October 12, 2022 - From the October, 2022 issue

Between A Rock And A Hard Place: Developing Affordable Housing, Sustainably—VX 2022 Panel Excerpt

In this VerdeXchange conference panel recorded this past June, regional housing leaders opine on the challenges of building high-quality, affordable housing, quickly, sustainably, and at a certain price point. Shmel Graham (pictured), counsel at Ashurst Law Firm,  leads this discussion with City of Los Angeles Housing Department Director, Ann Sewill, LA Family Housing CEO, Stephanie Klasky Gamer, LA County Public Works Deputy Director Rossana D’Antonio, and Executive Director of the Congress for the New Urbanism Rick Cole—who parse through the challenges of finance, design, and political will.  


Shmel Graham

“Our greatest barrier in delivering affordable housing faster and at a lower cost is the capital stack of public sources.”—Stephanie Klasky Gamer

Shmel Graham: One of the overarching questions that we should all be thinking about as we go through this conversation is how does our response to the climate crisis, the homelessness crisis, and the housing crisis really reflect our values as a society?

As we move through this discussion, and you think about it from your lens, your seat, and your influence, how does our response, or lack thereof, really reflect our values as a society? And if we want things to change, what is it that we're going to do from each of our respective roles to make that change happen?

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So, we'll turn to Ann, as the second largest city experience on housing and homelessness crisis and climate change, how do you approach the topics of building sustainable and resilient housing within your department?

Ann Sewill: I spend a huge amount of my time responding to anguished hand wringing by neighbors, elected officials, etc, not necessarily in the city, but across the state, about how much housing costs. Liam Dillon wrote an article in the LA Times about affordable housing in the Bay Area being around $1,000,000 a unit, yet we have hand wringing here about $550,000 a unit.

And where I always want to go to is, what do you think it should cost? Like, what do you think a market rate apartment, just one of those boxy little ones, would cost in this market? And most of the people that have housing sticker shock don't have necessarily any real in depth knowledge of what it cost us to do market rate, and then to layer on top of that the extra costs that we require of affordable housing.

When I took this job almost two years ago, in my confirmation hearing, the council members wanted to know, “What are you going to do about costs?” And I said, ‘I can make your cost go lower.’ I can stop putting anything on those buildings that we would call “housing plus.” But, in the last controller’s audit of the supportive housing bond Measure HHH, he was saying the average cost is $560,000. But there were a couple of buildings that were much higher.

So, I took the entire inventory, and I divided it between what I called ‘housing basic,’ which is still California basic—it still has prevailing wage, it still has higher energy standards. It still required layered financing and the time to do that. And then I looked at what I called ‘housing plus,’ which were most of our projects that we're doing with the Affordable Housing &  Sustainable Communities Program, which is the state's cap and trade program. Those required additional sustainability features, and they tended to run $150,000- $200,000 more. But we weren't paying for it; the cap-and-trade program was paying for it.

So, I really started to second guess my own policy of stripping everything out because why should we reject those extra features that will make things sustainable longer just because of a sound bite? But it's really hard, because those sound bites are really powerful. And that's part of what I'm trying to work on.

We're right now we're talking a lot about building decarb and what that's going to look like. And not so much the new the new housing as it doesn't really cost that much more, although we're not sure the costs  on the overall grid system will be, but on the existing multifamily stock and how do we retrofit. That'll be another place where we really have to look at the tradeoff of sustainability and costs.

Shmel Graham: So, part of this conversation has quickly gone to costs, which we know we all hear of how much it costs to deliver affordable housing, and the growing costs associated with that. So you know, we want to talk about public policy and the regulations that are in place and the intent of the policy versus the impact. And so everyone up here is talking about the impact of all those well-meaning and somewhat idealistic at times public policy efforts that policymakers are adopting, but they do translate into costs.

And so Stephanie, why don't we go to you? And if you could just share your experience of you know, working within the regulatory environment. And with these requirements and the impact on development, what are some of the biggest cost drivers are you seeing in the delivery of projects?

Stephanie Klasky-Gamer: So, I would say they fall into three main categories. We have our environmental design. As people know, much of the affordable housing and supportive housing being built in California is done with four to six layers of financing. And each provider of those funds has different regulations that we need to follow, even different standards per se. And so, we need to go with the highest standard to capture everybody. So, it falls in Environmental Design.

