Housing Affordability in Los Angeles - Research Paper Example

Housing Affordability in Los Angeles (LA) Affiliation: Introduction Despite the fact that the economy is continuously improving, the majority of the American workers are still facing huge struggle when it comes to meeting ends meet. The millions of households experience problems with housing costs, which accounts for more than half of the household’s monthly income. These costs end up putting pressure and extreme stain households, hence living too little for taking care of other necessities like food, transport, and health care. Los Angeles remains to be largest major metro for any person to buy a home, which requires over nine years of earnings. LA has been experiencing rising housing problems due to the limited housing supply (Los Angeles Housing Crisis Task Force, 2000). The rising of the housing crisis has led to the confluence of policies that end up squelching supply. Some of these policies may include the land regulation that the neighborhood groups use in restricting or stopping supply. It thus leads to the thesis that, house affordability will remain to be a problem as long as a confluence of policies keeps on dominating this topic, thus calling for policies that are realistic and reliable. The paper is going to discuss the history of housing policies in LA, its effects, and the possible solution to the problem. Table 1: Los Angeles Home Sales Price Medians, by Sub Area, 2011-2012 Area of Los Angeles Sold 2012 2011 % change Year-to-Year Westside 1,238 $1,110,000 $1,100,000 0.9% West LA 2,378 $640,682 $622,500 2.9% Central City 4,054 $556,000 $489,750 13.5% South LA 3,979 $207,000 $200,000 3.5% North East LA 1,947 $280,000 $259,000 8.1% West SF Valley 6,965 $355,000 $344,000 3.2% Northeast SF Valley 4,732 $289,000 $280,000 3.2% Southeast SF Valley 1,513 $389,000 $365,000 6.7% Source: DQ News, “California Homes Sales Price Medians by Country and City” The table above indicates how the costs of homeownership have been able to drop since the recession time. However, buying a home remains to be a major challenge to the majority of the LA residents. While compounded with the relative lack of an adequate market supply together with the continued problems coming from the lending markets, homeownership for the LA residents remains to be an elusive goal (Halle & Beveridge, 2013). To help solve the problem of housing problem in LA, it is essential to pursue coordinated effort that involves, strong political will, assurance towards availability of required funds on long term basis and participation of different stakeholders for building dense, high-rise, low-cost residential apartments. The trend of housing costs has been increasing for many decades, thus prompting the policymakers into forming an Inclusionary Zoning Policy (Parson, 2005). The policy was to help at regulating the housing prices in Los Angeles County. History of Inclusionary Zoning Policy The median price for buying a new house in Los Angeles County is $450,000. Such prices end up affecting all people in exception of the wealthiest families on their chances of buying a home. Facing the pressure of ‘doing something’ in regards to solving the region’s housing affordability crisis, the Los Angeles local governments decided to turn into the inclusionary zoning ordinances. The time for implementing this policy was back in 1978. The policy had the purpose of lowering the price, and thus the value, and lowering the percentage of new homes (United States, 2009). Through this policy, house builder and subsequent house owners were forced into selling or rent their homes in a manner that they are ‘affordable’ to the specific income levels. The price controls through this policy were subject to set using different formulas in a manner that ‘inclusionary’ units had to be affordable to the very low-income earner, affordable to low-income earner, or affordable to the moderate income households. The same policy has been in use at other Counties in United States. For example, California has been using the same policy since 1950s and has been able to record positive impact for many decades. It thus makes this policy a wider trend that is subject to use in other counties. But upon reviewing the performance of this policy in Los Angeles since its inception in 1978, there is the very little impact that it has been able to create. By looking at the trend of which housing affordability has been on the rise, it is easy to state that this policy is insufficient and not effective at addressing the problem. Current statistics indicates that L.A. is the most expensive county for the homeowners and the tenants alike. The current expenditure indicates that the former spends approximately 40% of their income to cover the mortgages, while the latter spend over 48% of their income on rent. All of these figures remain to be highest in the entire country (United States, 2010). Most of this housing crisis results from the confluence of policies that end up squelching supply, some of them including regulations that neighborhood groups use when restricting or stopping constructions. From the 1960s and onwards, community opposition has played the role to the down-zoning of several areas in the county into becoming single-family residential, with this designation now existing in more than 80% of Los Angeles County (Eng & Biondo, 2013). Even in those areas initially zoned for growth, developers face the challenges of the locals that force them into building far fewer units contrary to their wishes (United States, 2009). The L.A. rent control laws that were subject to pass in 1978 limit on the supply through reducing the turnover. In the end, this law ends up taking the larger portion of the housing units from the market. For example, the current statistics indicate that 80% of the Los Angeles city’s 880,581 multifamily units are rent-controlled. The figure thus forces all newcomers into competing for the smaller stock of the remaining housing units available in the market. Even though the law does not apply to these new units, it ends up discouraging development in that it creates a climate of arbitrary governance. Therefore, the policy affects the housing sector, which in the end affects the residents who will pay high prices for the limited house units available for rent or sale. Rent is subject to consider affordable at the situation where the consumer can spend less than 30% of the household income (Camp, 2012). In L.A. County today, the available homes for affordable rent are only two out of the ten extremely low-income renter households. The graph below is an illustration of affordable homes funding Source: Los Angeles Housing Community Investment Development A point to note from the graph above is that yearly totals include the development funding, the federal money, and the city general funds. The graph indicates that L.A. is facing serious housing crisis, hence calling for the city officials to do something to help tackle the problem. Figure 1: The Economic Effects of Inclusionary Zoning Policy in Los Angeles Source: National Centre for