LA'S REAL ESTATE INDUSTRY KEEPS CRYING WOLF: WILL POLICYMAKERS KEEP LISTENING?


Photo Credit: Alex Visotzky. Councilmember Marqueece Harris-Dawson speaks at an 8/22 press conference in front of City Hall, flanked by Councilmembers Mike Bonin, Jose Huizar, and advocates from the Coalition for a Just LA.

“They’re going to tell you that the sky will fall. The sky will not fall.” LA Councilmember Marqueece Harris-Dawson was at the microphone at an August 22nd press conference at City Hall just before a City Council hearing on Los Angeles’ proposed linkage fee to fund affordable housing construction and preservation. Harris-Dawson, a first-term Councilmember, was perhaps new to the refrain from the development community. But advocates fighting battles for tenant protections, inclusionary zoning, and labor standards on new construction have heard it all before, the warning that any new fees or building standards will kill housing production and ultimately spell doom.

For LA’s most vulnerable residents, the worst is already here. The region’s Homeless Services Authority estimates that over 34,000 people are homeless every night, while other estimates suggest the number is possibly far higher. Another 567,000 renters in the city are at immediate risk of homelessness. A larger fraction of LA’s renters are paying over half their income on housing, more than in New York City, San Francisco, or Oakland. Despite Southern California’s long-time boosterism and peddling of the American dream of open space and a single-family home with a front yard, it has some of the most overcrowded housing conditions in the country, as more and more families double and triple-up to keep off the streets.

And yet Los Angeles has no fixed local source of funding for affordable housing. In part, this is a result of Governor Jerry Brown’s dissolution of local redevelopment agencies in 2011, which allowed local jurisdictions to use tax increment financing for affordable housing. But even when those agencies were in place, local policymakers have all too often believed the real estate industry’s story that any new regulation will cause the sky to fall. It’s a convenient belief, in a city where real estate developers fuel Councilmembers’ re-election campaigns, and nearly half of sitting Councilmembers are veterans of the State Assembly and Senate in Sacramento, where the California Association of Realtors and the California Building Industry Association wield enormous influence and deep coffers.

"Local policymakers have all too often believed the real estate industry’s story that any new regulation will cause the sky to fall."

Los Angeles’ linkage fee, proposed initially by Mayor Eric Garcetti in 2015 and recently approved by the City Council’s Planning and Land Use Committee, would create permanent funding for the city’s affordable housing trust fund paid for by a per-square foot fee on market-rate residential and commercial construction. The fund would make loans and grants to nonprofit developers for the production and preservation of housing units affordable to low- and very-low income people. In order to find a fee level that won’t slow housing production or significantly raise rents, the City of Los Angeles’ Planning Department hired an economics firm to conduct a nexus study to determine the need to mitigate the impacts of new development that creates low-income jobs that don’t allow workers to afford market-rate housing, followed by a feasibility analysis to establish appropriate fee levels that wouldn’t hamper the creation of new housing or significantly raise market rents. The analysis outlined an array of financially feasible fees, though far below the levels needed to mitigate the impact of new development and meet the housing needs identified by the nexus study.

An image from weneedhousing.org, an anti-linkage fee website set up by the Building Industry Association of Los Angeles and Ventura, which lobbies for the interests of for-profit developers.

Another image from weneedhousing.org, an anti-linkage fee website set up by the Building Industry Association of Los Angeles and Ventura, which lobbies for the interests of for-profit developers.

Despite policymakers’ careful design and analysis of the Linkage Fee’s potential impacts on the local housing market, proponents remain concerned that it could suffer the same fate as affordable housing policies before it, languishing in committees or experiencing death by a thousand exemptions. The fear of hampering development has fed paralysis on past proposals that promote affordability, anti-displacement or no-net-loss requirements on new development. When Councilmember Mitch O’Farrell proposed a value capture program in 2014 to require developers who upzone to set aside a portion of units that were affordable, the policy languished in City Council, prompting endless referrals between committees and continued “study” of the issue. It wasn’t until a coalition of housing advocates and labor unions lost patience with the City Council and gathered signatures to place a value capture policy on the 2016 ballot (Measure JJJ, which passed overwhelmingly) that LA finally moved forward with affordability requirements on upzoning.

Angelenos wondering why the city has been so slow to address arguably the worst housing crisis in the country should understand that this policy paralysis is not fed by careful consideration of the research or a rational fear of disturbing a fragile development market. It is fed by real estate cash. Key Councilmembers have been beneficiaries of the real estate industry’s largesse in their reelection campaigns and have served their donors accordingly.

"The fear of hampering development has fed paralysis on past proposals that promote affordability, anti-displacement or no-net-loss requirements on new development."

