Shaping the Future of Los Angeles:  Housing, Land-Use & Transportation

There is a growing body of evidence that shows that increasing housing density in high-opportunity neighborhoods – places near good paying jobs, good schools, public transportation and urban amenities – will provide residents of Los Angeles better access to more affordable housing opportunities and a better quality of life.  In order to do so, the L.A. Community, as a whole, must work together to pass measures, with the coordination of California state government, to support well thought out development projects in parts of the region that have resisted it in the past.

Business and civic leaders should focus the most attention on the myriad of local decisions being discussed and made around three interrelated issues – housing, land-use and transportation.  The state of California will spend $1.1 trillion on transportation – highway, transit and goods movement elements – throughout the coming decades.  Twenty-six percent of that amount will go to LA Metro, which serves as transportation planner and coordinator, designer, builder and operator for L.A. County, which is home to more than 9.6 million people – nearly one-third of CA’s residents.

L.A. Metro is already investing $120 billion into the expansion of the region’s public transportation system, providing L.A.’s residents an enormous opportunity to responsibly shape how our communities and transportations systems will blend together to create a more sustainable and livable environment for the next 100 years.

To date the development of Transit Oriented Communities (TOC) has been the most successful policy change, stimulating the development of a mix of uses close to LA Metro’s transitstops.  For example, the Exposition Corridor Transit Neighborhood Plan allows for the rezoning of 256 acres of land, mostly from industrial and light manufacturing, within a half-mile radius around five train stations in Palms, Rancho Park, Sawtelle, Mid-City, and Cheviot Hills, to residential and office space.   The plan estimates that between 4,400 and 6,000 new housing units and between 9,400 and 14,300 new jobs could be added across the entire plan area by 2035.

TOCs will support households at all income levels, as well as building densities, parking policies, urban design elements, and first/last mile facilities that support ridership and reduce auto dependency.  Each TOC is unique and Metro’s policies and programs, along with local, state and federal programs, are guiding the implementation of them.

The City of L.A. also created the Transit Oriented Communities Affordable Housing Incentive Program , through the passage of Measure JJJ.  This program provides a tier-based system of incentives that requires developers to dedicate a portion of residential units as affordable in exchange for higher permitted density, lower parking requirements, and other incentives.  It streamlined City requests and it has allowed for the development of appreciably larger projects than would have been possible under base conditions, or even using the pre-existing Density Bonus law.  According to the most recent Department of City Planning’s Housing Progress Report, 249 projects proposing 9,900 new housing units have filed under the program since last year.  Twenty percent of the units proposed are restricted affordable and 38 percent of those are reserved for Extremely Low Income households.

JJJ has also had a negative impact on development.  It added fees and requirements that make many projects that require zone changes and/or general plan amendments unfeasible.  From 2016 to 2017 the number of units requested using a zone change or general plan amendment dropped by 78 percent.  But the positive gains far outweigh the negative.  The City is making great progress with the development of more housing units.  The report showed that In 2018 alone more than 22,000 housing units have been proposed, placing the Department well ahead of meeting the Mayor’s goal of building 100,000 new housing units by 2021.

Policymakers are also finding success with the density bonus law, a state-mandated program that allows developers to build more dwelling units than what is allowed by the zoning, in exchange for setting aside a percentage of those units as restricted affordable.  While the TOC program only applies within a one-half mile radius of a major transit stop, density bonus projects can be built in multi-family zones across the L.A. region.  Since 2015 the Density Bonus Law and TOC programs togetherhave been the biggest drivers of new mixed-income housing units in L.A., representing 75 percent of the total of housing units proposed (130,000) in the last three years.

Progress is also being made in some of L.A.’s low-density communities.  In January 2018 the CA State Legislature expanded the opportunity for homeowners to build, convert, or repurpose existing space on their property withAccessory Dwelling Units.  Since then a record number of ADU permit applications – 5,000 in 2018 – have been submitted to the City of L.A. alone.

