Has LA cracked the code for building affordable housing?

A promising new program shows the way to mass produce unsubsidized housing that’s affordable to the middle class

In a housing emergency, the “scale” of affordable housing developments shouldn’t be a NIMBY veto point. (AIDS Healthcare Foundation)

Los Angeles might have just stumbled into one of the biggest affordable housing success stories in recent memory.

In one of her first actions as mayor, Karen Bass signed an executive directive that allows 100% affordable housing developments to be fast-tracked and super-sized. A little over a year later, that program, known as ED1, appears to be succeeding well beyond anyone’s expectations.

Ben Christopher of Calmatters has the scoop. Since December 2022, more than 16,000 units of deed-restricted affordable housing have been proposed through ED1. As many as three quarters of those homes will be built without any public subsidy. Profit-seeking private developers are choosing to build income-restricted projects — sometimes in lieu of already approved market-rate projects — because of the dramatic time savings and density increases they can unlock using this law.

It’s still early days, but these initial results are very promising. LA managed to roughly triple its pipeline of affordable housing — approving more units through this program in the last 13 months than all affordable housing approved in previous three years combined — without dedicating any additional subsidy. It did so by treating affordable housing as the emergency that it is, casting aside building codes and permitting processes that work against the city’s housing needs.

There are a bunch of interesting takeaways from this ongoing experiment:

The housing crisis of the middle class is largely self-inflicted.  

First off, it’s important to note that most of the affordable homes being built through ED1 are not going to be affordable to the lowest-income residents. This is going to be middle-income housing, affordable to those making up to 80% of the area median income. A single person making $70,000 would qualify for a one-bedroom for about $2,000 per month. A family of four making $100,000 would qualify for a three-bed for about $2,500.

ED1 is not going to end homelessness in LA. (Though some non-profit developers — including the AIDS Healthcare Foundation, which spends millions of dollars advocating against housing policies like ED1 — are using the law to build affordable housing for the formerly homeless.) Government subsidy will always be required to provide decent housing to the people at the bottom of the income distribution. ED1, or programs like it, shouldn’t distract from the need for more public spending on deeply affordable housing.

But this program should demonstrate that scarce housing subsidies need not be wasted on the middle class. When given the opportunity to construct simple, high-density apartment buildings, developers can profitably offer brand new housing that’s affordable to the average person. That’s how healthy housing markets work. That this feels like a major revelation shows just how screwy California’s housing policy has become.

Housing clearly has an everything bagel problem. If we want cheap housing, fast, we need to rub off all of the extra toppings.

Plain bagel housing that looks the part.

There are dozens of building code (not just zoning code) requirements that add cost and complexity to housing projects in cities like LA. Street trees, front setbacks, off-street parking, roof decks, façade articulation — these are nice to haves, yet LA requires these features in many cases.

Without these goodies, some ED1 buildings will be ugly. Some will be poorly designed.  Just about all of them, by definition, will be “out of scale” with their surroundings. (LA housing activist Joe Cohen has a great thread of renderings of ED1 projects.) I personally think all of that is ok. A housing emergency is no time for aesthetic perfection. LA, like San Francisco, is finally acting like it.

ED1 illustrates the flaws in the traditional affordable housing sector

In 2017, LA voters approved a bond measure dedicating $1.2 billion for the construction of 10,000 homes for the formerly homeless. Those homes have taken way too long and cost way too much to build. On average, homes built through the program cost around $600,000 per unit, and take about three years to build.  That’s partly because of all of the aforementioned everything bagel toppings, and partly due to the complex combination of financing sources that affordable housing developers need to pull together. Time, uncertainty, and bureaucracy make these projects more expensive than they should be.

The for-profit developers using ED1 are, in all likelihood, spending a lot less per unit, perhaps as low as $200,000 per unit. It would be worth studying how they are getting their projects to pencil out.

Online commentators have pointed out that some of these for-profit developers are said to be targeting Section 8 tenants. Therefore, these projects will, in a sense, be subsidized. Even if every for-profit ED1 developer were pursuing this strategy, which I doubt, I don’t see why that would be problematic. The number of Section 8 vouchers is fixed, and doesn’t come at the expense of other affordable housing funding programs. Plus, it’s notoriously difficult for Section 8 voucher holders to find willing landlords in LA, such that thousands of vouchers go unused. A huge infusion of brand new apartments targeting Section 8 tenants would be a boon for voucher holders. Indeed, if housing assistance were ever to become an entitlement, as it should be, there would need to be a massive increase in the supply of rental housing with willing landlords.

The cult of the single-family home will continue to reduce the effectiveness of this law.

Initially, ED1 was written such that it could be applied virtually anywhere housing is allowed in Los Angeles, including single-family neighborhoods. A handful of projects were quickly proposed in single-family zones, many of them in the San Fernando Valley. Following a NIMBY outcry, Mayor Bass subsequently tweaked the policy to exempt these areas. Now, more than 1,400 units of affordable housing are in legal limbo.

In addition to exempting single-family home areas, which cover roughly 70% of the city’s residential land, LA leaders are poised to decrease the program’s effectiveness even further. The permanent version of the legislation being debated by the city council would limit the number of breaks from arbitrary building code requirements that have made the program so popular and effective. One analysis found that had these policies been in place since the beginning, nearly three quarters of units proposed through ED1 wouldn’t have qualified for the program. (Again, see Cohen’s thread for all of the reasons projects would no longer qualify for the program under the new rules.)

Do restrictive housing policies incentivize affordable housing production?

There’s a deeper political-economic question at the heart of the ED1 saga. The program is attractive to developers precisely because LA’s normal housing policies are so onerous and restrictive. For developers, the benefit of getting out of those requirements outweighs the burden of providing below-market rents.

Say ED1 also applied to market-rate housing developments. This is the radically upzoned, de-politicized housing policy that a lot of housing activists are pushing for. It’s also the direction that California housing laws are increasingly headed.

Would a massive influx in the supply of relatively cheap-to-construct apartments yield relatively cheap market-rate rents? Or is a restrictive stance toward market-rate development a necessary leverage point to push developers to offer deed-restricted affordable housing?

It’s probably not an either/or situation. And there are a lot of confounding variables to consider. Still, it’s a worthwhile question to keep in mind as housing policy rapidly evolves.