Real estate interests win at the state level as well. The California legislature has passed laws to ban the application of rent control on new development (the Costa Hawkins Act of 1995, which advocates are seeking to repeal) and to create loopholes for landlords to evict rent-controlled tenants and demolish their units to build new, decontrolled units (the Ellis Act of 1985). The regulation boogeyman has found a true believer in Governor Jerry Brown, who vetoed legislation to give municipalities the ability to enact inclusionary zoning laws. Brown spent 2016 and 2017 holding affordable housing spending hostage and only signed on to a package of housing bills after pushing forward a bill to ease environmental and community review for new development.

So it comes as a welcome step forward that members of the Los Angeles City Council’s Planning Committee pushed through the paralysis and voted to forward a draft affordable housing linkage fee at an October 10th, 2017 hearing. The committee instructed the City Attorney to draft a fee ordinance with a range of fee levels depending on the local market--the fee could produce $114 million annually and over 10,000 affordable units over the next decade, which would more than double the city’s affordable housing production.

But that assumes no major exemptions or delays to the fee, which is not the case.

Jose Huizar, the chair of the Planning Committee, added an 11th hour exemption to the fee for developers of projects using transfers of floor area rights (TFAR) in his downtown district, an olive branch to the Central City Association, a lobby of downtown developers. Projects that use the TFAR program are the biggest, most lucrative developments in the district. The Councilmember argues that these projects already make public benefit payments when using the TFAR program; which is true, but the “public benefit” recipient of these payments is his own “Bringing Back Broadway Initiative,” a gentrification machine that is “revitalizing” downtown Los Angeles with a streetcar and commercial development while offering little to the neighborhoods’ thousands of homeless residents.

A pro-linkage fee meme from Coalition for a Just LA, a group of housing advocates from across the city.

Curren Price, a former Sacramento Assemblymember and Senator who now represents South LA on the City Council’s Planning Committee, added an exemption for commercial development in the South Los Angeles Promise Zone. These exemptions are not merely abstract or theoretical ideas--each exemption will lead to a concrete number of families who do not benefit from stable housing units that could have been built without these cut outs, while giving carte blanche to the development that is feeding instability.

Mitch Englander, who has taken tens of thousands of developer cash in the past, voted to spike the fee entirely. Gil Cedillo, another Sacramento veteran and chair of the City Council’s Housing Committee, is threatening to bottle up the proposal in his committee. He has refused to publicly support the fee. When faced with a tough re-election fight early in 2017, Cedillo was bailed out by real estate cash.

These exemptions and delays fly in the face of the City’s nexus study and other rigorous research that affirms that this fee will not slow development or significantly raise rents, with the costs of the fees being absorbed in the short-term by a slight reduction in developers’ hefty profits. In the long term, costs like this are absorbed by slowing the inflation of land values over time. These amendments and delays continue to prop up the boogeymen.

The City Council has admitted that developer contributions buy influence over policy decisions. When a NIMBY-backed group gathered signatures and placed Measure S on the March 2017 ballot, threatening to freeze most new real estate development, the City Council put forward two campaign finance reform proposals to try and placate Measure S supporters, who decried a “pay to play” culture of corruption at City Hall. One of the reform measures would have banned developer donations outright, and another would have created a system of publicly-financed campaigns for City Council races. After Measure S was resoundingly voted down, cynicism was justified when the campaign finance measures suddenly stalled.

The city is at a crossroads. It has the opportunity to strongly commit to equitable development policies and demonstrate a better way of development, with the goals of alleviating the suffering of people experiencing homelessness or those barely avoiding homelessness in lieu of merely maximizing profits and building as many unaffordable spires as possible. A strong affordable housing linkage fee, while hardly a panacea, would be a strong step forward.

Los Angeles must choose now. The region is in the early phase of a development boom being accelerated by policymakers. The 2028 Olympic games, new stadiums for the Rams, Chargers and Clippers, a burgeoning Metro build-out, and the passage of state legislation to ease development standards are just some of the forces ushering more investment into Los Angeles and its gentrifying neighborhoods. The City Council needs to leverage these forces while it still can and use them to create and preserve as much affordable housing as possible. A well-crafted and strong linkage fee alone probably won’t accomplish these aims alone. But it is a good start, and it is clear that the status quo is not working. If you’re not convinced, you don’t need to walk far from City Hall to see why it’s worth a try. Two blocks north, where the 101 Freeway passes under Spring Street, the line of tents and tarps pay homage to the compassion and efficacy of developer-driven policymaking.

Alex Visotzky is a Los Angeles-based policy analyst. He has worked for community-based housing organizations across the LA area, most recently for Neighborhood Housing Services of Los Angeles. He serves as the Chair of Bend the Arc’s Housing Justice Committee. He completed a Masters in Public Policy at the University of Southern California, where he worked as a research assistant for Dr. Raphael Bostic, former Assistant Secretary for Policy and Research at HUD.

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