Weekly Report – October 31, 2016

The mission of the L.A. Coalition is to advance initiatives that generate economic growth and the jobs that come with it. One significant opportunity to achieve success in this endeavor is to help strengthen local government’s role in fostering economic and jobs growth throughout the region.

The Coalition’s public/private partnership with the Mayor’s Fund – Operations Innovation Team – is proving that our innovative model that brings together private and public sector skilled talent is working and showing results. See below.

L.A. City Council Ad Hoc Jobs Committee 

In July 2015 L.A. City Council President Herb Wesson established an ad hoc committee to help the City of L.A. develop a comprehensive job creation plan. City Councilman Paul Krekorian chaired the committee. This past week the City Council voted 13-0 to enact the plan. The plan most notably incorporates two out of the three agenda items from the Operations Innovation Team – optimizing the City’s real estate and procurement reform. More specifically, the plans supports the current ongoing efforts to create an online database of city-owned properties to encourage their use by local businesses. The $2.5 million asset management city data base should go live in December 2015. Secondly, the plans supports making the City’s procurement program more streamlined, to make it easier for minorities and local businesses to compete for $8.5 billion a year in city purchases.

Some elements of the plan are also  very similar to recommendations that can be found in the 2008 L.A. Economy & Jobs committee report, including the creation of a permanent business advance team – or “concierge service” — to rapidly respond to local business needs, the new plan would create a small business commission on public policy, launch a small business website with information on permits, licenses and incentives and create jobs and economic development incentive zones to encourage such industries as biotech. Part of the plan also calls for filling 5,000 new city jobs for workers hailing from underserved communities, including the homeless.

City Controller Ron Galperin:
Creating a Plan to Help the City of L.A. Better Manage and Capitalize on its Real Estate Portfolio

Thanks to the leadership and groundbreaking work of Mark Thomas and the Operations Innovation Team, City Controller Ron Galperin was able to leverage the OIT’s data with data from his own office to launch a new web-site – PropertyPanel.LA – to help the City better manage and capitalize on its real estate portfolio. The Controller also supported the call for the City to appoint a Chief Asset Manager to oversee its extensive portfolio of real estate holdings.

As we all know from the work of the OIT, the City has many properties that are underutilized, providing the City enormous opportunities to create more public space, revenue-producing income property, low-income housing and much more. Although this is a great step, much more needs to be done. The OIT is leading an initiative that will launch a much more detailed website on the City’s real estate assets. They are planning to launch the site in December 2016. The real key to success will be the establishment of a key body of decision makers who will oversee the City’s real estate portfolio and aligning it with a real economic development strategy for the City. This is a work in progress and I am leading an effort to help the OIT continue to cultivate strategic partnerships with leading real estate owners/operators/developers, academic institutions and industry associations to provide policymakers with industry best practices in asset management, property management, building maintenance, acquisitions, dispositions and innovation.

The City Controller’s Letter to the Mayor and City Council on this issue, along with a report on the City’s Asset Management Plan, is attached to this email.

City of L.A. Public Works – Procurement 

L.A. city public works commissioners formed a committee last Friday to generate ideas for increasing the number of small, local, minority- and women-owned businesses that are awarded city contracts. The OIT had discovered that of the City’s $8.5 billion annual procurement spend, only one-half of one percent benefits women and minority businesses and it also take these small businesses three and a half years to even be certified to do business with the City.

The board awarded 800 contracts for construction and other services over the past two years, amounting to about $600 million. The commissioners believe that their spend represents a significant investment in the regional economy and find it imperative that they identify ways to further strengthen the impact of these dollars on the small, women-owned and minority-owned businesses that are the core of L.A.’s communities.

Notable Reports

City National Bank’s Economy & Jobs Report

Trade: LA-Area Ports Could See Best Year Since Recession 

(Full Report:  https://goo.gl/90ztcc)

The two L.A. – area ports (Los Angeles and Long Beach) are on track to surpass last year’s count, making 2016 their biggest year in nearly a decade. They are projected to handle more than 15.4 million containers this year. Activity at the ports year to date is up 0.9% from this time last year, reflecting 2.7 percent growth in outbound containers and 0.2 percent growth in inbound containers. A surge in inbound activity ahead of the upcoming holiday retail season could push annual container volumes over the 2015 level. This is a strong prospect.

The National Retail Federation is projecting a 3.6 percent increase in holiday retail sales this year. Major retailers are planning to take on a larger number of seasonal workers at distribution and fulfillment centers. Companies focused on shipping and delivery (UPS and FedEx, for instance) are anticipating the busiest holiday season in history. Nevertheless, there are clouds on the horizon. September’s Hanjin bankruptcy will test the ability of other major shippers to absorb the market share vacated by the Korean line.

In addition, the World Trade Organization recently downgraded its forecast for global trade growth in 2017, citing growing antitrade rhetoric, changes in monetary policy in developed countries and the Brexit vote as factors that could negatively impact the future of global trade. International trade plays a major role in the CA economy, with the logistics industry becoming more important in recent years: In 2015, 1 in 13 CA jobs were related to global trade, a rate that has stayed steady since 2001, when China was admitted to the World Trade Organization and California’s trade volume expanded significantly.

