Economic Updates

Weekly Report – April 25, 2016

Part Three – Is L.A. Big Enough for Everyone? – Pro-Economic & Pro-Job Growth Initiatives and Recommendations 

The City of L.A.’s operations are relatively simple compared to L.A. County and other large cities such as New York and Chicago. City Hall is not responsible for many large, complex and politically charged civic functions such as education, healthcare and hospitals, social services and welfare, and criminal justice and jails.

What City Hall is responsible for is every day services, such as public safety (police and fire); streets and sidewalks; parks and libraries; and trash collection, wastewater, sewers, and stormwater. It is also responsible for planning, zoning, building and safety, and the enforcement of the related rules and regulations.

This last responsibility means that City Hall plays a significant role in influencing our region’s economic climate. L.A.’s elected, appointed and civil service officials shape tax, regulatory and land use policies; provide oversight and appointment powers over numerous government commissions, departments and agencies that have the power to approve, delay and deny any and all economic development related matters.

If managed effectively, local government can proactively facilitate the efficient, reliable and fair delivery of goods and services to its residents, businesses and neighborhoods – fostering economic growth and the jobs that come with it.

If managed ineffectively, economic activity and the region’s quality of life suffers. As a veteran of City Hall, Mayor Garcetti knows this better than anyone.

“I’ve focused on a back to basics agenda to create a stronger economy and more efficient and effective city government, and I am exercising the CEO role of the Mayor’s office to hold our city departments publicly accountable online” – Mayor Eric Garcetti

How Does this Align with L.A.’s Current Planning & Land Use Debate?

• Mayor Garcetti and the L.A. City Council recently issued a reform package to draft a new general plan (a master planning document that hasn’t been updatedin 20 years) and rewrite all of the city’s 35 community plans over the next decade. The Mayor’s budget proposal includes an additional $1.9 million in funding for the Department of City Planning’s Community Planning Program and triples the size of staff dedicated to the program. The Mayor also laid out a plan for ongoing funding for the program to ensure updates are completed within 36 months. The City Council also instructed the Planning Department to report on overhauling the Community Plan program. They also called for recommendations on ways to increase oversight of the environmental review process, and upgrade outdated technology. The Mayor’s budget also includes $1.483 for Re:code LA. An ongoing comprehensive update to the L.A. Zoning Code, which was last updated in 1946. This five year initiative aims to develop a modern and user-friendly Code in order to create livable communities, encourage sustainable development, and foster economic vitality.
  • If you would like to read why this is a real uphill climb go to a recent article at City Watch:http://goo.gl/ScqzYF
• Bullet one is a reactive measure in response to two ballot initiatives, one being lead by community groups and one by labor unions, that if passed and implemented would greatly curb the development of much needed denser transit oriented projects and more affordable housing units and drive up the cost of doing developments in L.A*.
  • *“Development fees — charges levied on builders as a condition of development — are higher in California than the rest of the country,” the LAO report notes (and the difference is substantial: $22,000 versus $6,000, on average). It takes seven months to get a building permit in coastal areas (compared with 4 1/2 months nationally), 12 months to get a rezoning variance (compared with 9 months), and projects subject to the state’s intensive Environmental Impact Review process take an average of 21/2 years to approve. May 2015 report by the California Legislative Analyst’s Office.
• The good news – City Hall is being proactive on real reforms that have made great strides because of the L.A. Coalition’s public/private partnership program. See – O-Team.
• A.’s private sector, planning and public policy experts do not lack for great ideas on how to improve the planning and development process for the City of L.A. The last section of this weekly highlights a few of these recommendations.

Recommendations to Improve the Planning and Development Process in the City of L.A.

