Housing Appreciation”, Consumers Union, http://consumersunion.org/pdf/mh/Appreciation.pdf

Custom-built Home: Conventional insurance may be difficult to find for custom-built employee housing that is not classified as a travel trailer or manufactured home. Home owners who want to insure their units may find some unconventional options through shopping around. Assuming a low upfront cost for a custom-built home, this estimate does not factor in insurance.

Estimated Monthly Rent and Utilities (Paid by Employee-Residents)

Travel Trailer Manufactured Home Custom Built Home

Monthly Housing Unit Payment/Rent ($)

(Loan payment + operat. costs)

Unit Owned by Farmer-Landlord

521.17 418.58 506.27

Employee-owned Unit

407.79 391.12 441.18

Estimated Utilities and Waste Collection ($)

75/month 75/month 75/month

Lot Rent Paid by Employee-resident ($)

Unit Owned by Farmer-Landlord

0 100/month 0

Employee-owned Unit

100/month 100/month 100/month

Total Monthly Payment ($)

(incl. Lot Rent)

Unit Owned by Farmer-Landlord

521.17 or

596.17 (incl. utilities)

518.58

or 593.58 (incl. utilities)

506.27

or 581.27 (incl. utilities)

Employee-owned Unit

507.79 or

582.79 (incl. utilities)

491.12

or 566.12 (incl. utilities)

541.18

or 616.18 (incl. utilities)

Monthly Housing Unit Payment/Rent:35

35 It bears mention that in addition to unit or lot rent collection, there are alternative ways for a farmer to earn income from employee housing, such as: renting out a commercial kitchen, charging parking fees (as opposed to rent), or selling meals to employees (which can be deducted pre-tax from wages with an employee’s written agreement).

In this estimate, rent is determined by adding the “Total Monthly Tax, Operation, and Maintenance Costs” plus the “Monthly Loan Payment.” Depending on whether the housing units are owned by the farmer-landlord or by the employee-residents, monthly payments made by residents will either be a) rent paid to the farmer or b) loan payments to the lender (respectively). That said, the total monthly payment amounts are the same whether the unit is owned by a farmer or by an employee-resident. This estimate refers to payment/rent amounts during the housing unit (and lot infrastructure) loan repayment period. After the loan is paid off, farmers will continue to earn rental profit, although they may choose to lower the rent they charge. Of course, employee-owners’ overall monthly payments will become significantly lower once the loan is paid off. Profit earned by the housing unit owners (farmer or employee) during the loan’s repayment period is in the form of the equity. If desired, the equity can be cashed out by selling the unit, but the owner may prefer to keep renting out (farmer) or residing in (employee) the paid-off housing units. Travel trailers and custom-built homes in this example have short loan terms (3 to 5 years). Therefore, the monthly payments are fairly high, but the owner builds equity in the unit quickly and likely without it losing much resale value. The manufactured home in this example has a long loan term (20 years). Therefore, the payments are kept low but the owner does not build much equity in the manufactured home due to loan interest and depreciation of the unit.

Estimated Utilities and Waste Collection:

Utility costs will be similar for all types of employee housing but will vary with the size of the unit and how well sealed and insulated it is. There are too many variables to accurately estimate monthly utility charges. Suffice to say, utility bills will be very low for well-sealed units in the mild weather across much of California. Energy efficient amenities and a water/energy conservation ethic will also keep utilities to a minimum. For grid-provided utilities, farm employees may be eligible for savings programs (e.g. CARE) and should be able to split any fixed (service) charges between all farm residents (including the farmer/farmhouse which is likely not classified as employee housing). Off-grid systems (e.g. solar, wind, wood, passive) can reduce or even eliminate utilities and can be cost-effective depending on the fixed costs of related infrastructure (e.g. photovoltaic panels). Refer to “Employee Housing Lot Infrastructure” section for further discussion of off-grid systems. Waste collection costs can be shared with other employee-residents and perhaps with the farmer as well. Taking everything into consideration, a realistic estimate for average monthly utility costs per unit is $75/month.

Lot Rent Paid by Employee-resident:

If Unit Owned by Farmer-landlord: This estimate already includes the lot infrastructure payment in the farmer-landlord’s total housing unit loan payment. Most of a farmer-landlord’s profit during unit loan payback takes the form of equity in the unit, but he or she may choose to charge additional rent for the lot (especially in the case of long-term loans where equity is built slowly and is significantly off-set by depreciation). Therefore, this document’s estimate assumes that farmers only charge lot rent in the case of manufactured homes. To keep the monthly payments affordable for employee-residents while still having their rent collection cover the

entire loan payment, farmers who own travel trailers or custom-built housing may choose not to charge lot rent during the loan payback period.

If Unit Owned by Employee-resident: If the units are employee-owned, then a farmer does not earn equity in the unit and his or her primary rental income will therefore come from renting out the lot. Employee-residents do not take out loans for lot infrastructure, but their lot rent serves in part to pay off the lot infrastructure in which a farmer has invested. After the infrastructure is paid off, the lot rent can go toward the farmer-landlord’s profit. While the figure depends on the specific loan terms and infrastructure costs, an employee-resident lot rental payment of $100/month should be more than sufficient to pay the farmer’s lot infrastructure loan payment. The example in this guide groups lot infrastructure maintenance costs in with operating costs, but lot maintenance could just as easily be budgeted into the lot rent.

Total Monthly Payment:

Regardless of who owns the units, the “Total Monthly Payment” is simply: Housing unit payment + lot rent + utilities.

