L.A.’s Affordable-Housing Fast-Track Packs Pipeline

Los Angeles’ Executive Directive 1 has made all-affordable housing the most competitive development play in the city.

Developers are increasingly opting to build 100 percent affordable apartments as a way of getting projects through the approval pipeline faster, as entitlement timelines shrink from about a year for market-rate projects to 60 days for fully affordable endeavors, the Wall Street Journal reported.

Since the city rolled out ED1 in late 2022, developers have filed plans for about 42,300 income-restricted units, with roughly 31,700, or 75 percent approved so far. That’s more than double the city’s affordable approvals in the three years before ED1. The directive allows applicants to bypass public hearings and council votes for projects restricted to tenants earning no more than 80 percent of area median income; in Los Angeles County, that’s $84,850 for one person.

“Efforts like ED1 show that there’s plenty of appetite to build nonluxury apartments by market-rate developers,” said Jason Ward, co-director of the RAND Center on Housing and Homelessness. “You just have to create the circumstances to do that.”

Last year, five developers from across the country joined forces to create Passo, a Los Angeles-based entity designed to take advantage of ED1. So far, the venture has finished one project totaling 15 units, and it has more than 600 more units in construction and planning phases. Passo shaved months off the entitlement timeline and tens of thousands of dollars in fees by tapping ED1.

“ED1 is the only reason we came out here,” Passo principal Daniel Glimcher said. “Market-rate multifamily just really doesn’t pencil out in L.A.”

Still, developers face hurdles in getting their projects across the finish line — namely, when it comes to paying for them. Higher interest rates and slower lending, combined with the city’s Housing Authority’s recent cut to Section 8 subsidies, present challenges in advancing fully affordable projects. The controversial Measure ULA transfer tax is also repelling some investors.

At the same time, Mayor Karen Bass has imposed new limits, such as removing single-family areas from ED1 eligibility and tightening incentives and fee waivers. Some developers who jumped in early are now trying to flip their entitled sites rather than build, SoLa Impact CEO Martin Muoto told the outlet.

“Market-rate housing [construction] has been essentially canceled at this point,” Chris Aiello, founding partner at Six Peak, told CoStar. “Virtually no land makes sense from an investment perspective to build market rate.”

California has been working to cut red tape to build affordable housing in an effort to stamp out chronic housing shortages.

Over the summer, Gov. Gavin Newsom rolled back provisions of the California Environmental Quality Act, which frequently bogged down developments in the review process. The City of Los Angeles must permit 456,643 new homes by 2029, though even with the boost in building thanks to ED1, the city remains far off from that goal.

— Chris Malone Méndez