{"id":283,"date":"2024-05-22T09:00:40","date_gmt":"2024-05-22T09:00:40","guid":{"rendered":"https:\/\/www.metroabundance.org\/?p=283"},"modified":"2024-12-13T01:43:16","modified_gmt":"2024-12-13T09:43:16","slug":"how-los-angeles-is-unlocking-more-middle-income-housing","status":"publish","type":"post","link":"https:\/\/www.metroabundance.org\/how-los-angeles-is-unlocking-more-middle-income-housing\/","title":{"rendered":"How Los Angeles is Unlocking More Middle-Income Housing"},"content":{"rendered":"\n

In<\/span> most supply-constrained high-cost metropolitan areas across the US, we\u2019re used to seeing only two kinds of multifamily housing projects get built.<\/span><\/p>\n\n\n\n

One is a large building with ample amenities like rooftop pools, gyms, and <\/span>dog spas<\/span><\/a>. While not exactly as \u201cluxurious\u201d as marketed, these projects are designed and built to compete for tenants at the top of the rental market.<\/span><\/p>\n\n\n\n

The other type of project is deed-restricted, 100% affordable housing funded largely by state and federal tax credits. Thanks to the state’s complicated financing system and environmental and labor standards, these projects now regularly <\/span>cost north of $1 million a unit<\/span><\/a> to build in California.<\/span><\/p>\n\n\n\n

What if we could build a third type of multifamily housing? By that, I mean new, privately-funded, no-frills buildings designed to cater to the middle of the market.<\/span><\/p>\n\n\n\n

Building this kind of \u201cworkforce housing\u201d is in many ways a forgotten art. But in high-cost cities where a large share of residents don’t qualify as “low-income” yet still struggle to afford market-rate rents, it’s vitally important that we create more units like this. <\/span>As it turns out, the City of Los Angeles may have stumbled upon a mix of directives and policies that have incentivized developers to do just that\u2014one that other metros with rent-burdened middle-income households could do well to emulate.<\/span><\/p>\n\n\n\n

LA’s Pro-Housing Pivot<\/h3>\n\n\n\n

Under LA’s <\/span>Executive Directive No. 1<\/span><\/a>, all proposed housing projects where 100 percent of the units are deed-restricted and leased at rents affordable to residents making no more than 80 percent of the city\u2019s Area Median Income (AMI) were fast-tracked: instead of subjecting these projects to a long and uncertain approval process, the city\u2019s Planning Department was given just 60 days to approve them.<\/span><\/p>\n\n\n\n

Soon after LA\u2019s incoming Mayor Karen Bass signed ED 1 in December 2022, applications began pouring in. In fact, in the year and change since, more than 16,000 units of affordable housing <\/span>have been proposed<\/span><\/a>\u2014more than the city approved in the prior three years.<\/span><\/p>\n\n\n\n

Even more surprising: nearly three-quarters of the projects were proposed by private developers who planned to build them <\/span>without public subsidy.<\/span><\/i><\/p>\n\n\n\n

Why? The short answer is ED 1 made these affordable projects suddenly look profitable.<\/span><\/p>\n\n\n\n

The simple act of granting a time-certain, administrative approval process in a city famous for its lengthy and uncertain entitlement process was revolutionary. Without the need to win approval at city council, engage in endless community outreach, and commission onerous environmental impact studies, developers could obtain approval in a matter of weeks instead of the city\u2019s pre-ED 1 average of 243 days.<\/span><\/p>\n\n\n\n

Lengthy, discretionary local approval processes are a primary driver of ballooning \u201csoft costs\u201d in projects across the country. But even more important than the time saved was the certainty provided by the new process. As long as an ED 1 project met a basic set of criteria, it was guaranteed to be approved.<\/span><\/p>\n\n\n\n

The second key factor that kickstarted LA’s affordable housing bonanza was California\u2019s State Density Bonus Law, which allows for 100 percent affordable projects to request unlimited incentives, waivers, and concessions on specific zoning and building code issues that increase building cost or make the proposed project physically impossible.<\/span><\/p>\n\n\n\n

Like those of other big cities, LA\u2019s zoning and building codes are incredibly complex, with layers upon layers of arcane rules dating back as far as the 1930s. When you add up everything from the most basic limitations (height, <\/span>square footage, open space, setbacks) to the more minute (street trees, roof decks, facade articulation, etc.), you get a morass of rules that dramatically increase the cost to build. But Density Bonus Law exempts ED 1 projects from most of these requirements.<\/span><\/p>\n\n\n\n

