Garbage In, Garbage Out When It Comes to Most Analyses of the Housing Crisis

PLATKIN ON PLANNING-From the cloistered offices of academia, to the closed-door meetings at City Hall, from the talking heads of the mainstream media, to the astroturf organizations fronting for real estate speculators, we have been offered a simplistic and wholly bogus take on the housing crisis.

Why are there so many homeless encampments in cities like Los Angeles? Why are rents so high? Why are landlords squeezing tenants for higher rents? Why are single-family homes so unaffordable? 

The answer is simple according to these “mavens.” Cities like LA do not have enough parcels zoned for apartment buildings, especially in single-family neighborhoods near mass transit lines. Their solution is even simpler. Up-zone everything to create more zones permitting apartments. This, in fact, continues to be the exact approach of San Francisco Scott Wiener and his cheering squads, even after his Senate Bill 827 died in committee.  

While politicians, like LA’s City Council, turned over a likely short-lived new leaf to oppose SB 827, the jury is still whether they disagreed with Wiener’s implausible claims about zoning or whether they realized that massive, state-wide up-zoning would cut them out of the lucrative pay-to-play loop. 

Either way, the acclaimed academics, professional planners, media mouthpieces, and assertive astroturf groups are simply wrong.  As a smart economist once noted, you cannot push a string.  This means that upzoning alone will not address the housing crisis, much less increase transit ridership or reduce our carbon footprint.  

To solve the housing crisis, we need to fundamentally understand it, not just concoct up-zoning bills and facile explanations designed to fast track global investments into today’s most profitable real projects. 

As prize winning planning journalist, Bill Fulton, has pointed out, there is little connection between housing supply, demand, and prices in California. This means that efforts to reduce the cost of housing by increasing supply through up-zoning would be a fool’s errand. 

“The (California) housing boom ended with the Great Recession and has never come back. Since 2010, California has added more than 1.5 million people – yet built only 244,000 housing units. That is one unit for every seven people. But here’s the weird thing: during that time the median home price has only gone up by 8%. 

By contrast, between 2000 and 2010 – when production of housing was, relative to population, higher than anytime since World War II, the median home price went up 40%.  (This is reminiscent of the 1970s, when population growth slowed to a halt, more housing was built relative to population than housing than ever before, and yet California experienced its first housing price run-up.) 

These decade and half-decade totals, of course, mask the huge run-up of the early 2000s and home price crash after 2008.  But they help to make an important point: building lots of housing didn’t lower prices. And then building very few housing units hasn’t increased the price all that much.  

That’s because, at least in the short run, production and price are not simply a result of supply and demand. They result from a complicated stew of regulation and the entitlement process, the availability of capital, interest rates, creditworthiness of prospective homebuyers, and a whole bunch of other things.” 

Understanding and addressing the housing crisis requires us to understand Fulton’s insights, especially his reference to “other things,” two of which I discuss below. 

First, we need detailed information on the growth of inequality and poverty in the United States, and how they make most housing unaffordable to an increasing portion of the public. At present, the minimum wage is only sufficient in small parts of Washington and Oregon for local residents to rent a one or two bedroom apartment. The rest of the country is like California, where the minimum wage needs to rise to $20/hour to rent a basic apartment. Or, alternatively, if California’s current minimum wage, $10 - $10.50 per hour, remains frozen, low wage Californians could work a delightful 92 hours per week to afford an apartment. 

As for purchasing a house in Los Angeles County, they are only affordable to the top 25 percent of the population, according to Curbed Los Angeles. For most local residents to purchase and live in a house, the minimum wage should rise to $54/hour -- a 500 percent increase! 

Second, we need to understand the demise of public housing programs.They once played a critical factor is the construction of sufficient affordable housing to meet the housing needs to those whose incomes do not allow them to rent market rate apartments or buy single-family homes. During the depression of the 1930s, this group was considered to be the bottom quarter of the population.  They were priced out of housing market, and the country’s only solution was federally-funded public housing. 