L.A.’s policymakers are also moving forward with the development of more Permanent Supportive Housing (PSH).  According to the City’s Comprehensive Homeless Strategy, a total of 1,000 PSH units need to be constructed annually to house the City’s homeless population – a significant increase from the current annual supply of 300 units.  In 2016 voters in the City of L.A. passed Measure HHH to raise $1.2 billion to fund the construction of PSH units throughout the next decade.  Voters also adopted Measure H in March 2017, a County-wide measure that is now providing ongoing funding to support rent subsidies and services for PSH, among other homeless services.  The City is currently managing a Land Development Program with an estimated pipeline of 1,702 units of which 803 would be for Permanent Supportive Housing.  These properties are classified as CRA, REO, LADOT, AHOS and spread throughout the city.

Moving forward, L.A. really needs to turn away from the notion that a city is zoned for the benefit of any section or neighborhood or any individual plot of land.

Seventy-Five percent of the residential land area in the City of L.A. is dedicated to low-density single family housing, and this land houses only half the population.  Residents in these neighborhoods have used 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.  Not building housing in these parts of the City has 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.

L.A. City Hall is starting to show some willingness to adjust single-family zoning in areas near transit by allowing“neighborhood-scale mixed-use development that creates ground-floor commercial activity” with the “capacity for multifamily housing”within several blocks fronting Bundy Drive south of Expo Line’s Bundy station.  A 2016 report by the McKinsey Global Instituteshows that L.A. could further maximize the development potential around high-frequency transit stations throughout L.A. County, thereby providing for as many as 903,000 more housing units.

Other regions of the country are taking steps to radically change their approach to the zoning of single-family neighborhoods.  This month the Minneapolis City Council voted to eliminate single-family zoning and instead they will allow residential structures with up to three dwelling units – like duplexes and triplexes – in every neighborhood.  It is believed to be the first major city in the United States to approve such a change citywide.

In L.A.’s lower-income neighborhoods residents are also raising their voices to resist projects designed for high-income households in their communities and they are demanding more affordable housing units.

In some cases, residents are joining traditional slow-growth groups and preservations to oppose increases in density or any new projects at a larger scale.

Without new housing, especially affordable units that support a diverse workforce, L.A’s overall growth will be curbed. Arecent analysis from Zillow underlines how difficult it is for low-income, and even middle-income buyers, to afford housing in L.A.  Comparing typical rental prices to the incomes of residents in L.A., the report finds that residents earning close to the area’s median income would have to set aside nearly 47 percent of their income – the highest amount among all 35 metro areas studied – to afford rental payments for a median-priced home or apartment.  As the cost of living increases in L.A. (and CA), residents are picking up stakes and leaving for other parts of the country.

Between 2007 and 2016, CA has lost half a million net migrants with the majority of that coming from the Los Angeles-Orange County area.  IRS data from 2015-16 shows that while roughly half those leaving the state made under $50,000 annually, half made above that.  Roughly one in four made over $100,000 and another quarter earned a middle-class paycheck between $50,000 and $100,000.   According to research from Wendell Cox and Joel Kotkin, the largest group leaving the state – some 28 percent  – is 35 to 44, which is prime age for families with kids.

Those with only a high school education predominate among those moving from CA to top destination states (Texas, Arizona, and Nevada). College-educated 18 to 35 year olds led the way among those moving to CA from its top feeder states (New York, Illinois, and New Jersey).  These changes highlight the increasing danger of LA pricing itself out for moderate wage earners, and particularly families.

Another trend that will have an enormous impact on the L.A. region is the rising population of those 75 years old and older.  According to data from the CA department of finance, L.A. County’s population is projected to grow to 11.2 million from 10 million by 2060.*  The population of 0-10 years olds will decrease by 26 percent during that same period, while its population of 75-100 year olds will increase by 250 percent.  In some cities, like Boston, clusters of seniors have already banded together to form a “village” so they could lean on each other for household services, social activities and old-age planning.

