Measuring the Shortfall: Benchmarking LA’s Housing Crisis

- Good morning, everyone. My name is Richard Green. I am director of the USC Lusk Center for Real Estate, and this is "Lusk Perspectives," a regular podcast featuring guests who talk to us about the real estate market in its various facets. And today, we are thrilled to have with us my colleague, Jorge De LA Roca, associate professor of real estate here at the University of Southern California. Jorge is also an editor of the Journal of Economic Geography, which is one of the most prestigious journals in our field. And it's kind of remarkable that he has a position like that at such a tender age. It tells you how respected he is in our field. And so I'm gonna turn it over to Jorge and just ask him to spend a few minutes telling us his story of how he got to be where he is right now.

- Richard, thanks for the invitation. Yeah, my trajectory has had many stopovers to get it. I mean, before coming to LA. I'm originally from Lima, Peru. I studied a bachelor's in economics back in Lima. I did my master's and PhD in Spain with the expectation of coming at one point to the United States. What drove my trajectory was my passion for cities. And in Spain, back in the time when I was doing my PhD, I met a fantastic group and economist who mentored me. And after that, finishing my PhD, I went to the NYU Furman Center for Real Estate.

- And that was Diego Puga?

- That was Diego Puga.

- Yeah.

- A fantastic, brilliant economist. And after that, I started a postdoc position at the NYU Furman Center for Real Estate. And it was another learning experience where I met another fantastic scholar such as Ingrid Gould Ellen And it's a good way to enter the United States. And when I was in the market, because I was looking forward to remaining academia and become a professor, back in 2016, already more close to 10 years ago, I became an assistant professor at the Pride School for Public Policy.

- So, and I need to mention that when Jorge interviewed with us, I think he was the second person we interviewed that day. We basically, my colleagues and I said, "Okay, I think we're done.' Which is a little unfair to the other people we had to interview that day, but you immediately impressed us as a perfect fit for our team. So we're really glad that we have you. Tell us just a little bit about your PhD dissertation, what it was about, because I think it will set up our conversation about SOLACHAN very well.

- Yeah. So as I told you, I was passionate about cities. I remember when I was doing the program at that point, there was no course in urban economics or anything that related cities with economics. Luckily, I met Diego who was just moving to Madrid, and it was a perfect match immediately. I recalled those times. So I decided to work on a dissertation that understood the trajectories of people, of workers as they spend their careers in cities of different sizes. And this was impressive because it was social security data, so I could track where people work and I could know where were they living before, right? So what I found in this study was that the experience that you accumulate in more in bigger cities, in more productive cities is more valuable, right? So you will have a steeper earning trajectory. Imagine two twins that are identical in terms of their observable characteristics. If one of them ends up in a city like Madrid or Barcelona, they will have a much steeper earnings profile than the twin that remain in a smaller place, right? And more importantly probably is that when they relocate out from these productive places, they can take the premium with them, right? Suggesting that there is a learning mechanism about working in a big city. It's a human capital model, but with space. Big cities or productive places act as these places where you can accumulate knowledge, become more productive, learn new technologies, new ways of working, and then you can transfer them as you decide to relocate to a smaller place.

- So this helps explain why cities are expensive, right? Is because people are willing to pay for the cost of living in a city because they learn so much while they're there. And so, you know, it's sort of the classic story. And this is gonna come, this is gonna segue well into what we found about Los Angeles. But young people are willing to live kind of badly in the New Yorks to Londons to Los Angeles's of the world. Think about in LA you know, actors doubling up and tripling up and working as waiters trying to get their big break, but in the meantime, learning more about the craft of acting than they are in pretty much any other city in the world with the possible exceptions of New York and London, maybe Tokyo. And so it creates this dilemma, which is cities are powerful engines of economic vitality, but it also creates affordability problems for a lot of people in that city. And documenting this is why the Lusk Center embarked on a project called SOLACHAN, which stands for State of Los Angeles County Housing and Neighborhoods. Try keeping that in your head. I like the SOLA part. It makes it sound sunny no matter what's going on. And Jorge was a lead researcher on this project. We launched it, what, about six weeks ago? Now, Jorge, it's something we're planning on doing annually. So tell us, I'm gonna get to some very specific questions about SOLACHAN, but tell us broadly what SOLACHAN is all about.

