New Los Angeles Mayor Picks Unnecessary Fights over "Luxury" Housing

Josh Stephens on
Jan 23, 2023

The amenity wars are heating up in Los Angeles. Swimming pools, quartz countertops, and in-unit washer-dryers are old news. I recently toured a soon-to-open residential development in which the refrigerators dispense not just regular ice cubes for sodas or cold brew but also tennis-ball sized spheres for the perfect old fashioned.

To hear newly elected Mayor Karen Bass tell it, this is exactly the kind of development that housing-starved Los Angeles does not need.

Bass, who took office in December, was recently interviewed by Liam Dillon and Ben Oreskes of the Los Angeles Times about her land-use agenda. Among her goals for the future and complaints about the status quo, she decried the proliferation of "luxury" developments. I'm not sure if she's seen those fridges yet, or the rates that the developer will be charging for the rentals, but I'm pretty sure that they'd fit the bill.

"I do think the city needs everything," said Bass, meaning that the city needs a variety of housing types. She'd have been fine if she'd stopped there. But, she continued, "Well, let me let me qualify that. I’m not sure if the city needs more luxury housing. But luxury housing and market-rate housing are two different things."

There’s no doubt that Los Angeles needs deed-restricted affordable housing. Bass says she's "not sure" about the rest, though. I'm sorry, but, given that housing is arguably the number-one issue in Los Angeles, I think the mayor should be sure about how much housing is needed and about who needs what sort of housing.

In Los Angeles, any new market-rate housing is almost inevitably going to be "luxury" housing. Developers build "luxury" buildings because the city’s combination of high land prices, high construction costs, bureaucratic friction, and ravenous demand make properties that are "merely" market-rate untenable. Rents in Los Angeles are what they are, regardless of whether they include fancy cocktail ice. A two-bedroom dump anyplace that's not underneath a freeway goes for at least $3,500 per month.

Even if developers are building "luxury" properties just for kicks, let's look at Bass's most provocative claim: that the development of luxury properties results in displacement and/or increased rents for incumbent residents. In response to Dillon's statement-question, "The construction of market-rate homes in disadvantaged areas does not cause gentrification or displacement, but instead prevents it," Bass responded with an oddly definitive diagnosis, backed up by anecdote: "That’s completely false. I’m sorry. The area that I lived in until a few weeks ago in South L.A. People who paid $150,000 for their homes. If you put a market-rate house next door, it’s going to be close to $1 million."

This is pure nonsense. In the very same interview, Bass praises Los Angeles's rent controls, which govern the vast majority of its older, less expensive housing stock. In additional to limiting rent increases, rent control makes it almost impossible to evict a tenant including, and especially, for the purpose of jacking up the rent. Rick Caruso could build Buckingham Palace next door to your dingbat and it would--by law--have zero influence on the rent you pay.

Caruso is, of course, the developer whom Bass defeated in November’s mayoral election. He’s famous for his high-end shopping centers like the Grove. One knock on him was that he would be too felicitous to his fellow developers, turning the city into one big construction site. Instead, we elected someone who doesn't seem to understand development at all.

I happen to support the development of new housing (affordable and market-rate) in expensive areas, for many reasons. Even so, plenty of academic research contradicts Bass's claim about the impacts of new development in low-cost areas. I'm particularly convinced by USC Planning Professor Dowell Myers's idea of "vacancy chains," in which people who trade up to nicer, more expensive homes make less nice, less expensive homes for other people. This is how real estate works in growing cities.

The real "luxury" units are the city's hundreds of thousands of single-family homes. The tiniest, oldest, ugliest cottage in Los Angeles goes for nearly $1,000 per square foot. Working class Angelenos can’t dream of affording those rates, and very few early-career professionals or young couples can pay that kind of money either. The former often double up, and the latter tide themselves over with cocktails and the hope that someday they'll have enough cash for a down-payment (or for an entire purchase, since many deals these days are all-cash).

Bass seems to wonder who these tenants are, admitting, "I have never understood who lives in all that luxury housing." The subtext is well taken: any big-city major should prioritize the needs of lower-income residents. But, ignoring wealthier residents, and their market power, is not a sound basis for a housing policy. The fact of the matter is, the people who can afford those rents are the people paying those rents—and there are many thousands of them in Los Angeles.

If that wasn't enough, Bass throws in a bit of xenophobia: "I do know that there’s a high vacancy rate, or put it this way, there’s absentee owners. People who don’t even live in the United States who own a lot of property here." Absenteeism is a legitimate concern, especially because neighborhoods with low occupancy rates can feel dead, and it's true that many overseas developers and investors are involved in Los Angeles real estate. But, the specter of "foreign owners" is usually raised to make development seem scary. If Bass thinks this is a genuine problem, she's now in a perfect position to propose an ordinance to tax or otherwise regulate absenteeism.

From a policy perspective, very little of this makes sense. "Luxury" is not a land use designation. Absent deed restrictions or unusually prescriptive development agreements, developers can fit out buildings however they want and charge whatever they want. Unless Bass is considering a city ordinance to define "luxury" and restrict it, her comments amount to pure divisiveness. They alienate many housing advocates, most developers, and many upwardly mobile residents. And they play into the hands of the city's slow-growth establishment, who have historically exploited class rivalries and ignored economic reality mainly for the purpose of inflating their own property values.

Here's what might: the Regional Housing Needs Allocation.

As we at CP&DR have written before, the latest incarnation of RHNA, and the mechanisms Sacramento is now using to enforce it, obviates much of the hand-wringing and obstruction that takes place at the local level. Bass’s city has to accommodate 480,000 units over the next eight years, roughly half affordable and half market-rate (amenities optional). Los Angeles's housing element has already been approved, and the city is updating its zoning accordingly. The zoning is coming, and Bass going to have to sign off on it whether or not she likes it or not.

Given the magnitude of the crisis in California, I hope Bass and other municipal leaders can drop the divisive rhetoric of political campaigning and embrace collaborative rhetoric that governance requires. The promotion of equitable development is one of the most difficult tasks a mayor can take on. Success requires thoughtfulness, openness, an appreciation for nuance, and a commitment to diversity. Those aren’t luxuries. They are necessities for everyone who lives in California and everyone who wants to live in California.