https://taller.la TALLER Thu, 06 Apr 2023 19:12:41 +0000 https://taller.la en https://taller.la/Dualist-v-Unitary-Rental-Sectors Thu, 06 Apr 2023 19:12:41 +0000 TALLER https://taller.la/Dualist-v-Unitary-Rental-Sectors JOURNAL Read it on Substack︎︎︎ <img width="1592" height="896" width_o="1592" height_o="896" data-src="https://freight.cargo.site/t/original/i/405dbe1d4c4ae12fe15908c6b53ad547e541f3a95a267ebfba2baa32a1c79f86/11-Dualist-and-Unitary-Rental-Sectors.png" data-mid="174509219" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/405dbe1d4c4ae12fe15908c6b53ad547e541f3a95a267ebfba2baa32a1c79f86/11-Dualist-and-Unitary-Rental-Sectors.png" /> On Dualist v. Unitary Rental Markets It is not a stretch to say that our rental housing system is broken. In Los Angeles, more than half of renter households are considered “rent burdened”, and almost a third of them are severely rent burdened, paying over half of their gross monthly earnings in rent. What’s more, instead of building more affordable housing, Los Angeles has lost much more affordable housing than it has gained in the last decade. And these trends are not isolated to L.A.; they are evident in major cities across the country. So, why is it that we struggle to maintain affordable housing? And why is it that building affordable housing is so difficult in the US? The specifics are myriad and convoluted (of course), but–as with anything–they can be better understood by understanding the broader context in which they operate. In his 1995 book, From Public Housing to the Social Market: Rental Policy Strategies in Comparative Perspective, Jim Kemeny generally classifies all rental markets in developed, capitalist societies as being either dualist—whereby the profit-driven rental sector and the non-profit rental sector are kept separate—or unitary—whereby both profit and non-profit landlords are allowed to compete openly in one market. These rental systems also have corresponding policy strategies, termed command and market, respectively, by Kemeny. This tome represents a significant contribution to academic discourse on rental markets and has been widely accepted and cited in various research papers and publications as a rubric by which to gauge the evolution of rental markets in various countries. The evolution of one rental system over the other is largely a result of the type of welfare regime in a given country. Countries that are categorized as liberal he identifies as having a high likelihood of developing a dualist rental sector, while countries identified as having either corporatist or social democratic regimes, have a much higher proclivity toward a unitary rental model. More broadly, Kemeny establishes that the dichotomy can be boiled down to English-speaking (Anglo-Saxon) countries having a dualist system whereas a unitary system can be largely found in the Germanic block of countries. Insofar as the international influence of liberal economies such as the United States and England—both economically, in terms of policy and theory, as well as culturally—has far outpaced that of the Germanic block countries, it should be no surprise that the dualist rental model is much more prevalent than the unitary model globally. Dualist Rental Market Kemeny defines a dualist rental sector as one in which the private, profit-driven market is insulated from the non-profit, cost-renting market. Such a market tends to evolve as a reaction to liberal economic policy in a country. The logic is as follows: in order to promote a ‘free’ market, rental regulations are relaxed in a liberal regime under the logic that a market functions best when not hampered by excessive regulation. With relaxed regulations, private landlords can raise rents as high as the market will tolerate, and this inevitably leaves a segment of the population disenfranchised, unable to afford increased rents. As political pressure mounts from these constituencies, governments provide the framework for the establishment of cost-renting platforms—either by providing such housing directly or establishing the framework by which non-profit organizations can provide such housing. As market rents rise, cost-renting becomes an increasingly attractive option for a wider swath of the population. In order to cut demand for such housing, then, ever more stringent regulations must be put forth as to who may qualify for such housing. The result of this is the emergence of two separate and insulated rental markets in a society, a largely unregulated profit-driven market and a highly regulated cost-rent sector. Ironically, attempts to minimize direct government involvement in the rental market in such regimes result in the government taking over responsibility for an entire sub-sector of the market. In Kemeny’s words, “alongside the profit market there develops a state non-profit sector that acts as a safety net for the profit sector. Instead of allowing non-profit forms to compete directly with profit forms, non-profit forms are hived off from the market and organized as a residualised state sector.” Protecting the private for-profit rental market from competition from the non-profit cost-rent market in such a manner ends up raising rents overall for the majority of the population