- I think SOLACHAN was a long standing project that took a while to take off. But one key ingredient behind was that many of the people that are now based in price, including Caroline Bhalla, including myself and some of the people that work in the report, had this benchmark of the state of the city in New York. So this became a established report that where people from different angles of the community think of developers, think of people in non-governmental organizations in the city, people that wanted to learn more about their community, could find a report where there's verified data on the trajectories of neighborhoods in the city of New York. And how they have evolved over the last year and some analysis on deep changes that are happening in neighborhood change and in the city as a whole. So I think it was a natural transition to do it in LA. We didn't find established report in LA that will be updated annually on where you can find natural questions such as, what is the share of people who are rent burden in my community? Or what are the incomes in my community? Or how is the stage of housing stock the age of housing in my community? Right? So it was this massive effort to understand what is not only the stage of housing supply and housing demand, but how they interrelate with labor market indicators and how interrelate with the age composition and demographic composition of different neighborhoods in LA.

- So you're reminding me before I get into details, you mentioned the Furman Center. And I'm thinking about, they talk about coaching trees in football is the firm and center led by Ingrid Gould Ellen and who you mentioned already and Vicki Been are kind of have an amazing coaching tree. So you are a product. Caroline Bhalla, who runs our program, runs a number of things, runs actually community engagement projects for the Lusk Center. Jenny Schuetz comes out of their renowned scholar on housing supply. Vincent Reina, who is on the faculty at Penn and one of the editors of housing policy debate. I could go on and on, but when I think about places, I don't envy very many places. I think what we do here at USC Lusk is really great, but when I look at the work and the people that they have created the Furman Center, I think it's a remarkable group. And again, Jorge is a product of that as well. So I wanna give a shout out to them. And also Caroline Bhalla and Ellie Shane really organized this. And without their organizational skills, this may have not happened. So let me give a shout out to them. Let's turn back to some specifics of the report. Now, I think one of the things the report gives us is a sense of how housing supply works in Los Angeles in a way, and I don't think I'm exaggerating when I say this, no previous report has done. So talk to us a little bit about that.

- Right. So I think there was a big effort to put numbers on how much we're building in LA. And one big problem in LA County is that we have 88 cities. And each local government is reporting their own statistics or own numbers at different paces. And it's a huge effort to bring them all together, right? So we keep talking about the lack of supply or new supply in LA but it's important to give numbers behind. So a big part of the effort was to collect and assemble all these reports that these individual localities are have or are mandated to issue. And we were able to collect, for example, all the new housing supply from 2018 to 2024. The results are not optimistic, they're not too surprising, but it's important to give numbers. And we have built very little, right? To the average that in the last let's say seven years, we've been building around 20,000 units per year. And there are a lot of also originators across cities. Some cities are doing better cities, meaning these local governments are doing much better than others and some of them are doing very little.

- So let's talk about, so first of all, context. So let's think about what 20,000 means in a county of 10 million people. And let's compare that to nationally, we built, I mean it of course, goes up and down and during the Great Recession Is much less than this, but we typically build a million and a half units in America in a country of roughly 300 million. I know it's three 40, but let's use 300 to make the math easier, okay? That's the difference between five units per thousand people and two units per thousand people of population. So we're building at about 40% relative to our size that the country is. And we talk in the report about some of the mechanisms behind that. So could you speak, and let me give a shout out now to Cameron Yap who did Yeoman's work putting together sort of timeline of how stuff gets built in LA and where do we see hiccups in the process relative to other places?

- Right. So yes, Cameron did an amazing job. That's the first thing I want to say. So let me share some findings that I found surprising there. The first one is that yes, we have seen some increase in the rate of new supply that is coming, but there are two... One issue that it's mainly led by ADUs, okay? So these are-

- Tell the audience what an ADU is.

- Yes, ADU is an accessory dwelling unit. So think of an additional unit that you can have in an existing parcel that must have kitchen and bathroom. And it's usually sometimes called the granny apartments that you can find in the back of an existing housing unit. There's been an increase in that, that it's important. And the other important finding that we highlight is that regarding your question is that it takes a lot to build in terms of time. We're thinking about when we can track how much it takes from the building permit to the certificate of occupancy is 18 months. That is three times higher than the national average. Right? And it varies along even for ADUs that you would say like it's too fast, it's relatively easy to build an ADU. We're talking about 17 months on average. When we move up to multi-family housing, which is most of the new housing supply that we're coming, I mean, that we're building in LA we're thinking about an average of 35 months. So we're talking about three years just in that last stage of the building.

- And nationally, the average is about what?

- The average, it's about less than half than that.

- Yeah, yeah. It's about 18 months. So yeah, so it takes twice as long to build in LA. So I'm gonna be a little unfair 'cause this really is in the report, but could you speculate as to some reasons why? And this is beyond the building permit process and it takes a really long time to get a building permit in LA too, but from building to certificate of occupancy, what are the frictions that are making it take so darn long to get anything built here?

