Why Market Magic Cannot Produce Affordable Housing in Los Angeles

PLATKIN ON PLANNING--Los Angeles had an undeniable shortage of affordable housing.  This is obvious from sky-high rents and the large number of people living in over-crowded apartments, garages, cars, and the streets. What there is no shortage of, however, are promoters of high density, market-driven apartment houses, which they present as the solution to meet LA’s enormous demand for affordable housing.   

The promoters include pundits, professors, planners, politicians, plutocrats, publishers, and principals of real estate firms.  They are all happily quoting each other, eager to convince you that trimming environmental laws and “reforming” LA’s zoning ordinances will usher in a cornucopia of affordable housing.  

In their universe, which extends from the free market disciples occupying the Republican Party to the centrist, corporate Democrats who call the shots at LA’s City Hall, rules and regulations are the enemies of affordable housing.  

Gut them and cut them so cities, like Los Angeles, can attract mounds of private capital to become a world-class city, which then trickles down to include affordable housing.  Through the magic of the market, prosperity will rein for all, including the poor, once we get those pesky zoning and environmental laws swept away. 

But, no amount of huffing and puffing can turn their economic self-interest / free market sermons into reality, especially their claims that local deregulation will produce affordable housing.  If your gut tells you that their message does not pass the smell test, you are correct.   

Here’s why Market Magic cannot solve LA’s Housing Problems.  The private market has not, cannot, and will not be able to produce affordable housing.  This is because the costs of land, labor, and materials exceed the ability of low-income people to pay rent or buy apartments or houses.   There is no mystery here, and the record totally speaks to itself.  Left to pursue profitability, private investors and their City Hall enablers will plunk their money into lucrative real estate projects because of their high rates of return.  This means housing for the well off in Los Angeles, and occasionally for the middle class on the urban edge.  But, despite their rhetoric and multiple conferences, it does not result in enough affordable housing to begin to meet the needs of LA’s residents. 

To do this, Los Angeles, like all other American cities, needs to turn to other mechanisms.  The most obvious one is public housing.  In LA, in the 1930s City government built and operated housing projects.  But, by the end of the 1930s this responsibility passed on to the Federal Housing Administration (FHA).  The FHA, in turn, worked through local housing authorities to build and operate public housing projects through the 1960s.   

But, by the early 1970s, Congress and the Nixon White House changed these programs to work through private housing developers.  Through these new programs, these private housing providers received Federal subsidies to reduce their mortgage payments or to subsidize the rents.  Later, in Los Angeles and other California cities, these subsidies came from local Community Redevelopment Agencies, which the California State legislature has since dissolved. 

As a result of these cutbacks in Federal, State, and local housing programs, Los Angeles now faces a serious shortage of affordable housing.  According to housing planner, Joan Ling, to stay even, the city must produce 4,000 new affordable housing units each year.  But, the remaining programs are only producing 1000 units per year, while market forces are responsible for the loss of 3,000 affordable housing units per year, mostly through demolitions.  

As a result, Los Angeles is falling behind by 7,000 units per year, even though it is building many new market based rental units.  But, as anyone who drives through Hollywood or the Miracle Mile can observe, the lights of these market units are not on.  The explanation is not energy conservation, but high vacancy rates.  Cities, like Los Angeles, with high levels of economic inequality, have no trouble attracting investors to build market housing.  What they don’t have, however, are enough residents who can pay the rent. 

According to investigative reporter, John Schwada, the affordable housing situation is actually much worse.  Most of these 1000 units are produced through the local bonus density program, also known as SB 1818.  He discovered that there is no database on the location of these affordable units, and no field monitoring to confirm their status, rents, and tenants.  When he personally field-checked several buildings awarded these density bonus affordable units, the property managers had no idea what he was talking about.  His conclusion is that many of these supposedly affordable units are actually renting at market rates. 

Local Alternatives to Market Deregulation:  But, all is not lost.  Despite the apparent fraud in the density bonus programs and the demise of the Federal and State housing programs, cities still can do the following, although none of these options can achieve the former successes of public housing in providing affordable housing. 

First, they can have tough rent control ordinances.  Instead of allowing units to be re-rented at market rates when tenants voluntarily leave or are pushed out by landlords, the units could remain rent controlled.  After all, most of LA’s affordable housing already exists, and it is essential that we preserve it. 

The second option is inclusionary zoning, a form of which the California Supreme Court recently approved.  This means that when cities rezone a local area, or when a contractor applies for an apartment building permit, around 15 percent of the new units must be affordable.  Furthermore, their status must be guaranteed by field inspections, and the units must be listed and monitored on a central database.  In New York City, for example the inclusionary zoning requirement is tougher than California’s.  There, 25 percent of new residential units must be affordable when a neighborhood is rezoned. 

The third option is legislation that will slow down the demolition of existing housing.  One of these goals has been achieved in California through Assembly Bill 2222, which requires contractors to replace all rent-stabilized units that they demolish when receiving a bonus density determination.

{module [1177]}

Critical Litmus Tests:  One of the great ironies of this story is that real estate speculators have hijacked important planning concepts in order to feather their own nests.  Cities do need to become more sustainable, and one of the techniques to achieve this is correctly planned density.  It is not enough to place traditional, up-scale apartment houses near subway and bus stops.  To do it right, the entire support network of public infrastructure and services, as well as private commercial services, must be upgraded.  This includes new schools, parks, playgrounds, libraries, and clinics, to meet the needs of an expanded population.  It also means that sidewalks must be repaired, while proper cross walks, bicycle infrastructure, and street lighting are installed prior to the construction of Transit Oriented Development/Districts. 

So, how then, can the public know when developers are just trotting out clichés about sustainability, transit ridership, and density?  Here are the five most important litmus tests: 

1)    Do the developers’ calls for higher density housing include the prior construction of expanded, high-density public infrastructure and services?

2)    Do the developers call for the preservation of existing affordable housing through strengthened rent control regulations?

3)    Do the developers and their political agents call for the restoration of Federal and State program to construct and maintain public housing?

4)    Do the contractors call for the careful monitoring of new market and affordable housing constructed near transit stations and lines to confirm that the tenants are using public transit?  If they are still driving their cars, are there consequences, such as the revocation of building permits?

5)    Do the contractors call for an increased minimum wage to raise the income of the poor so they can afford market housing? 

These simple tests should make it easy to separate the various hucksters of market housing covering their hidden agenda with a fig leaf of sustainability buzz words from  those who are genuine in their desires for Los Angeles to finally close its gap in the construction of affordable housing.

 

(Dick Platkin is a former LA city planner who writes articles on planning issues for CityWatch. He welcomes questions and comments at [email protected]. George Abrahams is a director of the Beachwood Canyon Neighborhood Association. He can be reached at [email protected].)

-cw

 

 

 

CityWatch

Vol 13 Issue 66

Pub: Aug 14, 2015