October 1, 2020 - From the October, 2020 issue

Alfred Fraijo on Accomplishing Affordability with ‘Housing Plus, Plus, Plus’

With cascading crises facing the state of California and local governments this year, state legislative efforts targeting local planning and landuse practices failed to pass before session's end last month. TPR spoke with Alfred Fraijo Jr., partner at Sheppard Mullin, who shares his frustration with what he sees is state inaction on housing and LA's legacy of piecemeal planning and outdated zoning. Fraijo asserts elimination of single-family zoning provides a unique wealth-building opportunity for homeowners in historically disadvantaged communities and advocates for building robust and diverse communities through investment in 'housing plus.'


Alfred Fraijo Jr.

"'Housing plus’ is what I'm talking about; housing plus infrastructure; housing plus open space; housing plus a comprehensive mobility plan; housing plus comprehensive regional planning; and housing plus a health overlay in communities that are disproportionately impacted by the legacy of racism in our land use policies that have impacted minorities of color and low-income communities throughout California”—Alfred Fraijo

Alfred, it is an honor and a pleasure to have the opportunity to conduct this interview, given your real estate work at Sheppard Mullin and your civic work on policy that affects the built environment and the natural environment. Let’s begin with your take on the many housing bills that were introduced and considered on the last day of California’s, now concluded, legislative session.  Most addressed the state’s housing production challenge that has been endorsed by the governor and lobbied by real estate developers for more than two years. But most all of those bills failed to address affordability, relying instead on up-zoning and the market? Why is that? 

I would start off by talking about the fact that many of the housing production bills that we were hopeful for—that were quite ambitious—and other permit streamlining bills that tackled housing and infrastructure development did not get passed, and I'll leave that to the pundits to evaluate. But from my perspective, I'm disappointed and hoping that there is at least the possibility of revisiting those bills before the end of the year. 

That being said the issue of affordability is something that has only been addressed through the lens of what can be financed through traditional affordability and tax credit sources. You know too well about the dissolution of the redevelopment agencies, the lack of predevelopment funding, and the constraints that affordable housing developers have to build and finance affordable housing. 

My biggest concern, as it relates to the housing crisis in California, is that workforce housing and the middle-class affordability challenges have not been addressed. For me, the issue is that we don't have the level of awareness and advocacy that is critical in Sacramento around this specific issue.

In other words, we seem to tackle the issue almost exclusively from the perspective of the poorest families only, which is obviously a critical need and of paramount importance. However, homelessness and permanent supportive housing are another important part of this policy focus, but it’s critical to begin to expand the discussion around what constitutes a healthy community and diversity in terms of who gets to live where.

For working class families, essential workers, healthcare workers, and those in other industries that are so essential to ensuring healthy communities, that affordability gap continues to be a massive barrier to social mobility and housing security. We need systemic policies that are able to address that gap, and unfortunately, we haven't had any significant progress in that regard.

There is already a lot of consternation about new development in California as a source of displacement and gentrification. All of those concerns are warranted. Where we have failed as a private sector is that we have not talked about how production of housing generally improves welfare and affordability for everyone. What we have is voices in Sacramento that push labor issues and environmental justice issues, but we do not have enough and diverse private sector voices at the table to talk about these issues in a way that's balanced. 

Unless and until we have the private sector supporting additional risk taking from our elected officials on this issue in Sacramento, we're not going to make as much progress as we need to. We need to discuss the fact that responsible housing production, period, helps everyone. If we're able to generate additional housing in all aspects and all sectors of incomes – especially middle income and workforce, it will help relieve the demand on existing housing stock.

Alfred, the latter assertion has many critics. Managed smart growth in the past assumed that more housing would necessarily be accompanied by more infrastructure to support inclusion in neighborhoods of that housing. It was assumed that not everybody wins in an existing neighborhood if you just add highly dense housing units. So, when you're dismissing the interests that are pushing back against just more density, are you suggesting that the pro-development (YIMBY) interest should support more infrastructure money to go along with higher housing density?

That is what I'm saying. I'm saying that having additional housing in communities that need it, in the urban core, has to be married with comprehensive policies around land planning. In other words, the solution is not just housing. When you introduce additional housing, you begin to create a discussion around, ‘what else?’

