Housing the City of Los Angeles
Exploring six strategies LA can employ to have more housing, be more affordable, and prevent homelessness
Dear readers,
This housing platform was a collaborative effort by the LA New Liberals, a group that is currently collaborating to sketch out a vision for what an economic “abundance agenda” could look like in Los Angeles. I (Thomas) asked if we could publish that platform here on my blog. This platform focuses explicitly on the issue of housing, but we hope to touch on other related economic issues. It is the first draft, so it may change, and I would welcome your thoughts!
Overview
We embarked on this process because we believe housing is LA's most important issue. Many of the most significant issues the City of Los Angeles faces are downstream of housing: homelessness, climate and sustainability, economic development, and opportunity. We need to tackle housing to address any of these other issues in a long-term way.
Our Six Sections of housing policy:
Zoning Reform
Discussions of housing in California should start with the fundamental need for zoning and land use reform. Unfortunately, Los Angeles chose to become unaffordable by spending much of the last 50 years downzoning. As Greg Morrow and Richard Green point out, Los Angeles had a zoning capacity in 1960 of 10 million units. However, by 2010 was only zoned for 4.3 million:
Source: Greg Morrow, via Real Estate and Urban Blog Spot
The history of Los Angeles’s systematic downzoning was multi-facetted: for instance, consider the impacts of proposition U in 1986, which cut the floor area ratio of our commercial corridors in half:
The fact that 74% of our residential land bans all housing that is not the most expensive type of housing in LA, the single-family home:
The last ten years have seen progress: ADUs have been an enormous success, as has LA’s Transit Oriented Communities program. There is hope that housing will be more easily produced in commercial corridors in the coming years with the passage of California state law AB 2011. However, If LA wants to become an “affordable city," more reforms to zoning must happen. More ambitious zoning reforms are necessary for the long-term redevelopment of our city to be more affordable and accessible. Here are some specific ways LA City can do that:
First, Los Angeles can make “Missing Middle” legal across all residential neighborhoods in Los Angeles, making homeownership once again attainable for ordinary Angelinos. State law already allows building ADUs and duplexes, but Los Angeles can and should codify that into local law by legalizing building up to four units on one parcel. Furthermore, every property is different, and if Los Angeles wants to see new homeownership opportunities across our city, Los Angeles needs to give options. An excellent first step would be to expand the city’s small lot development program to all residential land so that townhomes can be built across the city. Decreasing the minimum lot size across the city to1250 square feet would allow subdivision of current single-family parcels into 4-6 smaller ones. In addition, builders should be able to waive parking and increase the height built on that lot, which could lead to redevelopment in many high-opportunity neighborhoods since developers can save money on construction and land costs.
Second, Los Angeles can expand its efforts to produce housing around transit. Los Angeles’s TOC program has created almost 37,000 units over the last five years. But the program can be improved, especially as LA Metro prepares to invest $400 Billion in the coming 30 years. For example, to strengthen TOC, Los Angeles should expand the land eligible for TOC to include single-family areas and the area around rapid bus stations. In addition, the city should also allow for more favorable incentives to developers by dropping all parking minimums, giving access to taller and denser housing, and providing highly affordable project access to a supercharged density bonus.
Third, Los Angeles can legalize housing in commercial corridors across our city. AB 2011 has moved the ball forward on a state level, but Los Angeles should codify that as local law and extend its adaptive reuse ordinance across the city.
Fourth, LA should look for new and creative ways to increase zoning capacity in high-opportunity neighborhoods with good schools and parks. There is currently a significant mismatch in LA: the places creating good, with high-performing schools and large public parks and beaches, are building little to no housing, while areas with less opportunity are building moderate amounts. LA city should take proactive steps to reverse this by using maps and metrics of where these opportunities are being created to inform upzoning decisions as a part of its housing element update.
Lastly, LA should remove the city council from all planning and land use decisions. We have seen time and again that the current system, where council members have vast amounts of discretion over project approval in their district, has created destructive incentives for our city council. The Planning Department can cut down on some of this by simply showing less deference to the city council, but ultimately, it comes back to zoning. By modernizing the city zoning code and thus taking housing approvals out of the political process, the city would remove the incentives for corruption.