which does not qualify for cost-rent housing. Rents can then be increasingly aggravated by the provision of demand-side rental subsidies—a popular mechanism aimed at improving housing imbalances in liberal economies—as these tend to increase demand without doing much to increase supply. Additionally, such an approach has broader repercussions to society as a whole, marginalizing large portions of the public. Attempts to remove the government from the rental housing sector under such policy are often to the detriment of existing public housing. As funds get transferred from the direct provision of housing to demand-side subsidy programs—such as Section 8 housing vouchers in the US—there is less investment in maintenance for the existing housing stock, which is ultimately what can lead to its failure. “Behind the systematic and long-term deprivation of investment for renovation and modernization,” asserts Kemeny, “lies an essentially ‘poorhouse’ attitude to public renting: that it is for the most marginalized households only, that they should be grateful for whatever housing they are offered, and that it should not be too attractive.” These attitudes tend to permeate into policy, affecting the housing sector as a whole. Of note is that countries with dualist rental markets also tend to have a high ownership rates. This, however, is not necessarily representative of a preference for this sort of tenure. Instead, argues Kemeny, this can be attributed, at least in part, to the fragmented nature of the rental sector. By being priced out of the for-profit rental market and not qualifying for cost-rent housing, many households are pushed into homeownership, whether or not it may be the best decision for them. The smaller the public rental sector, the larger the low-income population effectively forced to buy. This push then drives pressure for homeownership subsidies. “As a direct result of the policy of the suppression of cost renting, therefore, political pressure is created for escalating subsidies to owner occupiers to bring ever more marginal households into owner occupation,” observes Kemeny. This push toward ownership feeds a vicious cycle by which it is then perceived that there is a societal preference toward owning, leading to more ownership-friendly policies and further marginalizing the rental sector. Unitary Rental Market The unitary rental model draws from policy based on the social market theory originally developed in Germany after World War II. This market approach was developed in large part in response to the devastation the country faced in the aftermath of the war, as the country needed to essentially rebuild policy from scratch. The aim of this approach was to attempt to “construct markets in such a way as to strike a balance between economic and social priorities and thereby ameliorate the undesirable effects of the market.” As such, Kemeny asserts that the task of government in such a system is “not to encourage profit-driven markets and then construct emergency ‘safety-net’ arrangements to take care of its casualties. It is rather to actively take part in the construction and continual maintenance of markets.” In contrast to the dualist rental market, a unitary rental market allows cost-renting to compete openly with for-profit renting. The open competition between cost-renting and profit renting works to dampen rents and provide a source of high standard housing with security of tenure. Such markets take a long time to develop, however, as cost-rent housing becomes increasingly competitive as the building stock matures. As asset debt gets paid down on mature properties, for example, costs are significantly reduced as debt service payments drop. As a result of this, the rents necessary to cover costs are reduced, making the housing more affordable. However, such a drop in rents in only a few rental buildings would have little effect on market rents overall. As such, the maturation process of a cost-rental sector depends on both the average age of assets as well as the size of the sector. As the sector grows, the rents charged by cost-rent housing begin to act as price makers, determining the maximum level of private rents by their market preponderance. As is the case with a dualist regime, a unitary rental market also has implications on society and the housing sector as a whole. For starters, countries that approach having a unitary rental market tend to have more renters than dualist societies, and those renters tend to span all ranges of income scales. Additionally, Kemeny argues that such a rental market promotes tenure-neutral housing policy, as opposed to the owner-biased housing policy typically observed in dualist rental markets. This is especially the case as the cost-rental stock in a country matures. Kemeny explains that “maturity results in rent levels highly competitive with owner occupation and creates a heavy demand for rental housing. This in turn creates a large and expanding rental sector that offers a genuine alternative to owner occupation. Such a rental market serves households from all socio-economic groups that have actively chosen to rent.” Insofar as a unitary market provides for just one open market in which all sorts of rental