- Right, so you're right. This is not considering all the community meetings that you need to have in order to get the entitlement. One factor behind as we have survey developers is utilities are responding at a very, very low pace, specifically the provision of electricity or water. And the water department may take as long as eight months just to provide it to a new construction unit. I mean, property, right? So it is that, it is probably labor short, I mean not labor shortages, but labor costs. But yes, multiple, I think it is a daunting scenario if we really think that you have to add the 35 months plus all the entitlement process behind. The only piece of good news when we find those 35 months is that there is not a difference between affordable housing and market rate housing, right? So there's nothing about that difference, it's just that it takes too long to build multi-family housing in LA regardless of the source of financing that these projects have.

- Yeah, and I think that eight months of utilities is really key to underscore because it is kind of natural for a big complicated city in like LA or New York or Chicago, it takes somewhat longer to build because I mean, you think about when you build in a greenfield and environmentally, we don't want that, but it's much easier 'cause you could kind of just put all of your materials in one place. They're all there. It's cheap for your labor to live nearby and you can kind of assemble things very quickly if there's nothing there. In a place like LA, you have crowded streets, you've gotta rent out space in the streets, you have to move your stuff. You have to stage your stuff coming in. You can't just have it all in one place. Sitting in a very cheap place to store, by the way. And so I think we wanna be a little careful and note that when you have complicated cities, it is going to take longer to build than when you're building afresh. But that said, I mean, the story about eight months to get water, that has nothing to do with LA being complicated. That's a friction that-

- And if you really think, if there is a way in which we can make this housing production process more efficient is let's standardize some rules, let's make these more transparent. Like these are the art that working hours that you can have. But let's build a technology that really mitigates, right? These high costs of building infield.

- Well, it's one of things. So in Dallas, and I know it's considered bad form to use Texas as an example here in California, but I think there are a lot of things California does much better than Texas. So let me put that caveat out there first. But in Dallas, the median time to get a building permit for a single family house, now it is a single family house is about a week, eight day, something like that. And that is because a single family house is kinda a standard animal and they have pretty much automated their process. It is something where artificial intelligence can actually move things along. So you don't have to share plans with eight different people. You run it through a machine and it says yes and no. And if your plans are no good, the machine will still say no. The idea is not to compromise on building safety. We do care about houses remaining standing up for many years after they're built. But for more standardized forms, Dallas has shown us and other places around the world have shown us, I mean, in Japan, it takes very little time to get a permit, relatively speaking in Singapore, it takes relatively little time to get a permit. And these are complicated places, right? But that's the permitting process, what we're talking about and the building process. It's almost like you need these mini permits between the time you build, start to build and the time you get your certificate of occupancy. So figuring out how to streamline that is critical.

- And there have been policies to expedite with thinking about the new policies on CEQA, right? The environmental concerns that have been highlighted as one of the barriers to building faster. But the important thing of the report is that now, we have a benchmark, right? Let's see how 2024 to 2025 updates next year and let's say, hey, you know, the new units are building at a faster pace and that will be a good way of making progress or not. That is what this report I think is gonna be very important.

- Yeah. Yeah. I think we need to wait till probably 2026 'cause it does take a year to build stuff, or at least on the certificate stuff, maybe the permitting stuff we should start to see right away. So tell us some other things about the report or was there anything else in the report that I guess what I would say is surprised you. And let me just ask that question and then I wanna underscore a few things that were in the report, so

- There were many things that surprised me.

- Okay.

- And these are questions that are actually funny enough, my students have also come up with, they ask for, for example, professor, if LA county is losing population and it has dropped around 500,000 people in the last 10 years, why do we have more households? Which is a natural question that-

- Yeah, I wanna stop there and just emphasize how smart USC students are, please.

- Right? So it was a very good question that I'm better prepared now to answer because I have the numbers. But this is just suggesting that probably larger families maybe live in LA than the families that are replacing these new housing units, right? There is also a compositional shift. So imagine a family of four may be living and it's replaced by a two body household or like someone living solo, right? It's a compositional shift in the sense like imagine that if residents in LA the ones who are not living, are more affluent, they demand more land and they will take bigger homes, they're more likely, there's also a delay in the starting of households for millennials that we have seen. So there are many, many factors moving behind, but that at first, surprise people when they say like, "Why is LA county losing population? But households are increasing?" Right? I think that is, that is one of the takeaways. I find another tool that you probably, you've done a lot of research on that and you have a lot to comment is the other one is that LA is becoming a less hospitable place for families. The share of people under age 24 has dropped significantly. We're talking about many percentage points for 10 years or 13 years, which is hard to these demographic changes shouldn't be that steep And the last one-

- Yeah, the change was so profound. So I seem to remember if we go back to the beginning of the century, 35% of households had children and now it's 20% or something. It's not in front of me right now, but it was an extraordinary decline. And in fact, what I remember, it's one of two statistics that was so extraordinary, I double check myself, I ran the ACS myself to make sure that it was right, folks, but these people know what they're doing.

