Free Minds & Free Markets

At the Most Expensive Affordable Housing Project in America, Every Apartment Cost $739,000 To Build

How a heavily subsidized Culver City development became the nation’s most expensive affordable housing project.

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It's "certainly difficult in Venice where we are, and throughout the west side, to find pieces of land that are zoned appropriately," Dennison tells Reason. "You can't get to the number of units you need to do a multi-family, viable project." This she says, leaves nonprofits like hers forced to buy what land they can get their hands on, which often means more expensive plots with lots of interested buyers.

The city's emphasis on expanding tax-friendly retail services aimed at businesses has thus created a pernicious cycle in which housing scarcity drives up rents, which creates demand (both political and market) for cheaper housing—which, in the case of Tilden Terrace, only got built because it included more retail.

Union Wages Make Labor More Expensive

The inclusion of a politician-pleasing retail component, a white-hot real estate market in Culver City, and the city's restrictive land use regulations all helped to push project costs for Tilden Terrace toward that $739,000 per unit price tag.

Getting it all the way are California's prevailing wage laws.

Established in 2001 as a requirement for all publicly funded projects—which would include affordable housing projects like Tilden Terrace—the state's prevailing wage law mandates that developers pay construction laborers the most common or "prevailing" wage rate earned by other workers performing the same task in a single locality.

Because construction labor is heavily unionized, and because union contracts with developers secure the same pay rate for all those working the same job, an area's prevailing wage rate generally works out to be a union wage.

The goal of prevailing wage laws is to increase pay for construction workers, and, in this respect, they are a clear success. According to a Los Angeles Times article from May 2017, the median pay for a plumber in Los Angeles county was a bit over $23 an hour. That compares to the $45 an hour earned by a plumber receiving the county's prevailing wage.

A more open question is how much prevailing wage requirements raise the final costs of affordable housing projects. One UC Berkeley study from 2005 found prevailing wage requirements increased costs from as little as 9 percent to 37 percent. A 2014 state government study on the costs of affordable housing estimated that prevailing wage increased affordable housing costs by 11 percent.

Grunwald told Reason he believed prevailing wage requirements increased construction costs by 20 to 30 percent. On a project like Tilden Terrace, where construction costs accounted for $13 million of the building's final costs, union wages added millions even by a conservative estimate.

New Housing, Old Problems

Alexis GarciaAlexis GarciaFor many in the affordable housing world, the fact that these projects cost so much all but necessitates that more of them are built. New market-rate construction, they argue, faces many the of the same cost drivers, plus one affordable housing developers don't have to worry about: making a return on their investment. That means charging higher rents that only well-off renters can afford.

"The housing market just does not work for low income people. Particularly in a growing market, it doesn't work for moderate income people," says Dennison, arguing only through subsidizing the development of affordable units can housing be brought within the reach of poorer renters.

But Michael Lewyn, a property law professor at New York's Touro College, says that gauging the private market's ability to provide affordable housing by looking at the cost of new, market-rate developments is misplaced.

"The truth is that only a small percentage of housing is ever new. So the rents for new housing matter a lot less than the rents for old housing," says Lewyn.

According to Lewyn, new market-rate housing is always going to be the most expensive form of housing. Over time, however, these market-rate developments will become more affordable as the value of the buildings depreciate and housing supply expands with the construction of even newer units.

This process is known as filtering, and in a healthy housing market—where new supply can be added to meet growing demand—it should be enough to make the pricey new developments of today the affordable homes of tomorrow.

"The positive effects of new housing, if there's enough of it, is that it will bring down the rent of older housing," Lewyn tells Reason.

Photo Credit: Alexis Garcia

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  • AB Negative||

    Culver City, home of NPR West. No irony there.

  • a ab abc abcd abcde abcdef ahf||

    More importantly, home of Dr Demento, I believe.

  • Zeb||

    And a whole shitload of TV and film production.

