Mark Oberholzer – Confronting COVID-19: Addressing Housing Affordability and Homelessness in Southern California

Urban Land Magazine

October 12, 2020

A recent ULI Los Angeles virtual event titled “Housing Now: Shelter, Zoning, and Beyond,” brought together land use experts from the private and public sectors to discuss the housing affordability issue in Southern California, which parallels that in many large cities in the United States. This discussion was part of ULI Los Angeles’s Urban Marketplace discussion series.

California State Senator Scott Weiner, who has sponsored a number of bills  seeking to increase the amount of housing built near public transportation among other housing-oriented initiatives, outlined the dramatic challenge of improving housing affordability at a moment with “four or five different apocalypse-level events happening simultaneously,” referencing the recent wildfires in the U.S. West in addition to the global pandemic. Weiner will also be speaking on housing and density at the 2020 ULI Virtual Fall Meeting.

“We went into [the COVID-19 pandemic] with what we think is between a $2.5to $3.5 billion home shortage in California. It is a massive shortage that we accumulated over 50 years of bad housing policy where we made it difficult or impossible to build enough housing, and COVID has made it worse in a lot of ways,” whether due to unemployment and reduced tax revenue in addition to health costs, Weiner said.

He said that rents have declined somewhat in urban locations in 2020, but that “astronomical rents that go down by 10 percent in California are still unbelievably high.” Home prices have been increasing in more suburban locations, said Weiner, partially due to the lack of supply. Rent decreases have also been accompanied by pay decreases for many citizens, he said. While COVID-19 won’t last forever, said Weiner, housing supply will remain inadequate if nothing else changes.

Brad Cox, senior managing director at Trammell Crow, said, “Many cities in California probably have the highest unaffordability index for renters in the United States. People are paying well over 50 percent of their income in rent.”

Mark Oberholzer, principal at KTGY Architecture + Planning, said, “I think everybody knows the housing crisis is like a natural disaster—it’s just a slow-burning one that’s been going on for a long time.”

Cox outlined one considerable legal hurdle in California, the California Environmental Quality Act (CEQUA), which has enabled litigation to become a pervasive drag on housing construction. “Any project of size that requires CEQUA approvals is a seven-year project.

“The large projects over 300 units that we do,” said Cox, “80 percent of those are litigated in some sort of CEQUA litigation, so the amount of units that get tied up can take us six, seven, eight years. That’s why it costs us $600,000 a unit to build these projects.”

He pointed out that being forced to carry the costs of land while not producing revenue for that long eliminates any prospect of affordable housing if any profit is to be made off the project.

At the very least, increasing the capacity of CEQUA courts is a possible solution, since there are currently only nine judges for the entire state. Cox said that some sort of enterprise funding mechanism to hire more judges could be considered, such as “a fee that gets paid into a fund so that [developers] can process CEQUA lawsuits.”

Heather Worthington, principal at Worthington Advisors, pointed to the trouble of navigating local regulations from moment one for projects of any scale. “I think cities need to take the lead in this regulatory standpoint and they need to create zoning codes that are more about development as of right. Incentives are an important part of that picture for developers, but there has to be some kind of basement to this discussion if you want a foundational level of development and that has to be as of right.”

Cox argued in a similar vein that “the most successful affordable housing program in the city of Los Angeles is the TOC [Transit-Oriented Communities] program, which is a density bonus program.” It provides means for denser development in return for greater portions of affordable housing and “has delivered more affordable housing units than any public-sector program.”

Additional problems arise across municipal boundaries and when smaller elements of cities can block construction within. Cox addressed a question about gentrification risks by pointing out,

“As we know, the wealthy communities have the money and the power to often block the implementation of the construction of housing and they use all the tools that are available to them.” He continued, “We’ve got a problem here. We need to change. Everybody in our community and every area of Los Angeles has to take their fair share of affordable housing and we have to densify along our urban corridors.”

Worthington pointed out her troubles with the issue in the Twin Cities area, where she dealt with a staggering 187 municipalities in seven counties around Minneapolis, where a patchwork of policies and local objections made affordability and transit-oriented development a headache to coordinate. “The whole cadence of affordable housing finance is really a nightmare in most states,” said Worthington.

Parking minimum requirements also drew broad criticism from panelists, as an example of regulations that could be updated to increase affordability. Insurance can also remain a difficulty for complicated and lengthy projects.

Oberholzer noted that the timing of many state financial incentives is flawed. “Aligning bond awards with the state of your project with your lenders” can be a process of jumping through hoops that are difficult to line up. “There are three or four times a year when projects are a go and you’re either rushing or you’re twiddling your thumbs.”

There are steps that the construction industry can take. Oberholzer argued for simple construction, for “repetitive kinds of units.” He said, “We’ve got a high-rise condo going on right now; it’s all unique. The way to do the opposite of that is to do repetitive units, which doesn’t sound super sellable, but all of the units are pretty much the same as much as you can make them standardized no matter how they’re built. Then really create the common areas as the main spaces that are unique and give character to the place.”

Jeffrey Stewart, city manager of Bellflower, a city within Los Angeles County, addressed the challenges of dealing with the worst-level consequences of housing unaffordability—pervasive homelessness—saying, “Homelessness became our city’s number-one issue at some point.” The problem is compounded in an environment where building any sort of housing was strikingly expensive, he said, and some ingenuity and unconventional partners were required to build a shelter inside a former warehouse at a relatively modest cost.

Stewart said the end of that particular story is a happy one at least. He said that the shelter met with “slightly positive indifference, which is perfect, actually. . . . Frankly, I think the communities are mostly proud of the fact that the city stepped up and did something about the homeless problem.” He said that building the shelter also allowed the city to enforce anti-camping and panhandling ordinances, so that some of the benefits of providing the shelter went beyond its cost on paper.

Michael Banner, president and CEO of Los Angeles LDC, who is also a member of ULI’s Americas Executive Board, pointed out that higher-paying jobs also are a part of the affordability equation, saying, “I think you really need to figure out how to create economic opportunity that’s available to everybody.”

Learn more about what ULI members are doing to create more affordable housing and economic opportunity at the 2020 ULI Virtual Fall Meeting.