Affordable Housing’s Challenge
Alice Salinas, Melanie Stephens and Sister Diane Donoghue are unlikely home builders who nonetheless have rehabilitated 108 housing units for low-income working people in Los Angeles.
The three are leaders of Esperanza Community Housing Corp., a nonprofit agency that is rehabilitating 40 more substandard housing units into family residences complete with day-care centers, laundry rooms and other amenities.
Esperanza--far from unique--is one of 140 nonprofit housing development groups bringing essential shelter and community services to Southern California, the region with the worst shortage of affordable housing in the United States.
Four working families are seeking affordable housing for every unit available in Los Angeles and Orange counties. The situation is not much better in San Bernardino, Riverside and San Diego counties, says Jan Breidenbach, director of the Southern California Assn. of Non-Profit Housing.
The mystery is why there should be a problem. If the region, in the midst of an economic boom, desperately needs more than 400,000 units of housing for its low-income working people, why aren’t developers seizing the opportunity to build them?
Because land costs are high and incomes are too low to pay market rents, so nothing pencils out for developers, says Wade Killefer of the Killefer Flammang Purtill architectural firm.
If housing for the working poor is built at all, it is done by agencies such as Esperanza, which are backed by tax-credit financing and funds from government and charitable foundations.
That doesn’t mean nonprofit housing is cheap. On the contrary, it’s very expensive in many ways.
The Budlong Apartments in South-Central Los Angeles are a good example. Esperanza, which is financed for the most part by charitable foundations, bought a rundown apartment building in foreclosure from Hawthorne Savings for $330,000 in 1994. The building had 30 derelict, single-room apartments, but only seven residents.
So Esperanza attracted federal funds and rebuilt the interior to produce 12 three- and four-bedroom family apartments. It also created a park across the street with a playground and a basketball court.
But the “ultimate cost” of the Budlong project, explains Salinas, who oversaw the work, was $1.2 million, most of it accounted for by the federal tax-credit program through which corporations, banks and to some extent wealthy individuals invest in a fund to make Budlong’s 12 apartments affordable for 55 years.
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That is, the investment fund enables the project to be rebuilt and then gains a tax credit equal to the difference between the $425-a-month that poor families pay and the ostensible $1,200-a-month rent that a three-bedroom apartment would bring at market rates. The building shows a loss for tax purposes, and that loss results in a tax credit for corporations.
It’s a convoluted way to finance housing, but then nobody using public money could do it more cheaply, Breidenbach points out. That’s because government financing stipulates that union labor be used on all construction work, adding 20% to 30% to the cost. Also, if a run-down building is demolished and a new structure put in its place, parking garages must be provided--in neighborhoods where many residents don’t have cars.
Questions abound. How did we get into this crisis? How do we get out of it? The problem goes back to the 1980s, when house prices rose in Southern California but little new housing was built. Neighborhoods shifted, and house prices outran the ability of poor working people to afford them. Only 47% of Los Angeles County’s residents own their homes, compared with 64% of Americans nationally.
In recent years, Los Angeles city government has cut back public expenditure on housing to use federal block grants for economic development. It was a rational choice--jobs were needed. That’s why the closed General Motors plant in Van Nuys was rehabilitated for industrial not residential development.
But the affordable-housing shortage has become acute, causing recruitment problems for employers and crime and other social problems for neighborhoods.
Changes may be coming. In Los Angeles, City Councilman Mike Feuer has launched a housing task force that is expected to recommend solutions at the end of January.
The recommendations should be bold. Developers such as Kennedy-Wilson, Kaufman & Broad and others need the city or state to clear land for affordable housing by declaring eminent domain. Such developers can work out deals to mix affordable housing with market rate units if land acquisition costs can be controlled.
Large-scale profit-making developers will be needed. The nonprofit agencies, even big ones such as the Los Angeles Community Design Center--which has developed 30,000 units over 30 years--cannot solve the housing shortage.
Solutions demand money. Los Angeles should create a $50-million housing trust fund, Breidenbach says. The state should reinstitute tax-exempt housing bonds, says architect Killefer.
All those suggestions are time-honored ways in which cities have generated housing for their working populations.
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Meanwhile, many of the nonprofit groups should be recognized for what they are: Multipurpose social service agencies that perform many tasks of modern society. There are now 6,000 such nonprofit housing groups across the United States.
Esperanza, for example, uses only one-fifth of its $500,000 annual operating budget directly for housing. The rest it uses to organize occupational training, health services and community improvements such as parks.
Management scholar Peter F. Drucker calls such nonprofit agencies “institutions essential for community.” They are certainly essential for Southern California--a region that has more work to do than it can handle.
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James Flanigan can be reached by e-mail at jim.flanigan@latimes.com.
