A friend of a friend asked just why the hell housing in Los Angeles isn't getting any cheaper if condo towers seem to be going up everywhere. So, I've written an explainer. This is written about Los Angeles, but the same processes have made the San Francisco Bay Area a mess as well.
There is no reason why Los Angeles needs to be as expensive as it is. LA isn't on a peninsula like San Francisco, bracketed by mountains like Seattle, or on an island like Manhattan. As Dorothy Parker joked, LA is 72 suburbs in search of a city. And now, of course, it's all hideously expensive now. There's five major reasons why LA is so goddamn expensive for ordinary people to live in these days: (i) no new housing in rich areas; (ii) loads of new jobs in greater LA; (iii) zoning laws that don't allow cheap apartments to be built; (iv) the minimum parking law; and (v) laws which require the city council to approve every single new apartment building.
First: The most desirable places to live in greater LA haven't added any new houses in 50 years, meaning that people with money have to look elsewhere.
Let's start with a table of population. Around 1970, most of the rich cities in greater LA just decided to stop building new housing.
This refusal to build new housing is the root cause of gentrification.
To illustrate: let's say that you're a professional family making $160,000 a year. If you follow the rule of thumb that housing should be no more than 1/3 of your gross income, that gives you a $4400/month housing budget. $4400 a month is a mortgage for a $900,000 house, more or less.
What are your options? Well, you could buy an undersized two-bedroom on the Westside and make do. You could move out to the San Fernando Valley suburbs and put up with the shittiness of commuting on the 405. Or you could go below the 10 to historically black West Adams, and be a gentrifier.
The math of this is ruthless. Lawyers and doctors priced out of Beverly Hills end up in Brentwood; the professionals who want Brentwood end up in West Adams; and the black families who've lived in West Adams for decades are SOL.
Second: LA isn't adding enough housing to match the number of new jobs.
Between the crash of 2008 and the coronavirus crisis, LA added five new jobs for every new unit of housing - which means that rich people are outbidding poor people for the existing housing stock. (See point no. 1.) Over the same period, Houston added 1.7 new jobs for every new housing unit, so prices remain affordable; in the Bay Area, where things are even worse than in LA, the ratio is 8:1. Because of this, it's no wonder LA has one of the tightest rental markets in the country. (Yes, there are anecdotes of condos sitting empty, especially in DTLA, but it's a miniscule percentage compared to LA as a whole.)
Making matters worse, LA's new housing construction is way, way below historical levels. In the 1920s, LA City added 402 new housing units per thousand residents; in the 1950s, the number was 138 per thousand; in the 2010s, the number was a measly 25 per thousand.
This is no way to cure a housing shortage.
Third: the housing expansion seems even bigger than it is because it's so visible.
In the last ten years, new housing has been heavily concentrated in extremely visible places, like downtown LA and Koreatown, so you can see the impacts on the skyline. DTLA alone has built 20 percent of the entire region's new housing stock within the last decade.
But what's not getting built is more important. Before about 1970, the way to deal with a housing shortage would be to tear down worn-out single-family homes in expensive neighborhoods and replace them with townhouses or bungalow courts.
But 3/4 of LA City's residential land is zoned single-family residential, so it's illegal to build anything but a suburban-style house. (The suburbs are even worse.) So, if you buy a decrepit house from 1930 on the Westside, your only choices are (a) flip it, or (b) bulldoze it and build a McMansion. Even though land values justify building townhouses or bungalow courts there, the law doesn't allow it. Some townhouses are getting built, but only in areas where apartments were already legal to begin with - places like Hollywood, Venice, and along Exposition Boulevard below the 10.
Fourth: LA's minimum parking law makes it impossible to build the kinds of no-frills apartment buildings that used to exist in the past.
Today's minimum parking law requires two parking spaces for every single two-bedroom unit. So, let me illustrate why this is such a problem. Here's a pretty ordinary small apartment building in Silver Lake built in the '50s.
There's six two-bedroom apartments in the building and six parking spaces. There's nowhere else to put more parking unless you bulldoze the building next door. And if you're going to bulldoze the building next door, you basically have to go luxury or it's not going to make financial sense to build it.
Fifth, and finally: You might not be able to build even if your plans meet the law.
To build new apartments you'll have to do an environmental review costing >$100,000, and you'll need to get City Council approval. This process is long and painful. The City Council isn't under any obligation to approve your project, and your neighborhood Karens will scream at the Councilmen that this is the end of the world. So, even if your project meets the law, there's no guarantee that you'll be able to build more housing on a piece of land that you own. This process makes it incredibly difficult to build more homes, and it's a big reason that LA has such a corruption problem.
In conclusion, the housing shortage is fundamentally a political one. Some of it is due to external factors, like the growth of Silicon Beach - but the biggest obstacles are LA's own laws. And these laws exist because the voters wanted it that way.