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Mayor Garcetti asks developers to help fund affordable housing (updated)

A worker cuts a piece of pipe as he builds a new home in January 2015 in Petaluma, Calif. Construction jobs had a strong 2015 in California.
Justin Sullivan/Getty Images
Mayor Garcetti said developer fees can fund the creation of thousands of affordable housing units.

Capitalizing on the building boom in Los Angeles, Mayor Eric Garcetti is asking developers to pay into a fund for future affordable housing projects.

The money would be used to build more apartments throughout the city for low-income residents who would pay below market-rate rents. The fund would also be used to preserve L.A.'s current supply of affordable housing units by incentivizing landlords who currently offer the low-cost rentals to continue to do so. The idea is being proposed as the city faces high levels of homelessness. Advocates point to the city's rising rents, which lower-income and poor Angelinos can not afford.

The mayor, who has set a goal of building 100,000 new housing units by 2021, said that a fee on developers would go toward ensuring that 15,000 of those new units will be designated as affordable.

"If we don't seize this moment, we have to ask ourselves when will we?" Garcetti said Friday at a mayoral housing summit hosted by Los Angeles Business Council. "If we don't do this, we have to ask ourselves, who will?"

The mayor has had a friendly relationship with developers, who've praised his office for initiatives such as streamlining the permitting process. But an industry representative said requiring developers to pay for affordable housing amounted to a "tax." 

Tim Piasky, CEO of the local chapter of the Building Industry Association, said that the fee would force developers to raise housing costs, which would make it harder for middle-class people to afford a place to live. Middle-class buyers and renters are not typically eligible for subsidized housing like the types that Garcetti is trying to build.

"Taxing new housing in order to produce housing seems counterintuitive," Piasky said. "It will harm the middle-class people trying to find a place to rent or buy. Where they are already struggling, this is going to make it worse."

LA's housing increasingly out of reach

Los Angeles has one of the most expensive housing markets in the country, with housing costs outpacing wages. But the bulk of new development in the city has been market-rate, doing little to alleviate the shortage of affordable homes.

By asking developers to help pay for affordable housing, the mayor is attempting to grow the city’s housing stock more “equitably,” said Kevin Keller, his director of planning and housing policy.

“We boosted production, but really how much of that is affordable?” Keller said.

The proposed developer fee will be subject to a months-long legislative process, including public hearings before the city Planning Commission and City Council.

If it gets final approval from council members, Los Angeles would join cities such as San Francisco and San Diego that impose so-called “linkage fees” on developers.

The fees are part of the mayor’s larger goal to double the city’s production of affordable housing over the next several years, Keller said. The money would also be used to preserve the city's existing affordable housing. Over the next five years, affordable housing contracts that cover about 15,000 units in the city are set to expire, meaning landlords can begin charging market-rate rents. The city could use the fee money to extend those contracts.

Developers that specialize in affordable housing, such as Robin Hughes, president of Abode Communities, said that a linkage fee for Los Angeles has been long overdue.

"It's probably something that we should have done five years ago," Hughes said. "I look out my window in downtown Los Angeles and I see all of the luxury and market-rate construction going up, and there is not affordable housing there."

Carol Schatz, who represents developers for the Central City Association, said they haven't closed the door on the idea, but she warned that fees could hurt a hot real estate market that's powering job growth.

"We all know that real estate cycles don't last forever," Schatz said. "So doing something now that will put a crimp in development could shorten the length of that hot cycle."

Affordable housing funding in decline

Funding for affordable housing in the city has taken a big hit in recent years, with a reduction in federal housing dollars, and the elimination of state redevelopment agencies in 2011. A bill introduced this year to create a permanent state funding stream for affordable housing went nowhere.

“Affordable housing is impacted by the political winds and tides,” said the mayor’s spokeswoman Connie Llanos.  The developer fee  “allows for a steady stream of local funding.”

This is not the first time the city has considered these fees. The city studied linkage fees in 2011. A report released at that time projected the city would bring in between $37 million and $112 million in fees a year, depending on the size of the fee.

Garcetti will not be weighing in on how large the fee should be, or whether it would be tied to commercial or residential development, or both, according to the mayor’s office.

Other cities with linkage fees tie them to the square footage of a project or the number of units it has.

More low-income housing, less red tape

In another attempt to boost affordable housing, the mayor is using his executive powers to create an incentive for developers who build projects that will house some lower-income renters.

Developers who designate at least 20 percent of their housing units as affordable would be able to zip through a shorter application process. That can shave off several months in a process that can take between a year to a year and a half, Llanos said.

Garcetti’s sharpened focus on affordable housing comes a year after he unveiled his plan to build 100,000 new units at the 2014 summit of the Los Angeles Business Council. He said the city has been on track to meet his target. The building department has issued construction permits for nearly 30,000 housing units, and has another 37,000 units in the pipeline.

The building industry has credited the Garcetti administration with cutting through red tape. For example, the city's building department has digitized building records and rolled out a concierge service that guides developers through the permitting process.

This story has been updated.