operations compete, such a model, it can be argued, represents more of a ‘free market’ approach to the rental sector than the dualist rental market that emerges in neo-liberal economies. To get to the point where cost-renting can compete openly with profit-renting, however, takes time, and during this time it is important that the State maintain regulation so as to not let the profit-renting sector get too far out of pace with the cost-renting sector. As the cost-renting sector matures and grows, these regulations should become more relaxed, eventually allowing for free competition between cost-renting and profit-renting. This point cannot be understated, because if rental regulation is too stringent for too long it can have the effect of dissuading private investors from developing rental housing altogether. To get to a truly unitary rental market, then, takes finesse and patience. Unsurprisingly, it has not been achieved in many countries. Even in Germany and Switzerland, arguably the two countries with the most successful version of a unitary rental market, some State intervention is still necessary to protect the cost-renting sector to some degree. In conclusion, the broken rental sector in the US is a result of various policies and factors. Kemeny’s theory of dualist and unitary rental markets provides a framework to understand how different welfare regimes affect the rental sector. The dualist system prevalent in Anglo-Saxon countries, including the US, promotes a profit-driven market insulated from non-profit cost-renting platforms. The lack of regulation in the private market results in rising rents that exclude many people, creating demand for cost-renting housing, which is heavily regulated by the government. The government's attempts to minimize its involvement in the rental market through demand-side subsidies lead to increased rents, marginalization of the public, and inadequate investment in existing public housing. Ultimately, building affordable housing is challenging in the US because of the policies and attitudes that have developed in the dualist rental market. A rethinking of rental housing policy is necessary to address this crisis and provide affordable and safe housing for all. https://taller.la/On-Missing-Middle-Housing Wed, 22 Feb 2023 20:04:11 +0000 TALLER https://taller.la/On-Missing-Middle-Housing JOURNAL Read it on Substack︎︎︎ <img width="1820" height="1024" width_o="1820" height_o="1024" data-src="https://freight.cargo.site/t/original/i/f6260085c4e7febc1417dd69418dfafb51bd5b4314c86e93728975b755d0355e/Missing-Middle-16x9.png" data-mid="169359487" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/f6260085c4e7febc1417dd69418dfafb51bd5b4314c86e93728975b755d0355e/Missing-Middle-16x9.png" /> On Missing Middle Housing For a variety of reasons, the single-family home has been king in the US for the better part of a century. This has been especially true for Los Angeles, a city built on real estate speculation that converted a sleepy desert into a booming metropolis in just a few generations. It is, as Mike Davis calls it in City of Quartz, “the most permanent boomtown in American history,” and the image of a sunny suburban plot at the edge of our western frontier was a dominant factor attracting would-be Angelenos from all corners of the US to fuel its growth. For decades, we built as if our land resources were never-ending, and we are now coming to terms with—and attempting to address—the deleterious effects that such a singular planning focus has wrought. This image of Los Angeles, however, belies the fact that the city is–and has been–composed mostly of renters. The construction of multifamily housing in the region has been—at its best—at least as innovative as the modernist single family homes for which Southern California is better known. Despite there being plenty of demand, however, there are relatively few viable multi family lots in the city, largely because of zoning efforts. In fact, of all residentially zoned lots in the city, a whopping 74% are zoned for single family residential. This creates an artificial scarcity for multifamily sites, which in turn drives up the cost of acquiring and building upon such lots. In response to this, developers are incentivized to maximize the size and density of these lots. Because of this, and because of the ensuing economies of scale, new apartments are typically being provided in large housing blocks of 30+ units. In a low-rise city such as Los Angeles, though, such large projects are incongruous with the makeup of the majority of neighborhoods (which is a major reason such projects are often vehemently opposed by local residents). All this is a long-winded way of saying that there have been two extremes of building prevalent in our housing delivery system. There is a sizable gap not being served between these two extremes, however, and for a variety of reasons there are just not that many options being built that address it. In Los Angeles, this gray zone could prove key to addressing our tremendous housing shortage. By allowing a thoughtful density in greater parts of the city that is compatible with the low-rise nature of most of our neighborhoods we can bring online much-needed housing supply in