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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
For 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