As supportive housing developers, which LA Family Housing is, there are additional services to be brought on site with requirements relative to how many staff members per person on site, what kind of offices are there, what kind of common spaces are there. So those are just things we would do anyway, and I think that's really important to lift up, that the majority of the requirements do enhance the lives of our residents, do enhance the community where we are. We're talking about the public realm. I call them “off sites,” or off-site improvements. We're causing the public realm. We're required to do all of those things, but they shouldn't necessarily be the burden of the housing developer to do it. There should be some cost that are picked up or funds provided by our municipalities that are putting those requirements on.

Rick Cole: California has had a great thing going since 1978, which is, ‘let's lower our taxes, but keep our services.’ And the result was we switched from taxes to fees. And part of the fees was to catch the developers, public and private, nonprofit and profit making, and charge them for the things that used to be paid for by tax dollars.

So, when we cut Prop 13 and the world didn't fall apart, We realized you can cut taxes indefinitely and nothing will happen. The sky won't fall. The sky, of course, didn't fall. But what happened is we substituted. Nobody ever voted in California to have local services paid for by car malls and shopping malls and developer fees, but that's how it ended up being.

And so, the price of housing has been artificially inflated. For example, on transportation. You’ve got to put in a sidewalk and you've also got to pay some transportation fee that goes to widening streets, so that makes it more dangerous for the people walking on the sidewalk, right? I mean, it's, lunatic, and you've got to build parking, because of course, not only is housing not yet a human right,  Parking is. It is illegal to have a homeless car. It is not illegal to be a homeless person, but we have seven parking spaces for every car and we don't have enough housing units for every person. That is public policy, and it has to be changed. 

Shmel Graham: We've talked a lot about things that aren't economically sustainable. Let's talk just shift over to environmentally sustainable projects. Rossana, did you want to share some of the projects that the county has done where there has been environmental sustainability incorporated.

Rossana D’Antonio: We talked a little bit about the greatest humanitarian crisis of our generation, which is homelessness. There are 67,000 people experiencing homelessness according to LAHSA’s latest last count back in 2020. So, we're challenged with seeking innovative ways of quickly ramping up interim sheltering for the most vulnerable.

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And so, this project right here is one that we just completed back in April of 2021. It's the Hilda Solis CareFirst Village. This is a unique project in many ways. From an engineering standpoint, what we did is we took a mix of repurposed shipping containers and prefabricated modular buildings, and we stacked them up three stories high. And then we converted them to individual living quarters.

This was a site that was originally meant to house the Men's Central Jail. This is downtown in Supervisors Solis's district, of course, now that the board has a completely different priority with regards to incarceration facilities, that no longer aligned with the priorities. And so that project was dropped fairly quickly.

And so, Supervisor Solis took it upon herself to dream up a project that would truly align itself with the priorities of the current board and address homelessness in her district. What you see is 20-foot-long shipping containers stacked three stories high. They're converted individual living quarters, with full size bathrooms, kitchenettes and sleeping areas. The landscaped village has on-site facilities for critical wraparound services that include health care, case management, counseling, kitchen and dining rooms that that served three hot meals for residents.

 The huge challenges on site was this particular site had a lot of contamination. It was originally a smelting plant. And so, there was a lot of contamination that needed to be dealt with before we can actually even bring the shipping containers on site. Even with that challenge, this project was completed in an unprecedented six months and the cost was about $57 million. And it was all funded through CARES Act, as well as a little bit as discretionary funds from Supervisor Solis. This is just one of the things that I think is going to help reduce the gap, innovative projects like this one. And one of the things that government needs to do better is to be nimble, and to remove barriers for some of these innovative projects that perhaps are being held up by requirements from regulations.

Shmel Graham: So, when we talk about innovation and removing barriers, you said that was a county project built on county land, correct? It'd be interesting to have your perspective, Stephanie, as a nonprofit developer developing on public land, are you able to deliver projects at that same speed as this project here? And if not, what are some of the complications associated with that?

Stephanie Klasky-Gamer: I love that you brought up the Vignes project, that's what I call it, because it is a prime example of what can work because it's public land, with one source of funding, and all public regulations removed. Meaning, for example, we can't build, even on public land, within 500 feet of a freeway. This sits basically on top of a freeway. So that regulation was waived by the county. There are so many surplus municipal parcels that are tied to MTA or Caltrans. those types of lots, but we can't build on those because they're within 500 feet of a freeway.  Because we're dependent on city, county, and state funding and tax credits and some private financing on our deals, there are restrictions. When you have one source of financing, I promise you, we could deliver faster and cheaper.

