Apartment Shortage Leaves Poor Out in Cold

The San Fernando Valley emerged as a bastion of modestly priced single-family homes after World War II, when developers rushed to meet demand created by returning GIs.

Housing experts today say the Valley’s changing population and tightening rental market point to a different need--for modestly priced apartment units. But this time, developers are having trouble rising to the challenge.

High land costs, opposition to low-income units and the repeal of generous tax write-offs in the 1986 Tax Reform Act make it difficult to justify apartment projects, developers say.

“It’s almost as if, even if you got the land for free, you couldn’t make the rents work for low-income tenants,” said apartment broker John P. Walsh of Sherman Oaks-based John P. Walsh & Co. “That’s why all the developers are building luxury apartments.”

Walsh said the difficulty of building low-income apartments profitably is illustrated by the hard time he’s had selling a vacant three-quarter-acre parcel at Van Nuys Boulevard and Vincennes Street in Pacoima.

Building a 42-unit complex on the site, which has been approved by the city of Los Angeles, would cost nearly $3 million, Walsh estimates. At that cost, a builder would have to charge at least $800 a month for a one-bedroom apartment just to break even, he said.

The problem, he said, is that renters in that neighborhood can generally only afford $550 a month for a one-bedroom place and $650 for two bedrooms.

Countywide, construction of apartments and condominiums peaked at 52,969 units in 1986 and dwindled every year afterward until reaching a nadir of 3,005 units in 1995, according to the Burbank-based Construction Industry Research Board. Apartment construction has climbed gradually since then but only to about 5,000 units per year.

The upshot is that few apartments are being built today that low-income families can afford because low-income apartments “just don’t pencil out” for developers, said Kathleen Head, a principal at the Los Angeles office of Keyser Marston Associates Inc., a real estate consulting firm.

Most of the new apartments in the Valley and elsewhere in Los Angeles County are luxury units typically renting for well above $1,000 for a one-bedroom apartment and considerably more for two- and three-bedroom units--well beyond the means of low-income renters.

Beyond the economic obstacles, apartment construction in general often faces political and neighborhood hurdles, even when projects are economically feasible.

Cities in general discourage apartment construction because they view residential development as a drain on city services, Head said. And nearby homeowners often fear that apartments will lower property values.

In last year’s 7th District City Council race in the northeast San Fernando Valley, candidate Corinne Sanchez said she would consider such a ban if she won. Sanchez lost to Alex Padilla, who said he saw no need for a moratorium.

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“We’re in for a housing crunch at all levels, whether it be low-income or other income levels,” said Padilla, whose district includes areas that are expected to be affected most by population growth. “There is an overcrowding already and higher [population] density than there is in the rest of city.”

With few new projects being built, the vacancy rate for apartments is now below 3% in parts of the Valley.

The demand for low-cost housing is rising in large part because poor immigrants are pouring into Los Angeles, especially into certain Valley neighborhoods, according to Stephen Cauley, associate director of the real estate center in the Anderson School at UCLA.

“In Los Angeles County, a big part of the demand now and the lion’s share of the demand for low-income housing in the future is going to be in the San Fernando Valley,” Cauley said.

A study Cauley published last year said some of the highest population growth rates, increases of up to 13% between 1998 and 2003, is occurring in “the blue-collar areas of East L.A. and the northeastern San Fernando Valley.”

Much of the Valley’s growth is expected to come from Latino immigrants with large families, Cauley said. He and others who study the region’s housing needs say that demographic trends suggest the most pressing need will be for low-income apartments because single-family homes are priced far beyond the means of low-income families.

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Housing officials say continued growth in the low-income population, without construction of new units, will only exacerbate existing conditions.

“Los Angeles already has a substantial overcrowding problem,” said Garry Pinney, general manager of the Los Angeles Housing Department.

A Housing Department study found that 16% of the approximately 191,000 households in the city are “severely overcrowded,” Pinney said. Severe overcrowding is defined as 1.5 persons per room, based on a count of all the rooms in an apartment, and it typically results in situations like seven people living in a two-bedroom apartment, Pinney said.

The Housing Department doesn’t have separate figures for overcrowding in the Valley, but Pinney said the condition exists in all areas of the city, especially in areas where large numbers of immigrants are settling.

Shirley Svorny, director of the San Fernando Valley Economic Research Center at Cal State Northridge, does not view the situation with alarm--saying the shortage of cheap housing reflects good economic conditions in the Valley.

“Whenever you have that, it’s harder for poor people to afford the housing,” Svorny said. “People are still moving here, which I view as a sign that they find the conditions here preferable, relative to opportunities where they came from. When they stop moving here, it will mean that housing prices are too high relative to job opportunities.”

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But UCLA’s Cauley cautions that the lack of housing for people earning modest incomes is another sign that the Valley and Los Angeles as a whole are turning “into a more unequal society.”

“The middle class is leaving Los Angeles,” he said. “You have a new group of highly educated young people here, but you don’t have people working at the GM assembly plant . . . or all of those who were employed in the aerospace industry. What we are heading toward is a society of highly educated, high-income and a lot more poor people with a smaller middle class. There is going to be more housing demand at the top and bottom ends of the market and less in the middle.”

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The Valley’s Tightening Rental Market

Vacancy rates skyrocketed in the San Fernando Valley after the 1994 Northridge earthquake because so many damaged units had to be vacated, according to the Los Angeles Housing Department. But now that more than 98% of the 65,000 seriously damaged residential units--most of them apartments and condominiums--have been repaired, the market for rental property is shrinking.

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Source: Los Angeles City Housing Department