March 28, 2017 - From the March, 2017 issue

How Will The Real Estate Market, Demographics, & Affordable Housing Demands Reshape Planning?

Just two days after the March 7 election and the defeat of Measure S, the annual USC Real Estate Law and Business Forum brought together civic and business leaders to discuss economic growth prospects, infill, “new community” housing, and land use within the Southern California real estate sector. There, Urban Land Institute-Los Angeles Executive Director Gail Goldberg provided an overview of Los Angeles’ previous efforts to address its housing affordability crisis and the demographic changes that are reshaping the multifamily housing sector. TPR presents an excerpt of her remarks, including a forecast of changes in future opportunities for federal and state funding.


Gail Goldberg

“The community plans are on their way, but I have a lot of concerns about how committed the council will remain without the threat of Measure S.” - Gail Goldberg

Gail Goldberg: It won’t surprise you to learn that Los Angeles is one of the least affordable cities and counties in the country. That is based, not only on the fact that our rents are high, but also on the fact that our area median income is low.

The area median income in Los Angeles County is a little more than $62,000. In order for housing to be affordable to a low-income person, it has to be affordable to someone who makes 80 percent of that $62,000. Very-low-income people make 50 percent of that $62,000. And an extremely-low-income person earns just 30 percent of that $62,000. We have a lot of low-income folks in this city, and little opportunity for them to get into this market unless they get into subsidized housing.

We have a crisis in this city around affordability, both because of the difference between the area median income and the area median rent, and because of the supply and demand problem. The median rent in LA County increased by almost 30 percent between 2000 and 2014, while the median income declined by 8 percent. And there is currently a shortfall of more than half a million affordable homes for Los Angeles County’s very low-income and extremely-low-income households.

Our population is growing faster than our housing production. We’ve produced fewer than 200 permitted units for every thousand new people. Between 2010 and 2015, we produced about one unit for every six residents. And our average household size is about 2.8. We’re falling further and further behind.

I’m going to talk to you about the city and county are doing or not doing to help in this situation, and what we can expect from the feds.In the city of Los Angeles, the mayor is not the policymaker; that’s the job of the city council. What the mayor can do is issue directives, which are mostly followed by the people he controls—i.e., the general managers.

In his first year in office, Mayor Garcetti put out Executive Directive 13: support for affordable housing development. He put out a goal of producing 100,000 new units of housing by 2021 and preserving at least 15,000 affordable units by 2021, which was about twice the rate that we were producing.

Now, you can ask yourself: What does this mean? The mayor can tell the general managers that he has a goal, but so what?

Actually, this mayor was a little bit more strategic in this directive. (I think he was heavily influenced by Rick Cole, who was a deputy city manager, and advanced the theory that you can’t change something that you can’t measure.) This mayor said, “I’m not only going to have a goal, but I’m also going to publish the results every quarter.” And as a former general manager, believe me, you don’t want to be the general manager who causes the mayor to not meet his quarterly goals. So, the mayor has successfully used the tool of the executive directive to actually direct his general managers—mostly from Planning and Building & Safety—to prioritize the processing of affordable housing.

The mayor also delegated one of his staff people to be the housing liaison in the Mayor’s Office. That’s the person he appoints to go out and make certain the general managers are cooperating and that they are working hard to help him meet his goals.

In his first three years of keeping this scorecard, the mayor generated 41 percent of the total goal, and had slightly more than 6,200 affordable units. 1,500 of those were not new units; they were preserved from losing their affordability. (Affordable units that are subsidized have covenants, or restrictions, for a period of years. When those expire, there is an effort by the city to get new covenants, or to pay new subsidies, in order to keep those restrictions going. Despite all of our efforts to build new, if we are losing significant numbers of affordable units every year, all the building in the world is not going to help us keep up.)

The mayor also talks a lot about streamlining the process (one of my favorite things in life). And in fact, there is an effort to do that. They have placed planners and Building & Safety folks together, to try to keep folks coming in with housing from having to run all over the place.

