A Nonprofit Developer: The Free Market Is Unlikely to Provide
While much attention has been paid to the city’s housing crisis, too little attention has been given to the barriers that block the solutions to the crisis.
The dimensions of the crisis are clear. According to a recent report by the Southern California Assn. of Governments, citywide demand for affordable housing is about 3,700 units per year. However, in any given year only about one-quarter of this number will be produced. For example, only $32 million was allocated in the city of Los Angeles in 2000 to build or rehabilitate affordable housing. Although this represents the largest single-year allocation in city history and may seem like a lot of money, it will produce about 1,280 units, only slightly more than one-third of the number required annually. On average, the yearly allocation is closer to $20 million, which results in about one apartment being built or rehabilitated for every four needed.
The principal causes of the crisis--population growth and high land costs--show no signs of diminishing. According to experts at the UCLA Anderson School, increases in population in Los Angeles County will continue, fueled by migration from other states and foreign countries, as well as increasing births from the echo effect of the baby boom, as boomers become grandparents. This growth is largely Hispanic and much of it is in the San Fernando Valley. Homeownership will remain too expensive, and renting will be the only viable option for most of these growing families.
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Further, rents have increased significantly in recent years, outpacing the earning capacity of many. The result is severe overcrowding, with families doubling or even tripling up in studio and one-bedroom apartments, converted garages and even trailers to keep a roof over their children’s heads. With the UCLA Real Estate Center predicting high single--or even low double-digit annual rent increases in the years ahead, the housing crisis will only deepen.
Some suggest that the free market will respond and provide the needed housing. This is unlikely. For-profit developers of multifamily housing cannot turn a profit on the larger units needed by many poor families. These projects simply do not “pencil” without government financing to bridge the gap between high land costs and the low rents these families can afford.
Not-for-profit groups are one of the answers to this crisis. Since 1993, the nonprofit organization I chair, Neighborhood Empowerment and Economic Development Inc. (NEED), has rehabilitated six earthquake-damaged buildings, creating 132 affordable apartments. We are currently rehabilitating 38 units to create housing for victims of domestic violence, and within two months we will have under construction a total of 104 new affordable three- and four-bedroom units in the northeast Valley. However, NEED and other nonprofits clearly will only meet a small part of the demand.
Even carrying out our mission as nonprofit builders is a daunting task because of the prejudice of some residents toward this type of housing. Many affordable housing projects have faced loud opposition from neighbors who unrealistically fear the concentration of low-income residents in or near their neighborhoods. This opposition arises despite the fact that our future tenants are frequently already living and working close to where the projects are sited.
Another barrier to addressing the housing crisis is the absence of private-sector participation. To counter high land costs and low attainable rents, government needs to provide financial incentives--including higher developer fees--to attract the bright minds and business savvy of the private sector to this market. To make it “affordable” for the private sector to build affordable housing, the city also needs to relax some of its zoning rules to allow greater density in some instances. For example, the city could rezone business districts to make it easier to get approval for mixed-use projects and increase density on some residential parcels to allow multiunit construction.
Unless these barriers--lack of funding, high land costs, rigid zoning regulations, prejudice and the absence of a private-sector stake in the affordable housing market--are addressed, Los Angeles will fall deeper into the crisis. The resulting crowded and unhealthy living conditions for thousands of families will be neither humane nor conducive to the progress of the rest of our society.
