Mixed-use affordable housing in West Hollywood, built for people living with disabilities. Image from
I attended the annual Mayoral Housing, Transportation and Jobs Summit this week, held by the Los Angeles Business Council, and wanted to write something about how we pay for affordable housing. Workforce and affordable housing is a critical need, and one that every major city in America is failing to supply in adequate quantities.
One interesting point made by one of the speakers (I believe it was Paul Habibi) was that in Los Angeles, 80 to 120 percent of Area Median Income (AMI) is still too low to support profitable construction, even in areas with pretty inexpensive land—not places like Downtown or West Hollywood, in other words. To house people earning those incomes would require subsidies of up to $65,000 per unit, and that's assuming the land was given away to developers for free, which is technically illegal. I'm hoping to get into that in greater detail in a future post.
For now, I wanted to get into the issue of how we actually pay for those subsidies. Cities, states, and the federal government each have their own programs and funding streams dedicated to increasing the supply of workforce housing. I doubt I could list all of them if I tried, but suffice it to say that the money comes from a lot of different sources.
Some of these programs, unfortunately, are dependent on market-rate renters and pro-growth communities to bear the burden of subsidizing affordable housing.
One example comes from a panelist at the MHTJ Summit, speaking on the subject of building affordable, sustainable housing along transit corridors. She made a comparison between Los Angeles and San Francisco, claiming that because of SF's incredible housing prices, market-rate rents can more easily subsidize affordable housing. In Los Angeles, where rents are generally more reasonable (though still high), this is harder to accomplish. Construction costs don't vary
much from region to region, so you can imagine that if it costs $200k to build an affordable unit it's easier to absorb that cost if your market-rate apartments are going for $4,000 a month rather than $2,000.*
Colorado Court, an affordable housing
development in Santa Monica.
The panelist only intended to demonstrate the relative challenge of paying for affordable housing in Los Angeles, but I think there's something seriously wrong with the idea that it's market-rate renters' responsibility to directly subsidize their neighbors. I don't mean this in a libertarian, keep-yer-guvmint-hands-off-my-money way. My problem is with a system in which a small group of people—people who have absolutely no direct connection to the need for workforce housing—are bearing the whole burden of paying for it. The cost of providing this public good, something that almost all of us agree is desirable from a public policy standpoint, is not being broadly shared. Renters in older multifamily buildings don't contribute to this fund, though they do pay higher rents due to the restrictions that rent-regulated units impose on market-rate housing supply. Homeowners don't contribute at all.
Something similar happens in high-rise districts, like downtown, where developers often wish to build at densities beyond the by-right limits imposed by the zoning code. When they want to build above a 6:1
(FAR), they pay a fee known as Transfer of Floor-Area Rights (TFAR) to buy unused air space from another property owner. This fee can reach into the millions of dollars for large buildings, but has the benefit of being spent on the local community. It can be used for schools, parks, streetscape improvements, public art, or any number of other nice things.
Or it can be used on affordable housing.
I have no problem with public money being used on affordable housing, as I hope I've made clear. But again, this is a case where a community like downtown, an area that has been extremely growth-friendly, is being held responsible for providing a public good that benefits the entire city. And they have to do so at their own expense, as any TFAR money that's spent on affordable housing is money that's not being spent on other local benefits. Anti-growth neighborhoods benefit from having this supply of affordable housing nearby, but they pay nothing (or at least considerably less) to help support it.
These aren't the only ways that affordable housing is paid for, and I'm pretty sure they don't account for the majority of the subsidies in LA or any other major city. Even so, if we agree that affordable housing is desirable we should be willing to pay for it in a more transparent, direct, and broadly-shared way. The burden shouldn't fall disproportionately on new residents, nor should it fall excessively on pro-growth communities, which are already doing the most to restrain rent inflation by trying to meet the demand for urban homes. If we really believe in the value of workforce and affordable housing, we should all be willing to pay for it, and we should make an explicit commitment to doing so.
UPDATE: I wonder what the impact of
will be in regard to affordable housing.
*There are also land value costs that must be offset, however.