- It is right because we double check all the numbers.

- Yeah, yeah, yeah, yeah. But it's like when I see a number that just pops out, well, it's actually my version of fun too, is to just do this. But no, I think that speaks to a very real problem about LA that we should be serious about focusing on if a place is not hospitable to, and I'm just going to say children. That reflects something. And I'm gonna come back to you, but I can't help tell you. When I was living in Washington DC, I was on part of a council for the CFO of the district, the guy named Ned Gandhi, amazing guy. And I learned that in the District of Columbia, only 5% of households were married couples with children. And nationally, it was 25%. So that's specifically not just households with children, married couples with children. And, you know, I had two thoughts is. One was, boy DC really is broken in a important way. On the other hand, and I suppose this is the optimist to me, okay, maybe there are places that should specialize in people without kids. And there are other places like Montgomery County and Fairfax County, Maryland, Montgomery County, Maryland, and Fairfax County of Virginia. That's where the people with kids lived. But no, I don't think that's right.

- And just to put the numbers in context, I found that, right? It's as of 2023, just 29% of the population was under the age of 24 down from 35% in 2010. That represents 661,000 fewer young people over the last 13 years. The implications is like, it's less welcoming place for families. And if we just become a little more demographers, think about what is gonna be the effect on that, on demand for schools in the future or for types of businesses that cater children. And at the same time, the population is aging, right? So that is a sharp shift in demographics in LA that caught my attention after working in this report. And the other one that I find is fascinating for people like you and I and our viewers that are interested in housing and the decision between housing and renting is there is a large inflow of high income renters in LA, right? So people, we're not talking about people in the lower end of the income distribution or in the middle class. We're talking about people making more than $150,000 a year. So this is the upper middle class, many of them are now renting. That was the largest increase in percentage in terms of percent, not percentage points, but it was, I think it went from nine to 15% of all renters in LA are now are making more than 150,000. Right? So this is either, it's hard to disentangle whether this is going to be a change in preferences. This is secular trend. Or this is just that even for relatively affluent people buying a home is out of their scope.

- Well, yeah. So let's think about this for a second. The typical house in Los Angeles County sells for $1 million roughly, right? And so if you're making 200,000 a year, you know, let's just do some quick math on a 6% mortgage, on a million, let's say you have even have the down payment of 200,000. So first of all, you gotta save a year of before tax income to come up with a down payment, have a bank-

- Which many years.

- Yeah unless you have a bank of mom and dad behind you, that's really hard.

- Yes.

- Right? Because I mean, let's just do this. It's 200,000 after taxes in California. You have maybe 130 left and then you're paying rent. And so a nice place you want a nice place is 4,000 a month in rent. So that's 48,000 down. And again, this is, we're at 200, you have about 80,000 left over after that. And let's say you don't even eat in restaurants. So you spend, I don't know, 600 a month. I mean, you're not gonna do that and you have your Verizon bill and etc. etc. etc. So let's say, at minimum, that's another 20,000 you're spending. So that leaves six if you are an incredibly disciplined person.

- And if you don't have loans, of course.

- Right, and you don't have loans. So that's maybe 50, 60K. So you're looking at four or five, three, four years minimum to come up with that down payment. But then let's do that 800,000, you're paying 6% interest on it. That's 48,000 just in interest. We haven't added, okay. Property tax is gonna be another 10,000, 1% of a million. So that's 58,000. And then you have insurance, which is getting more expensive. We'll call that 60,000. So if you're supposed to spend no more than 30% of your income, okay, I guess it actually kinda works. At 200, you're really close if you are very disciplined.

- Really mean in the margin.

- Yeah, yeah, yeah.

- But still- These people are-

- And I mean, the good news about LA is we have more people making 200 than most places do.

- Yes.

- But not enough. And there are a whole lot of people, I mean, again, this you could look at as good news, there are a whole lot of people in LA who make between one 50 and 200. But for them, the housing market, again, at 150, you're not making it, it's not working, right?

