By Margot Carmichael Lester
For some, affordable housing is a deal-killer. For others, it is an unwelcome addition to the community. But for many, affordable housing is a lifeline.
No matter how divisive the issue of developing affordable housing is, most agree that Southern California does not have enough residential stock and that those on the lower rungs of the economic ladder suffer most.
This dynamic will define the region's housing industry into the foreseeable future.
Los Angeles County is ground zero for the supply/demand disparity.
"Our population increased by 200,000 from 1990 to 2000," said Sam Mistrano, deputy director of the Southern California Association for Nonprofit Housing, "but only 37,000 new housing units were built in the last 10 years."
According to John McCoy, deputy administrator for housing at the city's Community Redevelopment Agency, the supply of affordable housing won't increase unless the housing supply in general increases.
And that's not happening any time soon.
According to a Little Hoover Commission report, California home builders would have to construct 220,000 housing units every year for the next two decades to meet demand. Similarly, apartment construction completions in Los Angeles County are running at 1,100 to 1,500 units a quarter, far below demand.
Thus, market rates continue to rise as demand outstrips supply, pricing more and more people out of the market.
Housing development has risen this year, with construction permits at their highest levels since 1989. Much of that results from the wave of adaptive reuse projects bringing thousands of new units to urban cores, where housing often is most needed.
Meanwhile, affordable housing benefited from last year's statewide housing bond, which has injected hundreds of millions of dollars into affordable-housing construction.
The outlook for future development is cloudy, however, because living wage and inclusive housing requirements may put a chill on new affordable-housing development.
For many people, even those with jobs that would allow them the opportunity to purchase their own homes throughout the rest of the country, the shortage of housing in the Los Angeles region makes buying a home too expensive to try.
"Most people at 80 to 120 percent of area median income are looking at home ownership," said Robin Hughes, executive director of the Los Angeles Community Design Center, "but it's difficult to find a decent three-bedroom house you could buy in L.A. with decent schools at that price."
In 2002, the area median income for Los Angeles was $42,189, and the median price for a home was $328,216. Owners would have to make $77,000 per year to keep that housing expense at or below 30 percent of total household expenditures. That salary requirement excludes many professionals, such as secretaries, firefighters, teachers, union carpenters and registered nurses.
In fact, only 38 percent of the county's residents own their own homes.
"Housing costs have crept up to the point where people with incomes that traditionally didn't need to be subsidized now need affordable housing," said Raphael Bostic, associate professor at the University of Southern California School of Policy, Planning and Development and director of the Casden Real Estate Forecast .
Often, the entitlement process gets in the way of affordable-housing development.
"Many developers think they'll deliver affordable housing, but after city requirements and fees, it's expensive," says Jack Kyser, chief economist for the Los Angeles Economic Development Corp.
Still, nonprofit developers like those working with the regional housing group have managed to make the deals pencil out.
"Our 154 nonprofit developers have built 76,000 affordable units since 1976," Mistrano said. "It's an industry."
But how big an industry?
"Nonprofit developers are great, but how many units are they building?" said Paul Daneshrad, chief executive officer of StarPoint Properties, a developer of apartment communities in high-growth submarkets in California. "There's no way they can fill demand."
The recent bump in affordable-housing construction may be misleading. Many affordable-housing developers worry that they won't be able to make their project pencil out when a new state living-wage law goes into full effect in January, requiring that construction workers be paid at a higher wage for any project receiving subsidies.
Some for-profit developers are contributing to the stock, particularly in northern Los Angeles County, where housing affordability is 64 percent, according to the California Association of Realtors. In the city of Los Angeles, affordability is only 29 percent.
New laws also could hurt this trend.
In Los Angeles, city officials are taking a cue from cities up and down the state and considering a citywide ordinance requiring that all new housing projects include an affordable-housing component.
Though this requirement is beneficial on the surface, many fear it could dissuade developers from pursuing new projects because it will cut into profit margins.
Pent-up demand and available land have drawn such national home builders as K Hovnanian to the Antelope and Santa Clarita valleys, where land is plentiful and relatively cheap.
The company's Forecast Homes division has three developments with residences starting in the high $100,000s to the high $300,000s range at Starpoint Ranch in Acton, Belle Maison in Palmdale and Forecast Homes at Lancaster. The three- to six-bedroom homes fall below mediam home prices in urban areas but generally require breadwinners to make a long haul to work.
As land costs rise and sprawl continues, there's a limit to how much can be built.
"There are options people don't think about," Kyser said. "East L.A. and Southeast L.A. are older communities that are not that attractive right now, but they have the infrastructure and housing stock available. They just need to be rehabilitated."
Daneshrad agrees.
"We've got to take a lot of the older product out there, take it under acquisition/rehabilitation and make it affordable," he said. "If we do that, we could probably service the need."
Indeed, many developers, including traditional single-family developers, are turning to building attached, multifamily projects in recognition of the physical constraints in the region.
Affordable Rental Housing
Low homeownership makes Los Angeles a county of renters.
The average monthly rent for a two-bedroom apartment is $1,100, almost out of reach for wage earners like bookkeepers, janitors, cashiers, fast-food workers and auto mechanics.
