California’s housing crisis is a product of scarcity. For decades, our state and the Los Angeles region have allowed too few homes to be built, especially in transit- and job-rich areas, causing a toxic brew of escalating rents, displacement, segregation by race and income, and homelessness. The housing shortage is particularly acute among lower-income households; last year, 40% of L.A. County households with very low incomes (earning <50% of the area median income) spent more than half their income on housing.
To fully address the need for housing that is affordable to lower-income families, we should first know how large the need is. Governments and policy analysts have reached different estimates of L.A. County’s affordable housing shortfall. Here, we’re defining “affordable housing” as homes that cost less than 30% of monthly income, for households earning <80% of AMI.
Through the Regional Housing Needs Assessment process (RHNA), the Southern California Association of Governments (SCAG) has instructed the cities of L.A. County to plan for 341,000 homes by 2030 that are affordable to very low income (<50% AMI) and low income (50-80% of AMI) households. The California Housing Partnership recently estimated that L.A. County needs 500,000 more affordable homes, just to meet the needs of very low income households (<50% of AMI).
Abundant Housing LA estimates that L.A. County has a deficit of over 700,000 homes that are affordable to very low income (<50% AMI) and low income (50-80% of AMI) households. This estimate is based on SCAG’s methodology for determining cities’ RHNA targets, with adjustments to reflect full housing needs. Here’s how we arrived at this estimate:
- First, we estimated that 2.7 million more homes are needed throughout Southern California, across all income levels, in order to fully eliminate household overcrowding and rent burden.
- Then, we allocated the regional total across individual cities, based on their housing costs, access to jobs, and access to transit. This allowed us to estimate each city’s total housing need. This allocation is similar to SCAG’s methodology for distributing the RHNA across Southern California’s cities.
- Finally, we applied SCAG’s percentage breakdown of individual cities’ housing needs by income bucket to our city-level estimates. This allowed us to forecast each city’s housing need by income bucket.
Producing 700,000 homes would be expensive under any circumstances, but is particularly pricey in California because of the high cost of land, labor, and construction materials, as well as fierce neighborhood opposition to new affordable housing. Assuming an average per-unit cost of $420,000, it would cost nearly $300 billion to construct 700,000 units of affordable housing, or $37 billion per year throughout the upcoming 8-year RHNA planning cycle. This spreadsheet contains additional detail and sourcing for this estimate.
Everyone has the right to affordable housing that meets their needs, and so it is crucial that our leaders commit to producing this affordable housing. To that end, Abundant Housing LA is calling for $100 billion per year in state funding for housing.
While governments must play a major role in funding affordable housing production, they can’t meet this need alone. Even if local, state, and federal governments were to fund 20% of the capital costs for affordable housing, relying on nonprofit and private capital for the remaining 80%, the cost to governments would still be $60 billion, or $7.5 billion per year. As a point of comparison, the L.A. County annual budget is $35 billion, and the City of Los Angeles has proposed an annual budget of $10.5 billion this year. Unfortunately, the COVID-19 related economic downturn has put additional pressure on government budgets; the City of Los Angeles is close to declaring a fiscal emergency.
Given these significant challenges, an ambitious, “all of the above” policy strategy is needed in order to build 700,000 more affordable homes throughout L.A. County. Local and state governments should raise new revenue sources and create housing on municipally-owned property, while also implementing major land use reforms and supporting efforts to reduce the astronomical cost of building housing.
An “all of the above” effort should include:
- Raising revenue by fairly taxing homeowners – Because of Proposition 13, which caps property taxes at an artificially low level, and the state mortgage interest deduction, California’s tax system is skewed in favor of homeowners and other property owners (who tend to be wealthier than average). Eliminating the mortgage interest deduction, introducing a transfer tax on the sale of property, and passing Proposition 15 this November (which would tax commercial properties at their fair market value) could raise billions in new funding for affordable housing production.
- Producing housing on city and county owned land – The City of Los Angeles alone owns 111 parking lots, many of which are located in vibrant neighborhoods with strong demand for new housing. Local governments should donate some parking lots and other public land to affordable housing nonprofits, which will reduce the cost of producing affordable housing. Local governments should also lease other parking lots to builders of for-profit housing, in return for an annual payment. This will create more housing overall, while also generating a stable revenue stream that can directly finance affordable housing production.
- Major land use and zoning reforms – It is illegal to build anything other than a single-family home on 75% of the residentially-zoned land in the City of Los Angeles. This ban on apartments greatly limits opportunities for affordable housing production, while also perpetuating historical patterns of exclusion. Cities must legalize apartments, especially in high-opportunity neighborhoods, and introduce density bonus programs (which allow taller apartment buildings in return for setting aside some units for lower-income households). This will directly create homes, both market-rate and deed-restricted affordable, at no cost to local governments.
- Reducing building costs – High and fast-rising building costs are a major obstacle in affordable housing production. Earlier this year, the Terner Center at UC Berkeley found that the cost per square foot of building affordable housing in California had risen 30% between 2016 and 2019, and that average development costs were the highest in the nation. Faster permitting, simpler financing structures, elimination of on-site parking requirements, and elimination of local development fees would all reduce the cost (and speed up the construction) of affordable housing development.
With an affordable housing gap this large, Los Angeles County can’t afford to tinker around the margins. The road to 700,000 more affordable homes starts with a commitment to bold, transformative solutions from our policymakers.