- It's working at 150 or it's barely working. Or these folks on one point are saying like, if given the current interest rates tool, which is probably more more temporary thing, they're thinking, you know, "I need to change my way of living. The only most of my income will go to just cover this single asset." If many of them are financially responsible and disciplined and they just can contribute a difference between rents and housing prices to build equity, that's probably a wise decision too, right? So, but yes, it is surprising that there's a huge increase. This is a nationwide trade, but I think it exacerbates in coastal cities like LA. The composition of renters has changed and we need to be aware of that because that shifts and affects the means. We're saying, "Oh, renters are better off now than they used to be in the past." No, wait a minute. It is because now we have much higher income rent. Like renters, I mean, like incomes of renters have increased a lot because of the compositional shift. So now we have to pay more attention and see that there are two rental markets or three rental markets in LA where the folks doing, I mean, making less than 50,000 are extremely rent burdened, severely rent burdened, most of them. And then of course, the other households making more than 150,000 are not gonna be rent burdened, but they are making a larger share of renters.

- Yeah. Well it also sort of underscores how LA's income distribution is very uneven, right? Even compared to some other coastal cities is if you look at median income in LA County, it's a little higher than it is nationally, but it's not a lot higher. But we do have a whole lot of people who make really good incomes by national standards. And the only way that you can have that simultaneously, I know it's a media not a mean, but we have a whole lot of people who don't make a whole lot of money at all. And honestly, when I look at rents, if you're not in a rent stabilized building or you haven't moved into, maybe this is the way I'll put it. If you didn't move into a rent stabilized property a long time ago, I don't know how all the people LA who earn 35, 40, 50,000 a year. I don't know how they survive. I don't know how they make it work.

- I agree. I agree. And that's a whole line of research that this report opens. There is another part of this, these people who are gonna be struggling in terms of the share of their income devoted to rent, which is that the share of rent burden and household has increased the amount people that are 55 and over, right? So at 55, your income, your life chances of accumulating income or some some type of savings, it's very limited. So how are you gonna do with the demographic shift that the pop the population will get older, the share of kids as we commented is decreasing. And they're gonna be more exposed to rent risk. Right? And that's another big part of the conversation,

- You know, what occurs to me that we did not do this in this report, but something we might wanna study is do people in high rent burdens markets work longer, retire later because they have no choice but to.

- Yes.

- And I don't know. Oh, you know, the answer to that is yes.

- Oh no, no, no, no, no. I mean, I agree with you. I would love to do some research.

- No, yeah, you just gave me an idea for something we should look at working. I think we could at least do this descriptively, probably not causally. But it would still be interesting to know, do people in places like LA and I'll say other places like Miami and the Bay Area and New York where people are rent burden in Boston, do they tend to work longer after controlling for occupation and a whole other, a lot of things?

- Or they just go into multi-generational households and like this doubling up across generations that is probably gonna be more pervasive in large productive places such as LA. No, no, no. I mean, this report has opened so many questions for me also, when I was really trying to get it together, I realized there's all these demographic types of questions. They're all the housing supply questions. And I think there are two questions in the housing supply or areas of research that still very novel, but we need, as researchers, to get our hands there in there is like the ADUs. I think that is one piece of research that it has- And one thing that concerns me about the ADU stuff, I mean, I'm thrilled that it's easy to, well, it's still not easy, but much easier to build them. How many of those permits are actually new units and how many of them are units that existed and now have been brought into legal status? Which again, I don't wanna say that's not a really good thing. It is a really good thing, but it does mean somebody was living there all along and you really haven't freed up the housing unit.

- Correct. So many questions on that, right? One is like whether we're legalizing these ADUs now and this was hidden housing that now enters LA numbers, part of the statistics. And the question that follows up is, if I build that ADU, am I really decreasing? Am I contributing to housing supply or not? Because what happens if I just leave that ADU unoccupied? And it is for my relatives, my friends. And for some-

- I mean, and this is, you know, so anecdotes can be the foundation of questions, even if they don't answer them is my next door neighbor has an ADU and he is using it exclusively for, they have a blended, what do they call it? When you have families from two marriages? There's a word for it. But so between the husband and wife, they have a bunch of adult children, is the way I'll put it. And so they leave it open so the kids can come and have a place to stay. And they do in a sense use it a lot. I see them. I don't see that many empty nights over there, maybe half the time. But you can almost think of it. It's a family hotel.

- Yeah.

- It's not in addition to the housing stock as it stands at the moment,

- I think there's a line of research there on how many of these units are going to Airbnb or any type of these rental platforms, how many are them used for long-term renters and how many of them are just vacant? And it was an opportunity for people to expedite this construction. There is a trend. It's massive. But let's not deviate from the fact that when we're seeing this increase in supply in LA in the last five years, it's mostly driven by ADUs, right? So the good and bad news is that you would say they're not necessarily popping up in low income neighborhoods where you would say the renters are struggling most. So if you wanna see it, oh, there's is an opening for potential high opportunity neighborhoods. So you can rent a nice place in a high opportunity neighborhood. We don't know exactly, right? I think we need to get better data on that, on who's really taking these ADUs.