Appendix A

Farmer-Landlord and Employee-Resident Profit Summary (Monthly)

Farmer-Landlord Owned Unit Employee-Owned Unit

Travel TrailerManufactured

HomeCustom-Built

HomeTravel Trailer

Manufactured Home

Custom-Built Home

Equity Earned in Unit*

($/month)

285.79 44.81 296.62 285.79 44.81 296.62

Lot Rent Charged by

0 100 0 100 100 100

Farmer ** ($/month)

Farmer Profit ($/month)

285.79 144.81 296.62 100 100 100

Employee Profit ($/month)

Savings over off-farm rent

Savings over off-farm rent

Savings over off-farm rent

Rent savings + 285.79

Rent savings + 44.81

Rent savings + 296.62

This document’s “Introduction” estimates that a farmer-landlord can comfortably earn $100/unit/month in rental profits from employee housing. Profit earned by the housing unit owners (farmer or employee) during the loan’s repayment period is in the form of the equity earned in the unit. Such equity/profit in this estimate ranges from $44.81/month to $296.62/month. If the employee owns the unit, then only the lot rental payment goes toward farmer profit. Depending on the total cost and financing terms for the lot infrastructure, a varying amount of the $100/month lot rent will go toward repaying the infrastructure loan. That amount which does not go toward loan repayment will be farmer profit. After the loan is fully repaid, the entire $100/month will serve as farmer profit.

*Equity Calculation:

Let’s assume a reasonable 5% annual depreciation rate for all types of housing.

Travel Trailers: Upon paying off the unit loan (after 36 months), a travel trailer owner will have earned an average of $285.79/month in equity ((0.95^3*(12,000))/36 months, where ‘3’ is the loan term in years and ’12,000’ is the unit purchase price). If that employee pays a total of $507.79 for the loan payment plus operating costs, then he or she is actually only paying $222/month in non-recoverable costs (given that the equity earned in the unit could be cashed in if the unit were sold). Of course, savings are even greater after paying off the loan and no longer having that monthly payment.

Manufactured Homes: Given the longer (20-year) loan term estimated for a manufactured home, higher overall interest and depreciation will limit the equity built in the home (0.95^20*30,000/240 = $44.81/month).

Custom-built Homes: Monthly equity earned in a custom-built home is 0.95^5*23,000/60 = $296.62/month.

**If a farmer can afford to do so, this estimate assumes that he or she only charges lot rent during the loan repayment period when the units are manufactured homes. In this way, the farmer passes on a little of the earned-equity profits as savings to the employee-tenant who is not earning equity.

Appendix B

Farm Employee vs. Urban Employee Personal Finances (both Part-time)

Urban Bay Area Resident ($/month)

Farm Employee-Resident ($/month)

Average Gross Income (1200 hours worked/year)

$1,800 ($18/hour)

$900 ($9/hour)

CA State Disability Tax (SDI) (1% of gross income)

$18 $9

FICA (7.65% of gross income)

$137.70 $68.85

2014 Federal Income Tax $232.50 $5.42

(Filing single, $6,200 standard deduction, $3,950 exemption)

2014 CA State Income Tax (Filing single, $3,992 standard deduction, $108 exemption)

$34.92 ($29.92/month if CA Nonrefundable Renter’s Credit is

claimed)

$5.58 ($0.58/month if CA Nonrefundable Renter’s Credit is

claimed)

Unit Owned by Farmer-landlord

Unit Owned by employee

Estimated Avg. Housing Rent (not including utilities)

$1,000$515.34/month (Payment + lot

rent)

$304.29/month (Fixed costs +

Operating costs – Equity)

Money Remaining (after costs listed above)

$376.88 $295.81 $506.86

Money Remaining (average of farmer-owned and employee-owned units)

$376.88 $401.34

It’s worth repeating that “employee housing rent” refers to either: a) rental of housing unit and land lot where it is located, or b) employee’s ownership payment for housing unit plus rent payment to farmer-landlord for the lot.

Thanks to employee housing, the personal finances work out better for a farm employee-resident than for an urban Bay Area resident who earns twice the gross monthly wages. Of course, both urban and farm-employees would have more money each month if they worked more hours per week. That said, this estimate is designed for freelancers who choose to work only part-time in order to leave time and energy for independent pursuits (e.g. art, music, entrepreneurship).

Employee housing rent varies greatly based on the particular housing unit purchased and the financing terms. This estimate averages rent across travel trailer, manufactured home, and custom-built home estimates taken from the “Estimated Monthly Rent and Utilities” section (see below for calculations). It bears mention that $1,000/month is a low rent estimate for the Bay Area and likely represents a single room in a house with a shared kitchen and bathroom. Farm-employee residents would likely have more privacy and living space, especially when you consider the outdoor living spaces on a farm.

Finances work out best for farm-employees when they own the housing units. When the units are farmer-owned, farmers may consider charging lower rent or paying higher wages in order to make

sure that employees earn a livable wage. After all, the farmers are earning equity in the unit and benefiting from having increased labor source stability.

Average of results from “Estimated Monthly Rent and Utilities” section:

Farmer-Landlord Owned (Employee earns no equity in the unit):

Travel Trailer: $521.17/month

Manufactured Home: $518.58/month

Custom-built Home: $506.27/month

Avg: 515.34

Employee-Owned:

Travel Trailer: 507.79-285.79 = $222/month

Manufactured Home: 491.12-44.81 = $446.31/month

Custom-built Home: 541.18-296.62 = $244.56/month

Avg: 304.29