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Thursday, Feb 22, 2024

Storm Brewing On Affordable Housing Rules

Storm Brewing On Affordable Housing Rules By SHELLY GARCIA Senior Reporter Later this month, the city will hold the first of a series of public hearings on a controversial proposal that would require housing developers to set aside a portion of the units they build for those who can’t afford the market prices. Fasten your seat belts. Simple and noble as it may sound, so called inclusionary housing is likely to set off a firestorm of debate, pitting community groups against city officials and city officials against real estate developers. “The inclusionary housing issue is going to be extensively discussed and bitterly fought,” said Larry Kosmont, president of Kosmont & Associates Inc., a real estate consulting firm. “The reason for that is the housing industry feels the city’s fees and processing time for typical projects is already onerous enough. And if an inclusionary housing requirement is placed on top of that process, unless it’s done reasonably, it’s going to be hardily contested.” The problem is not inclusionary housing per se. It’s hard to argue with a policy that, simply stated, creates decent, quality housing for working and middle class households. The problem is who pays for these units. Developers say they can’t afford to provide such housing without some concessions or incentives from the city. Mostly, they say, they should get a break on development fees and they should be allowed to make the land they develop more productive by building more units on each parcel. That way, they can better amortize the cost of these lower-rent units. But community groups are not likely to agree to projects of increased density or height, and public officials have time and again shown a reluctance to fight such neighborhood opposition. Already lines are being drawn, with many public officials supporting an inclusionary housing policy and business and developer groups poised to fight it. “VICA does not believe any one sector should bear the brunt,” said Ira Handelman, a land use consultant specializing in government and community relations and co-chair of the Valley Industry & Commerce Association’s land use committee who adds that the agency has not yet issued its official position on inclusionary housing. “This is a major public policy issue and the burden should be shared among the public and private sector.” Simply stated inclusionary housing would require that a developer building market-rate housing, whether it be a rental, condominium or single-family homes, set aside some of those units, typically between 10 percent and 20 percent, for either very-low-income, low-income or moderate-income buyers or renters or some combination of the three. The units are often termed “affordable” because they are priced to comply with state and federal guidelines that suggest rents or mortgages should not exceed 30 percent of household income. Scarcity of housing The idea behind it is that the city’s housing stock is not keeping up with population growth, and unless something is done, particularly at levels deemed affordable to the majority of the workforce, there will not be enough housing to shelter the labor pool that fuels the economy. Workers will be forced to commute ever increasing distances, creating even more traffic congestion and decreasing productivity, and employers may look elsewhere to locate their businesses. City officials say they’re hopeful the details can be worked out in a public forum, which is set to begin this month when the Planning and Land Use Management (PLUM) committee and the Housing and Community Development committee convene the first public hearing bringing together experts in the fields of economics, public policy, housing and “anyone that has an interest in the issue of inclusionary housing,” said Jose Gardea, chief of staff to Los Angeles City Councilman Ed Reyes, the chair of PLUM. “That’s the beauty of public policy. It’s a discussion,” said Gardea. “It’s a dialogue, and what everyone agrees is affordability is about creating quality housing that allows for firefighters and teachers to afford a decent place to live.” But good intentions won’t pay for the cost of such housing. “It reminds me of when my kids were little,” said Jane Blumenfeld, the city’s principal planner. “They thought if we just put up a sign that says ‘no crime allowed,’ there wouldn’t be any crime. That’s a great idea when you’re four.” In fact, the issue is far more complex. When PCS Development was required to provide just four affordable units in a 120-unit development it built in Thousand Oaks, it cost the company about $3,000 a month in lost revenue. Over the five years PCS will be required to rent those units at below market value, the company figures it will spend about as much as it costs to landscape the property for nine years,” said Todd Shaw, executive vice president at PCS. And most developers don’t even have the luxury of turning the units back to market rent levels after five years. Reducing value Inclusionary housing typically requires the below-market rents continue for the life of the development, so the developer loses out not only on monthly income but on the value of the property when it’s sold. Say for example, a developer is building a 100-unit project and 10 percent of those units are offered under an inclusionary housing mandate, which would, for the sake of argument, set monthly rents at $1,000 under the rental rate of the other apartments in the complex. That translates to a decrease in operating income of $120,000 a year. And since the valuations for a complex are set as a percentage of the income that complex generates, the value of the project would be reduced by that amount. “That’s why we say it’s extremely expensive to subsidize,” said Lawrence A. Scott, vice president for development at AvalonBay Communities, which has built several developments with affordable components in the Los Angeles area. “It’s one thing on rent collection. The real impact is on the value of your asset.” Subsidies, tax credits and tax-exempt bond financing are already available for some types of affordable housing, but they often come with restrictions that can cancel out the benefit. For example, some state subsidies available for such construction also require developers to hire workers at living wages, set far above market wages. “You can’t give a developer assistance on one hand and trigger a 10 to 15 percent increase in costs on the other,” said Cliff Goldstein, a partner at J.H. Snyder Co., which is developing the Commons of North Hollywood, a mixed use project where 20 percent of the residential units will be affordable, with subsidies from the Los Angeles Community Redevelopment Agency. Developers say the city could help defray the cost of these units if it provided a break on development fees, which now range between 5 percent and 10 percent of the cost of a residential project. But the city counters that there is no wiggle room in those fees. “They’re only allowed to cover the cost of the work,” said Blumenfeld. “You can eliminate it, but somebody would have to pick it up.” Even density bonuses, which, theoretically at least, are available to developers who build affordable units, offer few solutions to the dilemma. The idea is that developers who add affordable units to their projects are entitled to build larger projects than the zoning regulations otherwise allow because of it. But local ordinances often override the density bonus options. And if they don’t neighbors likely will. “You already have laws on the books, density bonuses, tax-exempt bonds, and sometimes when other policies don’t work, it’s easier to put in a new policy rather than try to fix old policies,” said Handelman. “But in the end, the problems revolve around a couple of basic issues. Does it work financially for the developer? And in order to make it work, you need to have increased density, which leads to increased (building) height and traffic, which have the potential for neighborhood opposition. To make this work, they have to deal with those issues.”

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