LA’s housing crisis and what’s being done about it

If you live anywhere in metropolitan Los Angeles, you know that housing is a big problem in your community. Homes are very difficult to afford, and a tragic result is that homelessness has become rampant in recent years. Politicians are starting to take serious note of the situation and are making it a high priority to have developers build a lot more housing and to increase affordability. Such serious efforts are indeed needed to prevent grave harm to the region’s social sustainability.

To get a sense of how bad the housing crisis is in Los Angeles, it’s helpful to look at some national data. In my years as a city and regional planner in the Minneapolis-St. Paul Area, I especially looked to something called the “Affordability Index of Existing Single-Family Homes for Metropolitan Areas,” a dataset produced by the National Association of Realtors. The value of this information is that it is updated annually (albeit with a time lag currently approaching three years) and is extremely comprehensive, tracking trends in the 180 largest metropolitan areas in the country. And especially valuable, in my opinion, is that it measures how well a typical household can afford a typical house. Because of this, researchers can get a good sense of how difficult it is for lower income people to even imagine owning a home. If typical households can’t afford a typical home, how can lower income people do so?

The index uses a baseline of 100.0. In a metropolitan area with that rating, a typical household can just barely afford a typical home. If the index were to be 200.0, for example, that would mean that the typical household could afford to own two typical homes in their metropolitan area at once if they wanted to. Or, they could upgrade to a really nice home or choose to do something else with the money they saved. Conversely, if the index was 50.0, they would be able to afford only half of a typical home, usually meaning that they won’t be able to afford to buy a home anytime soon, if at all. And of course, high home values also translate into high rents, creating serious difficulties with rental options.

So what does the most recent report tell us about how housing affordability in Los Angeles stacks up to the rest of the country? Unfortunately, the news is bad. In 2022 (the most recent year for which data are currently available), the index for metropolitan Los Angeles was 43.1. Out of the 180 metropolitan areas reported, only one was less affordable: LA’s northern neighbor of metropolitan San Jose with an index of 41.5. Even metropolitan San Francisco (reported separately from San Jose) was slightly more affordable than metropolitan Los Angeles, with an index of 47.4.

At this point you may want to see the national report yourself to explore what’s going on in other regions (and perhaps use that information to plan a migration to somewhere more affordable). So, here’s the website where you can do so. But, in many other metropolitan areas, the housing affordability situation has also become increasingly difficult since 2019. By 2022, 45 out of the 180 metropolitan areas in the report had indices less than 100.0, up from only eight in 2019. And unfortunately, for those who might want to live in a major metropolitan area, it was the case in 2022 that thirteen of the nation’s 25 largest metropolises had affordability indices less than 100.0, including all of those located in California, Boston (87.6), Denver (79.9), Los Angeles (43.1), Miami (66.3), New York (72.4), Orlando (83.2), Phoenix (88.1), Portland (82.8), Riverside (70.5), San Diego (56.8), San Francisco (47.4), Seattle (77.7), and Tampa (95.6). However, bargains could still be found in the metropolitan areas of Atlanta (117.4), Baltimore (137.6), Charlotte (104.2), Chicago (133.2), Dallas (116.3), Detroit (163.3), Houston (112.4), Minneapolis-St. Paul (140.6), Philadelphia (143.6), San Antonio (110.5), St. Louis (174.2), and Washington DC (110.6).  

So, that’s a quick look at the bad housing news. What are some good news items about housing affordability? And also, what challenges are there that need to be addressed for the good news to bear fruit?

Here are three good news items that I would highlight:

1. Mortgage rates have been coming down along with inflation. The housing affordability index incorporates typical mortgage payments, not just the total price of the house. With mortgage rates coming down. we will expect housing affordability to improve, at least in the short run.

2. The State of California has reformed its Regional Housing Needs Analysis (RHNA) process. This is a technical analysis that never makes the headlines but is crucial in establishing housing policy throughout the state. Until recently, the analysis looked only at the needs of housing stemming from expected future new households, systematically ignoring any accumulated shortages from the past. The most recent RHNA, however, incorporates past shortages and directs the state’s regional planning entities (such as the Southern California Association of Governments [SCAG] for the Los Angeles Area) to allocate this need to each city and unincorporated areas within its jurisdiction. The result has been shocking in its magnitude. For the six-county SCAG region, the determination was that over 1.3 million new housing units need to be built between 2021 and 2029, with approximately 500,000 of those units to be built within the City of Los Angeles alone. Here’s the State’s website explaining its RHNA if you want to learn more about the details of that process.