‘Housing plus’ is what I'm talking about; housing plus infrastructure; housing plus open space; housing plus a comprehensive mobility plan; housing plus comprehensive regional planning; and housing plus a health overlay in communities that are disproportionately impacted by the legacy of racism in our land use policies that have impacted minorities of color and low-income communities throughout California. That's what I'm referring to, and we're not having those kinds of discussions. 

Did any of the housing bills that were on the floor of the legislature at the end of August include provisions for more neighborhood infrastructure – for, in your words, “housing plus?”

I will say, on the whole, what I'm referring to is not something that was specifically addressed in the last legislative session. I will acknowledge that.  But as you well know, based on the constitutional structure we have in California, local land use policies are the purview of local government. So, local government has to also step up to the plate and propose comprehensive solutions for the growth of a neighborhood.

In Los Angeles, we have a set of community plans that have not been updated as quickly as we need them to be. Those plans provide the kind of assurance that neighborhoods need around the commitments I'm referring to—protections for existing tenants and assurance that we will have all the other commensurate amenities that should come from new development. Unless and until we have those comprehensive policies in place, we're going to have to do this piecemeal.

TPR recently published an interview with LA City Council President Nury Martinez who addressed both the corruption that's been revealed in the planning process of LA and her opposition to a one-size-fits-all state housing solution. Is the aforementioned an obstacle to accomplishing your policy goals? 

Regarding the corruption or the alleged corruption, I have a more optimistic view of our elected officials at the local level. I think that those engaging in illegal activity are, frankly, the exception. I don't perceive there to be widespread levels of corruption in Los Angeles and that issue is not something that I personally am concerned about.

What I am concerned about is the fact that we have a system that depends on a multitude of professionals to get any type of project done in the city of Los Angeles. If we don't have a robust discussion and adopt policies that really articulate a plan for the future density of Los Angeles, what we're left with is  project-by-project deliberation, and communities are warranted to be concerned.  

Unfortunately, the reality is that for any project in Los Angeles, because of our archaic zoning rules, we need to ask for a set of requests that relieve us from those archaic zoning rules that don't reflect a modern metropolis. I don't necessarily want to work to get me out of business, but I do think that we need to streamline the approval process to avoid the perception that developers are getting special dispensation without a robust set of guarantees to the public.

Do you recall the City of Los Angeles ‘Measure S’ campaign of two years ago in which your development clients overwhelmingly opposed having new development conditioned on rapid adoption and execution of the Planning Department’s community development plans? Measure S’ stick was a condition that future development in the city was dependent on the community plans being adopted in two years’ time. It didn't shut down development immediately, instead, it encouraged a streamlining of the process and encouraged the very community plans you’re calling for. 

I tend to disagree. Let's call Measure S what it was: a moratorium.  And given how long these community plans have taken to complete many perceived it as a near permanent move to stop development at a time more housing is needed. 

What was the trigger for the moratorium?

It was the adoption of these plans.

Have they been adopted?

No.

Curiously, Councilmember Huizar came out two weeks before the election and said he would do exactly what the advocates of Measure S were calling for. And then Measure S lost; he disappeared, and the community plans have not, with few exceptions, been adopted. Reform, you would agree, is obviously difficult without a stick. 

We're hampered by the lack of CEQA reform on these issues. Take, for example, the Hollywood Community Plan, which has been mired in litigation for almost a decade. That's just one of over nearly two dozen community plans in Los Angeles. We need a more streamlined approach for adopting these plans—and I'm not referring to cutting corners on community input. The Hollywood Community Plan was the subject of hundreds of community meetings with local stakeholder groups. Yet, we still could not get the plan adopted.

What I'm referring to is a systemic problem. Our leadership in the Planning Department has done an incredible job to work to get these plans adopted, and we have to acknowledge that. Not only are they operating in a budgetary constraint, but they are also operating in the middle of a pandemic and are continuing to work diligently to get these plans adopted, but they have to work within the confines of state law, which goes back to our earlier point on reform at the state level. 

The state really needs to step up to the plate and say, if we are going to be pushing additional density and pushing for policies that increase housing production, we also have to put local government to task in putting together the general plan updates that are necessary for the future planning of our cities. We've started to do that in a very deliberate way, holding local government accountable for the RHNA targets for instance, that's an important piece of the puzzle, but another piece around this is infrastructure. 

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SB 995 did not pass, and that would have streamlined major projects including housing projects. We haven't had a comprehensive solution around redevelopment. We've had a number of bills that were adopted that are important tools for infrastructure investment, but we've had very little adoption of those tools at the local level.