- Yeah, somebody asked me about. If the granny flat, which is what they used to be called, is really occupied by grandmas without adding this housing supply. And this is good, the answer is absolutely yes. Because that means granny can give up her house, sell her house, and make it available to somebody else. So having it occupied by relative is a totally fine thing. I mean, does the sort of relief for the housing market that we're looking for?

- And something that also shouldn't disrupt us again, is like ADUs is one way in which we can increase housing supply, but it is really not going to change or alleviate the pending housing stock that we need to add to LA, right? It's a marginal type of increment. Because by definition, you're just adding a small unit in the back where you can have one or two people living in it. Right? It's multifamily, it's densification that would lead us to meet our housing targets.

- You know, as you know, I spent about half my time in Westwood and Westwood's pretty dense.

- Yes.

- And people are very fearful that density will ruin neighborhood character. And I invite them to just spend the Sunday afternoon walking around Westwood, it's a beautiful neighborhood. And it doesn't have, well, along Wilshire Boulevard there's skyscrapers, but inside the neighborhood, the typical multifamily building is four stories tall. And I think it's a wonderful urban environment. It's very walkable. It feels not like a neighborhood, right? And I remember Ed Leamer once said, the late great Ed Leamer at UCLA, "The thing that makes a neighborhood is not single family houses. The thing that makes a neighborhood is people walking their dogs."

- Absolutely.

- And this neighborhood, you see people out walking their dogs all the time. And so, I think the problem is when people visualize multifamily, they visualize really tall buildings. And LA doesn't need lots of really tall buildings. But if it could have, you know, in the space where there's currently a single family house, you put maybe two lots together and you build a 15-unit building that would about work. I mean, now you have increased density by seven times. And it is, I mean, again, this is a matter of taste of course, but some people might just not want to see neighbors. Okay? And, you know, people live in Atherton, California seem to be like that, you know, minimum one acre lot. But if you like seeing neighbors and having a feeling of neighborhood, I'm just gonna encourage lots of four story buildings around LA. And don't worry, your neighborhood's still gonna be really nice, just fine.

- Yeah, we need to develop, I mean, productivity and these people coming back to the beginning of our conversation, right? These productive places where people are going to interact and learn from each other. You need density, you need people to talk to each other. You need this serendipity, these informal exchanges that happen in the air as this great economist Marshall put it, right? So for that, you need spaces where people can interact. And density brings that, of course no one is talking about multifamily buildings of 15 stories.

- Well people, but I think people visualize this.

- Yeah, yes. But yes, it's about, I think changing perceptions and seeing how these gradual increments in density actually can bring a lot of neighborhood vitality. Right?

- Well, I think about, you know, the place people like to go on vacation like Paris and Barcelona.

- Oh no, those are, I mean-

- Are very dense.

- Fantastic place.

- But they don't have skyscrapers.

- They don't

- Right? Unless you, you know, count Montparnasse which everybody in Paris hates and I get that. Or maybe they don't anymore, but they used to. Or the Gaudi church in Barcelona. But they use their land very efficiently.

- True.

- And again, they're such nice places that people spend a lot of money to go on vacation in both of them.

- Yeah, I mean, who knows? Probably Americans are different in that they want to spend more time in their houses and less in public spaces. But let's give the opportunity what happens if we make public spaces more attractive to. Parks and local community places. But otherwise, probably the other side of the story is, and that is what this report does, is if we do not allow for more density, we're gonna have an aging house in stock. We're not building. And we're seeing that the average house in LA is now 58 years old. Right? That has a lot to do with an area of expertise, which is property, right? In proposition 13, right? Prop 13. But we are just becoming an older city, and we're supposed to be a dynamic place where California's supposed to be where jobs are created, where people come, where neighborhoods change.

- Churning.

- Churning. And it's not. Our housing stock has surpassed as the average age in many cities in the United States and cities that are much older than us.

- So I wanna cover two last topics before we end today. The first is talk a little bit about what's happening to the African American population here in Los Angeles County.

- Yes, so the numbers I check we are, it's a decline in share of the population. We're now at 7%, okay? So the share... And even the absolute number, I think has not increased much. So as a share of the population-

- The absolute number's falling too.