This movement has spawned 350 similar groups nationwide in what is now known as the Village to Village Network. Members can tap rides to doctors’ appointments, handymen and activities like group meditation and bowling.  Another Interesting concept to address this issue can be found in Chicago

For now the most significant issue is developing affordable housing for those in L.A.’s working and middle-class.  That will require L.A.tocreate new zones for middle housing- two-to-three story duplexes, triplexes, and townhomes.  Historically, zoning changes in L.A. have been for housing types that are very large and expensive to build.  One L.A. developer studied certificate of occupancies in the City of L.A. up to 2017 and found that 47.3 percent of all new housing created came from projects sized fifty units or larger. On average it took over six years to create this housing.  He argues, that we don’t have to go from one-story homes to all seven-story apartment buildings with two levels of underground parking. The solution is the creation of more middle housing developments, that are compatible in scale with single-family homes and help meet the growing demand for a walkable urban lifestyle. They are much cheaper to construct than mega-projects and these savings are passed on to homeowners. They also take far less than six years to create.  **Though there are other challenges to overcome.

L.A. County’s landscape provides a massive opportunity around this issue.  The McKinsey Report on Housing referenced above used GIS Mapping to show that L.A. County has 5,600 to 8,900 vacant parcels (public and private) zoned for multifamily use, with zoned capacity for 32,000 to 75,000 units.  Twenty-eight percent of multi-family parcels use less than 50 percent of zoned capacity, with potential to add 306,000 units under current zoning.  (Many of the state’s multifamily parcels were built more than half a century ago, before there was a need to increase density to address the state’s housing shortage.)

Building these units would increase L.A. County’s housing stock by 1 to 2.3 percent.  For example, a single-story apartment building built in L.A. in the 1930s might have four units, with most of the lot area dedicated to parking.  But the lot may be zoned for ten units – implying 40 percent utilization of zoned capacity.  Six additional units could be built on the lot under the city’s existing zoning ordinance.

A new way to fund some of these developments may come from the recently created federal Opportunity Zones program, which was created by the Tax Cuts and Jobs Act on December 22, 2017.  The goal of this initiative it to direct much-needed capital to low-income communities by allowing investors to defer and reduce capital gains taxes by reinvesting gains.

For cities, developers, and businesses, this opens up a potentially significant source of equity capital to stimulate growth in low-income and historically disinvested communities. This program has the potential to be a game-changer in steering a portion of approximately $6 trillion in unrealized capital gains to communities that need quality jobs, safe and affordable housing, and amenities for their residents.

Done right, Opportunity Zone investments could better leverage other incentives to maximize impact and stretch public dollars.  Other incentives could include New Markets Tax Credits, Low-Income Housing Tax Credits, Historic Tax Credits, Brownfield Opportunity Area funds, Community Development Block Grants, HOME funds, and property tax abatements.***

These subsidies can also be stretched by combining them with inclusionary zoning, where developers set aside a portion of their units at below-market rents, and the subsidy is used to make those rents even lower, so that they are affordable to lower-income tenants. Yet, in order for this program to be successful in underserved communities, policymakers need to make sure that projects do not further reduce the supply of affordable housing, displace important cultural or civic assets, or worsen environmental quality.

CA Governor-elect Gavin Newsom and the CA Legislature are also looking to play a larger role in fostering the development of more housing throughout the state.  Newsom’s housing plan encourages construction of new housing by making more tax credits available for affordable housing developments and he had supported the recently voter-approved bond measures that finance housing construction.  ****(List of recently passed bills and measures below.)

Newsom has also promised to hold cities accountable when they fail to meet housing goals established by the state – as 526 municipalities did in 2017.  But, the issue is complex.  More than two-thirds of California’s coastal communities have adopted measures  – such as caps on population or housing growth, or building height limits  – aimed at limiting residential development, according to the CA Legislative Analyst’s Office.

If the soon to be sworn in Governor Newsom is going to be success in implementing a more top down approach to local planning issues, the state will need to play a stronger role in not only dictating/guiding planning and land-use discussion, but find a way to reform significant pieces of the puzzle, such as providing more incentives, such as a greater share of tax dollars, for local governments to upgrade supportive municipal services and infrastructure, in order to meet their housing goals and support sustainable communities.

Available data shows that L.A.’s current level of public infrastructure and services are not capable of supporting the population we have now.  The current solution – squeeze developers with impact fees and inclusionary zoning will inhibit the development of enough market-rate housing to get prices down and reduce the per-unit cost of subsidies.  (A UC Berkeley study of California’s local land-use regulations found that every growth-control policy a city puts in place raises housing costs by as much as 5 percent there.)