significant numbers while not drastically changing the character of most neighborhoods. Enter: the missing middle. Missing middle housing is a range of multiunit or clustered housing types that are typically compatible in scale with single-family homes. They are referred to as “missing” because they have largely been illegal to build in most neighborhoods throughout the US because of local zoning restrictions. The importance of addressing this “missing middle,” though, has been garnering attention as of late. Both ULI and Dwell have run stories about it in the last year, and the Biden administration is including its promotion as part of their plan to address the affordable housing crisis in the US. These types of housing include duplexes, triplexes, townhouses, and small apartment buildings with typically fewer than ten but as many as twenty units. In LA, lots are rife with potential for this sort of low-rise density, and the market is hungry for it. These sorts of developments help meet the growing demand for walkable urban living, respond to shifting household demographics, and can meet the need for more housing choices at different price points. They are also more in line with the character and scale of the majority of neighborhoods in the city. <img width="624" height="184" src="https://lh3.googleusercontent.com/710Hs6dvG3F--Ad16vJX0O7keKj5TL7nl7R05jHNbOxSRU5EE9LqRzlSqR2JZYyJg8gDgsFSsxU2SDtlueZ_k4g9CV113CIVwiCXs6dAKvW_SbUZWU4G-ko2473rGc49PqehnuZH7Qvbe53k8ug6Bj4" data-caption="A diagram of missing middle housing typologies. Source: &quot;Missing Middle Housing&quot; by Daniel Parolek."> Even though these sorts of projects were once prevalent across the US, since the adoption of standard zoning ordinances their construction has waned significantly. The former popularity of these housing types is still evident today, however, with one out of every 13 homes in the country being a part of a two- to four-unit building according to data from the US Census. It is worth revisiting this typology, however, as the benefits are multiple. Missing middle housing can have a positive impact on the availability of more attainable homes, for example. Since the 1970s, the number of “starter homes” (homes under 1,400 sf) being built has been steadily declining. By 2020, less than 10 percent of all new homes built fit into this category according to Census data. Missing middle housing could provide a boon to the construction of these sort of units, which historically have been a more attainable option to lower- and middle-income households. A study by California Community Builders on the effects of upzoning, in fact, found that single family homes on large lots are on average 2.7 times more expensive than would be the resulting condos or townhomes that could be built on the same lot at middle density scale. Additionally, missing middle housing has environmental benefits. The US Environmental Protection Agency (EPA) found, for example, that residents in higher density neighborhoods living in multifamily and single family attached homes used about 40 percent less electricity and 50% less water than residents in low-density areas. New missing middle construction in existing neighborhoods could also spur further development, making neighborhoods more walkable. The increased density could also encourage transit agencies to provide more frequent services. Combined, these could lower residents’ vehicle miles traveled, thus lowering their vehicular carbon footprint. The typology also fits well with our nation’s changing demographics. Baby boomers, for example, would benefit from the increased availability of smaller homes that would allow them to downsize without having to relocate too far. And our nation's second largest generation, millennials, are hungry for more attainable housing options near urban amenities. What’s more, both generations have expressed a greater preference for walkability in a neighborhood over a larger backyard, according to the National Association of Realtors recent Community and Transportation Preference Survey. So why are we not building more middle density housing? As mentioned, a large part is zoning. There are, however, new(ish) initiatives aimed at addressing this in California and Los Angeles. California’s ADU laws have proved extremely popular, for example, and the relatively recent SB 9 effectively did away with single family zoning in the state. In addition to this, there are local measures such as the Small Lot Ordinance in L.A. City and the Compact Lot Ordinance in L.A. County that strive to alleviate some of the regulation that is preventing such developments from happening. While these initiatives have yet to make a meaningful impact on our housing deficit, they are a step in the right direction. They are also relatively new, so their impact might not really be felt for some time. There are, of course, many facets to this issue, and zoning is not the only thing keeping such projects from getting built. More on that in a separate post. Missing middle housing can be an important part of addressing our housing needs in Los Angeles. Moreover, it provides an avenue for adding density to a city in a manner that is in line with the low-rise nature of much of its