  • Quo Usque Tandem||

    ..."a philosophy among affordable housing developers that high-cost neighborhoods are where publicly-subsidized housing is needed the most." Fucking stake holders.

  • DajjaI||

    This makes me really angry. I've passed this complex and thought it looked really nice. I actually thought about checking it out. I had no idea it was public housing. Someone should picket it with a sign: "This is public housing - cost you $30,000,000" and on the other side: "Live here for free - ask me how." Nothing will change until people get out into the streets. (Don't ask me - my activism career is over.)

  • Sometimes a Great Notion||

    Protesting in the streets is one of stupidest tactics. All it does is piss people off. The market is just too saturated.

  • Zeb||

    People getting out into the streets has to be a significant portion of normal people, not just irritating activists, to work. And that just doesn't happen when people are for the most part comfortable.

  • David Welker||

    It is ironic, the taxpayers have to pay more for each subsidized unit because the representatives of the taxpayers do not allow enough housing to be built in the first place.

    So, we are spending money to try to solve a problem that is mostly (but not entirely) self-afflicted.

  • a ab abc abcd abcde abcdef ahf||

    This is government. It's what they do. They see a problem created by government and bleat "market failure".

    What they refuse to understand is that market failure is what markets deal with every day. Every discrepancy between what is available and what is wanted is another market failure, another opportunity for some clever Joe or Jill to make some money filling in the gap. This is how Rockefeller got rich, how Jeff Bezos got rich, how markets work.

    And governments? They respond to market failures by creating more market failures, and doing nothing to fill the needs that triggered their intervention.

  • Wizard4169||

    Market failure is largely a myth. Whenever I hear someone screaming "Market failure!", it usually turns out that the only thing the market has failed to do is provide their preferred outcome.

  • Wizard4169||

    Whenever I hear someone screaming "Market failure!", it usually turns out that the only thing the market failed to do was produce their preferred outcome

  • a2plusb2||

    And because of the costs of tax-subsidized public-built housing, and the limits to the public budget, the government can never build enough to meet demand. I recall reading of a few examples of this:
    * San Francisco CA built a paltry number of such 'affordable housing'. Which was distributed by lottery. The lottery was rigged and the units went to the mayor's best friends.
    * The shortfall in Manila, The Philippines, of publicly provided housing was so bad that a private concern, no doubt operating illegally, did a better job, provided more housing, at lower cost.

  • Rockabilly||

    The globalist socialist elite are in panic mode !!!

    The EU will crumble along with the UN and NATO!!

  • Ron||

    If you want something built economically, don't call the government. Prime example I have a 500 square foot house plan, the contractor told me the shell cost was less than all the fees required. building dept fees, school fees, fire department fees, recreation fees and street encroachment fees even though its non county maintained dirt road that pass over his own property. If the property was in town there would also be water electric and sewer permit fees besides the cost of actual connection. I don't mind paying for the physical connections and labor but there shouldn't be a fee just to connect since you pay monthly usage anyway.

  • ATXChappy||

    I looked into having a tank less water heater installed in my house a few years back. When I started calling around getting estimates for installation they where quoting me prices far above what the water heater cost. So, I finally asked the last guy I talked to why it was so expensive when all they had to do was move a gas line a few feet. He told me that it was the permit and inspection fees for the city. I gave up at that point.

  • Bearded Spock||

    Goid article, but Britches makes the mistake here of assuming that when liberal urban planners say "affordable housing" they actually mean housing that working-class folks can afford.

    In reality, the term "affordable housing" in the modern progressive vernacular means "sustainable" "mixed use" "walkable communities" made up of postmodern Hipster Hutches where predominantly white college-educated 30-somethings live -- in other words, places exactly like Tilden Terrace.

    The fact low- and moderate-income people get pushed out of these developments is a feature, not a bug.

  • vek||

    Jesus. What a mess.

    Ya know, the real solution to all this stupid is for people to stop piling into these overpriced, shithole, prog infested cities.

