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SACRAMENTO - SB 79 (Housing Development Transit-Oriented Development bill) is California legislature’s most recent attempt to transfer wealth from Angelenos to Wall Street. The principle is simple. The higher the density one may build on a parcel of land, the more the land is worth.
By allowing developers to construct Poverty Projects in R-1 areas, SB 79 makes that land worth more than when it was for single family homes only. For example, if a house north of Franklin Avenue in Los Feliz will sell for $2 Million as a family home, it will sell for $4 to $6 million if it can have a four to seven story poverty project. Single-family homes are not profit-making ventures like apartment houses. Affordable Housing is a money-making opportunity for the Developer-buyer and for Wall Street, which is the end line for most mortgage payments. The interest which Wall Street will earn on the construction loan for a multi-unit project is vastly greater than Wall Street will earn on the homeowner’s mortgage. Whoever purchases the project from the developer will then take out a mortgage than can easily be ten to twenty times from a mortgage on a single-family home. By monetizing land value which should stay with Los Angeles residents, Wall Street extracts that wealth for itself. One nice single-family home can accumulate equity for four successive generations in each hundred years. Every time a single-family home is destroyed, decades of homeowners loose that equity. It’s a type of wealth theft which people do not see, yet dooms millions to poverty. This is a major reason that Angelenos are getting poorer, while the 1% is getting wealthier.
The machinations of LA politicos, developers, and Wall Street started sucking money out of Los Angeles in earnest in 2001 when Eric Garcetti was first elected as CD 13 councilmember. Rather than laboriously go through each scam, there are a couple business principles for people to note:
(1) The higher the density one can build on a parcel, the more it is worth.
(2) The higher a parcel of land’s price, the larger the mortgage which means the more money that flows upward to Wall Street
(3) Land with apartments is worth more than if that land had only a single-family home. Because SB 79 allows developers to construct multi-unit Affordable Housing Projects on R-1 land, that land’s value increases to Developer Value. Even if a family buys the home for living, it must pay the higher Developer Price. SB 79 will raise the prices of all homes since all could potentially become income producing properties. At the same time, the land’s value to a family decreases as the family has no way to know if a seven-story poverty project will be built next door in two to three years.
Family Millennials and Gen Zers are leaving LA due to the lack of reasonably priced housing. LA’s corrupt land use practices have driven up the cost of land everywhere so that it makes no sense for families to buy in LA when their money will go 2, 3, or 4 times farther in other states. Due to high housing costs and declining quality of life, Los Angeles itself has already lost so many Family Millennials that the State of California lost one seat in the House of Representatives.
The Affordable Project Part of the SB 79 Scam
Due to inflated land values, Affordable Housing is unaffordable to build. If milk sells for $5.00 per gallon, a dairy will produce milk which costs it $6.00 per gallon. Thus, developers need to lower construction costs by making money during construction and not wait to recoup their costs and profits by selling after construction – Yes, skimming from the construction loans.
The backers of SB 79 believe that when developers can buy a single-family home, its initial cash outlay for land will be millions less than if it purchased a comparable size property which already has multiple units. Because many local zoning laws prevent multi-unit projects in R-1 areas, SB 79 removes this hurdle so that developers may buy where land values are lower. Thus, SB 79 overrides local zoning which protects R-1 areas and their quality of life.
Developer Should Seek Greener Pastures Elsewhere
Developers should admit that LA has been ruined for them, just like certain parts of a lake can be over fished. The profits will be easier in Austin, Texas and in other cities where the Family Millennials are moving. Although SB 79 will result in more Family Millennials and Gen Zers leaving LA, developers and Wall Street hope that by building Affordable Housing they can build cheap units with federal money. DUD! Building what people do NOT want is like opening a porkorama meat shop at Fairfax and Clinton. Thus, they seek to make money from the construction loans; some are already jacking up the construction costs towards one million dollars per apartment unit. That way when they walk away from the project, they will have pocketed a profit. When the city has borrowed the money from Wall Street and loaned it to the developer who pockets most of it through inflated costs, the city is still on the hook to repay the loans plus interest to Wall Street.
SB 79 is a desperate attempt to have developers construct multi-unit property projects in single family areas where the initial land costs will be relatively low. That will only worsen LA main housing problems:
(1) SB 79 will raise the prices of homes in R-1 areas, based on the developers’ belief that they can make a lot of money by building in R-1 areas. They won’t.
(2) By further raising housing prices while threatening the long-term viability of R-1 areas, SB 79 will hasten the flight of Family Millennials and Gen Zers, further eroding our future tax base.
(3) To the extent the city borrows money to loan to developers to build SB 79 projects, the city itself is likely to go BK and seek a Federal bailout.
(Richard Lee Abrams is a Los Angeles-based attorney, author, and political commentator. A long-time contributor to CityWatchLA, he is known for his incisive critiques of City Hall and judicial corruption, as well as his analysis of political and constitutional issues. Abrams blends legal insight with historical and philosophical depth to challenge conventional narratives. A passionate defender of civic integrity and transparency, he aims to expose misuse of power and advocate for systemic reform in local government. You may email him at [email protected])