Overall, I think the mayor has done a reasonable job of doing what he can to create an environment where housing projects are treated with some respect and there’s some attempt to get them through in a timely way.

The city’s Affordable Housing Trust Fund was established in 2000 with about $5 million; the next year it got $10 million. I can assure you that’s not enough. There was also commitment a couple of years ago to increase that fund, over a period time, to $100 million, and there is an effort to continue to put money into that fund. But at the local level, that’s still very little, and it is not a great way of creating the subsidies that we need to build housing.

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But while the city has sort of struggled to come up with ways to help affordability, there is a growing public interest in the city in the issue of affordability—and specifically in producing housing to get homeless people off the streets. We have seen that in the last elections.

In the November election, voters in the city of LA passed Measure JJJ, which requires the inclusion of affordable units in applications for General Plan amendments. A lot of citizens saw that as one way of producing additional affordable units in an environment where they are mixed with market-rate.

The development community was less excited about it, because that particular measure also imposed training standards and labor and wage regulations on development projects that require zoning changes, including provisions to require a certain percentage of labor to come from local markets.

Whatever you think of it, the citizens who voted found it overwhelmingly compelling, and it passed by more than two-thirds of the vote.In that same election, voters passed Measure HHH—a $1.2 billion bond for permanent supportive housing for the homeless that could fund up to 10,000 units. And in the most recent election, county voters passed Measure H, which proposed a quarter-cent sales tax increase that could generate about $355 million annually for homeless services. It achieved 69 percent of the vote.

There is also discussion, at the city council level, on proposed linkage fees. The draft fee structure that’s under consideration right now is $5 per square foot of commercial, and $12 per square foot of residential. It has the potential to generate revenue ranging from $90-130 million per year to fund developments of affordable housing. Also at the city council level is a lot of discussion—mostly because of the threat of Measure S—on expediting a city planning process that would get all of the 35 community plans completed on a 10-year cycle. The council has actually supplied the Planning Department, for the current year, with enough funds and enough planners to achieve that level of plan production.

A couple of weeks ago, they decided—again, probably out of concern over Measure S—that perhaps they should expedite that process and get the Planning Department to do those plans, not in 10 years, but in six. The city council asked the Planning Department to come back with a strategy for achieving the additional funding needed to go from 10 to six years through a developer fee.

The existing fee for developers in the city of Los Angeles that helps with the creation of new community plans is called the General Plan Maintenance Fee. It was adopted in the city of LA in 2005, the first year I was here. It is a 3 percent surcharge on all development and entitlement permits, and that money is supposed to go specifically to updating the community plans or General plans. It is a way of having the development community contribute to what was, up until that time, a General Fund obligation of the city. The strategy that’s on the table right now is for the city to up that fee from 3 percent of permit costs to 7 percent of permit costs. 

The community plans are on their way, but I have a lot of concerns about how committed the council will remain without the threat of Measure S. If you don’t want to go through this again—and I think most of you don’t—I challenge you to be proactive and become part of this process, and part of the coalition to change the culture of planning in Los Angeles. We must make certain that more projects can be done by right and not need to go through a discretionary process.

The county of Los Angeles has also stepped to the table, and has committed to going from their current $40 million fund for homeless housing to a $100 million fund by 2020.  We also expect some help from the state of California. They have legislated a $2 billion statewide bond called No Place Like Home for housing for the mentally ill homeless. About $600 million of that is expected to come to Los Angeles County in the 2018 timeframe.

We also get cap-and-trade money from the state. 20 percent of the cap-and-trade revenue goes to the Strategic Growth Council for a number of programs; the major one is called Affordable Housing/Sustainable Communities. They have allocated $610 million to California projects over the last two years, of which $65 million came to the city of Los Angeles alone. 

We are not anticipating much money coming from the feds. We’re going to have to depend, for the most part, on the local provision of funds for us to produce the housing. That’s where we are.

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© 2017 The Planning Report | David Abel, Publisher, ABL, Inc.