- Yeah, the absolute numbers falling. So we have fewer African Americans in LA County. Their incomes have not increased. And actually, they have been the racial and ethnic group most affected with more volatile incomes, especially after COVID. They tend to have the highest rates of rent burden for renters. Most of them are gonna be renters. And tend are severely rent burdened. The numbers I recall is 65% are rent burdened. What does that mean? That they're spending 30% or more in their income in rent and utilities. And around a third, I think it is civilian rent burden. They're struggling. And also something interesting result in a chapter that we have in SOLACHAN is that we look at the potential neighborhoods in LA where we're experiencing more transitions from owning to renting. There's a salient cluster in south LA right? So there are more at risk of potentially seeing declines in home ownership, which suggests, we don't know if this is just a downsizing decision, but it's more likely a story of fundamental risk and income risk.

- So the other thing is, if I recall their home ownership rate, even though in California, in the country, it's been increasing, it's been decreasing here in Los Angeles,

- That historic low for them.

- Yeah, yeah, yeah. So that's worrisome. And the other thing, you know, to talk about housing in LA without talking about homelessness would be irresponsible. I think one of the things we did that was innovative is when we were looking at people who needed affordable housing or who were rent burdened. I'm not exactly, I don't rent, but we include the homeless population, which is something amazingly people haven't done before.

- True, yes. Probably people have done that before because they don't have data or because homelessness is not a major issue in other metropolitan areas. But I think it's inadequate to do that in LA. I mean, homelessness has increased substantially. The number of houseless Angelenos has increased. I think the latest number is around 70,000 people, experiencing homelessness. And the results are, I mean, the numbers are not optimistic. Again, most of the rental units that we're bringing into the market, which is most of the new housing supply coming, it's for renters, most of them are gonna be multifamily. But for people making above median household income, right? So we're talking about, just to put it with some approximate share, 10 to 15% of all new rental units are going to people making less around $50,000 or below median household income or what we call very low income. Extremely low income. All those categories that are vulnerable groups of population. So yes, we're not providing housing for them. And part of this, it can be a story of we don't have these housing filter mechanism, right? I mean, economists wanna talk about that in the sense like, hey, probably you don't wanna build affordable housing, you just wanna build a lot. And that house will eventually, the most desirable housing will be picked up by higher income groups and then it will leave some housing behind. With the relatively low inflow of housing, we're just not-

- Right, filtering doesn't work without all, I mean, we don't build enough. So we do see evidence of filtering working right now in Austin, in Florida and Dallas. These are cities that are growing and their rents are falling.

- Yes.

- And it's 'cause they're building a ton of housing and it is not affordable, but it basically, people do move up if you provide that housing to them. And the key is, you know, if I wanna know one thing about housing, housing market, it's vacancy. And they've built so much housing in those places. Now, building is slowing down everywhere because of interest rates. So this is not gonna last very long, I don't think. But in the meantime, when you build a lot, I mean, it's sort of like you want developers to build so much that some of them go bankrupt because they can't get the rent that they were hoping for.

- You don't wanna get that, right?

- What?

- I mean, you don't want to get to that situation, right?

- Well, I'm starting to think, you know, in the '80s, we did this is we had, you know, really stupid tax, what I thought was really stupid tax policy that basically subsidized developers into building housing that made no sense on a before tax basis, but did on an after tax basis. And then the tax reform act of 1986 got rid of that. Now I'm kinda looking back fondly at those years because rents, you know, housing was pretty affordable on the rental side of the market because interest rates were so high there was a problem on the owner side at the time. But-

- You're right, these places have built substantially and we believe, right? Like we as potential renters or tenants, we just go up in the housing quad ladder and we leave some units behind. But with 20,000 units a year-

- Yeah, no, we're not doing that. We probably need to build at least 2 1/2 times as much housing it probably more at a year in order for that mechanism to work.

- No, I invite all the viewers to check our report in the sense that we have also, there are these mandated housing reports between 2021 to 2029 and we have the data updated up to 2024. Right? So it's saying that places like LACD are relatively building. Of course, everyone is conditional on building very little places like LA City or building. And there are small other communities that are building. Now there are places in which when you see like your targeted housing is 3,000 and you've built 65 units, so there's no physical way that in the next five years or four years, you're gonna build the remaining 2,900 units, right? So that is also part of the discussion. What happens when we have 88 cities that are just not, there's no supervision mechanism behind, right? And once you don't meet these housing demand, I mean, these housing targets.

- So let's finish up by coming back to your dissertation and learning in cities.

- Hmm.

