Why Los Angeles is Blocking Construction: Unpacking the Controversy

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Everyone knows that there's a shortage of homes that need to be filled very quickly, otherwise there's going to be more people homeless, and housing prices are going to go up even more. Even though there's a slowdown in real estate transactions, the prices are still going to go up because there's a supply and demand problem. Nowhere is this more acute than in Los Angeles, which is like Ground Zero for the housing shortage and homelessness. So why is it that Los Angeles is not approving new construction of homes?

An article from the LA Times says that we know there’s a need to build housing quickly—there's no secret about that. But why is the city council sitting on plans to expedite construction? What does that mean? The city council is sitting on two community plans that would make it easier for developers to construct housing and boost the number of housing units in downtown. What's the holdup? Well, it's politics and scandal as usual—politics where people can't get along, and also scandal, where people may be corrupted by certain interests.

Look at the math: the land use plan says it needs 450,000 new homes by 2029 to meet state requirements. The state requirements aren't even what's needed for population growth, right? If you went by population growth, you'd probably need about five or six hundred thousand new homes. But they’re saying 450,000 homes by 2029. However, the downtown area’s planners expect to add a hundred thousand new homes over the next two decades. 2029 is six years away, so they’re only going to add 20 percent of that over 20 years, not six years.

The reason for this is because everybody has an opinion. Business groups say that it’s going to put houses in the wrong place. The Chinatown owners worry that it’s going to squelch investment. Hollywood says it’s going to be waiting for rules on affordable housing. There are all kinds of reasons for it. The bottom line is that the politics are getting in the way of building homes. It’s not just Los Angeles—other parts of the country also have difficulty. That’s not even taking into account the fact that interest rates are high, and production costs are high.

If Los Angeles needs 450,000 new homes, how does that equate to the whole country? There are estimates out there that the country is 5 million homes short of having equilibrium between buyers and sellers to fill the housing need. Well, if just Los Angeles, one county in the whole state of California, is short 450,000, that’s like 10 percent of the total. So, it’s likely that the housing shortage in the U.S. is more than 5 million. But even if it is 5 million, at the current build-out rate, we’re going backwards. We’re building about a million new single-family homes a year, and there are maybe six or seven hundred thousand new homes needed every year. So, we’re only chipping away at this a couple hundred thousand at a time, and the housing growth is getting bigger. The rate of housing construction is not keeping up with demand, and it’s already behind. Interest rates are high, prices are high—that’s one thing. But if there aren’t enough houses to go around, that’s not going to let the prices come back down and settle where they need to, to get people into homes.

Why Los Angeles is Blocking Construction: Unpacking the Controversy
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