Los Angeles market players are hoping that the recent defeat of a proposal to restrict development in the city will give rise to comprehensive zoning reforms that will make it easier to build affordable housing. “Zoning laws in L.A. that were made many years ago don’t fit the needs of the current community,” said Kitty Wallace, senior v.p. at Colliers International.
The city’s population passed the four million mark for the first time in 2015, with more than 10 million people in the greater Los Angeles County, according to a population report from the city’s Department of Finance. This represents growth of about 1.3%, with about 50,000 new residents moving to the city. At the same time, only about 12,000 new units of housing came online.
“People are concerned there are more concessions in certain downtown L.A. pockets, but in basically every market, there are more than two people moving there for every unit that’s being built and we are already at a deficit. There’s more than 95% occupancy in all SoCal markets,” Wallace said. “With the increasing population and less potential development, there will be additional pressure on rents, further exacerbating the affordable situation.”
Historically, it’s been difficult to build in Los Angeles – and California in general – due to strict and outdated zoning rules, market players told REFI. “It is cost-prohibitive and there is no real incentive to build moderately-sized affordable developments,” Wallace said. “To acquire land, people need a lot of money, and the cost of labor and materials has risen, so developers will only build the most expensive housing.”
Wallace is among the market players who believe that the defeat of Measure S, which would have make it more difficult to build large, high-rise properties and halted those under construction that didn’t meet certain parameters, could spur developers to start lobbying for changes. “It’s hard to make changes to zoning laws,” she said. “With the attention garnered by Measure S, we’ll continue to see a lot of pressure from developers to make this happen.”
Measure S, also know as the Neighborhood Integrity Initiative, would have changed the city’s laws governing its general plan and development projects. If the proposal had been approved on March 7, there would have been an up to two-year construction moratorium on projects that increased development density, a prohibition on project-specific amendments to the city’s general plan, and a requirement that the city’s general plan be reviewed every five years. About 68% of residents voted “no” on the measure.
Despite the outcome, local players haven’t been overly enthusiastic. “The defeat of Measure S is super-positive in the sense that it is not ultra-negative,” a market pro told REFI. “It would have been really bad for Los Angeles if it had passed – hopefully this allows any projects on hold to move forward, however to accommodate growth in L.A. we must address the housing issue.”
That said, the hope is that developers who have been slow to move due to concerns over the outcome of the vote will pick up their pace. “Over the last six months, people were slow to pull the trigger on major entitlement plays – I think it will pick up again,” said Gary Mozer, principal and co-founder of George Smith Partners.
One proposed project that could go ahead is KBS Realty Advisors’ plans to raise the floor-area ratio of Union Bank Plaza, a 646,755-square-foot, Class A office property. “By right, the buyer can build up to 318,000 additional square feet of multifamily or hotel properties, a substantial increase to the existing property,” a local player told REFI. “With the defeat of Measure S, up to one million additional square feet will be allowed to be built.” Calls to KBS were not returned by press time.
Local players pointed to a city initiative in Downtown Los Angeles that allowed office properties to be converted to multifamily with fewer parking spaces. “This incited the push for developers to build,” Wallace said. “Without incentives, it is difficult [to build]. In the city of Los Angeles, zoning for an average 7,500 square foot R3 lot allows for only nine units – that’s not going to get you far.”