Taken in combination, the mayor\u2019s guarantee of speedy and certain approval and the state\u2019s policy of granting unlimited waivers and concessions to affordable projects offered up cost savings that potentially outweighed the lost revenues from rent caps. In a housing market with few attractive investment options, applications from developers came pouring in.<\/span><\/p>\n\n\n\n

Unanswered Questions<\/h3>\n\n\n\n

So far, only a few ED 1 projects have broken ground. And the city\u2014after declaring the need for affordable housing a top priority\u2014has made <\/span>several<\/span><\/a> surprising<\/span><\/a> moves<\/span><\/a> to make the program harder to utilize going forward.<\/span><\/p>\n\n\n\n

As for those projects that have already received approval, it remains an open question w<\/span>hether the majority will ultimately be completed and operated at a profit. The answer to two questions will decide whether they are: First, will renters want to live in these small, bare-bones units\u2014especially given the byzantine income verification process tenants need to clear in order to qualify for income restricted units? Second, will developers be able to keep construction costs low enough to turn a healthy profit?<\/span><\/p>\n\n\n\n

Because newly constructed, no frills, one-bedroom apartments that don\u2019t come with parking are rare in most American cities, it\u2019s virtually impossible to answer these questions definitively. But there\u2019s plenty of reason to think ED 1 projects will be successful\u2014depending on where they\u2019re located.<\/span><\/p>\n\n\n\n

A substantial majority of ED 1 projects have been proposed in historically under-served and under-resourced neighborhoods across the city such as South LA, where land costs are cheap enough to guarantee relatively contained costs. Savvy developers and investors nonetheless see these projects as a bad bet because they will be competing against existing housing stock that is roomier, includes parking, and commands roughly comparable rents.<\/span><\/p>\n\n\n\n

On the other hand, in West LA (and Santa Monica, where I serve on the City Council), where the demand to live is sky high and rents are crushingly unaffordable, these projects seem like a much better proposition\u2014provided developers don\u2019t overspend on site acquisition and manage to keep their construction costs contained.<\/span><\/p>\n\n\n\n

Building ED 1 projects in places like West LA is also a better idea<\/span> from an equity perspective, as these are the temperate, job- and transit-rich areas of the city where we most need more affordable housing.<\/span><\/p>\n\n\n\n

The inherent risks associated with ED 1 projects have reportedly led a number of larger, institutional developers and investors to remain on the sidelines\u2014while many of those who are plowing ahead either lack experience or run smaller, scrappier outfits.<\/span><\/p>\n\n\n\n

\u201cInexperienced\u201d is never a great quality in a builder, but \u201clean and scrappy\u201d will be an essential quality for any contractor trying to hit the $200-250K per-unit price tag necessary to make these projects pencil in high-resource neighborhoods. Indeed, if ED 1 successfully lures smaller, \u201cmom and pop\u201d homebuilders and house-flippers into the affordable multifamily space and they succeed in building workforce housing at a contained cost, it would truly be a game changer.<\/span><\/p>\n\n\n\n

Either way, LA\u2019s flood of proposals for affordable housing offers a tantalizing glimpse into what a healthy housing market unburdened by labyrinthine approval processes and overly prescriptive zoning codes might look like; a market where private capital could be easily marshaled to build not just for the top of the income distribution but also for the middle.<\/span><\/p>\n\n\n\n

LA\u2019s experience shows that guarantees of greater speed and certainty are invaluable to homebuilders, and policies that set \u201cshot clocks\u201d for city planning departments to approve projects can move the needle significantly. When you combine those reforms with relief from other zoning and design rules that drive up the cost of construction, you make it possible to bring far more moderate income units to the market. Policymakers from other high-cost, supply-constrained cities should take note.<\/span><\/p>\n\n\n\n

Jesse Zwick is a writer, public policy and communications consultant<\/span>, and Santa Monica City Councilmember.<\/em><\/p>\n","protected":false},"excerpt":{"rendered":"In most supply-constrained high-cost metropolitan areas across the US, we\u2019re used to seeing only two kinds of multifamily housing projects get built. One is a large building with ample amenities like rooftop pools, gyms, and dog spas. 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