neighborhoods. It also provides exciting design opportunities and opportunities to create communities at varying scales. Policymakers are increasingly interested in spurring this sort of developments as evidenced by the many new laws passed throughout the country meant to catalyze its growth. We must do what we can to support these efforts and even push beyond them if we are to meaningfully address our housing shortfalls. See you next week. https://taller.la/On-SB-9-and-its-First-Year Wed, 15 Feb 2023 08:39:12 +0000 TALLER https://taller.la/On-SB-9-and-its-First-Year JOURNAL Read it on Substack︎︎︎ <img width="1536" height="864" width_o="1536" height_o="864" data-src="https://freight.cargo.site/t/original/i/f4ead155644bac85bf9feb8f6fe962f19d695b811d7fa49de35a8a742fa8deed/09-on-SB-9-16x9.png" data-mid="168478727" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/f4ead155644bac85bf9feb8f6fe962f19d695b811d7fa49de35a8a742fa8deed/09-on-SB-9-16x9.png" /> On SB 9 and its First Year It’s been just over a year since California passed Senate Bill 9 (SB 9), a radical change in policy that effectively got rid of most single-family zoning in the state. Heralded and vilified for its sweeping changes, SB 9 was expected to be a game changer that would create more attainable homes and help ease the state’s housing crisis. One year in, however, the results are, well, underwhelming. In fact, a recent report from the Turner Center for Housing Innovation at UC Berkeley surveyed thirteen major cities in the state and found that across the board SB 9 projects have been “limited or nonexistent” in the law’s first year. In those cities, for example, only 282 applications were submitted for SB 9 units and only 99 were submitted for SB 9 lot splits. Of those applications, only 53 and 28 have been approved, respectfully. For comparison, in 2021 those same thirteen cities received applications for a combined 445,449 dwelling units and approved applications for 159,059 of them, according to state data. SB 9 has been a comparative drop in the bucket so far. But why? Before exploring this question, a quick overview of SB 9 is in order (we’ll delve deeper in a later post). Also known as the HOME Act, SB 9 essentially got rid of single-family-only zoning in the state, allowing up to four units on any single-family zoned lot. It does so by allowing by-right the development of a two-unit dwelling on any single family zoned lot. In addition, it allows for almost any existing single-family zoned lot to be split into two lots, each of which would be allowed a two-unit development. There are certain exceptions, of course, but in this way the law’s intent is to make single-family zoning a thing of the past. So, why hasn’t it? Well, first it is worth noting that the law is still very new. Housing of any sort is a big investment and takes a long time to plan and execute. Or, as the LA Times Editorial Board put it: “patience, please. Undoing damage from decades of anti-housing policy in California won’t happen overnight.” While theirs is an admittedly sardonic take, it is not incorrect. It is unreasonable to expect any legislation to have an immediate effect on the dearth of housing in the state. For homeowners, adding a unit (or three) to their property is a huge decision that it may take some time to get behind. Just because the option becomes immediately available once the law takes effect does not mean that homeowners are immediately ready for it. The law’s newness also means that it is not yet well known, and its use is bound to increase as awareness does. Indeed, according to that same report from the Turner Center, planners in the cities surveyed attested that while actual application numbers are low, the number of inquiries about the law that they are fielding are increasing. It is worth noting that the law’s first year in existence has also been marked by one of the most volatile housing periods in recent history. It could just be that the law needs more time to get off the ground. Or it could be more. Compared to ADU applications and permits, SB 9 units are lagging far behind (almost 20,000 ADUs were permitted in 2021 according to state data), and the stark difference has been pointed to as evidence of the law’s failures. The comparison is apt inasmuch both represent similar options of increasing units on a homeowner’s property. The vast difference in preference, though, points to a deeper difference between the two. Building a duplex and—especially—splitting a lot are significantly more technical, difficult, time consuming, and expensive than creating an ADU. A major reason is that ADU laws have created clear guidelines for ADUs that have made their construction easier and more standard. Getting to this point, however, has taken many rounds of revisions and updates since the original ADU laws passed in 2016. In its first version, SB 9 fails to set up clear guidelines for its implementation, meaning that the path forward can be nebulous for most people not familiar with these processes already. In addition to this, SB 9 requires that at least one of the lots created be owner-occupied for at least three years. This requirement disincentives experienced developers and builders—exactly the people with the required