Los Angeles is sitting on a sleeping giant in housing supply

By Arthur Gales, especially for CalMatters

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The Los Angeles City Planning Commission met last month to consider a proposal to slowly implement the Senate Bill 79state law allowing mid-rise and high-rise residential development near transit centers. The proposal would suspend SB 79 until 2030, replacing it with a “Low-rise Ordinance” that puts the right type of housing in the wrong place.

Both the city and the commission recognize that Los Angeles needs more housing. But there is a much larger multi-billion dollar housing opportunity ahead of them.

According to new research from the American Enterprise Institute’s Housing CenterLos Angeles has a generational opportunity to legalize starter homes: converting old single-family homes into townhouses, quadruplexes or complexes of up to eight homes per lot. Legalizing it would add gross 13,600 additional homes per yearnearly doubling new housing construction in Los Angeles, providing more affordable housing while generating $9 billion in property tax revenue.

This conversion process has been underway for years. Across the city, $1.1 million single-family homes are being torn down and replaced with $3.1 million McMansions without adding to supply. Legalizing starter homes does not accelerate this cycle; changes what is being built. The four-unit redevelopment produced homes valued at about $1.2 million each — roughly a third of the price of a McMansion. Even as individual homes become cheaper, the overall value rises. Los Angeles taxes this, so the city’s revenue grows while families pay less.

This is the unusual feature of starter home legalization: it solves supply, affordability and revenue problems all at once. Revenue accrues as the lots convert — about $182 million in the first year, $9 billion over the decade, $36 billion over 20 years. It helps fund the city’s general fund, schools and other critical services.

Three factors make the Los Angeles opportunity so important. Its single-family composition is old; the typical home was built before 1960. The city has spent decades preventing its housing stock from growing. And land is expensive: the average home costs roughly $1.1 million, most of which is in the land itself.

The result: nearly 400,000 single-family homes frozen in time on land worth a fortune.

Starter homes are almost entirely an option for single-family neighborhoods, making the geography of the SB 79 debate in the city backwards. The state is right that transit can accommodate taller buildings, and a de jure regime free of the bureaucracy of SB 79 could deliver thousands of new homes (one rating: approximately 4200 per year).

The city’s opposite low-rise proposal is both too much and not enough: more density than Los Angeles needs with starter homes throughout the city, but too little to build meaningfully near transit.

Los Angeles was built on starter homes. From 1921 to 1930, the city permitted about 220,000 dwellings – about half of them duplexes, triplexes, quadruplexes or bungalows. Two-thirds of these homes are still standing. LA didn’t stop building them because demand disappeared; federal policy, state laws and city zoning beginning in the 1930s prohibited them.

California has a way to fix that. In 2017, California reformed accessory housing policy with a simple recipe: streamlining approvals, permitting, lower fees and waiting times. The result is that nearly a quarter of new homes in Los Angeles were ADUs. The same recipe applied to starter homes would create much greater possibilities.

Los Angeles has a housing shortage of nearly 500,000 and is battle with Sacramento to delay and reduce new construction near transit. Meanwhile, the biggest and most beneficial change available to any city can be seen right on every block of single-family Los Angeles. By legalizing starter homes, the city could build 136,000 more homes over the decade at lower prices, and $9 billion would fund essential services. The only question is whether the city will take it.

This article was originally published on CalMatters and is republished under Creative Commons Attribution-NonCommercial-No Derivatives license.