The state density bonus, which applies all across California, is similar. In exchange for dedicating at least 15% of new units as affordable housing, developers can build bigger buildings than are otherwise allowed by zoning, and they can get relief from certain building codes. But I believe ED1 as currently written is even more favorable to developers, allowing them to bypass most zoning and building codes, and promising a really fast permitting process.
Thanks for the quick + detailed response! Hopefully that state density bonus helps produce more housing quickly. From a quick Google search, looks like it was amended last year to give an even greater density boost:
> "If additional very low income or moderate income units are provided, a project is eligible to receive up to an additional 20% to 50% density bonus on top of the base density bonus, provided no more than 50% of the total units would be restricted as affordable."
Mr. Schneider, New subscriber here. Five months on, do you know if anyone has followed up on this aspect: "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."
Hi David, thanks for subscribing. Yes, there has been some reporting on this. This WSJ article quotes a developer who was able to build affordable housing for $291,000 per unit using ED1, and another for $222,000 per unit.
Some factors include lower labor costs for non-union labor, lower energy efficiency standards, and lower capital costs.
Thanks. Per the WSJ piece, that's only half the story: Their costs of $222K - $291K per unit are down from the one generic benchmark given: $600K in LA (or $939K in San Jose). That's a saving of about 60%! It's incredible, by which I mean I don't believe it. But I'm open to the argument -- and hopeful that it's true! -- once there's better data and a clearer distinction about how much difference each of the many factors is making. In addition to those you list, I suspect a big factor is that the affordable units are just smaller, so there are more of them in a building of the same total gsf, so the cost per unit is lower by definition. (Also, I suspect there are quality issues, but I'll withhold that speculation pending the data.)
In any case, thank you for the link, and I look forward to reading your other posts.
This is a good start. There must be large amounts of market rate housing. Personally, I think trying to build in single family areas is pointless. I think building a ton of affordable housing in commercial and industrial areas is just fine. It will create islands of young people and fun new neighborhoods, which is often the case in the Far East, where developers routinely build high rise apartment buildings full of tiny studios and no parking. The result is a lot of affordable housing for young folks who have no need for a car. It is the reason why Singapore, Hong Kong and Tokyo are so much cooler than any American city save for NYC.
LA needs a large volume of densely-made housing, ideally tens of thousands of studios. One of the worst restrictions my city makes (Chicago) is to force developers to include useless 3 and 4-bedroom units. Cities have too many of these, and not enough dirt cheap studios. Developers would make more money AND it would have a better impact on rental costs if every building were packed with tiny to small studios (say 300 to 500 square feet). This is how New York and California come back from the insanity that exists today. I make less than a third of what I made in NYC by living here in Chicago, and I feel like I am better off. High rents and related costs are self-inflicted wounds that do not heal. This is beyond foolish.
I think the best idea would be to create new enclaves in industrial and commercial parts of cities. This will be a self-reinforcing strategy, and it will benefit early actors because the value of their holding will increase when armies of singles move in. The key is to get rid of any income constraints. Those are counter-productive. Make all of the housing market rate, or do not even bother. Restrictions like that are closet rent control, and they always have dreadful consequences. The biggest benefit will come from maximum units built. You want to increase the size of the market, not create sections outside of the market. This is why increases in public housing do no good for affordability--those people are not part of the market. They are outside of it.
Would love to see the two-staircase requirement removed in LA for buildings under 8 stories. I imagine we’d see a quick influx of new housing.
Awesome read, thank you for your service! Loved this paragraph "ED1 is not going to end homelessness in LA ..."
Mr. Schneider — do you know if SF or SD have similar policies approved or pending?
The state density bonus, which applies all across California, is similar. In exchange for dedicating at least 15% of new units as affordable housing, developers can build bigger buildings than are otherwise allowed by zoning, and they can get relief from certain building codes. But I believe ED1 as currently written is even more favorable to developers, allowing them to bypass most zoning and building codes, and promising a really fast permitting process.
Thanks for the quick + detailed response! Hopefully that state density bonus helps produce more housing quickly. From a quick Google search, looks like it was amended last year to give an even greater density boost:
> "If additional very low income or moderate income units are provided, a project is eligible to receive up to an additional 20% to 50% density bonus on top of the base density bonus, provided no more than 50% of the total units would be restricted as affordable."
Just imagine how great this could be if it applied to all housing and not just income restricted
Best comment here
Mr. Schneider, New subscriber here. Five months on, do you know if anyone has followed up on this aspect: "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."
Hi David, thanks for subscribing. Yes, there has been some reporting on this. This WSJ article quotes a developer who was able to build affordable housing for $291,000 per unit using ED1, and another for $222,000 per unit.
Some factors include lower labor costs for non-union labor, lower energy efficiency standards, and lower capital costs.
https://www.msn.com/en-us/money/realestate/why-private-developers-are-rejecting-government-money-for-affordable-housing/ar-BB1k0b9O
Thanks. Per the WSJ piece, that's only half the story: Their costs of $222K - $291K per unit are down from the one generic benchmark given: $600K in LA (or $939K in San Jose). That's a saving of about 60%! It's incredible, by which I mean I don't believe it. But I'm open to the argument -- and hopeful that it's true! -- once there's better data and a clearer distinction about how much difference each of the many factors is making. In addition to those you list, I suspect a big factor is that the affordable units are just smaller, so there are more of them in a building of the same total gsf, so the cost per unit is lower by definition. (Also, I suspect there are quality issues, but I'll withhold that speculation pending the data.)
In any case, thank you for the link, and I look forward to reading your other posts.
This is a good start. There must be large amounts of market rate housing. Personally, I think trying to build in single family areas is pointless. I think building a ton of affordable housing in commercial and industrial areas is just fine. It will create islands of young people and fun new neighborhoods, which is often the case in the Far East, where developers routinely build high rise apartment buildings full of tiny studios and no parking. The result is a lot of affordable housing for young folks who have no need for a car. It is the reason why Singapore, Hong Kong and Tokyo are so much cooler than any American city save for NYC.
LA needs a large volume of densely-made housing, ideally tens of thousands of studios. One of the worst restrictions my city makes (Chicago) is to force developers to include useless 3 and 4-bedroom units. Cities have too many of these, and not enough dirt cheap studios. Developers would make more money AND it would have a better impact on rental costs if every building were packed with tiny to small studios (say 300 to 500 square feet). This is how New York and California come back from the insanity that exists today. I make less than a third of what I made in NYC by living here in Chicago, and I feel like I am better off. High rents and related costs are self-inflicted wounds that do not heal. This is beyond foolish.
I think the best idea would be to create new enclaves in industrial and commercial parts of cities. This will be a self-reinforcing strategy, and it will benefit early actors because the value of their holding will increase when armies of singles move in. The key is to get rid of any income constraints. Those are counter-productive. Make all of the housing market rate, or do not even bother. Restrictions like that are closet rent control, and they always have dreadful consequences. The biggest benefit will come from maximum units built. You want to increase the size of the market, not create sections outside of the market. This is why increases in public housing do no good for affordability--those people are not part of the market. They are outside of it.