Building a Better Answer to L.A.’s Affordable-Housing Crisis

Ron Galperin
Los Angeles City Controller

Los Angeles residents are being squeezed by one of the country’s most unforgiving housing markets. A majority of the City’s lowest-income residents pay more than half of their income toward rent, live in severely inadequate conditions, or both, according to a new federal study. Many are one rent increase away from homelessness.

Angelenos are looking for answers. One proposal is a linkage fee, a new surcharge on development, which would create a small stock of subsidized affordable housing while likely driving up prices for everyone else. At $12 a square foot on residential projects of more than five units, the fee would add $9,000 to the cost of a 750-square-foot apartment, and more when you factor in common areas. The surcharge belies basic economic logic: you can’t make something more affordable by slapping a fee on it.

San Francisco charges linkage fees that are far greater than those proposed in our City, yet the fees have resulted in just 86 units per year, according to BAE Urban Economics, which L.A. contracted to study the effects of the fees. Statewide, subsidizing affordable housing for the 1.7 million households who need it would cost more than $250 billion, according to the state Legislative Analyst’s Office, almost twice the state’s entire annual budget.

Most working Angelenos live in unsubsidized housing, where they’re squeezed by rising demand and stagnant supply. Even the BAE Urban Economics study conceded that it would provide no more than a few hundred subsidized units at best in a city that needs more than 100,000 market-rate homes by 2021 to keep up with our population growth.

Voters already recognize that we are just not building fast enough, agreeing to raise the sales tax rate to fund 10,000 new housing units. However, without a significant increase in housing supply, all but L.A.’s wealthier residents will continue to be driven out of their homes, and the city. Policies that make it harder and more expensive to build do not benefit potential renters and buyers, and would disproportionately harm neighborhoods where most residents earn less than the median income. As we move forward, L.A. needs to adopt more policies to encourage development at every price point and meet the needs of all of our residents.

Some have suggested subsidizing affordable housing by raising taxes on land or the transfer fees paid when property changes hands. These ideas suffer the same flaw as the linkage fee: we can’t solve the housing crisis by making it more expensive to build.

Instead, we need to work with builders to address the growing imbalance of supply and demand.

First, we need to cut the red tape and reduce delays that act as barriers to building housing. L.A. has taken some steps to expedite permits for certain projects. We must continue on the path of common-sense reforms while thinking even more creatively.

Second, California lawmakers need to take a closer look at reforming the California Environmental Quality Act (CEQA), which has extended far beyond its original intended purposes of environmental protection. Certain CEQA provisions have allowed special interests to entangle projects in litigation for years, slowing much needed housing and development in certain parts of the City.

Third, policymakers should reform existing incentives like our density bonus program, which encourages builders to add affordable units to market-rate projects by relieving certain limits on the number of units. So far, this program has not lived up to its potential, creating only 329 additional affordable housing units in the past nine years, according to my recent audit. I’ve proposed broadening the program to incentivize micro units and allow developers to build market-rate units off-site or contribute to an affordable housing trust fund in lieu of building additional units. Such funds would be used to help create more affordable units or as vouchers for families in need.

As we debate the best policies to promote affordable housing, it’s important to remember we all share the same goal. L.A. didn’t become one of the toughest housing markets overnight. It’s going to take hard work and creativity by all of us to solve the problem.

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