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PLANNING WATCH - Los Angeles suffers from two problems that, in theory, could combine to solve the housing crisis. The first problem is homelessness. In LA there are about 44,000 homeless people, plus 62,000 in LA County – on any night. The second problem is thousands of vacant buildings, mostly commercial, but also residential.
The solution to both crises is right before our eyes. Retrofit low-priced apartments into the vacant commercial and residential buildings, so the homeless and over-crowded will have a place to live, and property owners will find a profitable use for their empty buildings. Elementary, Dr. Watson.
Or is it?
The barrier to this solution is not zoning laws, since LA’s commercial zones automatically allow apartments. Furthermore, in Los Angeles, three of six industrial zones also permit apartments.
The barrier is not legislative since the Los Angeles City Planning Commission recently approved a revised Adaptive Reuse Ordinance. Once the City Council adopts this revised ordinance, it will incentivize conversions throughout the entire city, not just in LA’s downtown.
Finally, the barrier is not potential sites. The Real Deal, a real estate publication, reports a 25 percent vacancy rate in Los Angeles commercial buildings. Furthermore, many of the vacant buildings are also on transit corridors.
The real barriers: Despite an enormous need for low-cost housing in LA, why are so few conversions from commercial to residential uses taking place? The answer is that these sites are not only privately owned, but it is also extremely costly to convert under-utilized commercial buildings to low-rent apartments and still make an acceptable profit (about 15-20 percent per year).
The Marketplace newsletter listed typical barriers in California to these commercial to residential conversions, which they estimate cost $500,000 to $600,000 per unit.
· Seismic retrofitting, a legal requirement.
· Utility upgrades and on-site plumbing.
· Rooftop solar requirements.
· Structural repairs, especially for water damage.
· Asbestos remediation.
For these and related reasons, new apartments in remodeled older commercial buildings must be market rate to be economically viable, even when California’s Homekey Initiative offers developers grants. This is the essence of the barriers faced by contractors interested in remodeling older commercial buildings to provide new, low-cost apartments for the homelessness and overcrowded.
Why are so many commercial buildings vacant? According to the website, Strong Towns, the main reason for vacant commercial space is that prospective tenants cannot afford the rents, especially in newer buildings.
The same process also explains why so few commercial buildings are remodeled to become low-cost apartments. In Los Angeles the monthly rents for these potential apartments would be over $2500/month. This means the rents would be expensive, and therefore few of the new units would be rented to very low income tenants. The real estate website Zillow reports that the average apartment rent in Los Angeles is $2800 per month. The California Housing Partnership reports that Los Angeles County residents need to earn $48.04 per hour - 2.9 times the City of Los Angeles minimum wage – to afford the average monthly rent. In comparison, the average hourly wage for home health care workers is $16.75/hour, childcare workers $16.80/hour, janitors $19.63/hour, and retail salespersons $20.08/hour.
The working poor’s incomes are too low to rent apartments in commercial buildings that investors convert to residential. This is why few private real estate investors invest in these conversions. Their costs surpass the rents that those who need low-priced housing can afford.
While government programs to build non-market housing at these sites is an obvious solution to the housing crisis, the Nixon administration gutted public housing in the early 1970s. Subsequent Presidents and Congresses continued these cutbacks.
The remaining funding alternative in California was Redevelopment Agencies, but the State abolished them through the 2011 Budget Act. As a result, the few conversions that take place are through the private investors, and it is unlikely that the LA City Council’s imminent adoption of a revised Adaptive Reuse Ordinance will make a qualitative difference.
If you are pinning your hopes that homelessness and overcrowding can be eliminated through the conversion of vacant commercial space to low-priced apartments get ready for disappointment.
(Dick Platkin is a retired LA city planner, who reports on local planning issues. He is a board member of United Neighborhoods for Los Angeles (UN4LA). Previous columns are available at the CityWatchLA archives. Please reply to [email protected].)
