Column: Patt Morrison asks: Raphael Bostic on why L.A.’s housing market is so bleak

The Bay Area’s housing costs are so preposterous that this year, Palo Alto — the capital of rich-tech — was considering housing subsidies for working families earning as much (or as little) as $127,560 a year. Los Angeles’ housing market looks reasonable by comparison. The wide-open vistas belie the fact that Los Angeles is the densest urban space in the country — too few places to live and too many people wanting to live here. Raphael Bostic, who was an assistant secretary at the department of Housing and Urban Development, is now at USC’s school of public policy, and he considers how the many catastrophes of the Oakland fire have made cities like L.A. rethink their own housing crises.

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What is the connection between what happened in Oakland and the housing problem in California, especially urban California?

I think the problem is we just don’t have enough units to do anything and so people are trying to make do with the structures that exist. The Oakland situation, they see an old building retrofitted to a use that doesn’t actually match what the building was intended for, and it creates a potential for problems.

And if you think about the housing situation, it’s the same thing: We don’t have enough units, so people are making choices whatever they can. Sometimes it’s the crowding, sometimes it’s partitioning units and sometimes it’s homelessness. None of those choices are good, and they never or rarely lead to good outcomes.

Is Los Angeles unique, or is it just the biggest of many cities facing problems like this?

L.A. is unique in one way but there are really two different housing problems in this country: You have the high-cost housing markets on the coasts, and somewhat in Florida. People are coming here, and we don’t have enough units.

And so you wind up with far more people chasing a fixed number of units, which leads to competition, and competition means bidding up prices, and that pricing therefore leads to difficulties in affordability.

The second type of city where we have a problem is a city where the problem is much more on the income and jobs level. So you think about Buffalo, you think about Detroit, you think about a lot of the Rust Belt places — there, the populations are actually shrinking. So you have enough units. The problem is you don’t have enough income.

If you are a homeowner in Southern California, or in California at all, you might be sitting pretty and thinking, this isn’t really bad. But for everybody else, for young people who want to buy in, for people who may be selling and looking to buy elsewhere in California, you have difficulties.

It’s an interesting paradox because certainly, if you own a scarce resource, that means you’re in a good situation. The challenge is that lack of affordability actually can be an economic challenge. It can lead to competitive imbalance as and it can make it hard for people to live here. And when it’s hard for people to live here, some employers are going to say, maybe it’d be better for my workforce if we located somewhere else. So the challenge is always, to what extent does the affordability challenge become a competitive disadvantage?

The second piece to that, though, is ultimately, if we are not creating jobs that pay the right wages or high enough wages, there aren’t going to be enough people to buy all the homes at the prices we need them to be sold.

Many Californians, many Angelenos who own homes view that house as a retirement vehicle, that as they retire, there’s going to be a lot of equity in that home that the can pull out. We need to be thinking about what kind of jobs we’re producing so that we can make sure that that house-based retirement strategy can actually be a winning strategy.

Doesn’t it alter the market when you have Chinese buyers coming in and paying cash, and above-market prices? You saw this in London; one reason housing prices went so high in London is Russians with money who wanted to park it somewhere safe.

When I think about China and what people in China are doing — because property rights are not secure there, when you get assets, when you have resources, you want to park it somewhere you know that it’s going to be yours.

Southern California has been a more recent place where there’s been a lot of money parked. The first places that Chinese capital went to were places with really good school systems because it was viewed as an opportunity to get their kids into good school systems, which would translate into good colleges and then a better trajectory in terms of life. San Marino, some places in Orange County down near Irvine — those are cities where we’ve seen a significant influx of Chinese money and Asian money more generally.

More recently, though, we’ve started to see just more raw deployment to acquire real estate here. If you think of the Greenland Towers downtown, down by Staples Center — those are not being marketed to U.S. families. Those are marketed almost exclusively to Chinese families, because they understand there is a lot of capital in China and the owners of that capital are trying to make sure it’s placed in places where they can secure it.

