Elsesser and Squier Promote New Housing Department Agenda

Now that the Housing Commission has been meeting for a few months, have you moved past the fact-finding stage and begun to change policy?

Elsesser: Within the first 90 days we did produce the report required by the Council, evaluating the priority recommendations of the Mayor’s 1988 Blue Ribbon Committee Report. We are now moving into the second stage — implementing these recommendations and developing them into a more detailed and comprehensive citywide housing policy. Our biggest challenge, as an advisory commission, is to figure out a way to funnel all of the housing policies being developed in the City through the Commission.

Gary, have you encountered problems in your first months on the job?

Squier: We were slowed at the beginning by a staffing freeze imposed due to the city’s financial troubles that took us about 60 days to get lifted. In my view the new housing agenda was set back 60 days. It’s been frustrating articulating the new agenda for housing without the horses to carry it out.

Have any pieces of that new agenda come together?

Squier: Yes. That agenda is based on the premise that we must produce more housing at every level. This city is growing at a rate of 25,000 families a year. We are producing only 15,000 housing units a year, so you have a net shortfall of 10,000 units a year.

Our charge is to increase supply. We’re looking at six activity areas: housing policy; new resources; partnerships with lenders, developers and community organizations; continuing the rent stabilization program; housing preservation; and housing programs.

With the creation of the Housing Department, there is a major change in the way the City approaches the business of housing. Previously the city has waited for the phone to ring for interesting proposals by developers. We’re becoming more proactive, going into areas and building programs that enhance affordability.

But with the rejection of Proposition K (the City’s $100 million bond measure) last November, where will you find the resources for your programs?

Elsesser: One place is the housing linkage fee. The other place is federal money and we hope the new federal housing act results in an increase in our funding. Also, over the past several years there has been about $15 million of unspent Community Development Block Grant (CDBG) money sitting in the federal treasury that should be on the streets of Los Angeles. The Housing Department is presently funded entirely by CDBG money — the city does not currently spend any general fund revenue on housing.

Squier: Last year our production budget was about $3 million and this coming year (starting in July) we’re looking at a $24 million budget — an eight-fold increase. We’ve gotten this $24 million from the federal funds Chuck referred to and from a reallocation of resources within the department. We also hope for an appropriation from HUD for another $10 million.

How is that $24 million going to be spent? What are the priorities?

Squier: We intend to meet with for-profit and non-profit developers, community groups, and other constituencies to determine where the need is and where it makes sense to invest these funds. Off the cuff, we’re probably looking at 50% going into the purchase and rehabilitation of slum properties; 40% into the production of new housing; and 10% allocated to specialized pilot programs.

Will you be fully staffed with loan officers, construction specialists, architects, and so on? How hands-on will the Department be?

Squier: We’ll be very hands-on. We’re going to be a full-service housing development department. That means having loan officers who can put together complex packages. We’ll also soon create a new financial development unit and reassess how we do single-family rehabilitation.

Those unfamiliar with Los Angeles may find it peculiar that we have two sets of people — at the Housing Department and the CRA — doing the same things. Does that trouble you?

Squier: The CRA’s primary objective is redevelopment, and housing is meant to reinforce that objective. The Housing Department has a broader view and our housing programs will be responsive to a larger market. We’ll work very closely with the CRA and we are linked through the Affordable Housing Commission. Both agencies have resources that the other can tap. For example, we already fund the redevelopment agency to rehabilitate projects in East Los Angeles.

Elsesser: Your question jumped out at the Mayor’s Blue Ribbon Committee. The question is not whether the agencies ought to be coordinated but how it should have ended. Many nonprofit developers feel the CRA is efficient in getting housing money out on the street, and we want to add coordination without giving that up.

Jeff Shelton, What Oversight?

You spoke of the linkage fee as a crucial funding source for the Department. What is taking the Linkage Task Force (a committee of public, private and non-profit representatives) so long to complete its deliberations?

Squier: The linkage task force process has been slowed under my direction because I’ve wanted to ensure that whatever gets produced gets a full review and that the consultants get the full opportunity to respond to questions. But you’ll see an acceleration of the process in the next several weeks because we’re presenting to the task force the revised nexus analysis, as well as a draft outline program that makes recommendations on fee amounts and on how the program will operate.

What will that program look like?

Squier: We’re looking at a complex program because we’re a large city. We take the maximum justifiable fee under the nexus study, which is in the $20-$25 per sq. ft. range, and reduce that substantially to a level that will have negligible impact on commercial development.

We’ll have a fee ranging between $1.50 and $6, varying by commercial development type and by geographic area. We’re now looking at a completion date of April or May.

How has the linkage debate evolved as the commercial development picture has worsened over the last two years?

Squier: It is being argued that this is a bad time to start a linkage fee program because the recession is slowing commercial development. My response is that it is probably the best possible time. The recession is causing a shake-out in the real estate market causing real estate values to reflect the profitability of projects.

If linkage is to be a new reality applied to all real estate in the city, the value of the underlying land will reflect this extra cost of doing business. Thus, land costs may drop, but development profitability will be maintained. I think you’ll see effectively zero impact on construction because post-recession new construction will no longer be based on inflated land values. So this is an excellent time to begin a linkage program.

Elsesser: Some have argued that the linkage fee requires a separate housing program dictating how we’re going to spend the money. I don’t think there is any legal requirement for a discrete “linkage fee” housing program and I think it would be terrible public policy.

We are trying to develop housing programs which address a citywide housing crisis and we will be using every dollar and every policy we can think of. Our Commission was set up to create a coordinated and coherent City housing policy, not to fragment it into separate programs for each funding source.

Is Los Angeles getting its fair share of federal and state housing money?

Elsesser: With respect to Prop 84 and Low Income Housing Tax Credit funds Los Angeles is generally get­ting a share equal to its population. But since land is more expensive here, we get less housing per dollar spent. However, the California Housing Finance Agency, which does below market tax-exempt mortgage revenue bond financing, has done very little in Los Angeles.

States with effective housing programs have finance agencies that work closely with the state housing departments. Those states combine finance agency programs with other subsidy programs, like our Prop 84, to produce “bigger bang for your buck” packages. This state does not. The California Housing Department and the state housing finance agency split functions some time ago and have moved even farther apart.

Finally, on a more practical level, what should both for-profit and non-profit housing developers be looking for from this department?

Elsesser: There is definitely going to be an expansion in new affordable housing production — we’re going from zero production to a significant amount of production over the next year. Our subsidy programs will probably be more attractive to non-profit developers. For-profit developers will be more interested in our policy reforms. Our Commission is looking at planning issues, processing times, density, and all of the other things that make housing construc­tion difficult.

Squier: It’s important to recognize that this is not simply a housing programs agency. This department is an advocate for expansion of the housing supply.

If a developer asks, “What can this Housing Department do for me?”, in the long run we’ll be able to institute reforms and be aids to them in facili­tating development projects. That means removing barriers and expediting processes.

We can’t throw enough money at the housing problem to dent it significantly — we have to try to work at building constituencies for housing so the traditional opposition to de­velopment can be softened.

I want to leave you with one statistic. Our draft housing element says that we have 3.3 million people in Los Angeles. If the City were fully built out under current zoning, we could accommodate only 4.06 million. We are very close to 100% build-out.

Within the current zoning it is becoming impossible to expand the supply of housing — we will only be able to build additional housing if we densify. If we don’t build more housing, this crisis can only get worse. So Los Angeles must begin a debate today on whether we are going to densify, how we can densify, and where additional density will occur. That debate is the first step toward solving the housing problem.