Until something changes, a single family home on two acres in different parts of the City is actually doing more to cause an affordable housing problem (by consuming valuable land for just one house) than the new construction high rise residential tower in Hollywood.

The other factors that need to be addressed – restrictive zoning requirements in CA cities that make dense housing extremely difficult to construct, the CA Environmental Quality Act (CEQA) and Proposition 13.

Low-Density Zoning: State Senator Scott Wiener (D-11) introduced SB 50 to address the first point.  His bill would allow developers to bypass local low-density zoning restrictions and build more apartment buildings near public transit and job centers. Within the new transit and job zones, cities would be unable to impose height limits for new apartment buildings lower than 45 or 55 feet.  Under the new proposal developers would be allowed to build four- to five-story apartment complexes in neighborhoods surrounding L.A. Metro stations and it would also ease some local restrictions on building homes near frequently used bus stops.

CEQA:  CEQA reform is a perennial discussion because it has become a crucial tool in efforts to block or reduce the size of developments. A city planner in L.A. pointed out that most of the 48 CEQA suits currently underway in L.A. are against residential projects and that most CEQA lawsuits are filed by groups that do not have an environmental mission and are meant to block environmentally-friendly dense infill development.  Four-fifths of all suits filed under it have sought to stop infill development in cities (ie, on land already zoned for building) even though this usually has a smaller environmental impact than building on green fields.

This fall Governor Brown signed AB 1804 (Berman; D-Palo Alto) to help expedite infill development of affordable housing by expanding the existing CEQA exemption for infill projects to unincorporated areas already surrounded by urbanized land uses and populations.  By expanding this categorical exemption, the bill would incentivize and streamline the development of affordable housing units in unincorporated areas surrounded by urban uses.  With the new Legislative session underway in Sacramento, new proposals will most likely begin to surface.

Proposition 13:  Property taxes under Proposition 13 also shape land use policy by shielding homeowners from what Paavo Monkkonen, Associate Professor; Urban Planning University of California Los Angeles describes as “the fiscal consequences of increased home values.”  In his 2016 reportUnderstanding and Challenging Opposition to Housing Construction in California’s Urban Areashe writes that the complex approval process for new construction “has become a central moment for land value recapture, and new construction is asked to shoulder 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.”

Proposition 13 also created perverse incentives for local government to not encourage housing development and instead promote commercial development such as car dealerships and big-box retail that generates sales-tax revenue, in order to replace the revenue lost as a result of Prop 13. One way to make a difference is to rewrite Prop 13 to enable local government to generate revenue without becoming reliant on special fees, which can increase the cost of building housing.

Limiting new construction makes all housing less affordable, exacerbates spatial inequalities, and harms the state’s economic productivity and environment.  CA’s future success will be determined by its ability to foster the development of enough housing to benefit its growing population and that will depend on a complex number of factors, some of which are included in this document and other key components such as the cost of land, materials and labor, the availability of financing for developers and interest rates on mortgages for homeowners.  What is paramount at this point in time is the role our governments – federal, state and local – will play in making a difference on this issue and it is critical that the business and civic communities play a part in strengthening the role of government in fostering economic growth that benefits alls residents of our great state.

Kudos to Bay Area leaders who off to a good start in communicatingtheir agenda.


* Population Data:  California has experienced an undercount in past Censuses, meaning there were more people living in the state than were counted by the Census. For example, the 1990 Census undercounted California’s population by 2.74 percent (about 835,000 people), which was disproportionately worse than the national undercount of 1.59 percent. As a result, California gained one fewer seat in Congress than it was entitled to receive and was estimated to have lost over $200 million of federal funds in a single year. While California also experienced an undercount in 2000 and 2010, the counts were much more accurate relative to 1990.