[Editor’s note: The U.S. subsidiary of Greenland, the Chinese-based development firm behind the towers, responded that it has marketed here and sold “more than 50%� of its Metropolis properties domestically.]

In Southern California, one of the reasons we have a shortage of units is that we don’t build units the way we used to. The numbers of units that we’re producing on an annual basis has lagged the number of new people coming here, over 15 or 20 years. Because of that, we’re much more sensitized when a Chinese family comes in, takes one unit off the market by paying cash. That one unit, because we’re producing so little, is more precious.

This wouldn’t be as big an issue if we were producing hundreds and hundreds of units, thousands of units on an annual basis, to really eat into that shortfall.

Let’s talk about why that building has not kept pace. Some people blame environmental regulations, like CEQA, the California Environmental Quality Act, for restrictions. Or they say it’s NIMBYism. What are the impediments that you see in the way of the kind of building that you talk about to meet the demand?

I think you mentioned a number. CEQA is certainly a problem. I think it’s a problem for all of us because it’s being deployed in situations where the concerns of CEQA are kind of beside the point.

If you have a building at Hollywood and Vine, for example, that building is probably large already. We know what the environmental impact has been, and what’s going in three is not going to be so different from an environmental perspective. And yet people and activists are able to sue CEQA to delay that project for two years. I am not arguing that environmental concerns are unimportant, but how this is being applied right now is really hindering our ability to respond to market forces.

I would also say that the hidden thing here is that people don’t really feel the cost of not having enough housing units. I think every one of us here in Los Angeles lives with the cost of not having enough housing units. And it’s really because when u have to get in your car, trips that used to be able to be done in 15 minutes now take 30. We don’t attribute it to the fact that this extra congestion is not necessarily needed.

People have to drive to get where they need to go. So if I were working in Santa Monica and living in Santa Monica, maybe I’d walk to work maybe I’d bike, there’s lots of folks who bike around today. But if I live in Montebello and have to get to Santa Monica, I’m getting in my car.

Even though the endpoints are Montebello and Santa Monica, if you live in mid-Wilshire, if you live in West Adams, you’re going to be affected by that, because that person has to come through that that region.

When I say we’re all incurring the costs of inadequately housing our region, that’s what I mean. It’s this spillover effect that affects all of us because these people are crossing all of our pathways.

With the Oakland fire, you saw people living illegally in spaces not authorized for that. You see in Los Angeles granny flats, you see converted garages — if you bring those spaces up to code, and make them habitable and make them legal, it’s going to cost more to make those places legal for people to live.

That’s an interesting conjecture. I will say it like this: There would certainly be costs in terms of making sure the electricity was wired in a safe and sound way, but there are ways to offset those costs. For example we know from my experience in the Obama administration at HUD, when they did the stimulus package, there were federal resources made available to weatherize and upgrade public housing units and some of those public housing units are owned by private property, by landlords. So there are ways to really provide infrastructure and structures to help people do that.

I’m actually a big fan of the accessory dwelling unit, the granny flat and those sorts of things. I think it matches very well with how a lot of families in this region like to live. And it’s something that would add units without adding a lot of extra congestion.

A lot of folk in Pasadena live in garages but they really don’t put the car in the garage. They use it as storage unit or this that and the other thing. I think many families would think more carefully about their space and how it’s used if they had a wider range of options they really understood that we provided for them.

Should Los Angeles and the cities in LA County consider a kind of zoning amnesty for this? To say, all right, we have a period of time where you can do this? You have to bring it up to code but it will be residential and authorized if you do that?

I would do it. For me I think that’s a great idea. The one thing that makes this harder is that you really want to have enough inspectors to make sure you’re getting [buildings up] to code. What we’ve known in just about all these cities is that our fleet of inspectors is somewhat limited, so if we’re going to take that approach, it think it’d be really prudent to couple that with a hiring program or even contracting program where you say: OK, existing contractors, we will deputize you to be an inspector.