LA Family Housing has done an analysis of taking three of our sites and developing them without public funds. We’re able to deliver those buildings two years faster than the rest of the deals on our portfolio, and each site at a savings of $4 million. So, Vignes is a perfect example of that model. If you have one source of financing, and all public regulations removed, boom, you can get it done.

So, no, this isn't our experience building on public land, because building on public land for us is just the land; it changes nothing about the financing structure. And that, I would say, is our greatest barrier in delivering affordable housing faster and at a lower cost is the capital stack of public sources.

Two of our city-owned parcels have had challenging experiences. One I talked about already, that's on the bluffs with this 800-foot drop. That project alone is probably about $750,000 per unit, with and about $225,000 of that is site development work. It is the reinforcement to build on a hillside, it is doing off-site improvements. The city provided the funds to do that, but sadly, the city didn't stand by us when it was lifted out by the City Comptroller as one of the outliers on an HHH project.. If the city would have delivered a developable site, the cost would have remained in that $550,000-ish range that we're seeing, but the additional costs are tied to the site itself, which came from the city. And we knew it was a challenge. We knew the city owned that parcel for about 12 years, had 11 different market rate developers propose to build on the site, but each walked away for that reason.

 The second city-owned parcel that we competed for to the city's housing department was on a DOT site.  We bid on it without knowing the one-for-one parking requirements. I'm not sure the city's housing department was aware of it. I believe it came up later in our design review process. When it became clear we needed to do a one-for-one parking replacement, the site was too small, so it required going underground. It was literally going to put us over $850,000 a unit to do that.

And so, we actually, on that particular property, walked away. It's not that it's irresponsible to build a parking garage and it's not irresponsible to build housing on top of it, but it is irresponsible to leave the developer out defending these costs. If the city could build the parking garage and give us the deck, we would build the housing on top and would stay in that $550,000-600,000 range. So, there are some challenges. There's obviously some benefits working with a public-owned parcel, but really only if there  are the other key factors, which is single source of financing and removing the public design requirements associated with their money.

Shmel Graham: So, as we start to wrap up the panel, is there anyone else that wants to share any comments regarding environmental justice and siting of projects and some of the challenges or opportunities that you've seen or successes that you want to share?

Rossana D’Antonio: Okay, so what you hear here is that everybody in the panel is doing is trying to do the right thing to address some of these crises. The problem is that we can't do it alone. We do need to work both public and private sector need to work together to enhance our communications to give a little bring what we bring to the table and collaborate on you know, tackling these issues. If not, we really won't see change in our lifetime.

Ann Sewill: When I say the city has to build 462,000 units in the next eight years, most people think well, that's nonsense, right? That's not going to happen. I would just point out that the city of Los Angeles has 550,000 single family home lots and only 100,000 of them have backyard homes. We could make a whole lot of progress by having an ADU in every lot. And I'm definitely trying to push for ways to make that easier, because although we do need to go a lot more dense. And you know, we do need to have people near transit and all that. We also have this history of being a very low density, single-family-oriented community and we need to kind of build on the assets that we have.

Rick Cole: We can solve all these problems if we have the political will to solve them. They are solvable. David Wait, my co-chair for the ULI homelessness Council, we just put on a summit a lot of great ideas. The problem is not the we don't have solutions or ideas or smart people trying to figure them out. The problem is that we're not talking about them in the mayor's election and saying that it's really important to do this. It's important for our economy. It's important for our society. It's important for the future of Los Angeles. Instead, were fussing about it's costing us too much money.

 It is costing us too much money to have a society where 62,000 people don't have a home in our county, and where working people of this county can't afford to live in their homes, right? They're there, they're paying 4050 60% of their income just to keep a roof over their head. That is not sustainable. That is more costly than $750,000 a unit.

Stephanie Klasky-Gamer: I would just say my word was going to be density, as Anne said, leave everyone with density and a change in land use regulations that allow us to build a greater heights and with greater density. But then the real last word, I guess, for me would be the cost of doing nothing is not zero.

Shmel Graham: And one last thing I'd just like to share is courage. We all have to have the courage to do the things that we know are right. So, just picking up on the mayor's comments this morning, making decisions today that in 20 years, we'll look back and stand on the courage that we had to make the difference.

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