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Los Angeles affordable housing incentive program isn't doing enough, audit says

L.A. isn't doing a good job incentivizing private developers to add affordably-priced housing, according to a new report. Ozfan22 via Flickr

Los Angeles needs all the affordably-priced housing it can get and has been trying to convince developers to build more of it. But a new report from the city controller shows that efforts are falling short.

A program allowing developers to build higher and bigger if they set aside units for lower-to-moderate income residents has generated an underwhelming number of affordable housing units, according to an audit by City Controller Ron Galperin. Auditors found 329 out of 4,463 affordable units added through density bonuses between 2008 and 2014  — or 7 percent — were in market-rate developments. The rest were in entirely affordable housing projects.

Galperin said he wanted to see how well the so-called “density bonus” program was performing. When the city adopted its program in 2008, critics were concerned that development would run amok. But Galperin said those misgivings now appear to be unfounded.

"What we unfortunately found was that it's just not living up to its potential," Galperin said.

A density bonus lets a private developer add up to 35 percent more units to a building than has been allowed at the location.  In return, developers must affordably price up to 30 percent of their units. (The exact numbers would depend on whether the units are for low-income versus moderate-income tenants.)

For many developers, it doesn't make fiscal sense to include affordable housing, said Eric Sussman, a developer who teaches at UCLA's Ziman Center for Real Estate. Sussman said affordable housing "caps my rent, and creates a lot more paperwork and management burden."

"Developers are about as capitalist as you get. Like them or love them, or hate them, it’s just economics," Sussman said.

The city controller’s report says the city needs to look at how to get more developers to participate, perhaps by bumping up the bonus units they get.

Galperin suggested maximizing the number of affordable units generated by the program. 

For example, the program could allow developers to locate their affordable units at another location "in a three-or-four story building that is wood-framed," and therefore less expensive to build than a high-rise residential building, which requires pricier materials, Galperin said.

"You can create a lot more units for the same dollars," Galperin said.

The report also found that the city needs to do a better job of monitoring the affordable housing stock it does have. Auditors spent months trying to pin down the exact number of units, Galperin said.

Councilmember Mike Bonin, whose district includes Venice, introduced a motion Tuesday that directs city departments to report back on how they could improve the tracking system for affordable housing, and also how they can make sure those living in the units are actually income-eligible.