• If the City streamlined its process and shaved months to years off the entitlement process, it would have two effects: 1) the City would start to capture the tax increment that development creates more quickly and could use that to fund affordable housing etc. and 2) the developer would save on carrying costs which means the City could potentially add impact fees or inclusionary zoning without it being overly burdensome financially so the projects can still move forward.
• During the recode and general plan/community plan update process, the City should look for ways to make the types of development it wants to see by right. If you look at other cities where there is an easy path for desirable development and a hard path for undesirable, you see 1) developers take the easy path more often than not and 2) there is far less fighting with the community because the rules are clear and predictable. Seattle is a perfect example.
• Cities need to decide what their actual priorities are. Is it affordable housing?  Is it maximum levels of sustainability?  Is it maximum public process and engagement?  Is it park fees? Is it job creation?  At some point you have to stop piling fees and expenses onto projects or stop wondering why everything costs so much.
• If affordable housing is a problem for the entire city, maybe the entire city should shoulder the load for solving it and not just new development. How about looking at a parcel tax instead of an impact fee?  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. Why does only the tower have to contribute to the solution? And at the local level, the focus on inclusionary zoning and impact fees has both fed on and promoted the fantasy that all we need to do to solve the affordable housing crisis is squeeze developers hard enough. In reality, only a broadly-funded commitment to funding housing assistance has any shot at reaching the required scale. And even that won’t have the needed effect unless we build enough market-rate housing to get prices down and reduce the per-unit cost of subsidies. L.A. is not the only city with a regulation-induced housing shortage.
• Mixed Use Urban Development. Where appropriate (particularly on smaller buildings) stop including negligible retail on the ground floor and instead include low/moderate income housing.  Often the cities probably think they are getting some sales tax increment and lessened traffic.  However, often some small retail space with poor access to easy parking, ends up being medical or vacant or subsidized by the owner of the property as there isn’t adequate density to make a retail business successful.  What a waste of opportunity. “Blanket policies are never effective, but providing opportunity in planning engenders possibility…mixing uses such as retail and housing, always have to be carefully considered depending upon location. Along transit corridors and transit adjacent areas, there are ways to create streetscapes and pedestrians friendly areas….it has just not been the case in Los Angeles to do this…the corner strip mall has been the mindset.” Interesting concept:http://matherlifewaysinyourneighborhood.com/mathers-more-than-a-cafe/
• Three Percent Liquidated Damages. 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.
• Builder Liability. 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.
• Plan for Gentrification: Provide long-term affordable housing in neighborhoods poised for gentrification or already gentrifying. This will provide for some stable income diversity. In areas where land costs have increased, the amount of subsidy required per unit can be relatively high. However, subsidies can 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. Such creativity and municipal leverage are needed to make our cities more than simply playgrounds for the affluent. Final thought – government must recognize its own limitations when intervening in the lower-end residential real estate market.
• Transform L.A.’s busiest streets from a hodgepodge of mostly low-rise buildings and strip malls into genuine urban boulevards, with a lot more housing and local amenities closer to home. For example, along Wilshire Boulevard in Koreatown and Sunset Boulevard in central Hollywood, more apartments, condos and mixed-use developments are going in, along with increased pedestrian, cycling and transit infrastructure. Not everyone likes these changes, but they absorb newcomers while preserving single-family neighborhoods, and they are beginning to make a dent in congestion.
• Limit the height of buildings based on the width of the street, L.A. can increase density without creating high-rise canyons. In Toronto, the rule is 80% of the street width, at the front of buildings. So smaller avenues, such as Normandie, could tolerate five stories along the street, stepping back to six stories maximum, while on larger boulevards, such as Sunset, buildings could be seven stories high along the street, stepping back to nine stories maximum.
• Giving homeowners the choice to create small backyard units where space permits. The research shows that in most cases, such units will be used as multi-generational housing — an aging parent or a child living at home — but they could also support families by supplementing their income and creating affordable housing for long-term residents. Again, with good planning (controlling size, placement, parking and tenancy), this can enrich neighborhoods.
• “Density bonuses” — in which builders set aside a percentage of units (say 20%) for lower- and moderate-income households in exchange for moderate increases in density — are another good tool. The common perception is that such bonuses are giveaways to developers, but they have been designed as a profit-neutral way of providing below-market-rate units. And research shows neighborhoods with mixed-income households provide the greatest opportunities for social mobility.
• Entitlement process reform, expedited permitting and zoning confirmation letters to provide more clarity and certainty early on in the development process.
• Change of use restrictions to 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).
• By-right development, so that compliance with a General, Community or Specific Plan exempts you from having to go through major approvals.
• Crafting value propositions for specific industry clusters to attract foreign direct investment into the City.
• Offering targeted incentives to encourage developers to create industrial parks that benefit a number of companies in the same cluster or sector, such as: biomedical, digital media, gaming, alternative fuels, or advanced materials, just as examples.

Last point: In the City of L.A., 75-percent of our land mass is or was zoned for open space or single family residential. That means that the entirety of the City’s commercial, multifamily housing, retail and industrial uses must be accommodated on 25-percent of the land. And that 25-percent has been subject to an onslaught of political fights at the local level because nobody wants to make any sacrifice. This is in effect the Tragedy of the Commons. Everybody wanting to preserve the status quo, at the real expense of true progress, is no longer the answer.