March 30, 1994 - From the March, 1994 issue

Affordable Single-Family Housing: A Solution

Los Angeles is in a housing crisis. Scott Adler proposes a solution to promote affordable housing: reduce the cost of land per home, reducing or waiving fees like sewer facilities and quimby fees, and reduce construction and financing costs.

An attorney with Armbrust & Alder, President of the Los Angeles Building & Safety Commission, and a member of Mayor Riordan's and Councilman Hal Bernson's Development Reform Committee, Mr. Adler hopes to convince the City of Los Angeles to recognize the importance of his proposals to ensure single-family affordable housing is achievable. 

I am strongly convinced that the key to a revitalized Los Angeles is found in the development and sale of new affordable single-family housing. Such housing should be detached, no less than three-bedrooms with individual backyards and sell between $159,000 and $169,000 depending on the area. Equally important, such housing must be part of a community or association of similar homes thereby creating a neighborhood of proud family homeowners. 

From a community standpoint, all studies evidence that where the great majority of a neighborhood's residents own their home, there exists a substantial reduction in the crime rate of those neighborhoods in comparison with similar neighborhoods wherein the majority of residents are renters. There is no substitute for "pride of ownership" to motivate people to protect their neighborhood from graffiti, violence and vandalism. 

From an economic standpoint, there exists very few enterprises which create an employment stream like the development of a housing tract. A subdivision of just a few homes requires the services of surveyors, architects, civil and structural engineers, graders, framers, drywallers, electricians, plumbers, carpenters, cabinet makers, landscapers, masonry, stucco, foundation and concrete personnel, just to name a few. In addition to the above labor force, a housing tract provides substantial economic benefit to the various suppliers such as the lumber and cement yards, nurseries, quarries, electrical, plumbing and furniture stores, etc., all of which employ thousands of people and provide millions of dollars in revenues to the City. 

Unfortunately, however, the cost to develop a new single-family detached subdivision is currently far too expensive and therefore not "affordable". Because the overall expense of a new home is a function of the total cost of land, city fees, financing and construction costs, the City of Los Angeles must adopt a comprehensive plan which facilitates a reduction of these expenses. To this end, the City should consider the following: 

In order to reduce the cost of land per home, the City should reexamine its community plan designations to encourage the development of single-family detached units on lots of a minimum of 3,000 square feet rather than 5,000 square feet as is required in an R-1 zone. Lots of 3,000square feet can easily accommodate a detached 3-4 bedroom home and backyard as is evidenced in RD-3 zones wherein the actual lot sizes are closer to 2,500 square feet. 

Under this approach, a cluster of six R-1 homes in an economically distraught area could be replaced with 10 new homes. That is, six older dilapidated homes in a depressed area with a market value of approximately $90,000 each ($540,000 total) could be replaced with 10 developable lots of $54,000 each. Similarly, the City should promote RD-3 zoning on parcels of land of one-half acre or greater which could be developed into a minimum of seven detached homes.

Reducing the land cost per unit is but one piece of the affordable home puzzle. Currently, city fees (excluding school fees) to construct a new home approximates $ 10,000.00 which roughly breaks down as follows:

  • Sewer Facilities:                     $3,500.00
  • Plan Check, et al.:                   $700.00
  • Building Permit(s):                 $1,500.00
  • Dwelling Unit Tax:                 $500.00
  • Quimby Fees:                         $1,700.00
  • Misc. & Public Works            $1,500.00

The City should consider substantially reducing or waiving all of the above fees provided the selling price of the home meets whatever "affordability" criteria is established for the area. Whereas the social costs and economic benefits to the City far outweigh the costs of waiving such fees, because such proof is not quantifiable, increasing and/or initiating new fees may be required to bridge the gap. 

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Specifically, the City should consider initialing and/or increasing fees whenever a discretionary benefit is imposed upon a party which is not generally available to the public at large. Examples, include, but are not limited to, the following:

  1. A fee for extensions of time to comply with a building code, or a violation of an ordinance where there does not exist an imminent hazard; 
  2. Approvals for slight modifications such as an over height fence or yard encroachment wherein the findings support such slight modifications; 
  3. Increasing fees for both a permit and follow-up inspections whenever a structure is constructed without first obtaining a permit.

The Building and Safety Commission literally hears over 2,000 cases of the above type and in an attempt to be "business friendly" tries to assist the petitioner whenever possible. However, it is unfair to those who fully abide by the letter of the law to be placed at a distinct disadvantage to those who chose to avail themselves. Therefore, the extraction of a fee from those who receive a discretionary benefit appears both reasonable and business friendly while simultaneously providing gap funding for the waiving of fees in order to construct affordable detached single- family housing.

The final element necessary to promote affordable housing requires the reduction of construction and financing costs. Although there is little the City can do to reduce the actual board and nail costs of construction, unnecessary delays caused from entitlement-to-permit-to-the-inspection process can increase a project's cost by up to 10%.

As a member of Mayor Riordan's and Councilman Bernson’s "Development Reform Committee", I am confident that concrete developmental reforms will soon be adopted by the City which will substantially cut bureaucratic delays and correspondingly the cost of construction. Although further fast tracking an affordable housing project will provide substantial cost savings in interest carrying expenses, the costs of a construction loan can also be influenced through City policy as well.

Currently, the City provides bond financing to qualified home buyers up to a purchase price of about $160,000 ("take-out financing”) with a minimal down payment. Such financing is not only attractive to home buyers, but also, provides an enticement to construction lenders who are currently reluctant to make construction loans today. The problem, however, is that such financing requires the developer to purchase a bond commitment which usually costs approximately 3 points of the total amount of financing sought A 20-unit housing project which ultimately requires $3,000,000 in take-out financing could cost the developer $90,000 in up

front capital. Often times such additional capital is not available particularly in light of the already stringent equity requirements of the construction lender. Furthermore, when computing the additional carrying costs of such capital, the overall impact on a 20-unit development runs about $5,000 per home. In short, the City must develop a mechanism for waiving, reducing and/or deferring such commitment fees. 

The bottom line is that single-family detached affordable housing is obtainable once the City fully recognizes its socio-economic benefits and undertakes as a top priority to develop a comprehensive plan to facilitate such an end. Hopefully, by the time this article is released, the City will recognize the same.

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