    Too many people in too little land area is at the heart of all of this, and the reason for that is largely because of the businesses cramming ever more jobs into the same cities, instead of spreading them around more cost effectively to various cities. Fortune 500 companies used to spread employment around a lot more it seems like to me... And also were more likely to put campuses in suburbs instead of right in the middle of downtown areas.

    I know the trendy tech companies are too stupid to move their jobs to sane places, but I really hope other major businesses continue the trend of relocating out of these places. It seems like you hear a lot about small/medium businesses moving to Texas, Idaho, the south, etc but not nearly as much from major corps.

    I'm leaving myself in the next year or so. I can't take Seattle anymore... It used to be a decent place to live, not so much anymore.

  • Weigel's Cock Ring||

    Ya know, the real solution to all this stupid is for people to stop piling into these overpriced, shithole, prog infested cities.

    Normal Americans have naturally been doing this on their own for several decades now, but the Agenda 21 Obama/Soros/Gore shitheads don't like that. They WANT everyone to be forced to live on their urban plantations.

  • vek||

    I try not to be too conspiratorial... But sometimes I really do wonder why major business entities have been expanding almost exclusively in the biggest prog shit holes in the US. Especially when one considers that they're more expensive to operate in, you need to pay higher wages, you have higher taxes, more regulations, etc. There is no business logic to it.

    It really does seem like they're taking one for the team or something... The truth is, historically, people follow the jobs, not the other way around. If Google hired 20,000 people in Cleveland, 20,000 programmers would move there no problem. So the fact that they WANT to spend more, make lower profits, etc just doesn't make sense... Unless it's taking one for the team.

    It really does seem to be small/medium businesses (AKA not elitist power brokers) who have been moving to conservative parts of the country, and almost no big companies.

  • DrZ||

    Part of the problem is that whose who have property don't want zoning laws changed. Especially if those laws increase density. Everyone, at least in the suburbs, wants their 10,000 sq ft or more lot and they don't want the next lot to have any less surface area.

    Then these people force city councils to zone accordingly, no building over 2-3 stories, no change in surface area usage requirements for their neighborhood, etc.

    Whatdayaget? Lots of very expensive real estate. How do politicians fix that? Why they promote "affordable housing".

  • Ann in L.A.||

    From a politician's perspective, commercial and retail development greatly trumps residential. More residents require more government services: schools, libraries, parks, community health clinics, etc. Commercial and retail require little of that. If you drilled down into a politician's deepest desires, you could probably find that they would love to have a city 100% devoted to commercial enterprises and 0% on residential.

  • JFree||

    This is true mainly in CA cuz of Prop 13. A large portion of residents pay very little in prop taxes compared to their next-door neighbors in identical housing

  • Rat on a train||

    City of Industry
    Only 219 residents. Density 17.39/square mile.

  • tpaine||

    Also....City of Commerce, the secret California City.

  • Rat on a train||

    An amusing side effect of Industry's low density is that they have the highest crime rate in the county.

  • KHP54||

    Well, SoCal does have the appropriately-named City Of Industry.

  • vek||

    What America really needs is a "State Of Industry" or something... But with more residential. Even shithole countries have created "special economic zones" where they let the regulations be lower, and the US could use a couple of these for sure.

  • BlueStarDragon||

    And then they stop people from living in tiny home which cost only 20,000 to 40,000 to build. Plus most are designed to be off grid. Which means they do not need to hooked up to local utilities.

  • JFree||

    According to Lewyn, new market-rate housing is always going to be the most expensive form of housing.

    True dat. Everywhere.

    Over time, however, these market-rate developments will become more affordable as the value of the buildings depreciate, and housing supply expands with the construction of even newer units.

    Not in California they won't.

  • Longtobefree||

    OK, so people are getting what they voted for; high taxes, massive corruption, less housing and poorer schools. How is this somehow surprising or newsworthy?
    If you don't like LA, leave. Whatever it is you do to generate revenue, it can be done elsewhere.I bailed out in the early eighties, because it was obvious what was coming. And it came, and it does not affect me.