Smart Growth Research and Growth (2008) In the figure 1 above, the economic impacts of inclusionary zoning normally vary basing on different program features. Having a voluntary program that relies on some incentives may end up having no economic impact. However, a mandatory program that might require several, deep and also long-term discounts could end up having some significant adverse economic effects. Table 2: Housing market impacts of inclusionary zoning policy in Los Angeles Variable Mean Sd min max Off site allowances 57% 50% - - In-Lieu Fees 76% 43% - - Land Dedications 25% 43% - - Target Population Very Low Income 41% 49% - - Target Population Low Income 77% 42% - - Target Population Moderate Income 61% 49% - - Period of Affordability (years) 34 12 10 55 Minimum Project Size to Quality (units) 12 50 0 400 % Units as Part of Inclusionary Zoning 12% 6% 0% 30% Source: National Centre for Smart Growth Research and Growth (2008) The table 2 above indicates the impact of adopting inclusionary zoning policy in Los Angeles since 1989. On average, minimum level of the project size under which development activities became subject to the inclusionary requirements were 12 housing units while the percentage of units that were a must to become available for the low income households was at 12%. However, despite having this inclusionary zoning policy in place, Los Angeles is still experiencing problems with housing affordability. Reasons why rent and housing prices have been rising despite the Inclusionary Zoning Policy Rent and housing increase in Los Angeles occurs in response to the demand. For example, more than 143,000 new renter households have been able to enter the Los Angeles market since 2006 (United States, 2010). Most of these people come to the city because of displacement that occurred following the foreclosure crisis. Even though there are proposals for the increase of state minimum wages as a possible solution to the rising housing problems, a few more dollars will not be able to reduce the affordability burden. Additionally, rent and housing prices continue rising about the stagnant and the declining incomes for the residents. In this regard, stagnant wages followed by the steeply increasing housing costs handle pushing the majority of the low-income households’ budgets into reaching a breaking point. In an overall production standpoint, it is apparent that inclusionary zoning is not effective at all. Some advocates of inclusionary zoning respond to the poor record by calling for the introduction of vigorous and many other numerous restrictions to support this policy. The advocates of the inclusionary zoning policy seem to assume some below-market rate units that are subject to subsidize out of the builder profits (Parson, 2005). However, the economies of scale predict that the house builders to be the least when it comes to bearing the burden of this new policy. To the short run, the builders that own the land will likely bear the burden of the inclusionary zoning policy. However, in the long-run, these house builders are most likely to avoid taxes from this policy as they will simply relocate their construction activities to the more profitable locations. In the end, this policy will end up affecting the landowner and new homebuyers as they will pay for the subsidy imposed by the price-control units. Recommendations to solve housing affordability problems in Los Angeles The County local government should encourage the developers into including some affordable units while at the same time giving the same developers permission for building bigger and taller projects. In the case, the developer will agree to set aside some number of below-market rental units, and then the city will allow room for the development of taller and denser projects. Similar, the strategy will offer some exception that will allow the use of enactment of the Inclusionary Zoning Policy in the current land. I would also recommend for the preservation of the affordable housing units in the entire county. Currently, Los Angeles County government handles overseeing contracts with numerous property owners that have shown commitment to providing low-income housing for the purpose of gaining a 20 to 50 years exchange in the form of subsidies (Schneider, 2008). Through this program, it is apparent that the city has been able to have some rent-stabilized units that are currently priced at the market rate whereby anyone can access them. The annual increase in rent of these housing units is capped by the management board of the city. In this regard, the City and L.A. County officials need to consider introducing a no-net-loss policy as a strategy for making sure that the landlords continue building new affordable housing units (McConnell, 2013). Adopting these two recommendations could have some positive outcome and hence help in reducing the rental and housing affordability crisis that Los Angeles is currently facing. Conclusion It is apparent that the Inclusionary Zoning Policy has not been effective in reducing or regulating the costs of housing in Los Angeles for many decades since the inception of this law in 1978. However, with adequate and realistic policies, Los Angeles will be able to turn this crisis around. With there is right planning, the region will be able to create some policies that will end up requiring the developers into building affordable housing as part of the return on the taxpayers’ investment. Finally, the Los Angeles officials should also not miss on the opportunity of addressing the fundamental challenges that are facing the city. References Camp, J. T. (2012). Blues geographies and the security turn: Interpreting the housing crisis in Los Angeles. American Quarterly, 64, 3, 653-678. Eng, J., & Biondo, A. (2011). Modern tract homes of Los Angeles. Atglen PA: Schiffer. Halle, D., & Beveridge, A. A. (2013). New York and Los Angeles: The uncertain future. New York: Oxford University Press. Los Angeles Housing Crisis Task Force. (2000). In short supply: Recommendations of the Los Angeles Housing Crisis Task Force. Los Angeles, Calif.?: The Task Force McConnell, E. D. (2013). Who has Housing Affordability Problems? Disparities in Housing Cost Burden by Race, Nativity, and Legal Status in Los Angeles. Race and Social Problems, 5, 3, 173-190. Parson, D. C. (2005). Making a better world: Public housing, the Red scare, and the direction of modern Los Angeles. Minneapolis, Minn: University of Minnesota Press. Schneider, J. (2008). Escape From Los Angeles. Journal of Urban History, 34, 6, 995-1012. United States. (2009). The housing crisis in Los Angeles and responses to preventing foreclosures and foreclosure rescue fraud: Field hearing before the Subcommittee on Housing and Community Opportunity of the Committee on Financial Services, U.S. House of Representatives, One Hundred Eleventh Congress, first session, March 28, 2009. Washington: U.S. G.P.O. United States. (2010). The housing crisis in Los Angeles and responses ... field hrg ... serial no. 111-23 ... com. on financial services, u.s. house of reps ... 111th cong., 1st session. Read More