March 19, 2007 - From the March, 2007 issue

LAEDC, BIA Confirm Region's Need: 300,000 New Housing Units

The Building Industry Association of Greater L.A. and Ventura Counties, in conjunction with the LAEDC, recently released a report that confirmed what many already knew: the L.A. area has a shortage of housing, and the number is 300,000 units. Building those units will require a sea change in regulatory process, and to discuss the intricacies of the report and potential solutions to the crisis, TPR was pleased to speak with BIA/GLAV CEO Holly Schroeder.


Holly Schroeder

BIA and LAEDC have just released a report on the housing challenge in L.A. and Ventura counties. What conclusions did that report reach? How does it quantify the crisis?

The report concludes that housing production has failed to keep up with demand. Increases in our population have significantly outpaced the supply, and both Los Angeles and Ventura counties remain in a deep housing crisis. Right now, that shortfall has climbed to nearly 300,000 homes.

To put things further in perspective, we would need more than 750,000 more homes in Los Angeles and Ventura counties in order to increase the homeownership rate in those areas to be on par with the national average.

Along with that shortfall, prices have famously risen in the area. Why is it that the market-supply and demand and prices-hasn't enabled developers to produce more houses? If the demand is that great, what is hindering production?

It is extremely difficult to build housing in Los Angeles and Ventura counties. The process to get projects approved can take years-in some cases, decades. We need to streamline the overall process and be committed to providing land for housing so that it is easier and timelier to bring housing on line. The increasing prices we see now are a direct result of the fact that we have not produced enough housing.

Why hasn't the increase in prices provided sufficient incentive for builders to produce more?

It's not really about the price incentives, but the amount of time and process one needs to go through in order to build housing. We see tremendous resistance to housing. In Los Angeles, for example, decisions are made on a project-by-project basis. There is no plan for where housing should go, how much housing should be produced, or what land should be designated for housing. As a result, the number of steps you need to go through, the amount of time required, and the amount of analysis needed (in terms of environmental evaluation and others) generate a great deal of cost.

One analogy that we use is that approval of a new drug through the Food and Drug Administration usually takes about eight years. That's the time needed to approve a brand-new chemical that will be put into your body, which, until they do a great deal of research, has unknown consequences on your health. By comparison, it can take longer than eight years to get housing approved in Los Angeles and Ventura counties. And this process involves materials that are well known and understood: cement, wood, and other building resources that we have been utilizing for decades.

The report defines un-met demand in terms of the number of people currently living per unit and compares it to 1990 as baseline. Why was that baseline chosen?

Several economists have regarded the baseline of 1990 as a point in time when we were in greater balance. More homes were affordable and we had a plentiful housing stock. That was, obviously, a time when the market was in a dramatically different state than it has been in recent years. We looked at how population has increased, how the population will continue to increase, and whether or not housing production has kept up with that increase in population.

To cope, are more people simply squeezing-by living with roommates or extended families-into the units that are already available?

Without a doubt, those are some of the unintended consequences. People subdivide their single-family homes-multiple families are living in homes, garages are converted illegally, and children get out of college and move back in with Mom and Dad.

All of these things happen because of the lack of housing and because we have not planned for the population growth that is already an issue and the continued growth we know is coming.

Has this crisis snuck up on us, or, for whatever reason, have we been ignoring it?

I think that it's a combination of factors. Historically, we have not had very concerted planning processes in the Los Angeles area. I think that it's an unintended consequence of fiscal, economic, and transportation policies that have led to us not focusing on housing as an integral component of life in Los Angeles.

The place where people live is so supremely personal and important to people. We need to look at all of the policies and decisions we make-economic, transportation, and others-through the lens of housing. We need to be thinking whether or not they create unintended, negative effects on housing and we need to be thinking about what those effects are. This is not the type of long-term thinking we're doing currently, however.

What is the BIA proposing in terms of solutions, either through new regulation or deregulation?