And rents continue to rise. According to a second-quarter report by RealFacts, Los Angeles County pushed Santa Clara County out of its position of having the second-highest rental rates in the state.
The Casden Forecast predicts that average monthly rents in the county will increase 12 percent through mid-2004, while wages are expected to hold steady.
To keep housing expenses below 30 percent, a full-time worker would need to earn $21.15 per hour, or $44,000 per year. At the minimum wage of $6.75 per hour, a renter would have to work 125 hours a week.
The economics have created an overwhelming need for affordable rental housing for salaried employees and wage earners alike.
There are options.
Low-income housing generally is covered by Section 8, which ensures that people making below 60 percent of average median income pay only 30 percent of the cost of housing. The federal government or local housing authority pays landlords the remaining 70 percent.
Only families with extremely low and very low incomes are eligible for Section 8 assistance. Congress requires that 75 percent of new tenants in tenant-based programs and 40 percent of new tenants in project-based programs be extremely low-income. The balance must be very low-income.
Vouchers allow renters to move from one home to another as they wish and the subsidy follows them. A project-based subsidy requires residents to remain in a specific building.
The city of Los Angeles has 22,726 Section 8 units, with a waiting list of 20,000, according to Mistrano.
The outlook for accommodating that need is grim. Not only is the city not building or rehabilitating enough units to meet demand, but also many of its federally subsidized properties are reaching the expiration dates of their contracts. When that happens, owners can - and often do - convert the buildings to market-rate housing.
"Right now, about 10,000 units are at risk of conversion," Mistrano said. "In the year 2000 alone, 800 units dropped off the federal rent subsidy program."
California's losses lead the nation, with 20,000 apartments converted in the last four years and 180,000 more eligible to convert in the next decade.
The Los Angeles Community Design Center is attempting to preserve some of the at-risk properties.
"We're trying to go in and buy the existing affordable-housing stock to keep it from being torn down and replaced by luxury apartments," Hughes said.
The organization owns and manages 2,000 affordable housing units around Los Angeles County, including new and rehabilitated stock and 600 units in the pipeline. Seventy percent of its inventory is low- to moderate-income family housing, 20 percent is senior housing and the remaining inventory is single-room occupancy or special-needs housing.
The stigma attached to this type of affordable housing is palpable.
"People associate low-income housing with horrible design and poor property management," Hughes said.
That attitude hurts supply.
"This is the kind of development we need going forward," Bostic said. "But it's getting killed."
The affordable-housing developer is trying to explode those myths by using an in-house architectural firm and property management operation to ensure high-quality design and proper maintenance and upkeep.
The hope is to diffuse the "not-in-my-backyard" sentiments of many community groups.
"We've got units that have been around eight to 10 years and look as good as they did when they opened," Hughes said.
Work-Force Affordable Apartments
Many are looking to adaptive-reuse and urban-infill projects to help solve the housing demand imbalance.
"'Work-force affordable' is a coined term that people in the community use for housing that office workers, public safety workers and teachers can afford to live in," said Mark Weinstein, founder of MJW Investments, a real estate development company riding the crest of redevelopment in downtown Los Angeles, one of the region's few housing-development bright spots.
MJW's Santee Court is a downtown Los Angeles mixed-use project featuring 165 residential units, 130 of which are priced for people at 60 percent to 100 percent of average median income. Twenty of those units are earmarked for low-income residents making 20 percent to 50 percent of median income.
Weinstein's project is privately funded, but most work-force-affordable units in the county are part of the Community Redevelopment Agency's work to regentrify skidding neighborhoods.
In Hollywood, for instance, the redevelopment agency is funding the construction of 500 affordable units. Sixty units are complete at Carlton Court on the corner of Carlton Way and Western Avenue, and 100 more - designated for seniors only - will be online soon at the mixed-use Hollywest Promenade. That project, developed with the Retirement Housing Foundation, received $5.1 million in redevelopment funding.
Across Hollywood Boulevard, two other mixed-use projects are under way. At the Louis B. Mayer property, 150 affordable family units will be part of an office-retail-residential project.
McCormack Baron Salazar is developing a residential-retail project at the Hollywood-Western Metropolitan Transportation Authority station, with 59 affordable-housing units, a day-care center and shops.
Eventually, 116 additional units will be built on Western Avenue south of Hollywood Boulevard to Sunset Boulevard, where Walgreen's is using $3.6 million from the redevelopment agency to develop a new store with 56 affordable family housing units above.
The Bottom Line
As big as the affordable-housing crisis is, the challenges to fixing it are bigger.
A growing senior population, stagnant wage rates and escalating land and construction costs put extra pressure on nonprofit and for-profit developers to create housing that's affordable to build as well as to rent or own.
"The lack of affordable housing must be addressed," Bostic said. "It is a serious competitive issue that undermines our economy."
And yet, more challenges continue to appear. Redevelopment agencies throughout the state face significant long-term funding cuts in the new state budget because the state plans to use redevelopment funds to help close the massive budget gap.
"The affordable-housing crisis is very serious," McCoy said. "It's not something we're going to solve overnight, but we're working on it."