'Inclusionary Zoning Program' Could Crimp Home Supply in Los Angeles

Critics say the combination of elevated wages and additional requirements for below-market-rate housing would prevent projects from being built at all.

📅   Thu November 17, 2016 - West Edition


Nearly two-thirds of Los Angeles voters last week approved a citywide affordable-housing requirement for developers seeking to build projects of 10 or more units that need a zoning or height change.
Nearly two-thirds of Los Angeles voters last week approved a citywide affordable-housing requirement for developers seeking to build projects of 10 or more units that need a zoning or height change.

The Wall Street Journal is reporting that Los Angeles became the latest major U.S. municipality to require that developers include affordable housing in new projects—a move hailed by advocates, but one that builders say could crimp the supply of homes in the nation's second-largest housing market.

Policy makers in cities around the U.S. are turning to so-called inclusionary zoning programs to ensure developers set aside housing units for residents who couldn't otherwise afford to live there.

Nearly two-thirds of Los Angeles voters last week approved a citywide affordable-housing requirement for developers seeking to build projects of 10 or more units that need a zoning or height change.

The rule requires that up to 25% of units in rental properties and up to 40% in for-sale projects meet affordability guidelines. Alternatively, developers can pay a fee to the city.

New York City and Seattle passed similar requirements earlier this year.

The Los Angeles initiative goes a step further, however. It also sets wage standards for the projects.

Developers must pay construction wages on par with those required for public-works projects, hire 30% of the workforce from within city limits, set aside 10% of jobs for certain disadvantaged workers living within 5 miles of the project and ensure 60% of workers have experience on par with graduates of a union apprenticeship program.

The mandates could double the hourly wage for some construction trades compared with state median wages. The pay for a carpenter, for example, could rise to $55.77 an hour from $26.16, according to an economic analysis sponsored by opponents of the initiative.

Supporters say those wage differentials are inflated. And some developers will be less affected by the change. Those who build primarily affordable housing, using government subsidies, already must pay higher wages. Developers of large high-rise projects, meantime, often use union work crews.

The measure was backed in part by the Los Angeles County Federation of Labor, a union group, which argued the city needed an alternative to developers who were “paying poverty wages and pushing people out of the city.”

Laura Raymond, who led the campaign backing the initiative, said builders receive a financial benefit in the form of zoning changes. “There's some value that needs to be given back to the community in the form of affordable units and wage standards,” she said. Ms. Raymond works with the Alliance for Community Transit-Los Angeles, which promotes “smart growth” and affordable housing near transit hubs.

But developers said the combination of elevated wages and additional requirements for below-market-rate housing would prevent projects from being built at all. That would worsen housing-supply shortages in one of the nation's most expensive regions.

“It's already a lot of brain damage and work for a project to go through in L.A.,” said Paul Habibi, a professor at UCLA's Anderson School of Management who also develops and invests in apartments in the city. “It's really only going to stifle the number of housing units built.”

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