Linkage Fees: A Poor Solution for L.A.’s Housing Crisis
LOS ANGELES, CA
In 2015, in an effort to mitigate a lack of affordable housing, Los Angeles Mayor Eric Garcetti put into place an ordinance known as the Affordable Housing Linkage Fee. The City Council is expected to pass the ordinance in November 2017. By the end of 2018, real estate developers could be charged up to $15 per square foot on development projects, depending on what – and where – a project is being built.
The theory is that “linking” a charge on commercial real estate developments will boost affordable housing funding. Such a fee is already in use in San Francisco, San Diego and Oakland. In Los Angeles, it’s estimated to raise $75 million-$92 million annually, all of which would be allocated to affordable housing development.
According to LA City Council, it is proposed that such a fee would also encourage more affordable housing development, and affordable housing projects would be exempt from the fee.
But many believe linkage fees won’t work in Los Angeles, for the following reasons.
1) Sprawling Metro. Alex Sachs, executive vice president of Coldwell Banker Commercial WESTMAC, said in San Francisco and San Diego, developers create housing in one or two highly concentrated areas, while in Los Angeles, developers are focused on building in various neighborhoods like Marina del Ray, Downtown, and West Hollywood. Because these neighborhoods are miles apart and have different characteristics, different fees would be assessed in each neighborhood, which presents further complications to the city to enforce and collect on the fees.
One linkage fee study, commissioned by the city of Los Angeles, said charging a citywide, per-square-foot fixed fee might not be feasible in neighborhoods with lower rents or housing prices.
2) Allocation Issues. San Francisco relies on the Mayor’s Office of Housing and Community Development to allocate affordable housing fees. However, “the city of Los Angeles doesn’t have a trust fund, or advisory board to manage this, nor does it have a department set up to allocate funds,” said Dana Sayles, of three6ixty. “This lack could create allocation issues”, Sayles added.
3) No Phase-In. Aside from a short grace period following implementation, linkage fees would be immediately assessed on developers who never had to pay such costs. Rather than implementing the program in phases, “the city wants to go from zero to 100,” Sayles said.
4) Regulations and Resistance. Current regulations already make developing difficult in Los Angeles. Additionally, there are community “not-in-my-backyard” stakeholders, who might not want apartments, or affordable housing, in their neighborhoods. “Because of NIMBYs,” Sachs said, “there are never enough units that can be built in Los Angeles. This will just make things worse.”
No one is arguing that Los Angeles is in dire need of more affordable housing. However, linkage fee assessment will increase the cost of development and, in turn, produce even higher rents for Angelenos.