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LA, SD Try To Maintain Downtown Affordability

Just as a well-aimed bowling ball can be expected to knock down all ten pins and boost a bowler to a top score, many planners believe that a well-written zoning ordinance can steer the housing market toward socially beneficial ends. There is a difference between a bowling lane, however, and a downtown area.

A bowling lane is a simple configuration, and a downtown area is an unfathomably complex network of financial, political and human factors. A bowling ball traveling down a lane has a predictable result. The result of trying to influence the real estate market with incentives is far less certain.

Take for example the issue of density bonuses. The city councils of both San Diego (in March) and Los Angeles (in August) have both adopted new, improved, more-for-your-money density bonuses. In both cases, the cities have hewed closely to a model ordinance prepared by the state Housing and Community Development Department (HCD).

In both cities, the new laws are intended to stimulate the production of affordable housing by offering developers the chance to make a bigger profit on the market-rate side than otherwise, if those developers are willing to tuck a couple or three units of low-cost housing into the mix. The bonus rewards the developer for taking on extra risk of a larger project.

Both cities require developers to set aside at least 10% of their units as low-cost housing. In San Diego, developers can receive a bonus for setting aside only 5% of their projects for very-low income families. For that set-aside, the developer can now expand his project by 20%. By adding even more space for low-cost housing, developers can expand their projects by 35%, thus building a project 135% of the size permitted by the base zoning.

The zoning ordinances of both cities, however, share a significant feature: Both laws allow a developer to enlarge a residential building without limiting the number of units that can be built in the project. This is very important: Most zoning codes for housing typically cap the number of units on a particular piece of land, while zoning on commercial property is usually limited by size (the formula is the familiar floor-area-ratio, or FAR, meaning the ratio of square-footage under roof to the square-footage of the site).

Although the difference may appear trivial to non-housing weenies, this is a major change in policy. Clearly, the goal is to encourage developers to squeeze as many units, ideally low-cost ones, onto the site as possible. In Los Angeles, housing officials spoke openly of their desire for developers to build many very small units, some as tiny as 200 square feet, or roughly the size of the living room of my modest house in the San Fernando Valley.

Los Angeles and San Diego are two very different places. Why did the two cities, then, adopt two very similar ordinances? Both cities are experiencing a surge of high-end condo construction and conversion in their downtown areas. San Diego needs many new units of low-cost housing to keep pace with the production of new, market-rate units, and Los Angeles needs even more.

In fact, San Diego has been producing a steady number of affordable units since 2001, when the boom in downtown housing first gained traction. Currently, downtown San Diego has about 9,100 units, of which about 17% were affordable in 2006; the city hopes to boost that ratio to 20% by the end of this year.

In downtown Los Angeles, the percentage of affordable units is 40%, much higher than in San Diego, largely because the city's redevelopment agency built nearly 9,000 units of low-income housing during the decades prior to downtown condomania. Currently, however, the development of market-rate and luxury units far outstrips affordable housing construction. Since 1999, when an adaptive-reuse trend ignited downtown LA's housing market, only about 1,200 affordable units have come to market, while nearly 6,000 market-rate units have reached completion.

Some observers are troubled by the emphasis on very small units. Such units make sense for only single adults, such as the many immigrant men who work in L.A. and send money home. The danger is overcrowding if relatives or live-in lovers become permanent guests. The very worst scenario is that entire families move into the mini-apartments, and efficiency apartments spiral into overcrowded slums. Insofar as policing of housing (as opposed to planning regulations) is extremely lax in Los Angeles, the worst case is not unthinkable.

Prejudice can also rear its ugly head. The density bonus can become a turn-off to middle-class renters and condo buyers. One developer that has included several low-cost condominiums in one of its downtown Los Angeles buildings, Forest City Enterprises, told reporters in 2005 that it had lost several sales due to the anxiety regarding the inclusion of the low-cost units. Apparently some condo buyers equate low-cost housing with crowding and criminality, rather than a chance to live among teachers, journalists, students, licensed practical nurses and their ilk who cannot afford market-rate homes.

For all this hand-wringing and blinking of tearful eyes about increased density, the irony is that the density bonuses may not be powerful enough to produce many units. The cost of construction is rising, which is one reason why multi-family developers can only make their projects pencil at comparatively high prices and high rents. Plus, bonuses may not appear attractive when the market is strong and developers can lease or sell entire buildings at market-rate prices. Add the credit crunch to that, and affordable units may take a while in arriving.

We will see in coming months if the new zoning ordinances succeed in spurring the construction of new units for low- and moderate-income renters and home buyers. It all seems very uncertain to me. Meanwhile, I'm going back to the bowling alley, where all you need is a steady aim, all the results are predictable, and the only incentive is a pitcher of beer.