Editor: David Reiss
Brooklyn Law School

October 19, 2017

Housing Pays

By David Reiss

photo by BDS2006

The Los Angeles Business Council released its Housing Pays Report: Capturing the Economic and Fiscal Benefits of Increased Housing Production in L.A. LA has been taking serious steps recently to deal with its housing crisis and this report describes those steps and argues that increased housing production has a net fiscal surplus. The Executive Summary reads,

Recent reports have consistently ranked Los Angeles among the most unaffordable housing markets n the nation, with rents and housing values growing at a rapid clip even as incomes remain stagnant. In LA County about 6 in 10 renters are cost-burdened, paying at least 30 percent of their income on housing each month, and nearly one third of county renters spend more than 50 percent of their income on housing. The outlook is grim even for middle-class families looking to buy, with a median home value of over $550,000.

Although there are many factors contributing to Los Angeles’ affordability crisis, it can largely be boiled down to an issue of supply and demand: Housing production has not kept up with population and job growth. For decades the region has operated under the false premise that “if you don’t build it, they won’t come,” and the housing shortage that’s followed has had disastrous—and yet predictable—results. Vacancy rates have fallen to historic lows, forcing residents to pay more each year just to secure their place in the city.

Recognizing the importance of housing production for stabilizing rents for residents at every income level, Los Angeles Mayor Eric Garcetti set a goal to build 100,000 new housing units in LA by 2021, including 15,000 homes affordable to low-income households. To meet the Mayor’s 2021 goal, the market will have to produce an average of 12,500 new units annually between 2013 and 2021—5,000 more, each year, than were developed between 2000 and 2010. The city is currently on pace to achieve this goal, but we are expected to experience an economic downturn and depressed development cycle before 2021, and recently passed initiatives, such as Build Better LA, have added significant regulation to future development. To ensure that the 100,000-unit goal is met, the city must enact reforms that allow us to make the most of a strong market, and help us weather the years ahead as the current development cycle runs its course.

Streamlining LA’s development process to sustain high levels of market-rate housing production benefits the city’s financial bottom line, provides new revenues that may be re-invested in affordable housing, and creates thousands of privately-funded housing units for low- and moderate-income households by leveraging the state’s density bonus law.

The LABC Institute has long made the case for the economic, environmental, and equity benefits of increased levels of housing production, particularly near LA County’s major transit hubs. Housing Pays seeks to demonstrate the fiscal benefit of increased housing production, and how that fiscal surplus can support important city priorities including affordable housing. The report analyzes the net fiscal impact of new market-rate housing production on the city’s general fund budget, which considers the revenues new housing generates through taxes and fees, and the expenses incurred for services directly related to supporting new residents, such as police and fire department services, to estimate the net impact to the general fund. (5, footnotes omitted)

I am not in a position to evaluate whether the report’s conclusions about the the net fiscal impact of housing development, but it is clear that this is a useful exercise. Communities often focus on the costs of hew construction — strain on roads, mass transit and schools — without considering the gains. This report should help those in LA who seek to increase the supply of housing to benefit both the city’s residents and the city’s economy.

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