know-how to get this done—from pursuing these sorts of projects altogether. Removing this provision from further versions of this law as well as working to create clear guidelines for its implementation could help make adding units and/or splitting lots more viable and attractive to homeowners and investors alike. More prescriptive measures could help maintain a higher baseline of adherence at the local level as well. SB 9 faced fierce opposition from various local groups before it passed, and there are plenty of jurisdictions that are actively looking to undermine it. As an extreme example, the Silicon Valley suburb of Woodside went so far as to declare itself a mountain lion sanctuary in order to avoid having to comply with SB 9 (a move that merited a stern warning from the state attorney’s office). It took many rounds of ADU laws to circumvent these sorts of obstructions by local municipalities; it will take similar revisions to provide the same protections for SB 9 projects. In short, SB 9 isn’t perfect, but we shouldn’t discount its lack of immediate success as any real condemnation. It will take time—likely many years—for the law to hit its stride. To quote the LA Time Editorial Board: “The slow progress so far doesn’t mean the law has failed. SB 9 was never going to be a magical solution to California’s housing crisis. It was (and is) an important step to lift restrictive zoning laws that have made it too hard to build enough homes to keep up with population growth.” SB 9 has the potential to make a sizeable dent in our housing crunch, and to create more small-scale&nbsp; homeownership opportunities that are affordable to moderate-income buyers. We should, of course, keep an eye to improving the law so that it can live up to its intent, but we should also just give SB 9 time to work. https://taller.la/TALLER-on-Archinect Wed, 14 Dec 2022 22:26:25 +0000 TALLER https://taller.la/TALLER-on-Archinect NEWS Read it on Archinect︎︎︎ <img width="2585" height="1724" width_o="2585" height_o="1724" data-src="https://freight.cargo.site/t/original/i/bebc978cce9519f25783f8b7fb000c25d4699bc9577e58f5d55508be450b5e01/TallerArchinect-Feature-Post.jpg" data-mid="161971957" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/bebc978cce9519f25783f8b7fb000c25d4699bc9577e58f5d55508be450b5e01/TallerArchinect-Feature-Post.jpg" /> Archinect Features Luis Gil 11/15/2022 Katherine Guimapang of Archinect recently sat with Luis to discuss his approach to architecture and development and where he sees TALLER heading. Check out the article at the link below. Read the interview on Archinect︎︎︎ https://taller.la/Brannick-on-Archinect Wed, 14 Dec 2022 23:05:16 +0000 TALLER https://taller.la/Brannick-on-Archinect NEWS Read it on Archinect︎︎︎ <img width="2255" height="1565" width_o="2255" height_o="1565" data-src="https://freight.cargo.site/t/original/i/9eb6076e1a497639d5de75caee8faf78101c673ed5491d8a100f3b8bd73175c2/Brannick-on-Archinect.jpg" data-mid="161974692" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/9eb6076e1a497639d5de75caee8faf78101c673ed5491d8a100f3b8bd73175c2/Brannick-on-Archinect.jpg" /> Brannick Homes Featured in Archinect 10/18/2022 Josh Niland of Archinect recently featured our Brannick Homes project on the widely ciruclated and renowned architectute publication, Archinect. Click through at the link below to read the article.&nbsp; Read the article on Archinect︎︎︎ https://taller.la/Van-Ness-on-Urbanize Wed, 14 Dec 2022 23:14:27 +0000 TALLER https://taller.la/Van-Ness-on-Urbanize NEWS Read it on Urbanize︎︎︎ <img width="3025" height="1700" width_o="3025" height_o="1700" data-src="https://freight.cargo.site/t/original/i/d182887c0f9bde957d032d6bd31f8666119db73d89fbd7da0d22d8f3ce004387/VN-on-Urbanize.jpg" data-mid="161975048" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/d182887c0f9bde957d032d6bd31f8666119db73d89fbd7da0d22d8f3ce004387/VN-on-Urbanize.jpg" /> Van Ness Homes Featured in Urbanize 04/24/2022 Our Van Ness Homes project was recently in the news on Urbanize, the national platform for all things real estate development. Click through at the link below to read the article.&nbsp; Read the article on Urbanize︎︎︎ https://taller.la/Compact-Lots-Subdivisions Wed, 01 Feb 2023 22:09:16 +0000 TALLER https://taller.la/Compact-Lots-Subdivisions JOURNAL Read it on Substack︎︎︎ <img width="1536" height="864" width_o="1536" height_o="864" data-src="https://freight.cargo.site/t/original/i/1101e6525b27273ad4376cec87c86d5709ddad1b060b34d4cc7c2b9edd0b70f1/Compact-Lot-AI-16x9.png" data-mid="166946254" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/1101e6525b27273ad4376cec87c86d5709ddad1b060b34d4cc7c2b9edd0b70f1/Compact-Lot-AI-16x9.png" /> Compact Lot Subdivisions When it comes to land use policy in Los Angeles in general and zoning rules in specific, I could write a novel about the many ways it hampers thoughtful development. In many ways, the constraints of our zoning code keep us from developing right-sized solutions to many of our most pressing urban problems. The ills of modern zoning are not specific to Los Angeles, but in the most populous county in the most populous state in the nation, its shortcomings are readily apparent. Ever changing, though, Los Angeles has been the