Speeding Up Homebuilding
The failure of homebuilding in Los Angeles is more than just a matter of what is allowed to be built where; Los Angeles also fails to build housing, even housing compliant with land use regulations, in a timely way. For example, Los Angeles took 13.1 months to approve new housing from 2014 to 2016, and projects that required an environmental impact report took over 43 months (3.5 years) to complete. Not only does this mean that housing desperately needed by Angelinos stays off the market, but it drives up costs as a developer (especially affordable developers) has to incur high borrowing costs during the lead-up to new development.
Los Angeles needs to tackle this process by creating a streamlined process of review and permitting, which involves the city taking several policy steps:
CEQA and Discretionary Review Reform: Currently, housing projects over 50 units in LA need to go through a “site plan review.” This process subjects them to an environmental review (CEQA) and community input process to ensure a development has social benefits. In practice, this subjective review blocks and delays housing, which from a macro perspective, makes social and environmental goals harder to achieve. However, new housing in LA benefits affordability and social goals, even more when delivered through city and state incentive programs. While CEQA is broken and needs to be reformed on a state level to exempt all infill development, the City of LA can take steps to shield projects from CEQA, like increasing site plan review to 250 units.
Limits on Historic Preservation: Another big reason homebuilding has become increasingly slow is the proliferation of historic preservation zones throughout Los Angeles, which now total 35 separate districts. While there is little debate about the value of preserving truly landmark buildings, all actions by the city to take existing housing off the market come at a cost, both to homeowners and the housing market as a whole. LA City needs to ensure that the process of codifying neighborhoods and buildings as historic is objective and cannot be hijacked by neighbors trying to stop development. To ensure a high bar, individual homeowners should see compensation from the city or petition neighbors who are decreasing property value from potential future development. Otherwise, historic designations should only be allowed when homeowners can come together collectively and agree to put covenants in place, and individual homeowners can opt out.
Permitting Reform: While planning and land-use approvals are the most burdensome aspect of housing development, getting through the building permit stage can be fairly onerous for developers. Thus, through AB 2234, California has moved to hold city building departments to a quick turnaround time for giving responses on building permits: 30 days for small projects and 60 days for larger projects. LA should standardize these timelines into city processes and laws and build staffing capacity to achieve these goals.
Standardize Community Benefits Agreements: One of the reasons that we see so much incentive to have extensive community reviews is that neighbors and community non-profits can negotiate more benefits from developers. Unfortunately, this negotiation process comes at a high cost in the form of slowing down the process. To the degree that community benefits are essential to the city, their scope and dollar amount should be standardized ahead of time while allowing the community to direct the dollars toward priorities as they please.
Expand the City’s ADU Accelerator: LA has seen tremendous success in encouraging them by pre-approving them through its ADU accelerator. The city should broaden its program to give better guarantees on permitting timelines and include all types of development a homeowner could build on their property. Missing middle housing that can help LA be more affordable and may not have the development infrastructure behind it that single-family homes and significant apartment developments have. The city should create pre-approved prototypes and ensure that adequate incentives and streamlining mechanisms exist to get these projects built out quickly.
Bring Down the Cost of Homebuilding
The cost of building new housing in Los Angeles is exceptionally high compared to other states: the same housing typology can cost twice as much to build in California compared to Texas. When housing costs are so high, the new housing built is, by definition, expensive and luxurious. Ironically, the cost problem is even worse in subsidized developments, where a recent investigation by the LA Times found that individual affordable housing projects cost more than $1 Million per unit in the Bay Area, and projects in LA were approaching $900,000 per unit. LA will never have attainable housing when costs are out of control.
Some of these costs are out of local officials' control: national and global market forces determine the price of commodities needed for hard construction costs. But officials have many options, including things we have outlined to reform zoning and land use regulation, speed up homebuilding, and reform tax incentives that discourage new housing. But in addition to those reforms, other reforms would make the actual construction of buildings less costly:
Parking Reform: requiring new housing to include arbitrary amounts of parking is one of the biggest drivers of cost in new housing. Nationwide, parking accounts for 17% of all rent paid, and in Los Angeles, building one parking space can translate into costs of $150-$300 a month in rent. While AB 2097 has relaxed parking rules around transit, Los Angeles should codify and expand parking reform to all city areas, so we can see newer, more affordable housing built.