You mention SB 995, which would have reduced the affordable housing quota required of developers to qualify for public incentives. How then was 995 a step forward given your value system? 

It was an important step forward because it allowed for major projects to—not short circuit the environmental review process—but have certainty around potential litigation for those projects. Let's be clear, it did not make any changes to the CEQA requirements around robust public review, it just provided some guarantees at the back end on the judicial process for any litigation or challenges.

According to HCD's own housing needs assessment, the state needs to build six affordable housing units for every four market rate units that are built to meet demand. But many, if not most, of the housing bills that were up for the vote this August address the state's housing crisis by encouraging market rate infill development by right. Is that statement inaccurate? If so, would the bill have incentivized more affordable housing units?

I would need to look at the data backing that up, but I started my comments by saying that we need to expand the definition of affordable housing in California. There's no capital and no incentives to build it. As I mentioned, the traditional financing structures and sources for development of affordable housing are primarily focused on income targets that are 80 percent of AMI in that area and lower.

The result of the last financial crisis in 2008 and 2009 was that, in the five largest metropolises of California the largest owners of residential real estate have become hedge funds, like Blackstone. How do we avoid that in the future if the state doesn't change its financial funding formulas?

It's really interesting because many bills that allowed for incremental change in the way that we plan housing—take for example the right to build duplexes—that bill, SB 1120, was defeated. What we're talking about is the opportunity to create wealth in communities with homeownership, like where I grew up in Boyle Heights. 

There's a significant number of single-family homes and properties that are owned by folks that moved into Boyle Heights generations ago. Giving them the opportunity to build a bungalow in the back or to build an additional unit is an opportunity for generation wealth creation. It also allows the smaller developers the opportunity to be able to grow up. Now, that's on the land-use side in terms of opportunities for development.

The capital sources are not geared towards smaller developers and, certainly, not geared towards developers of color who may not have the kind of balance sheets that you need to qualify for the loans that are necessary for development, which means it's a self-selecting process. Capital sources primarily focus on big corporations and big funds which perpetuate the concentration of wealth.

We need to have a discussion around access to capital in the capital markets and whether there's an opportunity for us to think about financing tools for minority-owned and minority-lead development companies that have the ability to go into diverse communities and – because of their experience or their perspective on diversity and social justice, are able to build the kind of responsible projects that we need in communities of color. We're not going to build ourselves out of this crisis without investing in small businesses that are critical to the health of communities.

The latest report is concerning the Minneapolis’ zoning reforms – the latter often cited by WIMBYs – is that the impact of the reforms  “underwhelm” and that Minneapolis's development market remains unaffected. The same was said by UCLA Professor Michael Storper about the Chicago experiment with upzoning. The facts seem to belie the theory of SB 1120, yet it continues to be part of the YIMBY agenda. What evidence do you have that what you're suggesting will work and not just gentrify inner-city neighborhoods?

I agree that it's not the silver bullet to our crisis, and we're not going to solve the housing crisis in major areas by allowing duplex development; that is true. Again, it's another tool in our toolbox, so to speak, as it relates to housing production in California.  Frankly, I think that we need to be more experimental and innovative when it relates to micro-developments, micro-units, accessory dwelling units, etc. The reality is that we don't have those tools in place as it is, but I do think that it's an important part of the overall landscape in terms of development opportunities.

TPR recently shared a report, Preservation Positive Los Angeles, by the LA Conservancy, which noted that the state's interest in demolishing old housing to make way for new development might be mistaken and that preserving old, dense housing inherently preserves what the state asserts it most needs: affordable housing. How do you find the right balance between preservation, tenant protection, and by-right infill development?

I do think that we take these particular initiatives and proposals and strip them of the other mechanisms and protections that we have in place. Fortunately, Los Angeles is a city that in the past few decades has taken historic preservation seriously, and we already have both local, state, and federal laws that protect historic structures in Los Angeles. I am confident that additional density doesn't mean that we are not going to prioritize preservation.

In fact, if we do it in a way that's responsible—and the city has Ken Bernstein and other leaders who are champions for historic preservation—if we do it in collaboration with them, I think we can have a winning formula. But it's not mutually exclusive. Preservation goes hand-in-hand with housing production in Los Angeles. I know because that's where I practice, and we constantly balance the need to preserve urban fabric with additional density.