3. California cities are now taking steps to at least make it possible to accommodate the new units identified by the new RHNA. Zoning needs to be changed to allow more housing in more places, much of it in the form of mixed-use projects consisting mainly of higher-density housing within transit corridors. In Los Angeles, Mayor Karen Bass has repeatedly stated that meeting the City’s new housing goal is a top priority for her. Substantial rezoning is occurring to accommodate this goal, and detailed estimates are being created regarding the cost of ensuring that the goal ensures affordability for low- and moderate-income households.   

And here are some key challenges:

4. Cities bear chief responsibility for their land use decisions. This is true throughout the United States, not just in California. So whatever the State and its regional planning entities may determine is needed in the way of new housing, cities will need to be persuaded that large increases in their housing stock will benefit their community. For the State to assure that its goals are met, it will likely need to use a mixture of “carrots and sticks” (incentives and penalties); but, those can easily generate resistance if the incentives need to be funded by significant tax increases or if the penalties are deemed to undermine the community’s best interests. From my reading of news in Metropolitan Los Angeles, I’m seeing both kinds of resistance already emerging. Here’s an exercise you can try to explore how this is happening in your favorite LA area city. Using a reliable search engine or AI, find out what is the new goal for additional housing units in that city, how that compares with currently existing housing, and what kinds of discussions the planning commission and/or city council have had lately regarding housing goals. I’ve already done this with my favorite LA suburb (which shall remain unnamed), and there’s plenty of controversy brewing there.

5.  It likely will be very expensive to provide the amount and kind of housing needed to meaningfully solve the homelessness crisis in Metropolitan Los Angeles. Just this past October, a major homelessness study was released by the City of Los Angeles. Charged a year ago with identifying the costs of meaningfully ending homelessness in that city within a decade, the authors of the study concluded that the price tag for an effective anti-homeless program would be close to $22 billion, much of it in the form of subsidies to create nearly 60,000 units of housing for the previously homeless. See the plan here.
   
   This price tag approximately triples the amount of money currently budgeted by the City to address the problem of housing for the homeless; so, it would be a heavy lift to raise that kind of money given the relatively modest incomes of households throughout Los Angeles. According to the U.S. Census, the Median Household Income in metropolitan Los Angeles during 2023 was $91,960 (and only $79,701 within the city itself), considerably less than it was in the other two largest metropolitan areas in the state that year ($127,792 in San Francisco, and $103,674 in San Diego, see here). Although these two large California metropolitan areas share with Los Angeles problems of extreme housing unaffordability, their potential financial resources are much better positioned to deal with the high price tag that a solution to homelessness would require.   

6. Biodiversity priorities may challenge housing priorities. In recent years, the City of Los Angeles has emerged as a national leader in conducting research and crafting policies to preserve and enhance biodiversity. That work will result in a milestone scheduled to be achieved in late 2025, the publication of the nation’s first Local Biodiversity Strategic Action Plan. That plan is expected to include strategies to convert appropriate vacant lands into environments that can host healthy populations of plants and animals endemic to the city and its “ecotope” subareas. It will be a significant challenge to ensure that these strategies can succeed along with strategies to build nearly a half million new housing units within Los Angeles city limits.

7. “Be careful what you wish for, you just might get it!” This is a phrase sometimes used to warn against unintended, undesirable, and/or unanticipated consequences of various public policies. In the case of housing policy, it is relevant to consider what would happen to the Los Angeles housing market if the city rapidly hosted the construction of 500,000 new housing units on top of the approximately 1.4 million units that currently are within the city. I would anticipate that the huge increase in housing supply would result in the city’s housing prices plummeting and its Housing Affordability Index leaping to at least 100.0 if not more, up substantially from the index of 43.1 currently within the region. 
   
   That would be both very good news and very bad news: very good news for the first-time home buyers who are currently priced out of the market and who desperately want to own their own homes, partly because they believe that home ownership is a ticket to building substantial household wealth (as it certainly has been in the past). But for current homeowners, the result would be a disaster. For many recent home buyers, mortgages would go under water and foreclosure rates would skyrocket; for long-term home owners, nest eggs would diminish precipitously. That would certainly undermine the goal of building household wealth through home ownership.
   
   According to the U.S. Census Bureau, 36.6 percent of all housing units within the City of Los Angeles are owner-occupied, within a universe of 1,399,442 total occupied housing units, yielding 512,196 owner-occupied units (see here). How could the City successfully build the nearly 500,000 new units that the State has indicated it needs without seriously harming the finances of the current owner-occupied units that would suffer from dramatically increased housing availability and affordability?

I wish that I had an easy solution to the challenges that I see. I do not, especially given the fact that the new, incoming federal administration is unlikely to shower “blue” California cities with additional substantial resources to help solve their problems. But that is why I’m an eager student of Los Angeles as it seeks to confront these challenges and eventually achieve reasonable housing affordability, diminished homelessness, and enhanced biodiversity. In future blogs, I’ll consider how that effort is proceeding.