Building Code Reform: Our city's building code often requires housing to be built in ways that cost more while delivering less housing. These building code reforms include the outdating fire regulations in downtown LA (which the central city association found “increases costs for multifamily housing by 10.6% to 43.3%) by banning timber-based construction that is now legal in California up to 18 stories. Alternatively, LA’s building code requires two staircases in buildings over three stories (instead of 6 stories like in Seattle). The downstream impacts of this double-stair requirement are substantial: it both adds construction costs and limits what parcels of land can be developed. The city could also bring down the cost of housing by giving more flexibility to build higher and denser buildings that clear the two-stairwell threshold and the steel and concrete threshold.
Flexibility on labor and environmental standards: While many laud mandates that require high wages and environmental standards, one must acknowledge they come at a cost to new housing: the Terner center has found that “Green building standards in Los Angeles, for example, have increased construction costs by 10.8 percent” and that prevailing wage projects often cost 10% more than non-prevailing wage projects. Both environmental standards in building and high-wage rates are worthy social goals, but it is worth considering if these social costs should come at the expense of new housing that does not pencil. We want cities to experiment with funding wage and environmental requirements as incentives through tax revenue instead of mandates. Alternatively, like in AB 2011, as a requirement to get access to supercharged density bonuses. Thus, projects that cannot afford to be built with these requirements can opt out without disincentivizing fair wages and green buildings.
Funding for Housing Innovation (i.e., modular housing): Off-site construction through modular building has yet to be widely adopted but has great potential for driving down housing costs. Factory-built and assembled products across industries see substantial efficiency gains in their process. Many experts believe that if widely adopted, modular and pre-fabricated housing can hold similar promise for construction, especially given California’s shortage of skilled construction labor. Just like governments helped accelerate green energy production, there is a potentially high return in the long run for governments to invest in modular construction on public projects.
Accelerate Affordable Housing
Los Angeles County has 69,144 residents who spend every night without a home, and 41,980 are in LA City. While it is true that many of these folks are experiencing deeper issues than simply not having access to housing, the fact is that few dispute that to deal with their problems, they need a safe and affordable place to stay. Therefore, we believe the best response to homelessness is an “all of the above” approach: more affordable housing, more temporary shelters, and more market-rate housing. Unfortunately, our city’s efforts to quickly bring housing onto the market have been beset with issues.
First, our city must legalize Mirco-units and Single Room Occupancy Hotels. When looking at history, it doesn’t take long to recognize that, in many ways, we have gone backward in housing for the homeless. For example, during the first part of the 20th century, Single Room Occupancy buildings often were quite effective ways the market would house vulnerable people. Yet in LA, like most American cities, these buildings were gradually outlawed through building codes and zoning ordinances that saw them as a nuisance. Unfortunately, LA did not provide an alternative, and we can see the impacts of the massive growth in Angelinos being forced by the housing market into homeless. LA should reverse this and allow the market to build micro-units and single-room occupancy buildings for all who want to live there.
Second, our city needs to leverage better the most valuable resource it owns: underutilized land. Land is one of the fastest escalating costs in housing development, including affordable housing development. Building new housing on vacant and underutilized land is one of the easiest ways to reduce housing costs.
Third, our city needs to increase funding for all types of homeless housing: building new permanent affordable housing, adapting existing structures (like through project homekey), and increasing temporary housing funding. While there are legitimate debates about the costs and benefits of shelter vs. permanent housing, this debate is a false choice. Advocates of both positions need to recognize that their true enemy is the status quo, which involves tens of thousands of people living on the street in conditions that should make use all shameful. We can fund both approaches while learning from on-the-ground data about what is working over time.
Fourth, the city needs to experiment with innovative approaches to bring down the cost of affordable housing, including specific programs like incentivizing homeowners to build affordable ADUs at a lower price than traditional development. For example, Portland is legalizing homeowners renting mobile, manufactured homes in their backyard, which could cost $500 a month. While these approaches may work or scale, the massive potential for cost savings shows the necessity of trying innovative approaches.
Lastly, the city should expand existing density bonus programs (like TOC) that make it profitable for developers to produce affordable housing. Too often, advocates of affordable housing focus their effort on trying to maximize the percentage of new development that is affordable rather than maximizing the units produced that are affordable. Our city has plenty of underutilized land for affordable and market-rate housing to be built alongside one another; we believe policymakers should reject a value-capture mindset that focuses on the value created by new development while ignoring the value created for existing homeowners. As recommended by the central city association, an affordable housing overlay would be one way to do this well.
