Chris Busco: LA should increase incentives for developing affordable housing

If Los Angeles is going to solve its affordable housing crisis anytime soon, it’s on the wrong track. A lack of incentives for developers have left the cities’ supposed solutions with largely lackluster results.

LA is home to one of the most expensive housing markets in the nation, a fact that hits cash-strapped college students especially hard. UCLA students in particular experience high rent and cramped living spaces firsthand. But Westwood’s exorbitantly high rents are only a small symptom of LA’s affordable housing shortage.

Last week, LA’s city controller released an audit criticizing the city’s “density bonus” program for “not living up to its potential.” For reference, the program allows developers to build up to 35 percent more units in their developments if they price a certain proportion of the units affordably – that is, priced at rates easily affordable to low-income residents.

While the city has tried to entice developers to create more affordable housing, these efforts are falling flat. LA must create greater incentives for developers to build affordable housing if it is serious about tackling the housing shortage. And it can do so by allowing more developers to benefit from the city’s density bonus program.

It’s no secret the city sorely needs more affordable housing. According to 2010 census data, 45 percent of LA households were classified as low- or very low-income. The city’s median per capita income has only risen slightly since then, and last year there were over 80,000 homeless people in the county on any given night.

The city has tried to incentivize developers to build more affordable housing units. Proposition JJJ, a city measure passed in November that requires developments to include affordable housing in exchange for a special permit to build large developments, offers hope to the situation. However, it’s clear this isn’t enough.

The city controller’s audit found only about 7 percent of affordable housing units that took advantage of the density bonus incentives from 2008-2014 were created in mixed developments composed of affordable and full-priced housing. The rest of the units were in developments composed entirely of affordable housing. This is significant because it indicates a lukewarm response from developers to the incentives. It also indicates LA is shockingly behind schedule in its goal of reaching 15,000 new affordable housing units by 2021.

“Most market-rate projects are not taking the density bonus because it’s not big enough,” said Paavo Monkkonen, associate professor of urban planning at the UCLA Luskin School of Public Affairs. Monkkonen added the density bonus program is “not giving developers enough incentives to build affordable housing.”

The way the current program functions, developers can add more units than would normally be allowed if they affordably price a certain percentage of them. The percentage that must be set aside for affordable housing is based on a variety of factors, including what price the rent is capped at. It is clear from the audit only a small portion of developers believe the current incentive outweighs the costs associated with the affordably priced housing units. While these developers get to build more full-priced units, they have to cap rent on a portion of those units. And because the cost of construction of market-based projects is more expensive than that of affordable housing projects, this additional cost can deter developers.

However, there are steps the city could take to alleviate the low rate of participation among developers. They can lower the thresholds for the density bonus. Essentially, this would allow developers to have an increased number of full-priced additional housing units per affordable housing unit they add. A lower threshold would entice more developers to take advantage of this program because additional profit from extra full-priced units would more than offset the affordably priced ones. Additionally, LA has room to develop. A recent study by McKinsey found there is room for 225,000 new homes and apartments in vacant lots mostly concentrated in LA and San Francisco.

Certainly, lowering the density bonus threshold could reraise concerns of possible out-of-control development. However, this would not be the case. Up until now, the effects of this program have been underwhelming. Enticing more developers to take advantage of it would allow it to be actually effective, providing a boon to both affordable housing and housing affordability in general. Furthermore, the economic benefits of increased access to housing certainly outweigh the risks of overdevelopment. The McKinsey study also found high housing costs end up costing California $140 billion a year of economic output.

Because 60 percent of UCLA alumni stay in the greater LA area after they graduate, affordable housing directly affects Bruins. If LA wants to continue to retain young, professional talent, it needs to start properly incentivizing developers to build affordable housing.