Earlier this year, in April, I had the chance to write a short piece for the LA Daily News to address a persptant contention in Los Angeles - that we have too many luxury apartments that are sitting empty. Stan Oklobdzija onced dubbed this notion a “Zombie Idea,” a concept that should be dead given all the contrary evidence, but managed to somehow stay alive. In April, it came into vogue due to a series of comments that Los Angeles Mayor Karen Bass had made about vacant housing. Given Mayor Bass’ influence in LA politics, I thought it was worth addressing directly.
Thankfully, in the months following the piece Mayor Bass has recently avoided repeating this rhetoric about vacant housing and has instead been pushing several housing programs that have hpositively impactedthe city. Her biggest accomplishment has been ED1, the mayor’s push for streamlining 100% affordable housing, which has been a huge success and something I hope to write about in the future. But even if the Mayor has (hopefully) dropped this ideas - it is unfrotunately not dead yet - continuing to pop up in public meetings and in more interpersonal discussions - so I thought I would bring back that piece which never made it here to this blog:
Mayor Karen Bass continues to misdiagnose Los Angeles’ housing crisis. And that’s bad news for her constituents.
In a recent New Yorker profile, Bass re-iterated her skepticism of the new housing cropping up all over Los Angeles. Mayor Bass off-handedly remarked that she was unsure who lived in all the new apartments going up over the city. This follows comments in January where Mayor Bass told the LA Times that she “never understood who lives in all that luxury housing,” implying that this new luxury housing had a “high vacancy rate” due to “absentee owners.” Yet, despite what Mayor Bass claims, Los Angeles does not have a vacancy crisis, and her rhetoric is at best misleading and at worst destructive to our city. Just like it was the duty of political leaders to relay accurate information about COVID-19 during a global pandemic, our mayor must avoid myth-making about new apartments during a housing crisis. And as long as our political leaders rely on false information to discourage new building projects, our housing crisis will only get worse.
The false belief that LA has too much vacant housing is not new. In 2019, an influential study by the Alliance of Californians for Community Empowerment-Los Angeles purported to show that vacancy rates in new housing projects in downtown LA were astronomically high because new housing was primarily being used as a vehicle for real estate speculation. Even though they retracted the report after the underlying data proved inaccurate, its narrative had already confirmed many progressive policymakers’ skepticism about the merits of new construction. Yet, far from an abundance of vacant units, greater Los Angeles historically has had one of the lowest vacancy rates in the US, with apartment vacancies at a mere 3.9% in LA City at the end of 2022. This is significantly lower than the national rate of 5.8% and a fraction of the 16.5% of office rentals that sat vacant in 2022.
What’s more, a significant portion of these vacancies is a by-product of Angelinos relocating within the city, with nearly half of all vacancies resulting from these temporary vacancy periods. Thankfully, these vacancy periods caused by turnover are usually very short, seldom extending beyond a few months. But given how often people relocate in LA, temporary vacancies add up across the city’s vast housing market. And when new apartments come online, research shows vacancy rates temporarily increase. When new units are opened, they enter a “lease-up” period, where new tenants gradually move in over a period of months. But this doesn’t automatically bring down the vacancy rate since those new tenants vacate older units, setting off a “migration chain” that ripples through the housing market. After one year, vacancies in new buildings stabilize at an average of 4.7%, only slightly above the overall vacancy rate in the city.
The problem with the original report - authored by two very progressive advocacy groups - SAJE and ACCE - is that their analysis included a over-sampling of brand new buildings, who still had not had time to find new tenants. They then pointed to the high vacancy rates on these brand new units, and pointed to them as evidence of real-estate speculation. Had they only looked at buidlings that were more than a year old, they would have found a much lower vacancy rate, probably between 3-5%.
Now, this is not to say real estate speculation, where landlords buy and hold redevelopment to try to extract a higher price down the line, is not an issue - speculation is rampant in Los Angeles real estate, and it can be a big issue. But buying and holding onto vacant, brand new luxury multi-family units is simply not the place where much of that speculation happens. One does not have to look for for more glaring examples - for instance, the many surface parking lots in downtown LA that are sitting on extremely valuable land, and sit empty except for a handful of cars. If one wanted to end this - and see this valuable land get redevelopment into needed housing, there is a simple fix - reform the loophole in prop 13 that prevents governments from accurately assessing the value of this land:
Unfortuantley, prop 13 reform would involve actually ding hard work. Its much easier to simply blame faceless developers for problems.
