THE STATE : The Redevelopment Battle: Housing vs. Commercial Use

The bitter fight over the proposed development project at Vermont Avenue and 81st Street appears to have ended. Mayor Richard Riordan and Councilman Mark Ridley-Thomas, in whose district the project is located, have agreed on a proposal that permits housing in a “mixed use” development along the Vermont commercial corridor but reduces the amount of the city’s subsidy.

Yet, the question remains: Why did First Interstate Bank and Ridley-Thomas pursue a housing project along a commercial corridor? The long-term decline of retailing in South-Central has been one of the area’s biggest problems, affecting its quality of life and desirability as a place to live. The city’s record in fostering business has not been good. After the Watts riots in 1965, for example, the city quickly converted the burned-out 103rd Street commercial strip to high-density apartments--but took more than 20 years to put together the deal for the Martin Luther King Jr. shopping center.

One reason the Vermont project included housing was a matter of opportunity. Retail strips were hard-hit in the 1992 civil unrest. Afterward, both planners and developers targeted Vermont as a potential location for housing-retail projects. But, an equally significant rea- son is that housing is where the money for public subsidies lies. This is one of the most difficult facts of life that communities such as South-Central face as they strive to regain a healthy mix of housing, shops and jobs.

For decades, public policy aimed at stimulating investment in neglected neighborhoods has been based on the assumption that the biggest problem is housing. A whole economic infrastructure has been built up around construction of low- and moderate-income housing in such areas--an infrastructure that, to date, has not been duplicated in other sectors of the real-estate market, like retailing, office and industrial.

When urban-renewal efforts first began during the postwar years, their main goal was to replace “slum” dwellings with “decent” housing as a way to alleviate social problems. The fear among policy experts was that redevelopment would neglect housing in favor of glitzier hotel, office and retail projects.

Which is why California’s redevelopment law requires that 20% of redevelopment funds be “set aside” for low- and moderate-income housing. When originally passed in the ‘70s, the law was designed to end Bunker Hill-style abuses, where low-cost housing was razed and replaced with high-priced offices and hotels. But it has resulted in a constant flow of public dollars into low- and moderate-cost housing projects around Los Angeles. The current Community Redevelopment Agency budget, for example, allocates $90 million--23% of its total budget--to such housing.

Similarly, when Congress reformed the federal tax code in 1986, virtually all real-estate tax shelters were removed--except the low-income-housing tax credit, which benefits wealthy individuals and corporations that invest in such housing projects. Although the low-income-housing tax credit is currently under attack in Congress, it has historically been an easy sell to politicians and financial institutions, and is a staple of affordable-housing construction deals, further stimulating investment in such projects. (The Vermont project originally included such tax credits, but they were removed when the developer changed the project in hopes of mollifying neighborhood concerns.)

As such funding sources became available, community groups around the country began to take advantage of them. In city after city, onetime protest groups “crossed over” and became nonprofit developers, seeking to stabilize and improve their neighborhoods by backing construction projects.

Community nonprofits focus on housing projects not only because of public subsidies, but also because, once constructed, they are likely to be financially successful. In a city with so many people of modest means, there is never a lack of customers for affordable housing. As long as the deal is properly put together, the low-income tenants will always have an affordable place to live, the nonprofits will always continue to manage it and the investors will always make their profit. Retail and other business-oriented projects are not such easy successes, for there is far more to making a business successful, in any location, than simply providing the building that houses it.

Since the civil unrest of 1992, Los Angeles has seen a huge commitment of public and private investment capital in South-Central, especially to boost retailing and local jobs. Most recently, Wells Fargo announced a $45-billion plan, under the federal Community Reinvestment Act, to make loans in neglected neighborhoods throughout the West. (Contingent on the bank’s merger with First Interstate Bank.) Some of this investment is producing new supermarkets and similar businesses. In general, however, these commitments do not automatically translate into new commercial buildings along the devastated commercial strips of South-Central.

Businesses are far more footloose than people living in homes or apartments. A successful retail business can change locations, and customers will follow--especially if they can easily drive to its stores. Similarly, an industrial business located in South-Central can jump the Alameda Corridor and find a similar industrial neighborhood--often at a cheaper price--in a city like Vernon. (This phenomenon, in fact, has been one reason the city-county Watts enterprise zone has had only mixed success.) Simply put, on an affordable-housing project, construction of the building is the end of the business deal. With retail, commercial or industrial buildings, it’s the beginning.

Successful businesses will improve the neighborhoods where they are located. So the huge amount of money slated for business loans--the Wells Fargo package contains $25 billion just for small-business loans--will inevitably help South-Central and other neglected neighborhoods where the money will be invested. But it’s important to understand that, where bricks and mortar are concerned, it’s far easier to cut a ribbon for a housing development than for a retail or commercial project.

Often that’s good--it sends a signal to other investors that money is flowing into the neighborhood. But, in the long run, bringing South-Central back will require a sophisticated and sustained effort at true “community development”--which recognizes that business success comes from years of hard work, not just the quick fix of a development deal.*