September 20, 2021
Today I read an article in the LABJ written by Hannan Madans (published on September 13, 2021) that there were nine affordable apartment complexes underway in LA. That’s great news but a closer look at the numbers shows a very real problem. Not only are nine projects a small drop in the bucket when compared to what is needed to supply housing to the tens of thousands on the streets in LA County, but the cost per unit is also a major problem. The average cost per unit exceeded $500,000.
A half a million dollars per unit is not affordable. Not for the tenant and not for society. In a world where a return on equity without accounting for leverage is considered acceptable at 4% per annum, a $500,000 unit would have to generate $20,000 a year after the expense of operating it. Property tax alone will add about $6,000 per unit per year and insurance, utilities, maintenance will add about $4,000. Added together, that is $2,500 a month in rent required to make a $500,000 unit work. To make $2,500 rent work, a family or person would need about $90,000 a year in income. That is two people working full time at $22.50 an hour.
Why is (affordable) housing so expensive? Land, labor, and materials are the obvious but superficial answers. Perhaps the underlining answer is that mandated requirements instituted over the last thirty years have driven up costs and provided little benefit with respect to getting people off the streets, out of tents, and into real and affordable shelter. Our building requirements do not serve the poor, they do the opposite.
Given the enormity of the housing (and homeless) crisis, I suggest fair questions to ask of our policymakers are:
If a single-family home built in 1950 continues to serve as a sound and safe shelter for a family, why is it that the current building code requires about twice as much steel and bracing as was required in 1950? The same can be asked about multi-family. Although we have learned that tuck-under parking does require more steel. Have we engineered past the point of economic benefit?
Is dual-pane glass necessary in a place like LA?
Is central air conditioning necessary in LA?
Should every house be mandated to have solar?
Does every lot need water filtration so water is filtered before flowing to the street (isn’t most of the pollution actually on the street – never mind the sidewalks where thousands are living)?
Does every new road have to accommodate huge firetrucks?
Should zoning in LA and other places restrict apartment development on boulevards that have six lanes of traffic?
If housing the homeless is a priority, I think questions such as the ones presented above are fair to ask. Policymakers are elected to make tough choices and to date, it appears they only want to talk about the problem. However, doing nothing is a choice, and that choice does nothing to get people off the street, make housing affordable or fix the problem. The choice is straightforward; do we as a society want building standards that are so safe, secure, and environmentally friendly that we exclude a segment of society from housing and allow them to live in squalor?
I would love to know your thoughts.