New market rate housing disappearing in Los Angeles, city reports

(The Center Square) - Production of new market rate housing Los Angeles has almost entirely disappeared over the last four years, according to a new report from the city. While so-called “affordable” housing is promoted as a cure for the state’s high cost of housing, empirical research shows these homes only reduce costs for a select few, and increase the time to build and cost of housing for everyone else.

“In Fiscal Year 2023-24, a total of 22,623 proposed units were filed with [Los Angeles City Planning] for consideration. Of these, 16,458 units were proposed as deed-restricted affordable housing, representing 73% of all housing units submitted to the Department for entitlement review and approval. Over the same time period, a total of 17,556 housing units were approved, of which 10,588 units (or 60%) were deed-restricted affordable units,” wrote LACP in its annual report. “This represents a historic pattern reversal for the City Planning Department as the average share of affordable housing units proposed over the prior four-year period was 30%, and the average share of affordable units approved over the same time period was 24%”

Two recent changes in local policy are Los Angeles Mayor Karen Bass’s Executive Order 1, which expedites the permitting of 100% affordable housing and has been in effect since December 2022, and Measure ULA, a property transfer tax approved by voters in November 2022. Measure ULA was marketed as a “mansion” tax and is supposed to direct its revenue — property transfer taxes of 4% on buildings between $5.15 and $10.3 million, and 5.5% on those over $10.3 million, all on top of existing transfer taxes — to affordable housing and homeless services.

Notably, overall housing approvals have increased since the 14,636 average from 2013-2021, but critics note that the transition to government-regulated “affordable” housing from market rate housing could bring challenges in the future.

“ED1 Developers are putting 100% of their trust in [the] LA Housing Department and the rents they set,” said Los Angeles multifamily developer John Gregorchuk on X. “A single decision can swing the value of their building by millions of dollars.

Recently, Costco broke ground on its first store in South Los Angeles, and first store ever to have apartments on top of it — a move that policy experts say is because without the deed-restricted affordable housing, the Costco likely would have been impossible to get approved in the first place.

While ED1 encouraged developers to build “affordable” rental housing, Measure ULA similarly discouraged the construction of for-sale housing, reduced overall real estate sales volume, and has received the majority of its revenue not from the sales of expensive single-family homes, but of commercial and apartment buildings.

“Basically no housing is getting proposed in Los Angeles except for 100% affordable projects,” said Los Angeles Housing Production Institute director Joseph Cohen on X.

The measure raised approximately one fifth of the up to $1.1 billion in annual revenue its proponents said it would.