Downtown LA is Responsible for 20% of Housing Built Since 1999, and That’s Terrible News

Shane Phillips has a post over at Better Institutions looking at the proportion of housing built in LA since 1999 that’s located downtown. He calculates it to be about 20%, based on state data and a Downtown Center Business Improvement District Report. The report is generous in its definition of downtown, including Skid Row and the Fashion, Arts, & Industrial Districts, and stretching well into Westlake and Chinatown. Nevertheless, by any standard the amount of development in downtown is impressive. About 20,000 units have been built in the last 15 years, with another 20,000 in the pipeline for the next 5-10 years.

A pro-growth stance from the city has resulted in mid-rise buildings and towers popping up all over the place on top of former parking lots, putting the land to much more productive use. Meanwhile, the adaptive reuse ordinance (ARO) has allowed once-vacant historic office buildings to find new live as apartments, condos, and hotels. Michael Manville writes in UCTC Access that the ARO alone was responsible for 6,500 units of housing in the historic core between 1999 and 2008.

All of this is good. Turning parking lots into higher value land uses is good; putting abandoned buildings back to use is good. The neighborhoods around downtown are in danger of being victims of its success when it comes to gentrification, but more on that later.

So what’s the problem? The problem is that percentages have numerators and denominators. And in this case, the downtown boom is making the numerator bigger, but a severe lack of housing production citywide has made the denominator much smaller. In fact, based on the same state data, all of LA County added about 215,000 housing units between 1999 and 2014. In other words, in a county of 10 million people, a neighborhood of just 50,000 has been responsible for over 9% of new residential construction.

In short, the problem is that other neighborhoods across LA have not seen nearly as much growth. As Shane correctly points out, one neighborhood can do only so much. Read the USC Casden Multifamily Forecast and you’ll see neighborhood after neighborhood with almost no new inventory added from 2009 to 2013. East LA, Alhambra, Montebello, & Pico Rivera, zero. El Segundo, Hermosa Beach, & Redondo Beach, zero. Granada Hills, Northridge, & Reseda, zero. Paramount, Downey, Bellflower, & Norwalk, zero. The list goes on and on.

Housing prices are largely determined regionally, which makes it impossible for one neighborhood to upzone its way out of price increases. If you’re near desirable neighborhood XYZ that has very little new construction, it doesn’t matter what you do, eventually you’ll be “XYZ-adjacent” and it’s game over. On the Westside, you have to wonder how long places like Palms and Pico-Robertson can last with demand radiating east and south from Santa Monica and Venice, despite Palms being relatively friendly to new construction.

Even in cities with a strong traditional form like NYC, with a huge CBD dominating regional employment, concentrating all housing development near the core is a mistake. New York YIMBY recently chronicled the woes of NYC’s small builders, who have been driven out of business by downzoning in the outer boroughs. That has resulted in a decrease in the amount of market-rate housing being built for middle income earners, making the city’s affordability problems worse.

In a city like LA, with highly decentralized employment, concentrating housing development in the core makes no sense at all. The hottest office markets in LA are on the Westside, where the tech industry is concentrated in Santa Monica and Venice. Growth in that market has spread south to Playa Vista and the Howard Hughes Center. Century City office developers hope to capitalize on it as well, while others in commercial real estate expect growth to continue moving south to El Segundo. Whatever the reasons, the office market in Downtown LA remains weak, with plenty of vacancy and virtually no new construction.

The lack of a corresponding residential boom on the Westside exacerbates existing imbalances. The pull of Westside employment long ago made the “reverse” commute direction on the 10 freeway the peak direction (traffic is worse going away from downtown in the morning, and towards it in the afternoon). It would not be surprising at all if the peak travel direction on the Expo Line and Westside Subway ends up following a similar pattern.

Beyond the local issues of the Westside, there are job centers scattered all over LA County. Employment growth is not going to be concentrated in downtown, so why should housing growth? Distributed housing growth spreads out the impacts as well as the benefits, and helps prevent gentrification and development from flooding into a localized area.

Why Is Downtown Booming?

To be sure, Downtown LA has become a desirable place to live. It’s walkable, has good access to freeways and transit, and offers an increasingly diverse mix of restaurants, bars, and retail. It’s centrally located, making it (relatively) easy to live there and commute to the Westside, Hollywood, and parts of the San Fernando and San Gabriel Valleys. The architecture, especially the historic office and hotel buildings, is unparalleled in the region. That explains the demand side.