Prevent Homelessness
Homelessness is a crisis in Los Angeles. Unfortunately, the city has failed to make progress because new Angelinos are becoming homeless faster than existing homeless residents can find housing. The data from the 2020 homeless count estimated that while over 75,458 homeless residents of LA county exited homelessness, another 82,955 became homeless over the year. To sustainably end homelessness in LA County, it is imperative to stop the “flow” of people into homelessness. And this is something that can only be achieved by keeping Angelinos in their homes.
We believe that there are housing policy tools that can make significant progress on this problem:
First, the city should put more resources into rental subsidies to ensure vulnerable tenants are protected and stabilized in their current apartments and can follow them when or if they have to move. The most universally applicable way to stabilize a vulnerable person is to get cash into their hands so they can pay their bills. While we are not arguing against tenant protection, the truth is that programs that help tenants are too often designed around creating price stability for housing units, not creating stability for people in need.
Second, the city should provide marshall resources for buying and redeveloping existing affordable housing, also known as “Naturally Occurring Affordable Housing.” The fact is that most affordable units are not subsidized, but are older units on the market, often in poor condition. This puts the tenants in a vulnerable position, where they have to choose between poor living conditions and losing access to affordable housing. In many cases, cities can buy and rehabilitate this as permanently affordable housing at a much lower cost than new construction.
Third, the city should increase the budget of the Housing Department to review complaints and violations of housing law. Right now, LAHD is asked to do more than it can reasonably administer; and increasing staff capacity would be an easy way to ensure that bad actors who illegally threaten tenants and break contracts could be deterred. This enforcement can be partnered with access to legal counsel to provide counsel before facing evicting. New York found that giving tenants a right-to-counsel cut down on eviction, especially in low-income areas. Estimates in Los Angeles show that for every $1 invested in giving tenants legal counsel, the city will see between $3-5 benefits from reduced service utilization.
Fourth, LA city needs to make rental protections precise to prevent unintended consequences like condo conversion, as found by research on rent control in San Fransico and Catalonia. Our general philosophy is that governments do a poor job setting rental prices and expanding rent stabilization in our city would lead to unintended consequences exceeding their benefits. We believe the city should have a narrow set of laws thoroughly enforced rather than a thicket of unenforceable laws. We think there can be room for the city to put in just-cause provisions for a set period, while the depths of the housing crisis make getting evicted highly likely to lead to homelessness.
Lastly, the city should create programs that place tenants displaced by new construction into affordable housing built by that new construction. Data shows that new housing produces far more housing than it demolishes: research by Shane Phillips found that for new projects over 200 units, the number of units created outnumbered those demolished by 1100 to 1. Yet, given that individual tenants can still be harmed in the process, the city should ensure that these tenants get easy access to new units through a matching registry. This registry will help those tenants while alleviating flows into homelessness.
Fixing Tax Incentives
One of the many contributors to high housing prices in California is that our tax system too often discourages building new housing units and gives favorable tax treatment to existing housing and uses, even if those have a relatively low productivity use. Much of this started with the passage of Prop 13 in 1978, a state-wide voter initiative that codified low property taxes, specifically for long-time homeowners.
While the costs of Prop 13 far outweigh its benefits, the measure is widely considered an “untouchable third rail” of California politics. Unfortunately, this means that local cities like Los Angeles cannot pursue the kind of real-estate taxes, especially land value and split-rate taxation. Instead, California cities have relied on developer fees as a post-Prop 13 alternative for funding infrastructure and affordable housing. We believe these things are needed and should be funded, but paying for them via taxes that discourage needed new development is counter-productive.
That said, local elected officials do have a suite of options available to them to improve housing affordability in their city:
First, they can unwind their reliance on developer fees. Local governments do not have much transparency detailing these fees and how they interact, but they carry a high cost: driving up housing prices and discouraging development. For example, while Los Angeles has a less strict fee than other cities, it still relies significantly on these fees for building parks and affordable housing.
In the place of impact fees, cities can embrace Tax Increment Financing (Enhance Infrastructure Finance Districts in California), which are more pro-housing ways to fund infrastructure in California, especially around new transit infrastructure. Likewise, cities can embrace progressive real estate transfer taxes, like the one proposed by Shane Phillips at the UCLA Lewis Center, that exempt new construction. Estimates by Phillips in his book, the affordable city, show that in recent years, for every $1 of developer profit, $82 of value is accumulated by existing property owners.” Thus real estate transaction taxes would grow and widen the tax base, both laudable goals.