LA Passes Controversial Fee On Developers

LOS ANGELES, CA — Los Angeles Mayor Eric Garcetti signed an affordable housing linkage fee ordinance immediately after the City Council Wednesday unanimously approved its creation.

The fee -- one of the most hotly debated proposals to come through City Hall in recent times -- was championed by Garcetti two years ago, before it went through a lengthy examination process by the council's Planning and Land Use Management Committee.

"Ending the housing affordability crisis is essential to securing Los Angeles as a place where every Angeleno -- no matter their income -- has an opportunity to build a life in our community," Garcetti said. "Everyone in L.A. deserves a place to come home to, and the affordable housing linkage fee is a critical investment in making that future possible for all of our families."

Although some council members and key business leaders expressed hesitation while it was dissected at four Planning Committee meetings, the council ultimately came together in unison to approve the fee as a way to help fight the housing crisis and rising rents in the city.

"This is an important moment. I'm thrilled to be a part of it," Councilman Bob Blumenfield said.

Councilman Jose Huizar, who chairs the Planning Committee, told City News Service, "It's a long process, but again it reminds us of how much work we still have to do. I think this council has paid so much more attention to affordable housing issues in these last couple of years, and it's an issue that has been long neglected, to speak quite frankly."

Under the ordinance, commercial and residential developers will have to pay a fee for every square foot of new construction, generating an estimated $100 million per year to be used to provide affordable housing units.

Skeptics fretted that the fee could discourage development overall or that poor tenants would suffer as landlords passed the cost of the fee onto them.

Huizar said before the vote that the fee is lower than what some studies had shown developers could absorb, which helped reduce the level of opposition in the business community.

"We don't think that there will be any slowdown in growth. We could have charged more in this fee, but we chose not to, and we did that purposefully so that we have a large buffer there that will not discourage any development," he said.

A report by the Department of City Planning and Housing and Community Investment Department estimates the fee could raise between $93.7 million and $114.3 million per year, with a tiered structure ranging from $8 to $15 per square foot for residential projects and $3 to $5 for commercial ones, depending on the market value of the neighborhood.

Council members Mike Bonin and David Ryu introduced an amendment to the motion that directs city staff to present an analysis within 60 days of the market impacts of increasing the residential fee in high market areas to $18. The amendment was seconded by Councilman Paul Koretz.

The three council members represent some of the pricier neighborhoods in L.A., including Bel-Air, Brentwood, Toluca Lake and the Hollywood Hills, indicating that there likely will not be opposition on the council to the increased fee because the trio collectively represents most of the high-market areas.

Huizar said he was supportive of looking at raising the high market fee.

"This is bringing it up a little bit more in those high demand areas, where they could probably absorb more of a fee than other areas," he said. "Because you want to encourage more development in low-income areas and those areas that don't have much development, but where there's such a huge demand and people's portfolios are working out, they could absorb this a lot easier."

Huizar pointed out that the city's affordable housing trust fund contained around $100 million in 2010, but has nearly dried up as state and federal contributions plummeted.

"... We are one of the last large cities in the country that doesn't have (a) consistent revenue stream to build affordable housing," Huizar said.

Councilman Mitchell Englander expressed some criticism of the fee at one meeting, but later said he had always supported a linkage fee, and that it had just been a question of finding the "sweet spot" that doesn't slow development.

The ordinance does include some exemptions for the fee, including for schools, grocery stores, hospitals and developments that include a certain level of affordable units, including where at least 40 percent of the total units are for affordable to moderate-income households making between 80 percent and 120 percent of the area median income.

There are also exemptions where at least 20 percent of the total units or guest rooms are dedicated for low income households, at least 11 percent is for very low income households, or at least 8 percent are for extremely low income households.

The Planning Committee considered for a time exempting nonprofits but ultimately decided against the move out of concern that developers would abuse the option.

Councilman Gil Cedillo over the summer suggested he wasn't necessarily against the fee, but cast some doubt on how effective it could be.

"If we think this is the whole solution, we are really making a mistake," Cedillo told City News Service in June.

But last week, Cedillo waived consideration of the linkage fee from his Housing Committee, which cleared the path for it to be voted on before the end of the year. The council also approved a motion by Cedillo that looks to create a linkage fee exemption for middle-income households making between 120 percent and 150 percent of the AMI.

"Today's council action is a historic move for the permanent development and preservation of affordable housing in Los Angeles," Cedillo said. "As the chair of Housing, I will support any measure that gets us closer to our goal of building 100,000 units of housing by 2021."

He added, "When creating a linkage fee, some cities have made certain exemption to the linkage fee, including exemptions for nonprofits and 100 percent affordable housing developments. Today, the City Council also approved my motion that asks for a similar exemption to extend homeownership opportunities for middle-income households, given the increasing price and shortage of housing. We have to attack the housing crisis at every level."

Other California cities such as Oakland, San Diego and San Francisco have a linkage fee, as do other cities around the country.

"When I was in college, Boston established an affordable housing linkage fee," Bonin said in August. "... I remember the headlines in the Boston Globe -- the sky was going to fall and the world was going to end, housing would stop and the boom in Boston would end. It didn't happen."

Groups that argued that the fee will slow down housing include the Los Angeles Area Chamber of Commerce, which said the "business community strongly supports affordable and workforce housing, but this proposal will make low- and middle-class housing more expensive to build and more expensive to rent or own."

Garcetti set a goal in 2014 of constructing more than 100,000 units in Los Angeles by 2021 as a way to combat a housing shortage that has contributed to rising rents and an increase in homelessness in the city.

By CRAIG CLOUGH, City News Service; Photo by Andre Benz on Unsplash