The supply side is explained by the factors mentioned before – the adaptive reuse ordinance and a strong (sometimes, maybe a little too strong) pro-growth stance from the city. As Manville writes, the conversions of historic buildings would have been impossible without the ARO, so it’s worth recapping the significant relaxation of land use regulations that the ARO provides:

• No restriction on density based on lot size (though minimum apartment sizes apply)
• Existing non-conforming FAR, setbacks, and heights do not require a variance
• No new parking spaces required (existing parking must be maintained, but is not required to be bundled with dwelling units)
• Automatic “by-right” entitlement for rental units in commercial or R5 zoning in buildings constructed before 1974
• No environmental clearance for projects constructed “by-right”

This allows adaptive reuse projects to avoid almost all the NIMBY bugaboos, and deprives opponents of the leverage provided by the need to obtain discretionary approvals. It also allows projects to avoid the need to build expensive parking; as Manville writes, many developers have chosen to provide none or to offer it off-site.

The city has also facilitated growth downtown by other means, for example, selling the air rights above the convention center.

Why Are Other Neighborhoods Not Growing?

For most of the city, though, development doesn’t come so easy. Increasing demand has not been met by a boom in supply. Most neighborhoods don’t have a large supply of parking lots or vacant buildings to be redeveloped, and the city has been very reluctant to try to buck NIMBYism in the R1 zoned single-family residential (SFR) neighborhoods.

As a case study, consider the draft rezoning plans being developed for the five Expo Line Phase 2 stations that are within the City of LA (Culver City, Palms, Expo/Westwood, Expo/Sepulveda, and Expo/Bundy).

At Expo/Bundy and Expo/Sepulveda, there are significant amounts of land currently zoned M2 (light industrial). The plans propose maintaining some of that zoning, while converting other areas to new industrial zones including “New Industry”, “Hybrid Industrial (Max 30% Residential)”, and “Hybrid Industrial (Min 30% Job-Generating)”. The “industrial” classification is a little deceiving, since it allows office, R&D, media, and technology developments. Nevertheless, the New Industry zone precludes residential development entirely and only permits retail and restaurants as ancillary uses, and this is the most prevalent new zone. At Sepulveda, only two blocks are zoned Hybrid Industrial (Max 30% Residential), while at Bundy, four blocks are given that designation and three are given Hybrid Industrial (Min 30% Job-Generating). At Expo/Sepulveda, R1 zoning less than 0.25 miles from the station will remain. To the city’s credit, at Expo/Bundy planners did at least propose upzoning the R1 properties between the Expo Line and Pico, as potential options on the base plan.

At Expo/Westwood, almost the entire 0.25-mile radius around the station is currently zoned R1, even on the arterials (Overland and Westwood). The plans goal is to “preserve character of existing SFR neighborhoods”  and that’s what we’ll get, because all the R1 zoning is proposed to remain. The plan calls for upzoning a few R2 properties to R3, a largely symbolic gesture because that only increases density from 2 du/lot to 6 du/lot (assuming 5,000 SF lots). The lone bright spot for development is an upzoning of Pico between Sepulveda and Westwood to RAS4 (12 units per 5,000 SF lot with ground floor retail), but this amounts to only small portions of nine blocks fronting Pico.

The Palms plan might appear to be better, because it rezones Venice Blvd and Motor Av for a new “Mixed-Use (Min 20% Job-Generating)” zone with FAR of 2.0-3.6. However, Venice and Motor are currently zoned C2, which under the current zoning scheme already allows purely residential projects at R4 density. The Mixed-Use (Min 20% Job-Generating) zone therefore reduces some flexibility by requiring a commercial component. The small-scale residential and commercial developments that line Motor today couldn’t be built under that zone.

At Culver City, it’s more of the same industrial zoning, with three large blocks directly across Venice zoned New Industry and one further west, currently the site of a commercial plaza, for Hybrid Industrial (Max 30% Residential).

The plan also calls for current parking requirements to apply, except in “limited circumstances”.

The limited zoning changes produce the results you’d expect. The Spring 2014 outreach presentation projects that the plan will allow the construction of 4,422 new housing units by 2035, satisfying market demand of 3,800 to 6,400 units. So while downtown booms, under this plan, the Expo Line corridor won’t, because you can’t build a ton of housing if your zoning doesn’t allow for it. On the demand side, I submit that it is simply beyond belief that there will only be demand for 6,400 housing units within walking distance of those five transit stops in the next 20 years.

Conclusion

The downtown boom is great for LA, and it shows that when we want to, we can be pro-growth and get a lot of development built. But when growth is restricted across so much of the rest of the city, there will still be pressure on regional housing prices, and gentrification will continue. Downtown’s growth is remarkable, but we still need to figure out how to increase housing production elsewhere, so that the city can make space for all Angelenos, current and future.