At present over 2,000,000 people still live in public housing in the United States, but nearly all of this housing was constructed prior to the 1990s. Since then, Federal funding for public housing has nearly disappeared, and in California, local funding through Community Redevelopment Agencies also stopped when the California State Legislature dissolved these agencies in 2011. As a result, existing public housing is in dire need of repairs, similar to the need for new public housing to replace the loss of existing units and provide new affordable housing for those living on the streets, in over-crowded units, or paying more than a third of their income to put a roof over their heads.  

As for local initiatives, such as LA’s Measures JJJ and HHH, they are simply too small and too intricate to adequately address the city’s housing crisis. 

What are the actual zoning realities of Los Angeles? 

In the late 1980s, the California State legislature, through AB 283, required the City of Los Angeles to reconcile its zoning with its General Plan. This complicated labor-intensive process resulted in some areas being down-zoned to conform to the General Plan and some areas being up-zoned. When the AB 283 program ended in 1991, its planning staff concluded that LA’s then existing zoning could accommodate a city of 8,000,000 people, if it were fully built out. This zoning scenario included LA’s commercial zones, since they also permit by-right R-3 and R-4 apartment houses, as well as three of the city’s manufacturing zones, which allow by-right apartments. 

Several years later, the technical studies for the General Plan Framework Element’s confirmed the AB 283 analysis, but with a proviso. If the City's zoning capacity were fully utilized, the resulting buildings and population would vastly exceed the capacity of LA’s public services and infrastructure, as well as disrupt efforts to maintain a jobs-housing balance. 

“If all lands were to be developed with the uses at the maximum densities permitted, an unrealistic jobs/housing relationship would result and supporting infrastructure and public services would be unable to support this level of growth.” 

What is now needed is a recalculation of the distribution of land in Los Angeles reflecting the increased density that could be achieved by SB 1818 and Transit Oriented Communities voluntary inclusionary housing zoning bonuses. This would minimally allow the zoning capacity of all R-3 and R-4 parcels, as well as commercial and some manufacturing zones, to expand by up to 35 percent through SB 1818 and from 50 to 80 percent through Transit Oriented Communities density bonuses.  

This vast, untapped capacity for new housing is rarely used by developers, however, because their financial analysts have concluded they will not make enough profit. Since the by-right construction of new rental housing on LA's long, under-utilized transportation corridors is absent, there is little reason to believe that the construction of similar apartment houses in adjacent single-family neighborhoods would be significant.  

To begin, we know that the developers will not build affordable housing projects because they are money losers for them. Furthermore, up-zoning will inflate the price of existing homes because new construction at these sites will produce increased cash flow. This means developers will focus on even more upscale apartments and condos in these locations to maintain a high rate of profit, typically 15 percent. 

I assume that areas that are subject to rampant mansionization -- like Beverly Grove, the Wilshire and Pico corridors, Hollywood, and the south Valley – would witness scattered, expensive apartment houses replacing single-family homes. This is because these neighborhoods are centrally located and close to amenities and employment centers. But, most of Los Angeles would hardly experience a difference. After all, these areas already have existing zoning and density bonus program that allow by-right, six story market-rate apartment houses on transportation corridors, yet developers choose not to build them. Why would these same developers suddenly change their minds and build expensive apartment buildings several blocks away from commercial corridors, with restaurants, stores, and bus stops already in place? 

Conclusion:For those who want to truly address the housing crisis, not just use it as a pretext to promote market-rate real estate investments, Fulton’s analysis, extended to the issues of economic inequality and cutbacks in public housing programs, are the obvious issues for our intellectual and political energies.

 

(Dick Platkin is a former Los Angeles city planner who reports on local planning controversies for CityWatchLA. Please send comments and corrections to rhplatkin@gmail.com. Previous columns are available at the CityWatchLA archives.) Prepped for CityWatch by Linda Abrams.