Los Angeles at 17.8% of Housing Goal

Housing development planning within the City of Los Angeles is 17.8 percent of a state-mandated goal that is now past its halfway mark – and local developers are disappointed but not surprised by the lag.

The comparison is based on data compiled for the Regional Housing Needs Assessment – also referred to as the “housing element” – ordered by the California Department of Housing and Community Development for all municipalities and other localities throughout California. It is a period cycle instituted by the state to spur residential development and construction.

The current cycle runs from Oct. 15, 2021 to Oct. 15, 2029 and calls for more than 456,000 new housing units to be planned in the City of Los Angeles over the eight-year period.

The city has issued permits for 81,306 housing units so far, as of the end of last year, per a preliminary report released Thursday by L.A. City Planning.

Los Angeles is behind for a number of reasons, said Jordan Lang, president of real estate investment and development firm McCourt Partners, including “stubbornly high” development costs, high city impact fees, code cycle changes and Measure ULA, which he called “the elephant in the room.”

ULA, which voters passed in November 2022, applies a 4 percent tax on all real estate transactions within the city starting at $5.3 million and increases to 5.5 percent on deals of $10.6 million or more.

The hike in the transfer tax under ULA and other policies “have suppressed investment return in Los Angeles,” he said.

“It’s unfortunate that institutional capital, in many ways, has totally stepped away from investing in the city of Los Angeles,” Lang said. “They are totally open to investing elsewhere…because there is a lot of demand for the neighboring cities in terms of new development.”

Lang would like to see the removal or dramatic lowering of the ULA tax for new developments, calling it “key” to incentivizing building.

Cityview CEO Sean Burton said it’s important to bear in mind the distinction between units permitted and what’s actually being built.

“There’s a lot of permits that have been issued, especially around ED-1, where people aren’t actually building anything because the finances don’t work,” Burton said. “Ultimately, we should care about how many units are built. No one can live in a permit.”

Excluding 2021 – since the majority of the year fell under the city’s previous housing cycle – there have been 67,385 housing units completed between the start of 2022 and the end of 2025, according to L.A. City Planning.

Another key hindrance to development is the city’s lengthy entitlement process, Burton and Lang both said. Burton pointed to one of Cityview’s projects on the Westside for nearly 500 multifamily units with 64 affordable units. This project was 100% privately financed but it still took them four years and 40 community meetings to get it entitled.

Because of all the headaches, Burton said that that development is Cityview’s only L.A. project right now, with its other resources going to projects in San Diego, Irvine, Walnut Creek, Culver City and El Segundo.

A step in the right direction for the city would be expanding some of its community-specific incentive programs for building and making them applicable citywide, said Jonathan Curtis, CEO of Cedar Street Partners. The city did this with the revision of its Adaptive Reuse Ordinance which previously only provided incentives to projects around downtown and parts of Hollywood.

Loosening building standards “when it makes sense” for things such as parking or number of stairwells and exits can also ease the cost burden of developers, Curtis said. He pointed to the city’s “Bringing Back Broadway” initiative 15 years ago where L.A. relaxed its fire and parking regulations in downtown’s Historic Broadway, and the result was increased redevelopment of largely underutilized buildings. Curtis would like to see similar policies today.

Curtis and Lang both highlighted the state’s reform of CEQA as a positive move that will hopefully spur more development in Los Angeles, as well as statewide, but the high cost of capital still poses a threat to progress.

“If you can buy at a lower rate than you can borrow, then that is an inverted investment analysis,” Lang said. “And so the spread between where you can buy and where you can develop is not wide enough yet, and you need really high rents in order to even have it be sort of close.”

Without “serious reforms” to ULA, along with other building policies and city processes, Burton said L.A. will continue to see less and less development, higher rents and increased homelessness. Additionally, he described a “cascading effect” surrounding attracting small- and medium-sized businesses based on high cost of living.

Aside from consequences to residents and businesses, Curtis highlighted potential disciplinary action from the state if Los Angeles can’t meet its housing element goals, such as losing state grant funds, court fines, the suspension of decision making authority for the city and having the length of its housing element changed.

“The more that housing element doesn’t look like it’s satisfying RHNA, the more at risk (the city of L.A.) is,” Curtis said.