Part of it is a design challenge. Part of it is preservation and creative reuse of existing historic structures. Part of it is ensuring that we're preserving existing units to the extent that we can. But we can't preserve existing units and not think about the fact that we need additional units, and in an urban area, we need to anticipate demolition. We already have robust requirements in place with SB 330 that requires replacement of units that are going to be demolished. But we have a situation that prohibits the use of SB 35 in any property that has or had a residential unit.

The Hollywood neighborhood of Los Angeles is one of the hardest hit by California’s affordable housing crisis.  One of our client’s pending hotel projects was recently considered for redesign and development as a housing project, which could have provided over 100 affordable housing units and market-rate units adjacent to public transit and other public services.  However, because the project as originally entitled required demolition of four small residential units and underutilized commercial spaces, a reimagined affordable housing project on the same site cannot benefit from SB 35 streamlining, making the project financially infeasible.  Prior to demolishing these units, the tenants were provided with financial relocation assistance benefits as required by local law.  Therefore, future redesign or conversion of the hotel project to housing units or any other use would not result in tenant displacement.  This is one example of how the 10-year development restriction curbs affordable housing development without benefitting tenants who are at risk of displacement.

To further illustrate how the 10-year development restriction is overinclusive, if a structure that contains residential units burns down, or becomes uninhabitable due to earthquakes, natural disasters, age, or delayed maintenance, any redevelopment of the project site would not be able to take advantage of the ministerial approval process, even where there are no tenants at risk of displacement.  This provision prohibits use of SB 35 streamlining even if the fire, natural disaster, or tenant departure occurs up to one decade prior to development.  In this scenario, the 10-year restriction provides no protection for existing tenants, while excluding qualifying housing projects from SB 35 streamlining, even though these projects would provide homes for those who cannot afford them.  Similarly, the 10-year development restriction does not provide protections for residents of owner-occupied units, even though they may also be displaced by new developments because of the lack of comparable or affordable housing options. 

We need political courage at the local level all the way up to the state level on this and the private sector needs to do a better job at championing what it means to have healthy communities in California where everyone prospers not just a few.  Again, housing is one piece of the puzzle, not the only piece.

Oftentimes these initiatives in Sacramento give a developer the chance to build more housing if you commit to affordable housing. The requirement to build affordable housing for some of these major projects can be perceived as a development impact fee. I'd like housing to be one of many things that developers could commit to doing that could actually incentivize developers to think more creatively about how you preserve community and how you build more resilient communities.

Pivoting to the deal announced this month by California Governor Newson and state lawmakers to protect California from a looming tsunami of evictions caused by the economic fallout from COVID, what are your thoughts on the potential impacts of this new policy?

We’re obviously pleased that we're taking steps to protect renters in California and tenants. That's an important piece. I liked the governor's approach, but unfortunately from my perspective, it wasn't married with other stimulus opportunities and incentives for small businesses in particular that are the lifeblood of a lot of the commercial corridors in our cities throughout California.

Regarding the economy, the city of London, as a matter of policy, is subsidizing their restaurants to stay in business to survive this crisis, addressing the needs of the owners as well as the market for people traveling to and from London. Is that a model you would like to see to help small business survive this cratering of the economy?

That's a great example where you have government and business partnering together.  We need to be more innovative when it comes to how we think about government stimulus and partnerships. I was hoping that the US at the national level would embrace those kinds of innovative programs. I think we can do it in California. We have a unique position with a progressive government with a  large majority.  Part of it is, on the Democrats’ side, beginning to think about how we can support our business in creative ways during this pandemic. If we can't figure it out now in the middle of a healthcare emergency, I don't know when we're going to do it.

Before closing out this interview, what courage from local leaders do you think is necessary to meet the present housing and economic challenges of our time? What do you want to achieve as a result of planning and zoning reforms? What are they capable of enacting; and what courage would you like them to exhibit?

On the category of courage, we can’t be afraid of new development. We have to move away from the private sector being the evil force that is wrecking our communities. We need to think about infrastructure as a critical part of that because if we have a set of guarantees for our vulnerable communities throughout Los Angeles then there will be less concern about new development.  That requires, to come full circle, a comprehensive plan. It requires a robust plan around a set of guarantees. Whether it's transportation, protection of existing housing stock, or access to natural resources or open space, if we are able to set and agree to a number of commitments to our vulnerable communities then we will be less concerned about new development.  We can't have one without the other.

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© 2020 The Planning Report | David Abel, Publisher, ABL, Inc.