'Double Whammy' Coming For LA Affordable Housing In Next 5 Years

Dual forces from the public and private sectors are set to converge on Los Angeles in the coming decade, removing thousands of affordably priced homes from the market at a crucial time for residents who are unable to pay the steadily increasing prices now common in the city.

The covenants that protect the affordability of a swath of homes in Los Angeles are set to expire, and at the same time, investors are snapping up what is referred to as naturally occurring affordable housing, a crucial component of the city's affordable supply.

The result is an estimated 11,000 affordable residences that are likely to cross into market-rate territory in the next decade. And in a market that has seen 38% appreciation in the median home price in the last three years, those units are sorely needed.

“It’s really a double whammy for low-income renters struggling to stay in Los Angeles County,” California Housing Partnership President and CEO Matt Schwartz said. 

In LA County, there are 10,698 units with covenants set to expire within 10 years. Most of those (7,973) are set to expire within five years, according to the California Housing Partnership’s Affordable Housing At Risk 2022 report. These losses come as the regulatory restrictions, including covenants, expire and owners are able to flip the units to market-rate rents, opt out of certain programs or sell their properties. 

That is an increase from 2021, when 10,171 units were at risk of expiring within a decade, but a drop from 2020, when 11,241 were at risk. 

Statewide, there are 32,753 such endangered affordable residences, the partnership found, a marker of the breadth of the housing problem that has pervaded nearly every city in the U.S.

In LA County, those nearly 11,000 subsidized affordable homes make up about 9% of all affordable units in the county.

Saving even a fraction of these homes is important because of the incredible deficit of affordable homes in the area, Southern California Association of Nonprofit Housing Executive Director Alan Greenlee said.

“We've got a mismatch between the number of [affordable] units and the number of people who need homes that are affordable,” Greenlee said. “To me, that suggests two things: One is that we need to be building more brand-new units faster, quicker, cheaper. And we need to try to prevent any losses.” 

But this year’s report was also the partnership’s first to include what is often called unsubsidized affordable housing, or naturally occurring affordable housing. 

While subsidized units often get the most attention, the vast majority of housing that low-income renters can afford is naturally occurring affordable housing — units that, because of their location, condition and other factors, rent below market rates.

There are approximately 1.13 million of these unsubsidized below-market-rate units in the state. Together with the subsidized affordable units, they represent roughly 1.6 million units that low-income renters can afford. There are about 3 million low-income renters, the report found. 

The increase in investor demand for these types of units has caused this much larger segment of critical housing to diminish, experts say. The combined impact of the turnover of both of these housing types is likely to be painful for already-vulnerable renters. 

But those naturally occurring units are harder to track and therefore are more vulnerable to flipping to market-rate rents. These unsubsidized affordable properties are often “targeted for acquisition and conversion by for-profit entities, leading to the displacement of these lower-income residents,” the partnership’s report said. 

Officials and policymakers know there is a problem.

In 2019, city council members requested the city’s housing department put together a report laying out how many units were at risk of losing their affordability and make recommendations about how to preserve them.

A draft report, including policy recommendations, has been prepared but hasn't been publicly released, according to a representative for Council Member Gil Cedillo, whose motion prompted the report. 

The office of Mayor Eric Garcetti has reviewed some of the suggested strategies and asked the department to explore some of those models, the representative said, including an ordinance that would give “mission-driven nonprofit affordable housing developers” the first option to buy properties whose covenants have expired.  

State legislators have proposed, but not passed, a few attempts to set aside state funds to help nonprofits and mission-driven organizations purchase vulnerable properties, including a bill that would have created a tax credit for acquisitions that preserved affordable housing.

A proposed state budget includes $200M that would be used for a Community Anti-Displacement Acquisition Program that would fund purchases of unsubsidized affordable housing, but it isn't guaranteed to be in the budget that ultimately passes muster in the statehouse. 

At the local level, the city of Los Angeles is devising a plan to make an offer on a 124-unit building in Chinatown where the affordability covenants are set to expire in 2024. The building isn't actually on the market, but the city wants to buy it in an attempt to keep the renters in place.

Preserving unsubsidized affordable housing is more challenging, sources said, but one group has launched a pilot project in the city of Los Angeles to do just that.

Called the Local Rental Owners Collaborative, the pilot launched in the spring of 2021, offering grants to 52 rental owners in South Los Angeles who are people of color. The program aims to keep ownership in the hands of local, independent landlords and keep tenants in their homes, Enterprise Community Partners Vice President and Southern California Market Leader Jimar Wilson told Bisnow.

Enterprise, along with big names in philanthropy like the Chan Zuckerberg Initiative, contributed funding to the project. The LA-based Coalition for Responsible Community Development took the lead on the pilot program.  

“We knew by stabilizing property owners, we would thereby be stabilizing renters,” Wilson said, adding that both of those groups needed the help following the onset of the pandemic.

The program offered grants first to the owners to eliminate any back rent the tenants might have owed, then provided another round of grants to tackle deferred maintenance projects on the buildings. Buildings in the program largely contained between two and 20 units and in total were home to nearly 290 residents. The pilot deployed $1.4M in back payments and $450K in grants for repairs. 

In the end, one or two buildings that participated in the program ultimately sold, but the vast majority didn't. That translates to residents who were able to stay in their homes, Wilson said. 

Wilson said that now, about a year into the program, Enterprise is evaluating this pilot and its effectiveness. While the goal was to create a program that could be scaled up, he said that until the evaluation is done, the organizations involved won’t really know if that’s going to happen. 

Nevertheless, the program "is a fantastic example of one model that is working for the benefit of nearly 300 residents in the South LA community,” Wilson said.

For everything you need to know about affordable housing, come to Bisnow's Los Angeles Affordable Housing Development & Finance event on Aug. 23.

CORRECTION, JUNE 21, 9:50 A.M. PT: This story has been updated to correct the name of the Local Rental Owners Collaborative. 

CORRECTION, JUNE 22, 3:00 P.M. PT: A previous version of this story said that the covenants on a 124-unit Chinatown building had expired. They will expire in 2024. The story has been updated.