UCLA Study: $583 In Housing Funds Could Be in Danger

September 14, 2017 by · Leave a Comment 

Los Angeles could miss out on hundreds of millions of dollars in revenue if Mayor Eric Garcetti’s goal of building 100,000 new units of housing by 2021 is not met, according to a study released Tuesday by the UCLA Anderson School of Management.

“This study illuminates the need to reform and streamline the city of L.A.’s housing development process now,” said Paul Habibi, who lectures on finance and real estate at the UCLA Anderson School of Management and is also a lecturer at UCLA School of Law. “To ensure that the mayor’s 100,000-unit goal is met, the city must enact reforms that allow us to make the most of a strong market, and help us weather the years ahead as the current development cycle runs its course,” or risk the loss of $583 million in housing revenue.

A number of recent studies have ranked Los Angeles among the most unaffordable housing markets in the nation, as rent and real estate prices have skyrocketed due to a housing shortage. As a result, some city leaders have been pushing numerous ways to speed up the development of housing, including a “linkage fee” on developers being touted by Garcetti.

The UCLA study, which was produced in partnership with the Los Angeles Business Council, concluded that L.A. is on track to hit the 100,000-unit goal, but more reforms are needed to reach the included goal of 15,000 affordable units and to ensure that development continues at its current pace.

“We see Mayor Garcetti’s 100,000-unit goal as a floor for our city’s housing needs and believe we have a ceiling closer to 500,000 units based on our regional housing needs assessment,” said Mary Leslie, president of the Los Angeles Business Council. “Developers conservatively cite a five- to six-year timeline for building one affordable housing project. That is far too long if we’re going to build our way out of this housing crisis.”

While the study does not recommend a linkage fee, it does recommend funneling a portion of the money generated by new housing through tax revenues and fees back into the city’s Affordable Housing Trust Fund.

The study also recommends that the city take action to decrease processing times for development proposals by 25 percent, expand expedited processing to include projects that require new environmental impact reports, and raise the city’s site plan review requirement above its current threshold of 50 units.

“The city has available mechanisms to cut down pre-construction processes, but they are not broad enough in their scope to be effective,” said City Councilman Gil Cedillo, who is chair of the Housing Committee. “That is why I have introduced a motion to expand L.A. City Planning’s expedited
processing section, which allows applicants to pay a fee to reduce up to 50 percent of the time it takes to process entitlement applications. I’m also working on increasing the city’s site-plan review threshold, which has added an additional deterrent to increasing our affordable and workforce housing stock by adding additional bureaucratic hurdles to an already burdensome process.”

Although the city is on pace to reach 100,000 units by 2021, the study predicts a number of factors that could throw it off its pace, including that at least one economic downturn is possible by 2021 and that the Los Angeles Department of Building and Safety projects a decline in future development
activity over the next two fiscal years.

Another factor the study cites is Build Better L.A., a ballot measure approved by voters in November that requires developers seeking special approval for projects bigger than zoning laws allow to include a number of affordable units, which the study authors said adds significant regulation to future development projects.

L.A. Council Committee Approves Fee on Developers

August 24, 2017 by · Leave a Comment 

A Los Angeles City Council committee Tuesday supported one of Mayor Eric Garcetti’s top priorities, requiring real estate developers to help fund the construction of affordable housing through a “linkage fee.”

Although two members had expressed some reservations about the proposal at a meeting in June, the committee approved without objection some new recommendations that would create a tiered fee structure depending on the market rate of the neighborhood.

“We are very proud here today to bring this very important proposal before the committee for action,” said Councilman Jose Huizar, who is the Planning and Land Use Management Committee’s chair, at a news conference before the meeting.

“We want to come away with as many dollars as possible with a committee and council vote and create what we have not had in the city of Los Angeles for a number of years now — a steady, funded revenue stream specifically earmarked for affordable housing.”

Garcetti first proposed the idea for a linkage fee two years ago and called on the City Council to pass it during his State of the City speech in April, but the fee has proven to be divisive.

“This is by far one of the most divided subject matters, depending on who you talk to that are in this space. Everybody’s got a different opinion,” Councilman Mitchell Englander said.

“This is like navigating a live mine field, that if we make it through it somehow, we’ll live. But if we misstep at all, we don’t, and the consequences are devastating.”

Some key business groups, including the Los Angeles Area Chamber of Commerce, have also come out against the linkage fee and argued it would slow the construction of affordable housing by increasing the cost of building.

“The business community strongly supports affordable and workforce housing, but this proposal will make low- and middle-class housing more expensive to build and more expensive to rent or own,” according to the chamber.

The fee approved by the city’s Planning Commission in February would have charged $5 to developers for every square foot of new commercial construction and $12 per square foot for new residential projects. On Tuesday, however, the committee instead voted to approve a tiered structure, ranging from $8 to $15 per square foot for residential and $3 to $5 for commercial, depending on the market value of the neighborhood.

The vote, if approved by the full council, directs the city attorney to craft an ordinance creating the fee. The ordinance would then need to be voted on and signed by Garcetti before it could become law.

When Garcetti first proposed the idea, he estimated the linkage fee could raise up to $100 million per year for affordable housing, but a staff report approved by the commission downgraded the estimate to $75 million to $92 million per year.

A Department of City Planning and Housing and Community Investment Department report estimated the fee could raise between $93.7 million to $114.3 million per year with the tiered structure.

Garcetti set a goal in 2014 for construction of more than 100,000 units in Los Angeles by 2021 as a way to combat a housing shortage that has contributed to rising rents and an increase in homelessness in the city.

However, not all city leaders are convinced the linkage fee will help affordable housing or that it won’t lead to other problems.

Englander in June expressed worry that the fee could end up harming low-income people because developers and landlords will just pass the cost on to tenants.

“Everybody wants to stick it to the developer,” Englander said. “Hey, that would be a great option. At the end of the day we are sticking it to the nurse, the teacher, the firefighter and they can’t afford it and they are moving out of Los Angeles and they are commuting two hours.”

Councilman Curren Price said at the same meeting that a “one size fits all” fee could end up harming low-income neighborhoods.

However, Englander and Price both ended up supporting the new tiered fee, and Englander said he has always supported a linkage fee, it has just been a question of finding the right “sweet spot” that doesn’t slow development.

The fee would have various exemptions, and the committee recommended adding a few more, including exemptions for all hospitals and nonprofits, although it asked staff to report back on what the fiscal impact would be.

Although he is not on the committee, Councilman Gil Cedillo, who chairs the Housing Committee, has also expressed doubts about the fee.

“If we think this is the whole solution we are really making a mistake,” Cedillo told City News Service in June

“There’s a sense — and I’ve said this publicly and in forums — I don’t want people to think we are solving the problem. And people get attached to process and to the battle and they’re not looking at how we should approach the war.”

The report from the departments of planning and housing and community investment concluded that the fee would not result in a significant increase in housing prices.

The report also concluded that developers are unable to pass on the costs of new housing impact fees to tenants and home buyers because most developers are introducing a relatively small number of units into a community, where the price has already been set by the marketplace.

The idea for a linkage fee to fund affordable housing is not new. Other California cities such as Oakland, San Diego and San Francisco have one, as do other cities around the nation.

“I’m from New England. I went to school in Boston,” Councilman Mike Bonin said at the news conference.

“When I was in college, Boston established an affordable housing linkage fee. When they were talking about it, I remember the headlines in The Boston Globe — the sky was going to fall and the world was going to end, housing would stop and the boom in Boston would end. It didn’t happen.”

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