I think that the first thing we need is an improved awareness of the issue and a commitment to solve the problem. Lip service is often paid to housing, but we don't always get follow-through. It's about putting this on the agenda and keeping it on the agenda, even as other issues arise and we get distracted. We also need to talk to people about the issue and educate them about the benefits of housing and the need for housing. People need to see housing and understand why it looks different than what they are used to seeing in previous decades, then they will understand how it fits into the overall social fabric.

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We need to designate land that is readily zoned for residential use. We need to design regulations so that we can create a mix of housing types. We need more than just new suburban homes; we need higher density infill; we need mid-density mixed use. We need to streamline the processes.

We need to get consistency in our regulation so that we don't have rules from one department contradicting the rules from another department, creating delays as people bounce back and forth between departments, trying to get a decision. We need to address the infrastructure associated with housing.

In 2006 we heard a lot about affordable housing and many proposals arose: L.A.'s Prop H; the state bond, 1C; and L.A. is now discussing condo conversion moratoriums. What is the correlation between the agenda of affordable housing advocates and the issue that you are talking about?

I think that it is important to keep both issues in mind. Many of the proposed solutions are very good, but they address the demand side of the solution. Demand-side solutions, such as helping people afford more housing through down-payment assistance programs or other subsidies, can certainly be helpful. But we also need to be addressing the supply side of the equation.

So would things like Props H and 1C be a drop in the bucket, or do they work in concert with what you are promoting?

I think they work in concert. We obviously need those funding sources. Prop H, if it had passed, and Prop 1C provide money for infrastructure. They provide assistance and incentives. Those are definitely pieces of the equation.

The report acknowledges that L.A. is built out, and you've alluded to the idea that we need a mix of housing types. What is the role of infill development, and what role can the building industry play in revitalizing urban neighborhoods?

What normally revitalizes urban neighborhoods is people who are active in those neighborhoods. That means that neighborhoods need to be accessible to folks, and one of the ways to make them accessible is to have housing in close proximity to those neighborhoods. The merchants have stores, the businesses need employees-if people are living nearby and have access, it is going to contribute to an area's economic vitality. A larger number of builders are getting interested in infill and pursuing that as a business strategy.

Is urban infill a paradigm shift for developers that may have been accustomed the suburban greenfield style of development?

It is a change in business practice. Developing in an established neighborhood with already-present neighbors is a different type of activity. Obviously, many practices are transferable from suburban development to infill development, but there are many facets to it that are unique. But I think we are finally seeing an increase in people who are interested in infill living-living closer to an urban core or a first-ring urban core that might have a little more economic activity: jobs, restaurants, shops, and amenities.

For example, baby boomers are turning 60 and they want to continue to lead vibrant lives. For some, that means that they don't want to have the same responsibilities of maintaining a house and a yard; they are more interested in an urban lifestyle. It's not for everyone, but there is certainly a growing awareness and receptivity to that type of lifestyle. As a result, builders are interested in fulfilling that market niche.

L.A. County is predicted to add twice the population of Chicago, which is a big part of the supply problems that we are discussing. What happens to those predictions if we stay on the current path?

First off, when we say that twice the population of Chicago is on its way, I think we have to be careful with our choice of words, because a lot of those are people that are here already. They are teenagers in our school system. They are learning to drive and are now on our roads and freeways. They will soon reach 18 years old and will make decisions about staying in our region or going elsewhere.

A recent poll said 80 percent of parents would like to have their children live near where they've grown up, but the report illustrates that we may not be able to do that. We are potentially exporting our children-we're sending them an eviction notice. So they will either leave, move back in with Mom and Dad, or they will double-, triple-, or quadruple-up in apartments. None of those solutions is going to lead to an improved quality of life for them or for current residents.

What is the obligation of the public sector to provide infrastructure by way of roads and public transportation as these units, hopefully, start to get built?

The passage of the infrastructure bonds last November was a huge step forward because it is the first major investment into infrastructure that California has made in a long time. I think it is critical to translate the voters' message into projects that create meaningful improvements as rapidly as possible.

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