Think about smog checks: they’re private garages that do the smog checks but they’ve been certified by the by the state, so that when you get a seal from them, it’s a real seal. You could do that with contractors or other people in the building trades to give them an opportunity to be government representatives.

Where are the brakes being put on to this process, to all of the ideas we’ve talked about?

It’s a lot of places, and one of the challenges we have here is governance. Our governance structure is extremely complex. In Los Angeles you have L.A. city. You have L.A. County, you have 88 other cities in the county. You have SCAG, the Southern California Assn. of Governments, which is a regional body. You have multiple water districts, you have multiple power districts, you have transportation districts, you have the ports. So you think about a coordinated strategy, and your head starts to get dizzy because it requires so many different people to all make the same supportive decisions.

Now, it’s difficult to get them all in a room, let alone get them to all completely agree that this is the one thing we should do. So part of our challenge is to think about we can streamline our governance and move forward.

The other thing I would say is that I think it’s really important that we try to find ways to get Angelenos to think that we’re all Angelenos. It’s amazing: when you sit next to a New Yorker on a plane and ask them where they’re from, they all say New York. And then they’ll say Brooklyn, they’ll say whatever neighborhood.

When you sit next to someone from Los Angeles on a plane, almost certainly they’re going to say their neighborhood first or their little town, and then, maybe, Oh, it’s in LA.

So finding ways to get a city of neighborhoods to become neighborhoods that have grown into a city is where we need to go.

What effect has rent control had on the housing market? You hear landlords and others saying it’s an impediment to making any kinds of changes, and renters saying it’s the only way we can afford to live anywhere near here or any way like this.

And both of them are right.

In a place where you have a shortage of units, if we let everything go to the market, then those with the lowest incomes are going to be thrown out. At the same time, if you limit the amount of cash flow that comes out of a building, that limits the amount a landlord has available to make upgrades and make the changes as things break down.

So they’re both right. I think we have a short-run and a long-run problem. In the long run we need units, we need investment, we need upgrades, we need all that kind of stuff. The right answer and best answer of that is to not have controls — make land attractive and appealing for people to invest in it. They’ll invest in it in ways that get us a lot of units. Those units then go to a lot of people and eventually it would work.

The problem is that to build units takes decades. We have an affordable housing problem today. Rent control is one response to that, to say, OK, in the short run, I’ve got to do something to help the people who are struggling today.

In the grand scheme of things, it’s still expensive in Los Angeles with rent control. So rent control isn’t a panacea marketwide, but it is helping a bunch of people who would be far more desperate otherwise.

Sometimes policies made out of disasters may not be the best ideas, but at least they get attention to the problem for the moment. What do you see as the lesson that might come out of the Oakland tragedy that would benefit the housing crisis in California?

I hope that it causes us to think relay hard about the choices families feel like they’re forced to make because we don’t have affordable housing. The illegal units, the overcrowded units — those things are in many regards invisible to your average Angeleno.

If you’re not living in that, you won’t know whether the person in the cubicle next to you is living in an overcrowded unit. You won’t know if your taxi driver or your Uber driver is living with seven people in a two-bedroom.

What the Oakland tragedy does is that you can’t ignore that. We are seeing really bad choices that people had to make, actually tough choices that turned out really badly. Hopefully, it’ll cause us to reflect: what are the tough choices that people are making that could turn out badly? And how can we notice and once we notice what can we do to try to fix it?

On some level it can be a really galvanizing moment for people to come together and try to find creative solutions to problems that are in plain sight.

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UPDATES:

2:10 p.m., Dec. 15: This article was updated with a response from the U.S. subsidiary of the Greenland Towers’ Chinese-based developer regarding the marketing and sale of its Metropolis properties.

This article was originally published at 4 a.m. Dec. 14.