Don’t Call It a Boom: Despite Uptick, LA Still Adding New Housing At a Snail’s Pace
LA's real housing booms took place decades ago.
In mid-December we wrote that Los Angeles is well on its way to achieving Mayor Garcetti’s goal of building 100,000 new homes between 2013 and 2021. With development visibly picking up in neighborhoods throughout the city, we’ve been hearing from the media that LA is in the midst of a boom in housing development. (See here, here, here, or here.)
But is it, really?
We’ve permitted quite a few homes in a short period of time, so in that sense, yes, we’re booming. But permitted housing is not the same as built housing, and many entitled units don’t end up being built for years (or decades). And 3 or 4 years of rapid housing development won’t make up for 30+ years of underproduction, dating back to the late 80s and the passage of destructive anti-growth measures like Proposition U.
Some of this is also about clarifying the difference between local, neighborhood-level booms in places like downtown, Hollywood, and Koreatown, and the kind of citywide boom needed to fully address the region’s housing shortage. The fact that almost all new homes are being permitted and built on less than 10 percent of the city’s land is also a major problem; it’s hard to create enough housing when 90 percent of the city isn’t interested in pitching in.
We need sustained, consistently larger amounts of new housing if we’re going to make a dent in the growing demand for a home in Los Angeles, or if we want to raise the public funds and private investment necessary to subsidize the tens of thousands of affordable units our city needs. Not just in downtown and Hollywood, but on parking lots and employment centers and transit corridors and commercial strips throughout the city.
We’re not there yet. Below are several charts, using local and U.S. Census Bureau data, that will hopefully highlight how much further we have to go.
COMPARISON TO HISTORIC TRENDS
Maybe the most straightforward way to tease out what a “boom” would look like is to compare today’s housing production to that of decades past. By this measure we’re doing extremely poorly.
The chart below shows the number of housing units in the city based on the year they were built. As you can very clearly see, the vast majority of housing in LA was built before 1990; the past 30 years have seen consistently depressed housing development with no real signs of improvement post-2010.
A whopping 87 percent of LA’s total housing supply was built prior to 1990, while only 13 percent was built in the last 25 years.
More recently, between 2010 and 2015, we’ve only added approximately 25,000 new units. That number does not include all of 2015 and includes none of 2016, and it will grow by 30 to 50 thousand in the next several years as existing developments finish construction and planned projects get underway. But at best we’re roughly on pace for housing production similar to the ’90s and ’00s, both of which saw historically small amounts of new housing and historically large increases in housing prices. That’s not a boom, that’s the continuation of a decades-long slump.
This slump is reflected in our city’s vacancy rates, which have a direct relationship to home prices and rents. Lower vacancy rates cause prices to go up faster. It’s exactly the same relationship we see with unemployment: When unemployment is low and fewer people are looking for work, labor is scarce and so workers can sell their labor for more money. As a result, job applicants and existing employees gain bargaining power and their average pay increases. Likewise, when housing is scarce, landlords gain bargaining power and rents increase.
The chart below shows rental vacancy rates for the LA metro area since 2005.
For the LA metro area as a whole—which, to be clear, is much larger than the city of LA—vacancy rates for rental housing are at historic lows.
It’s generally estimated that vacancy rates around 5 to 6 percent give landlords and renters roughly equivalent bargaining power. Right now, the 12-month average is around 3 percent, which is an incredible gift to landlords (and homeowners). Comparable data at the city level isn’t as up-to-date and only goes back to 2010, but the trend has been for the city to have an even lower vacancy rate than the metro area. The U.S. Census Bureau has reported the City of LA’s rental vacancy rate at below 4 percent since 2013, and has been lower than the metro area in every year since 2010. If that’s still the case in 2016 and 2017 (which is likely), vacancy rates have probably dipped below 3 percent in the past year. Again: landlords rejoice, renters despair.
We’re on pace to build the same amount of housing as two previous decades of historically limited housing production, and actually trending toward fewer available homes for new and existing residents, even as rents increase. If this is a boom, we don’t want to know what a bust looks like.
