A Lack of Affordable Housing is L.A.’s Achilles Heel

Background Briefing

Snapshot of L.A.’s Economy

  • The L.A. Metropolitan Region’s GDP (2017) is $1.04 Trillion, a 30 percent increase since 2009.  It is home to 5 million jobs, 900K have been added in the last decade and tens of thousands are created each month.
  • Driving growth is a broad and diverse mix of investments in the region’s large-scale infrastructure projects and technology, media and entertainment, healthcare, real estate, aerospace, tourism and trade.  Finance, Insurance, Real Estate, Rental and Leasing represents $285B.  Technology/Innovation is filling the landscape:

o   Google:  A year ago it occupied 100,000 square feet of office space in Venice.  Since then they added 450,000 square feet “Spruce Goose” building in Playa Vista.  And in January of 2019, it announced that it will be adding 584,000 square feet of office space at the One Westside project come 2022.

o   Facebook: Until recently it had leased only 50,000 square feet in LA, but in January it also announced that it would be adding 260,000 square feet to its local footprint in Playa Vista.

o   HBO:  New 240,000 sf office at Ivy Station as its new corporate headquarters. Ivy Station is a $350 million, 500,000 sf mixed-use campus near the Culver City stop on the Metro Expo Line. The Ivy Station will have 200 apartments, 50,000 square feet of ground floor retail and restaurant space and a 148-room hotel.

o   Apple:  In December 2018 it opened an office with 1,000 employees in Culver City, in addition to a production studio.

o   SpaceX: Since 2013 workforce growth has seen a 100 percent increase, over 5,000+ currently employed, 17 new buildings and facilities and current footprint nearly 1,000,000 square feet. Investment in local vendors and partners: $2.5 Billion.

  • New manufacturing jobs with middle-class wages are being created by the blue “ocean” economy, and the “blue sky” economy.  L.A.’s space industry alone has created more than 6,000 jobs in the past decade, with an average wage of over $100,000.  Entry-level electrical engineers are earning $75,000 to $80,000 and entry-level software engineers are making about $76,000.
  • Health-care jobs, which increased every month during the Great Recession, will increase by 600K new jobs in the next decade alone, as the number of Angelenos 75 years-old and older will increase by 250 percent by 2060.
  • A tight job market has forced companies to find ways – higher salaries, etc. – to retain and recruit skilled-workers.  This trend plays a role in driving up rents and housing prices.

New Job Centers are Forming

  • El Segundo: 70,000 jobs in professional, scientific and technical services, manufacturing.
  • San Fernando Valley:  53,000 jobs in software engineering, data processing, internet development, motion picture and video production — has grown about 74 percent over the last decade.
  • Santa Fe Springs: 42,000 jobs, chiefly industrial.
  • Downey: 36,000 jobs, chiefly retail.
  • Burbank: 36,000 jobs, chiefly creative.
  • Chino: 23,000 jobs, chiefly industrial.

Long Held Jobs Centers Have Experienced Moderate Growth

  • Downtown LA: 310,000 jobs, Knowledge Intensive Business and Production Services and Knowledge Intensive Business and Production Services.
  • Beverly Hills/W Hollywood:  159,000 jobs, Knowledge Intensive Business and Production Services, Creative.
  • Irvine: 140,000 jobs, High tech.
  • Glendale: 87,000 jobs, Retail & Knowledge Intensive Business and Production Services.
  • Pasadena: 83,518 jobs, Knowledge Intensive Business and Production Services.
  • City of Industry: 28,000 jobs, Industrial & Retail.
  • Ventura: 25,000 jobs, Retail.
  • Lancaster: 20,000 jobs, Retail.
  • Thousand Oaks, 20,000 jobs, Retail.
  • Palmdale, 12,000 jobs, Retail

L.A’s Achilles Heel – L.A. needs to build more than 500K new units of affordable housing to satisfy demand from very low and extremely low-income earners.

  • Challenge:  It’s Expensive to Build Housing in L.A.

o   Limited land plus high demand means high land prices.

o   Construction labor and the cost of the raw materials have been rising over the last five years and are higher in CA than other parts of the country.

o   Construction labor is about 20 percent more expensive in major CA cities than in the rest of the country.  (CA LAO)

o   Building codes and environmentally-friendly design requirements in many CA cities require different types of raw building materials to be used, some of which can be pricier than elsewhere in the country. And nationwide, the cost of vital resources like lumber and concrete are on the rise.

