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Tuesday, Oct 3, 2023

FEES — L.A. Eyes Development Fee to Create Housing Fund

Faced with the nation’s worst shortage of affordable housing units, the city of Los Angeles is studying the creation of an affordable housing trust fund, to be paid for initially by hotel bed taxes and a controversial $7 per-square-foot fee on new commercial construction.

The developer fees would raise anywhere from $24 million to $38 million a year and would constitute a major portion of the trust fund, which backers hope will eventually add up to more than $100 million. That fund would then be drawn upon by builders to subsidize the cost of building affordable housing and by residents seeking rent or home purchase subsidies.

But even before the proposal has gotten out of the starting gate, it has drawn opposition from the construction industry, which says it should not be singled out to bear the burden of funding affordable housing.

In the next two weeks, a report from city staff on the feasibility of imposing new commercial development fees and using hotel bed tax monies to start the fund will be presented to the City Council’s Housing and Community Redevelopment Committee. The committee will hold hearings and make its recommendation to the full council.

“Building more affordable housing has become a real pressing need to everyone here in L.A., and we’re looking at these two fees (developer and hotel bed tax) to get us started on building a trust fund,” said Councilman Nick Pacheco, who chairs the housing committee.

However, before the additional commercial development fee can be imposed, a study must be done that shows whether such projects spark an even greater need for affordable housing. That study could take anywhere from six months to a year, which could put the issue on the front burner for the upcoming mayoral election.

Business groups aren’t waiting. Many have already weighed in against the development fees.

“We are concerned that the fees, especially at the $7-per-square-foot level proposed, will have a negative impact on development,” said Anita Zusman, legislative affairs director for the Greater Los Angeles Chamber of Commerce. “It would be tremendously distressing if this fee prohibited developments in the inner city already marginal in their returns from penciling out. We need to be doing the exact opposite, making them more affordable to build.”

Disappearing subsidies

The tourism industry is also wary of losing hotel bed taxes for affordable housing.

“Those bed taxes are supposed to be used to fund the expansion of the Convention Center,” said Mike Collins, executive vice president of the L.A. Convention and Visitors Bureau.

The affordable housing trust fund is the centerpiece of a recent report from a City Council-appointed task force on the affordable housing crunch. The report, which was released in March, cites recent studies showing the growing gap between the burgeoning number of low-wage workers and the dwindling supply of affordable housing.

In addition, the city report says, federal subsidies for low-income renters are disappearing, with Los Angeles County ranking second lowest in the nation in the percentage of low-income renters living in subsidized housing.

As a result, the report says, “the Los Angeles-Orange County area has the highest proportion of overcrowded housing of any area in the nation,” with more than 30 percent of all housing units in L.A. County officially classified as overcrowded.

The report also cites a funding shortfall of about $110 million that the task force suggests should be filled by the trust fund. The developer fees and hotel bed tax were just two of about 20 different potential sources the report recommended tapping for the housing trust fund. Others include new parking taxes, higher cable franchise fees, higher water user fees and even a one-time, $100 million general obligation bond.

“The housing crisis in L.A. has reached incredible proportions,” said Sister Diane Donaghue, executive director of the Esperanza Community Housing Corp. and co-chair of the Housing Crisis Task Force. “Unfortunately, this has not been a priority with the current mayor and, until now, the City Council. We need to have a permanent income stream dedicated to affordable housing that cannot be touched no matter who is in office.”

Sharing the pain

Business groups agree the burden should be spread around.

“We recognize there is an affordable housing crisis, but the entire load of resolving it should not be placed entirely upon the private sector,” said Carol Schatz, president and chief executive of the Central City Association.

Pacheco said the Housing and Community Redevelopment Committee decided to look at only a couple of fees at the outset because they “seemed to be an ideal place to start.”

Backers of an affordable housing trust fund point to similar approaches in other cities, including San Francisco, San Diego and Boston.

One task force member, Peter Dreier, professor of public policy at Occidental College, served as Boston’s housing director when that city’s developer fees were imposed in the mid-1980s.

“The fee was $5 a square foot and before it was enacted, all the developers were crying that it would kill the goose that lays the golden eggs,” Dreier said. “I must tell you, it didn’t stop or even slow down development; it wasn’t a deal-breaker for anybody. In fact, the waiting lines in my office grew longer in the years after the fee was imposed because the market was so hot.”

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