COMPARISON TO PEER CITIES
Maybe you’re looking at the first chart and thinking, “Well of course housing production has slowed down; Los Angeles is basically full!” Putting aside the fact that people were saying the same thing when LA had a million fewer people, we don’t have to look far to find other cities that are just as “full” and have managed to grow even faster.
LA’s population density has barely budged since 2005, while Seattle and San Francisco have grown much more quickly. San Francisco actually went into 2005 with almost double LA’s density, and its population density over the past ten years has increased about 6 times faster than ours. Seattle was about 80 percent as dense as Los Angeles just 11 years ago, and it will likely surpass us by 2017.
Both peer cities have similar growth pressures and geographic and topographic constraints as LA, and yet they’re finding places to accommodate new residents in ways that we simply are not. If they can do it, so can we—and so should we.
What’s notable is that San Francisco and Seattle have made room for growth in different ways, as we’ll see in the below two charts. First we’ll look at how many new residents are moving to each city for every new housing unit being built.*
For every new housing unit permitted since 2010, 3.33 new residents moved to Los Angeles. The average renter household has 2.71 occupants, so we’re definitely not doing enough. The average household size for new residents is almost certainly smaller than existing residents, because it’s already too expensive for many middle- and lower-income families to move here, so we’re actually doing even worse than these numbers indicate. As we fall further behind, more of our residents are being forced to find roommates, delay moving out from their parents’ homes, or move back in with family.
In San Francisco things are even worse. Not only are they adding 3.59 new residents for every new home permit, the average renter household there is just 2.10 people. San Francisco is in serious trouble, but they’ve been on this trajectory for a long time. Hopefully LA can take the hint and chart a different course before it’s too late.
Seattle is doing the best by far. There, they’re permitting one new home for every 1.91 new residents. The average renter household has 1.89 occupants, so they’re very close to meeting demand by that metric. This still doesn’t account for the likelihood that new households are smaller, or that permits are not the same as actual construction, or that new units usually require the demolition of some smaller (much smaller) number of old units—average household size continues to grow in Seattle just as in LA and SF, for example, indicating an increase in rooming and delayed household formation by younger residents—but it’s still leaps and bounds better than what we’re seeing in LA and San Francisco. If any of these 3 cities warrants the “boom town” moniker, it’s Seattle.
The next chart shows the percentage increase in housing units for each city since 2010. Again, these numbers represent permits for new units. Some will probably not be built within the next 5 years due to fluctuations in the financial markets, swings in the development cycle, changes in demand, etc. The numbers below essentially represent a best-case, highest-housing-production scenario.
If it wasn’t already obvious, this hopefully makes it clear how badly Los Angeles is blowing it.
Since 2010, we’ve permitted enough new housing to increase our housing stock by just 4.5 percent—less than 1 percent per year. Even San Francisco, one of the least growth-friendly large cities in the country (perhaps the least growth-friendly), has actually permitted more growth over this timeframe. And that’s from a baseline where it was already twice as dense as Los Angeles.
Seattle, meanwhile, is actually taking the housing affordability crisis relatively seriously. Advocates there will no doubt argue that it’s still not enough, and they’re right, but that just goes to show how far we have to go here in California.
Seattle is growing its housing stock literally 3 times faster than LA or SF, and, guess what: It’s not armageddon! Most of the growth is taking place along major transit corridors, and though development there is no less controversial and polarizing, it’s actually happening. As a result, more people have been able to call Seattle home, and more housing for low- and moderate-income households has been built. There’s no place in Washington state with better job opportunities or transit, or a smaller environmental impact per resident, so that’s exactly how things should turn out.
LA should aspire to the same. We should aspire to better, actually. Isn’t that what California’s all about? We’ve got a long, long way to go, but if you agree that Los Angeles can do better—and be better—we hope you’ll join the volunteer Abundant Housing team and help us in promoting smart, inclusive policy and supporting a greater diversity of housing choices for all of our residents, new and old.
[This article was originally published by the blog Abundant Housing LA]
Abundant Housing LA
Abundant Housing LA is committed to advocating for more housing. We want lower rents and a more sustainable and prosperous region, where everyone has more choices of where to live and how to pursue their dreams.