Business & Economy

How can the city get developers to help pay for affordable housing?

Los Angeles is asking developers to help fund affordable housing.
Los Angeles is asking developers to help fund affordable housing.
David Liu via Flickr

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Build a project in Los Angeles, pay a fee. How much? That’ll depend on the size and type of the project.

That’s the city plan being put before developers to help ease the housing crunch turning Los Angeles into one of the country's least affordable places to live.

The developer fees would go into a city-run trust fund dedicated to building rentals that are affordable to lower-income residents.

A hearing Wednesday afternoon kicked off a months-long process to determine whether the fees are adopted by the city. 

The plan, projected to draw $90 million to $130 million in fees a year, has drawn concern from developers such as Todd Wexman, who spoke at the hearing. He said he recognizes there needs to be more ways to fund affordable housing. But he said the fees will make it harder for developers to build and that means less supply.

"That will push up rents and housing costs in a city that overall is way too high right now," Wexman said.

Most people at the hearing testified in support of the fees, and actually wanted the city to charge more.

"I do think we’re being a little too cautious given the lack of affordable housing for hundreds of thousands of our citizens," said Mike Alvidrez of the Skid Row Housing Trust.

Mayor Eric Garcetti introduced the idea of these fees about a year ago, and his office said they are one of his "signature" initiatives.

They're often called "linkage fees" because they draw a line between market-rate projects and the need to build more affordable housing — often for the workers who fill jobs that come along with the new development, such as baristas and grocery store cashiers.

"It not only improves the quality of life of families but will contribute to the vitality of the city as well," said Jose Torres of affordable housing developer Community of Friends.

But some developers say being hit with additional fees will make it less financially viable for them to build anything but higher-end housing, leaving middle-class households in a bind.

"We keep moving the bar up for the minimum price that you can rent or sell something to make it pencil out for a developer," said Tim Piasky of the LA-Ventura Chapter of the Building Industry Association. "That means you have less product being built at that workforce housing level."

Randy Johnson, executive vice president at Brookfield Residential Properties, said developers need to embrace linkage fees because of the city's dire need for more affordable housing.

"I don’t think anyone could say we don’t need to have it," Johnson said. "They just want to make sure it’s fair, and one-size-fits-all may not work."

As drafted, the fees would charge residential projects $12/sq. foot and commercial projects $5/sq. foot. Johnson says residential developers should not have to pay more and a sliding scale for fees based on geography should be instituted. For instance, a project in the Valley should be charged less than one on the West Side, Johnson suggests.

Despite their concerns, developers say the fees are still less detrimental to their industry than Measure JJJ. The upcoming ballot measure aims to impose affordable housing and wage restrictions on developers seeking a zone change for their projects, often to build bigger.

Should Measure JJJ pass, Gary Toebben, president and CEO of the Los Angeles Chamber of Commerce, said he hopes the city will drop the idea of developer fees.

"I would hope that there’s not a double layering of additional costs to build houses," Toebben said. "It would mean that the in the end we just shot ourselves in the foot because we’d be building less housing than we currently are."

After speaking to the mayor's office, Johnson said he got the indication that linkage fees could co-exist with Measure JJJ. He said he was told "If it does pass and you do what JJJ says you need to do, then you’re exempted from the linkage fee.”

To help you fill out your general election ballot, we've gathered the information you need on candidates and measures on KPCC's Voter Game Plan page and in our Voter's Edge voter guide.