Next week Los Angeles will vote on one of the most restrictive real estate development plans in North America, and other cities should be debating if it’s right for them. The Measure S proposal seeks to end the influence political donations have on real estate development, and pushes for community driven planning. Most important, it will force the city of Los Angeles to look into the empty homes sitting on the sidelines.
Measure What?
Measure S is a proposal to fundamentally change the way urban development in Los Angeles is done. The proposal seeks to eliminate a number of conflicts of interest that currently exist in LA’s system. It will also require local community consultations, update the city’s decade old general plan, and impose a 2 year ban on building anything that requires rezoning.
Sounds great, right? Even Los Angeles Mayor Eric Garcetti agrees on most of the points, but that last point, a ban on spot rezoning, seems to be where everyone gets divided. Spot rezoning is when special exemptions are given to developers to build something that doesn’t fit the current zoning. It doesn’t seem terrible by itself, but it’s an important part of the pay to play system that’s developed in Los Angeles. The Yes To S campaign actually has a list of situations where they allege developers were granted rezoning for “donations” and lobbying. Often the communities impacted by spot re-zones have little say in the matter.
“Crisis of Ethics, Not Analytics”
Los Angeles is a fast growing city that needs more housing, that’s not being debated. However it’s the type of housing that needs to be addressed. Tracy Jean Rosenthal, wrote in a piece for the LA Times which stated, this is a “crisis of ethics, not analytics. We won’t solve it with lessons from Economics 101.” She argues that the type of housing being built right now aren’t homes, but they’re investments. Investment properties often don’t add supply if they’re empty or priced out of reach.
Former Los Angeles Mayor Richard Riordan is on the same page. He also wrote in the LA Times that Measure S will prevent developers from exploiting the city. In his piece, he alleges spot zoning allows luxury developers to build “whatever they desire, wherever they desire to build it.” He also notes that despite record amounts of construction in Los Angeles, 22,000 affordable apartments have been lost since 2000. Central Los Angeles particularly suffered, where 5,500 affordable units were lost in that period.
213,649 Empty Homes In Los Angeles
Before Los Angeles doubles down on a building frenzy, they should explore what they’re building. Many projects are luxury properties, often sold for investment purposes. There’s 3,100 units listed on Juwai for sale in China, and many will be sold sight unseen (and potentially never seen).
Actually, quite a few of them will be sold for the purpose of using the property as an inflation sensitive asset. So they’re essentially just empty vaults being used to hedge against devaluation of the Chinese yuan. Nothing wrong with investment properties in my opinion, but the neighborhoods affected should understand that.
Speculative property investment is turning into a global issue, where much of the inventory is never lived in. According to the 2015 American Community Survey (ACS), there’s 213,649 vacant units in Los Angeles. This represents 6.1% of the total homes in the city, a number unchanged in at least 5 years. This implies the scale of speculators is growing at the rate of housing, and that’s a bad thing.
Vacant Home Count
Total number of vacant homes, as reported by local governments.
To put that in contrast, the City of Paris has 107,000 vacant units, and they’re leveraging a 60% tax to free up inventory. Now that might seem extreme, but some argue so is using shelter for speculative purposes.
As the population of the city grows, the number of vacant units in a healthy environment shouldn’t grow with it – they should decrease. Los Angeles’ empty home problem is scaling with construction, which means there’s a fundamental issue with the way development is being done. While the city does need more construction, it needs to review the type of homes being built. If it doesn’t, the City of Los Angeles will likely find it will become a shell of its former self. If you want to know what that feels like, ask Vancouver.
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