** Buyers of real estate in CA are limited in damages to 3% should the sale contract be voided by the buyer without cause.  For large scale residential for-sale development, which takes a long time to complete and often isn’t financeable until some significant percentage of the units are pre-sold, this essentially gives the buyers a 3% option on the units.  Then in 18-24 months when the units are finally ready for sale:

1) if the market price is higher, the buyers close and then may elect to re-sell the unit and compete with the builder or 2) if the price is lower the buyers simply re-negotiate the price with the builder.  In Florida, for instance, I believe the liquidated damages equal 20%.  The 3% in Ca. serves to limit the developer upside while maintaining all but potentially 3% of the downside, and therefore is limiting motivation to develop much needed housing.  Additionally, the “meet and confer” rules were designed to help but remain largely ineffective.  Lawsuits for construction defects on nearly all for-sale residential projects in CA mapped as condo’s are filed just before the 10-year limitation.  The laws protecting the buyer are in fact often benefiting lawyers more than anyone and further reform is needed.

*** If L.A. is going to harness this opportunity it must have a city-wide economic development strategy.  A plan rests in the hands of the City’s Ad Hoc Jobs Committees and the expectation is for a January 2019 hearing date to move it forward.  This plan must protect “employment areas” as untouchable sanctuaries, as they have done in the cities of New York (Industrial Business Zones), Chicago (Permanent Manufacturing Districts), and Seattle (Production, Manufacturing and Repair Areas).

**** Recently Passed Measures

Proposition 1: $4-billion bond measure ballot, is one small step toward funding eight different programs subsidizing the construction or purchase of housing and supporting infrastructure.

AB 2372 will authorize a city or county to establish a procedure by ordinance to grant a developer a floor-area ratio bonus in lieu of a density bonus, offering a creative, alternative way to increase housing density, particularly near transit corridors.

SB 1227 would additionally require a density bonus to be provided to a developer that agrees to construct a housing development in which all units in the development will be used for students enrolled full-time at an institution of higher education accredited by the Western Association of Schools and Colleges or the Accrediting Commission for Community and Junior Colleges and the developer enters into an agreement with an institution of higher education to that effect, where 20 percent of the units are used for lower income students.  Why it matters:  The CSU system alone enrolls approximately 484,300 students from diverse backgrounds. A recent report showed that 10.9 percent of CSU students reported experiencing homelessness one or more times in the last 12 months when there were surveyed.

SB 35 forces cities to approve projects that comply with existing zoning if not enough housing has been built to keep pace with their state home-building targets. Such projects must also reserve a certain percentage of homes for low-income residents and pay construction workers union-level wages and abide by union-standard hiring rules.

Assembly Bill 73 and Senate Bill 540 give cities an incentive to plan neighborhoods for new development. Under AB 73, a city receives money when it designates a particular community for more housing and then additional dollars once it starts issuing permits for new homes. In these neighborhoods, at least 20 percent of the housing must be reserved for low- or middle-income residents, and projects will have to be granted permits without delay if they meet zoning standards.

SB 540 authorizes a state grant or loan for a local government to do planning and environmental reviews to cover a particular neighborhood.  Developers in the designated community also will have to reserve a certain percentage of homes for low- and middle-income residents and the city’s approvals there would be approved without delay.  Money to implement both laws could come from the new real estate transaction fee and the bond.

AB 1505 changes the rules so that cities can once again implement low-income requirements.

AB 1521 requires owners to accept a qualified offer to purchase the apartment complex from someone who pledges to continue renting the homes to low-income residents.

AB 1397 forces local governments to zone land for housing where it could actually go, instead of putting sites they don’t intend to approve in their housing plan. In one example, La Cañada Flintridge rezoned a big box commercial property for apartments or condominiums, but city officials later told residents any new homes on the site would be almost impossible to build.

SB 166 makes cities add additional sites to their housing plans if they approve projects at densities lower than what local elected officials had anticipated in their proposals. The goal is to make up for the housing units that weren’t built.

AB 879 instructs cities to analyze how long it takes developers to actually build their projects once they’ve been approved, and then take steps to shorten that time.

SB167, AB 678, AB 1515, will beef up the existing law by making it easier for developers to prove a city acted in bad faith when denying a project, and by upping a city’s penalty to $10,000 per unit they rejected.

AB 72 gives the state housing department more authority to investigate cities that don’t follow through with their housing plans and refer cases to California’s attorney general for possible legal action.