More importantly though - this notion that too manyvacancies are a serious problem for renters is actually precisely backward:
The data indicate that Mayor Bass’ vacancy myth is just that, but the mere fact she views these imagined high vacancy rates as a problem demonstrates a fundamental misunderstanding of the housing market. Rather than seeing vacant housing units as a waste, it is better to see them as vital to dealing with the inefficiencies baked into real life. Moreover, more vacant units on the market means tenants have more leverage to negotiate good deals with their landlords. If we want to ensure all people (especially the vulnerable) can access the necessities they need, we need a society with markets that produce more than simply “enough” goods; we need abundance.
For those who may still be skeptical, let’s walk through a thought experiment: Let’s say you want to quickly get in an out of the grocery store parking lot at peak hours. Would you rather go to a store with 20% of the parking spaces open, or 2%? Almost certainly you would choose 20% - because even though the other lot has sufficient open spaces, the congestion of folks waiting for those 2% open spots will likely clog up the parking lot. Or imagine this: you are apply for a job as a first-year teacher, would you rather apply to a school with 2 open positions, or 20? You would almost certainly prioritize the school with 20 openings - this school is far much more likely to hire you given they need far more people! A high number of vacant units, are in the same way, a boon for renters - when landlords have empty units, they are more eager to offer good deals to renters, or take a chance on renters with lower and less stable income.
Research confirms this principle: low vacancy rates and high median rents are the two main explanatory variables for a surge in homelessness in American cities over the last ten years. Thus Los Angeles’ low vacancy rate helps explain why we have more homeless residents than any other city in America. Compare LA’s vacancy rate of 3.9% to Houston, where a steady flow of new building projects has kept the vacancy rate above 9%. Because of Houston’s abundance of affordable and vacant housing options, they have successfully housed thousands of homeless residents in the last decade, while LA’s homeless count has only gone up.
Now, there
And while many people perceive new housing in downtown LA as unaffordable and “luxury,” they are seldom the most expensive option on the market. An almost universal rule of the housing market is that condos are more affordable than single-family housing in the same neighborhood.
The concept that the problem with housing is that “we are building tons of luxury condos” is a pretty similar rhetorical flourish that comes up from time to time in the LA housing discourse, one that I address on this blog in April:
While people intuitively feel strongly about this notion of oversupplying luxury condos, every part of that sentence is countered by the data we have:
There are not tons of ANY housing being built: by all measures, we are producinga fraction of the homes in this decade that we did in the first half of the 20th century in LA. This can be illustrated by where I live in unincorporated East LA, where the median home was built in 1948.
New Housing is rarely built in the condo form. If you go on Zillow and look for condos for sale versus single-family homes, there are extensive rules about condo defect liability that steer builders away from building condos, as this piece illustrates:
Most of the new buildings built today are rentals, which we also need, but for those looking to own an affordable house, the dearth of condos is a real issue!
But most importantly, when you make a side-by-side comparison between those “luxury” condos and existing single-family homes (as I documented in April), the condos are almost always more affordable. This is true when even though the condos are new and built with modern amenities, while the single-family homes are old and often in need of rehab to get them up to date with current code and standards
Back to my vacancy piece, I illustrate the condo vs single-family home intuition by looking at the mayor’s home neighborhood:
Take Mayor Bass’ community of Baldwin Hills. According to Zillow, at the market peak in August of 2022, the median single-family home in the zip code was valued at $1.13 million, while the median multi-family unit was valued at $586,000, half the price of a single-family home. Estimates are that at least 40% of LA’s housing stock is single-family homes, so while new condos may not be the most affordable option, they are far closer to the middle of the housing market than most realize.”
In conclusion of the piece, I re-iterate the one big thing that I keep beating my drum about: at the end of the day - to address the housing shortage, you need to build more housing. Many people do not like this, so they look for other scapegoats (vacant units, luxury condos, private equity, etc.) to avoid that conclusion. But it is ultimately what we need to do:
Mayor Bass has made it clear her primary mission as mayor is to help get folks off the streets, and she has publicly lamented that many of her neighbor’s kids cannot afford to return to LA. The reality is that the only way LA will achieve either of these outcomes is if it continues to encourage new market-rate housing. To fulfill the promises of her campaign, Mayor Bass should spend less time worrying about whether the new apartments built across the city are vacant and instead commit herself to ensuring that housing in Los Angeles is plentiful for all.