The state accounted for 18 percent of U.S. exports last year, more than its 14 percent share of the nation’s GDP. The logistics industry accounted for $171.6 billion of the state’s gross product in the third quarter, or 7.8 percent of the $2.26 trillion California economy, a 3.9 percent increase from 2014 to 2015.

Interestingly, the net value of exported services is increasing nationwide. Travel (+6.9 percent YoY) and telecommunications-computers-information (+2.4 percent YoY) were among the big gainers. Both industries have stronger presences in California than in the nation as a whole, making the state a hotbed for service exports – a category that is growing in importance but often overlooked in discussions of trade.

The McKinsey Global Institute 

The McKinsey Global Institute provides a tool kit for fixing a chronic housing shortage in the world’s sixth biggest economy.

(Full Report: https://goo.gl/aa4W00)

Authors: Jonathan Woetzel is a director of the McKinsey Global Institute, where Jan Mischke is a senior fellow; Shannon Peloquin is an associate partner in McKinsey’s San Francisco office, where Daniel Weisfield is a consultant.

Access to decent, affordable housing is so fundamental to the health and well-being of people and the smooth functioning of economies that it is embedded in the United Nations Universal Declaration of Human Rights. Yet in developing and advanced economies alike, cities struggle with the dual challenges of housing their poorest citizens and providing housing at a reasonable cost for middle-income households.

To understand the nature of the problem, we built a quantitative model to identify California’s housing affordability gap by household and location. To do this, we segmented the state’s more than 12 million households into 34 housing markets and 16 income bands, and assessed each household’s ability to afford housing in their local market. We learned that 50 percent of California’s households cannot afford the cost of housing in their local market. Virtually none of California’s low-income and very-low-income households can afford the local cost of housing.

In a new McKinsey Global Institute report, A tool kit to fix California’s housing gap: 3.5 million homes by 2025, we look specifically at the US state of California and offer remedies for fixing a chronic housing shortage. Our objective is to provide rigorous, fact-based analysis on a charged issue, and to present a practical blueprint for how cities, state authorities, the private sector, and citizens can work together to unlock housing supply and ensure housing access. Our model also allowed us to generate detailed, local insights into who can and can’t afford housing, where they live, and how much they pay.

For instance, we learned that the problem is both rural and urban: while metropolises such as Los Angeles and San Francisco suffer from high housing prices, so do rural communities such as Watsonville and Salinas, where 50 to 60 percent of households are unable to afford the cost of housing. We also learned that high housing costs not only impact low-income households, but also squeeze California’s middle class. In Anaheim, Long Beach, and Los Angeles, households earning up to 115 percent of area median income, or $69,800 per year, are unable to afford local housing costs.

In the city of San Francisco, a household earning $140,000 per year, or 179 percent of area median income, is squeezed. In dollar terms, we learned that each year Californians pay $50 billion more for housing than they are able to afford. In total, California’s housing shortage costs the state more than $140 billion per year in lost economic output, including lost construction investment as well as foregone consumption of goods and services because Californians spend so much of their income on housing. After quantifying California’s affordability gap to understand the size and distribution of the problem, we analyzed land across the state, parcel by parcel, to identify “housing hot spots” where large amounts of housing could be developed with attractive returns.

McKinsey’s geospatial analytics team mapped cities such as Fresno, Los Angeles, and San Francisco and counties such as Contra Costa, Sacramento, and San Bernardino to identify opportunities to build housing. We identified physical capacity to add more than five million units in “housing hot spots.” This is more than enough to close the state’s housing gap. More than a quarter million of these units could be built on urban land that is already zoned for multifamily development and is sitting vacant. Up to 3 million units could be built within a half-mile of high-frequency public-transit stations. More than 600,000 could be added by homeowners to existing single-family homes.

What are the barriers to converting these five million potential units into actual homes?

There are many—whether regulatory, political, economic, or cultural. California’s challenge is to overcome these barriers, unlock supply on high-potential land, cut the cost and risk of producing housing, and ensure that low-income and vulnerable individuals who are priced out of the market have access to housing. To that end, we analyzed the current barriers to housing development in California and identified the public-sector and private-sector innovations with the highest potential to unlock new supply.

These range from changing the rules to incentivize local governments and accelerating the land-use approval process to boosting construction productivity and deploying modular construction techniques. Our hope is that the analysis contained in this paper will serve as a blueprint to help communities in California—and beyond—close the housing gap. This is critical for improving social equality, enhancing quality of life, and boosting regional economic competitiveness. Working together, cities, state authorities, business, and citizens can close the housing gap—but solutions must be highly tailored to local needs, and government, business, and citizens all need to step up to the challenge. We identified a five-step process for communities to close the local housing gap: create a housing delivery unit, define the local problem, identify local solutions and map “housing hot spots,” align stakeholders behind a local strategy, and execute the strategy and measure performance.

For more information you can contact Jonathan Woeztel, who is a member of the L.A. Coalition.