Real Estate

Los Angeles City Council to Review Proposal Aimed to Require Real Estate Developers to Help Fund Affordable Homes

Frequent criticisms of the fee are that it could backfire and slow housing construction down by making it too costly for developers.

A Los Angeles City Council committee is set to revisit one of Mayor Eric Garcetti's top priorities today -- requiring real estate developers to help fund the construction of affordable housing through a "linkage fee."

The Planning and Land Use Management -- PLUM -- Committee last discussed the issue in August, where it made a number of changes to a draft ordinance that would create the fee, including the addition of a tiered fee structure depending on the market rate of the neighborhood.

The amendments were passed unanimously by the committee, and the City Attorney's Office has now drafted a revised ordinance based on the amendments.

Garcetti first proposed the idea for a linkage fee two years ago and called on the City Council to pass it during his State of the City speech in April, but the fee has proven to be divisive, with some council members expressing hesitation at the fee and some key business groups, including the Los Angeles Area Chamber of Commerce, coming out against it.

Frequent criticisms of the fee are that it could backfire and slow housing construction down by making it too costly for developers, or it could raise rents higher as developers pass the cost of the fee onto tenants.

"This is by far one of the most divided subject matters, depending on who you talk to that are in this space. Everybody's got a different opinion, Councilman Mitchell Englander said at the PLUM meeting in August. "This is like navigating a live mine field, that if we make it through it somehow, we'll live. But if we misstep at all, we don't, and the consequences are devastating."

The fee was approved by the city's Planning Commission in February. The plan approved by the commission would charge $5 to developers for every square foot of new commercial construction and $12 per square foot for new residential projects, but the PLUM committee approved a more recent recommendation in a report by the Department of City Planning and the Housing and Community Investment Department that suggested a tiered structure ranging from $8 to $15 per square foot for residential and $3 to $5 for commercial, depending on the market value of the neighborhood.

When Garcetti first proposed the idea, he estimated the linkage fee could raise up to $100 million per year for affordable housing, but a staff report approved by the commission downgraded the estimate to $75 million to $92 million per year.

The Department of City Planning and Housing and Community Investment Department report estimated the fee could raise between $93.7 million to $114.3 million per year with the tiered structure.

Garcetti set a goal in 2014 for construction of more than 100,000 units in Los Angeles by 2021 as a way to combat a housing shortage that has contributed to rising rents and an increase in homelessness in the city.

The Department of City Planning and the Housing and Community Investment Department report concluded that the fee would not result in a significant increase in housing prices.

The report also concluded that developers are unable to pass on the costs of new housing impact fees to tenants and home buyers because most developers are introducing a relatively small number of units into a community, where the price has already been set by the marketplace.

The idea for a linkage fee to fund affordable housing is not new. Other California cities such as Oakland, San Diego and San Francisco have one, as do other cities around the nation.

The new amendments recommended by the PLUM committee also include an exemption for low market commercial areas in the South Los Angeles Promise Zone for three years after the effective date of the ordinance, and an implementation of the fee through a phased-in approach, with the first six months after adoption at zero fee levels, the seventh through 12th months being one half of the adopted fee levels, and the full amount of adopted fees effective after the first year.

The amendments also would trigger a study of the fee if housing production falls below 10,000 units per year or major fluctuations in real estate or rental prices.

Copyright CNS - City News Service
Contact Us