  • Challenge:  Local Control over Zoning

o   In 1960, the City of L.A. alone was zoned to accommodate 10 million residents.  The City’s population has increased by 157 percent to four million people, but community-based urban planning practices resulted in the city being presently zoned for only 4.3 million residents.

o   As a result, one new housing unit was constructed for every 3.7 new residents.  Seventy-five percent of the residential land area in the City is now dedicated to low-density single-family housing, and this land houses only half the population.

o   Residents in these neighborhoods use their influence and resources – social, legal and political – to discourage state and local policymakers from changing zoning laws that would encourage the development of multi-residential housing units in their communities.

o   These actions have pushed the pressure for development, along with any negative impacts, to neighborhoods with fewer resources to resist, further exacerbating inequities, as well as increasing traffic congestion, generating greenhouse gases and reducing economic productivity.

o   L.A.’s Measure JJJ added fees and requirements on projects that require zone changes and/or general plan amendments.  From 2016 to 2017 the number of units requested using a zone change or general plan amendment dropped by 78 percent.

  • Challenge:  Proposition 13 & CEQA

o   Proposition 13 locks in a homeowner’s property tax to the year they bought their home — no matter how much their home increases in value.

o   Local governments became reliant on other revenue sources like big box retailers, car dealerships, as opposed to a multifamily apartment building.

o   New construction shoulders the burden of funding infrastructure, affordable housing, and other community benefits, while existing structures (and residents) face no such obligation. This has a restrictive impact on development, making projects with large profit margins the only ones feasible.

o   Most of the 48 CEQA suits currently underway in L.A. are against residential projects and four-fifths of all suits filed under it have sought to stop infill development in cities (i.e. – on land already zoned for building) even though this usually has a smaller environmental impact than building on green fields.

  • Challenge:  Global Market & Private Investment Firms 

o   As global wealth increases, housing is becoming a more global asset than a purely local one, especially in big cities across the globe.

o   In 2006 ~10 percent of CA single-family homes were purchased in all-cash transactions. A decade later, it’s nearly 25 percent.  International buyers are more than twice as likely to pay in cash as domestic buyers.

o   Chinese buyers spend billions each year to purchase homes in the U.S. 40 percent of those purchases are in CA.  Last year Asian buyers accounted for 71 percent of CA homes sold to foreign buyers. That dwarfs the next closest group of international buyers, Latin Americans at 14 percent.

o   Some real estate economists estimate that 5 percent to 10 percent of the state’s single-family housing stock could be owned by international buyers.

o   Private investment firms snapped up a ton of cheap homes during the foreclosure crisis—at one point more than one in three CA homes was being purchased with all-cash.

  • Other Challenges

o   Workforce:  L.A. is creating too many  service sector jobs at wages that don’t cover housing and living costs, and the middle-class is leaving L.A.

o   Affordable Housing Units:  More than 800K renter households qualify for affordable housing, but there are fewer than 300,000 units at rents that would be affordable.  24K students at 57 CA Community Colleges  are housing insecure and 8K homeless.

o   Old Housing Stock:  More than 50 percent stock built before 1950. There are habitability problems with units and depressed property tax revenues.

o   Rent:  52 percent of population rents and median rent has gone up 32 percent since 2000, while household income has actually dropped about 3 percent.  Overall, residents earning 55K have to set aside nearly 47 percent of their income – the highest amount among all the nation’s 35 metro areas – to afford rental payments.

o   Homeless Housing:  More than 31K city residents require housing and it takes too long (3 to 5 years) and costs too much (500K per unit) to complete.

o   Local Government:  Not enough resources to maintain general plans expose proposed projects and localities to successful legal attack when a neighborhood organization, environmental group or competing business is seeking to overturn a development decision. The higher costs and risks associated with the approval process prompts developers to build projects that will be least controversial and will contain the biggest profit margins.

  • Opportunities

o   Co-Living Homes:  New York-based Common plans to spend $100 million to build seven co-living homes in SoCal – 600+ beds.  Common and Proper Development already have a co-living community in L.A. called Common Melrose. Rents for the co-living units will range from $1,300 to $1,800 a month and come furnished.

o Companies Locating Closer to Where Workers Live:  A wide array of businesses have been moving headquarters and branch locations to downtown areas in part to attract and retain talented workers.  I.e. – real estate and financial firms setting up shop in El Segundo, close to South Bay community.  LADWP considering plans to locate satellite offices in the Valley, South L.A. and Pomona.

o   Transit Oriented Districts:  City Hall is adjusting single family zoning in areas around transit.  As other types of housing entitlements have decreased in number or held steady, the escalation in TOC projects accounts for most of the 18 percent growth in housing units proposed from 2017 to 2018.  Of the total new units in 2017 & 2018 – 13,305; almost 18 percent are affordable and 42 percent of those are for extremely low-income households.

o   Emerging Job Centers Align with Key Transit Hubs:  Job centers are now significantly closer to freeways, airports, rail lines and the Pacific coast.  More location choices are significantly nearer to existing infrastructure ad region-wide amenities.

o   Malls:  Malls only represent 15 percent of the total retail square footage in California (and the U.S.) but their economic footprint is large, playing a role as an anchor tenant in the community, supporting small businesses, jobs and recreational space.