Homeless program costs $600k per unit: LA Controller

Last year the City of Los Angeles spent an average of almost $600,000 per unit on construction of homeless housing projects, according to a report released on Wednesday by the City Controller.

That figure represented a significant cost increase on the bond-funded housing projects, which in many cases are also plagued by delays, the report concluded.

“Although Los Angeles has made some progress with Proposition HHH, it hasn’t been enough,” Ron Galperin, the City Controller, said in a release. “The costs are too high and the pace is too slow to address the tragedy on our streets.”

Galperin, a Democrat, was reelected in 2017 and is currently running for state controller. The election for that job is in November.

In his role overseeing the city’s spending, Galperin has released multiple annual reports analyzing the city’s use of funds allocated by Proposition HHH, a signature $1.2 billion bond measure passed by voters in 2016. The bond measure, funded by property taxes, was intended as a funding mechanism to address L.A.’s homelessness crisis, with a promise to create 10,000 housing units as well as short-term shelters and other facilities.

But more than five years later the program has fallen short of its goals, and L.A.’s homeless population has swelled. Galperin’s latest report found that so far roughly 1,100 units built under the proposition are ready for occupancy, while another 4,300 are in construction and 2,600 are planned but not yet in construction.

The slated 125 development projects are taking between three and six years to complete, the report said — and costs have also ballooned. Among projects in construction, last year’s near $600,000 average per unit cost was roughly $70,000 higher than the average cost in 2020; last year’s most expensive pre-development project is estimated to cost $837,000 per unit, nearly $100,000 more than the same figure for 2020.

The report notes that HHH funds make up only about one quarter of the projects’ total funding, with the remaining development costs covered by bank and bond loans, equity investment and other government funding. The costs associated with the projects come from land acquisition, labor and materials and “soft costs,” including other associated fees and financing.

The cost of labor and building materials, particularly lumber, have surged throughout the pandemic, explaining some of the HHH projects’ rising costs. But government-backed affordable housing projects are also notorious for racking up “soft costs” that stem from complicated financing schemes.

“It’s not uncommon to spend several hundreds of thousands of dollars, or in some cases well north of $1 million in legal fees on the front end before we ever put a shovel in the ground,” John Maceri, the CEO of a homeless services nonprofit and affordable housing developer, told KCRW late last year.

In a press release Galperin – while taking credit for changes the city made to streamline its review process for the projects and to save costs by acquiring and converting existing buildings – also urged more changes. He called on the city to use the funds to build interim housing, he said, and also evaluate its flexibility on expensive projects before finalizing loan agreements.

“If the City doesn’t learn from its mistakes, it risks repeating them,” he said in the release. “Angelenos, sheltered and unsheltered, cannot afford that to happen.”

Over the past couple years, however, the city’s building pace seems to have picked up: In a report published in September 2020, Galperin blasted the city for only having completed 228 HHH-funded units.

Mayor Eric Garcetti, who championed the proposition before voters, has also recently defended its progress.