  • Rat on a train||

    Don't leave if you voted for those policies.

  • Diane Reynolds (Paul.)||

    first yoga studio for children in the Los Angeles area

    The West Coast has the firstest worldliest problems in the first world.

  • Uncle Jay||

    Well, what did you expect?
    Its in the Peoples Republic of Kalifornia where common sense left right around the time Elizabeth Taylor got her first face lift.

  • JCCC1||

    The discussion about the things spiking up the cost of this development are spot on, and the sheer amount of public funding for unaffordable "affordable" housing is quite regrettable.

    That said, the implication that local zoning should be overriden is somewhere where small-government conservatives and where Libertarians must part ways.

    Local zoning exists for a reason: Citizens and residents of an area should be able to regulate the broad uses of land so as to prevent negative externalities within the community. There's nothing wrong with this. I don't want a toxic chemical plant built next to a school, nor to existing housing, for example.

    For many Californians living outside of the most dense urban cores, single-family detached homes are the norm. Take a drive through San Diego and you'll find a very, very large small town. Could more housing be added? Absolutely. We could override residents' wishes (or listen to the recently-ascendant progressive YIMBYs) and bulldoze homes in favor of 20 story apartment buildings.

    We don't want that.

    As residents of an area, our ability to broadly design the contours of our city seems to be a fundamental right of local government. That this increases the cost of housing by decreasing the number of units is a side effect, and an unfortunate one. But that's not in and of itself a justification for override locally approved zoning.

  • a2plusb2||

    An instance of a social problem, "I've got mine, Jack!"
    In the liberal socialist world they favor, how do we provide for others?

    In slow motion terms, it does get resolved, even with Prop. 13 limits on property taxes. The current residents will die, and hardly anyone will be able to afford the market value of single family homes, or the inheritance taxes to inherit one of them. What then?
    (This gets defeated, somewhat, with New York City's rent controlled apartments. Mia Farrow inherited her rent-controlled apartment from her parents, and has escaped having to pay the 'real' cost of it, or getting forced to subdivide it.)

  • Fats of Fury||

    Well the architects sure got the slum look down pat. You won't even notice when it deteriorates to it's natural shithole state.

  • Joanne Jacobs||

    San Jose is moving forward on plans to spend $600,000 per unit to turn shipping containers into temporary housing for the homeless.

  • FrankHerbert||

    an 'affordable' price in that area should be around 200,000... not half a million more. but, hey... this is commirefornia. land of greed, environmental mismanagement and choking regulations.

  • Last of the Shitlords||

    Plus someone or someones are getting their palms greased on this deal, while they taxpayers don't even get grease for their asshole when they get fucked out of the $30 million.

  • Jerry B.||

    Wish the author had included what the income qualifications are for affordable housing in Culver City, and what rent the folks renting in this building are paying.

    Wonder if a case could be made that they are suffering mental stress from not being able to afford the services in the retail section of their building? Maybe their reduced housing cost should include vouchers to their neighboring stores.

  • ValVerde1867||

    No arguing the liberals know how to spend a buck in fashion. I will bet that 30% of those funds were used to fill a lot of innocent pockets.

  • a2plusb2||

    There are some additional things that can happen, which can be seen already but are not mentioned here.
    * People will be crowded together. A year ago I read of someone in Silicon Valley paying quite a lot for a closet. He wanted a closet for privacy. He has housemates sleeping in bunkbeds in the adjoining bedroom.
    * Places like warehouses will be illegally converted into housing.
    * If the experience in Western Europe is a guide, we will see an active squatters movement.
    * Because supply does not increase to meet demand, the fight over housing will be on zero-sum terms. Someone's gain is someone else's loss. And we will see more outcry against gentrification.
    * Such increased costs will force many businesses to locate elsewhere. For an example, look at the film industry of more than 100 years ago. The costs of operating in New York City forced the companies out, and they eventually settled in Los Angeles.


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