Last Tuesday, voters in Los Angeles approved a ballot measure that would increase costs for developers—which will have the unintended effect of restricting the city’s housing supply and reducing housing affordability further.
Measure JJJ, which passed with nearly 64% of the vote, requires developers to pay higher wages and build below-market rate units if they get exemptions from key planning rules — a common occurrence in Los Angeles, where the city’s zoning is considered outdated.
The measure was pitched by advocates as a way to add more affordable housing in an already expensive city where many new apartment and condo projects are aimed at the luxury end of the market.
While improving housing affordability is a noble goal, adding more below-market units will ultimately be ineffective if it means fewer buildings are being built overall. There’s a common misconception that, because new units are billed as “luxury,” their construction won’t improve housing affordability. Activists think, because rich people are rich, high-end housing will be built regardless of cost, so why not force developers to also build a few low-income units?
This argument is simply untrue for the simple reason that today’s low-income housing is yesterday’s luxury housing. Sandy Ikeda explains this dynamic at Market Urbanism:
Let’s say there are 3 categories of housing – A, luxury housing; B, middle-income housing; and C, low-income housing – and that houses are continuously built, age, and wear down.
A house depreciates because of wear-and-tear, competition from new supply, and changes in the demand for houses. It may then fall from category A to B or even C. Throughout history, as long as there is no government intervention, expensive, well-built residences sink over time within their original category or drop into a lower category – or “filter” – to families living on lower and lower incomes.
For instance, fancy apartment buildings built in the Bronx along the Grand Concourse a hundred years ago are now home to some of the poorest families in New York. Similarly, although I can’t afford a new Mercedes today, I might be able to buy that same car eight or ten years from now.
People currently living in houses in lower categories rarely buy new products in the higher categories. And the less-well-off families tend not to buy the newest, most expensive construction even within their own categories. So, to argue that the poorest people in a city cannot afford the most expensive housing currently being built is to state the obvious.
To again state the obvious, new housing tends to be nicer than older housing simply because it lacks the wear-and-tear that come with years of use. Therefore, it wouldn’t come as too much of a surprise that new building are billed as “luxury” even if they’re aimed at middle-class tenants.
Again, to state the obvious: if these luxury units are unavailable, it’s entirely possible for higher-income residents to buy mid-range housing and renovate it into a “luxury” unit. Restricting “luxury” housing has the opposite effect as intended.
As for California, developers are already planning on dropping projects. Again from the Los Angeles Times:
Al Leibovic is one of those developers and builds small apartment buildings in the San Fernando Valley.
He previously told The Times that if the measure passed he wouldn’t build projects with fewer than 25 units that required exemptions — which many do. But after further running the numbers with his development team, he’s now worried about larger projects as well.
“This is pretty devastating,” he said. “It really throws all of our plans to construct an additional 700 units in the city of L.A. into question.”
700 units may seem small, but it can have a real impact on housing affordability, especially in the long run. Ideally, an even greater building boom created by an overhaul of the city’s zoning will help ameliorate the harm high rents cause on low-income residents.