- And the about the opportunity and the problem it creates. So for people with, and I'm always looking for the right word to say here, but let's say strong educational attainment. It is worth moving to these cities because as expensive as they are, what you get out of them is more than worth it. Right? But for people who don't have a lot of educational attainment, that's not true. And Enrico Moretti has written about this, one of our wonderful USC PhD graduates, Chan Choi, Will Noel and I have written about this, she's now at the urban Institute. For low income people, for sort of the people who cut your grass and cut your hair, it's kind of not worth it. And we're seeing that, right? So we see this out migration from, and this is not not just a Los Angeles phenomenon, this is a San Francisco phenomenon, a Seattle phenomenon, and a New York phenomenon, sort of the people who keep the place running just can't afford to stay there. And as much as a fan as I am of filtering, it's not enough at that point in the income distribution. 'Cause basically, land becomes very valuable because of these benefits to the well educated. So what do we need to do? What could we do about that? Is there anything we can do about that?

- That's a million dollar question. That's a very important question. I agree. It used to be that cities benefited everyone regardless of skills. It was always more beneficial for people with higher skills and professionals and occupations that require more cognitive abilities. But yes, given the increase in housing prices, it may start to not make sense to many people to come and invest. And despite the increase in earnings that you will experience in your career, you really ran burden permanently for how many years. Right? So how long can you survive? There are some economies that are put in extreme solutions, right? Like you need to start develop closer inland and start building infrastructure so that people can commute and faster commuter rails to bring people into the city. I'm not sure how sustainable that can be.

- That's the Matt can answer. Build high, Bakersfield.

- I'm not sure how sustainable it can be because also what cities offer is this dynamic mix, right? Like if you're gonna have some high income people that require non tradable jobs, right? You need someone to help you with the guardian. You need someone to help you with the kids. And not only non tradable sectors, like in the low skilled services, we're thinking about what happens with school teachers, right? Where are we gonna house school teachers? We're going to house police department, fire department, I mean, people who work in those type of jobs that benefit less from spillovers or externalities or learning and whose wages are gonna be very, very stagnant. I think at that point, of course, the solution is building, right? Building more houses.

- It helps, it absolutely helps.

- Now policies, it's a bigger jump, right? I don't know, do you have any kind of?

- Well, my thought is always, so I look at, so I really admire Singapore.

- Yeah.

- And Singaporean government spends 1% of the GDP on housing subsidies. And if we spent 1% of GDP on housing subsidies in the United States, we would be spending about 300 billion a year on housing. That would be enough actually. So that nobody would have, if you just paid for the difference between 30% of people's rent and what they're paying in rent, it would actually come to about that amount of money.

- Right.

- We spend a small fraction of that. I mean, adding up generously on the rental side, we spend maybe a quarter of that. And with the new administration, maybe it's gonna be even less. And if somebody has a better idea, I'm all ears. But I think no matter how well the market works, and I'm a big market guy and I want the market to work better, and I think it's ridiculous the way we've impeded the market. At the end of the day, there has to be some sort of housing assistance in order for cities to function properly.

- But there we're talking about the federal level, right?

- Yeah, because only the federal government has the resources.

- To do these scapes solutions that we as a city can provide, or even the state can provide. But I agree, this is now the federal level is also more concerned because this is not only the story of LA this is the story of most successful, thriving coastal cities.

- Yes.

- But I'm not also a fan of all these solutions in which you put a lot of high skilled people together, they're gonna learn from each other. And then you just bring low skilled people daily and commute. Right? Which with some people are suggesting. I think that's not-

- Well that would lead to a boring city too. As you know, I love music. Most musicians don't get paid a heck of a lot of money.

- Yeah.

- You know, there are people who don't make a lot of money who make the city a better place to live, a much better place to live.

- And also we're running out of land, right? So we have run already out of land. So, I mean, where do you wanna build? And like I know with environmental risks, like you don't wanna start building in areas that are more prone to fire or natural disasters. So it's gonna come through infill.

- Well, so maybe, you know, one of the other things we should be looking at next year, the next couple of years is redevelopment. How do you actually, in an efficient way, take stuff that is not developed at its highest and best use and repurpose it? And you know, the example that I think is a good one, you think of all the strip shopping centers that are kind of not that great on our boulevards. You know, repurposing that is four or five-story housing. Okay? How do you actually do that? How do you assemble that, how do you make that work? Would be something worth looking at.

- Yes, and we have kind of initiatives in lavia that transit oriented development, right? We have increased density in these places that are transit rich. But again, these are marginal. When you see the whole picture that this report helps you, helps you put numbers in, you're using like, hey, if we're bringing 15,000 with friends who are in development, wait a minute, we have a pending appending supply of 500,000 units or 400, put it, whatever. Right? But we're not meeting those numbers. But I think I agree. Whenever there is space available in LA and we can be more creative, I think that is a potential way of increasing housing and each effort counts.

- So Professor Jorge De la Roca, thank you very much for spending an hour with us today to talk about SOLACHAN. It's been very informative. And stay tuned for our next episode of "Lusk Perspectives," everybody.