testing ground for a number of new initiatives that take aim at many of the elements in the zoning code that limit building sensible, quality housing at density. Unincorporated L.A. County recently enacted one such ordinance: the Compact Lot Subdivision Ordinance. Passed in late 2020 with little fanfare or much attention, the Compact Lot Ordinance (CLO) has the potential to significantly help address the missing middle housing problem in L.A. County. In short, what this ordinance does is significantly reduce the minimum lot size required to create a legal lot on certain infill parcels in unincorporated areas of Los Angeles County. These lots could then be built up to the density allowed in the underlying zone, but because of their small size, the presumption is that each lot would fit only one single-family dwelling. Given other recent state laws regarding ADUs, however, a thoughtful subdivision could potentially fit up to three units per lot. For those readers familiar with the City of L.A.’s Small Lot Ordinance, the County’s version is similar in intent but has its own set of underlying guidelines and restrictions. Small Lot projects have been around in the City of L.A. for over 15 years now, and in that time they have picked up significant popularity and acceptance. You can find such a development in almost every neighborhood in the city at this point, although they are typically more likely in higher-priced areas. Like Small Lot projects, the CLO allows for the creation of fee-simple lots that are much smaller than the typically prescribed 5,000 sf minimum. Allowing for lots as small as 1,200 sf in some cases, CLO provides an avenue for developing new homes that are attainably priced, both for sale and for rent. After going through the CLO process, each unit created lives on its own legally independent lot with its own Assessor’s Parcel Number. Similar to Small Lot projects in L.A. City, the individual owners must then adhere to a mutual maintenance agreement for shared amenities, such as walkways or landscaping. The resulting homes are neither condos nor townhomes; they are structurally independent homes on individual parcels. CLO has a lot of potential, and one of its many advantages is that you can build more independent lots than traditional multifamily units in many cases. This is because CLO projects are allowed in R2 zoning districts as well as R3 and R4. Because of this, a thoughtful increase in density is attainable via the use of CLO on a broader swath of sites than would be allowed for traditional rental units. The process, however, is inherently complicated. Subdivisions in California are usually not an easy feat, and CLO subdivisions are no different. To date, there has only been one project approved under CLO. Not to brag, but it happens to be our own. If you’re interested, see the project on our website here (and some nice press about it here and here). There is a high barrier to entry because of the technicality involved, but the results are worth it. On our Brannick project, for example, while the underlying zoning only allowed for three traditional multifamily units, we were able to create four units on independent lots through the use of CLO. In addition to this, sites for which CLO would be a good fit are typically priced as single family homes because CLO is so new: their “highest and best use” pricing does not reflect the true density the sites are able to accommodate. This means that the land basis for CLO projects can be remarkably low compared to more traditional multi-unit development projects. There is a lot to be excited about with Compact Lot projects, not the least of which is the relative newness of the ordinance. We’ll share more about our own experience getting L.A. County’s first one approved in later posts, as well as more on how to get one going. In the meantime, though, if you have any questions or think your site could be a good candidate, reach out to us for a chat. We can assess your site for potential or just help connect you with the right consultants to get the process started. &nbsp; https://taller.la/On-Tenure-Neutral-Housing-Policies Wed, 25 Jan 2023 04:42:02 +0000 TALLER https://taller.la/On-Tenure-Neutral-Housing-Policies JOURNAL Read it on Substack︎︎︎ <img width="1864" height="1048" width_o="1864" height_o="1048" data-src="https://freight.cargo.site/t/original/i/01cb50b34963eafdd9ba9c997d602d2ea2349ff765b9ce6539e4e89c375faa5e/07-Tenure-Neutral.png" data-mid="165929620" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/01cb50b34963eafdd9ba9c997d602d2ea2349ff765b9ce6539e4e89c375faa5e/07-Tenure-Neutral.png" /> On The Importance of Tenure-Neutral Housing Policies It’s safe to say there has been a lot of focus on the housing market lately, with all sorts of experts weighing in and trying to predict where prices and interest rates are heading. This is important for all manner of reasons, of course, but lost in this discussion at times is the plight of the rental market. While home prices have certainly had a wild ride these past few years, rent rates have been even more volatile. Like much of our other housing market woes, this volatility can be traced back to a lack of supply in most cities. While the demand is there (Los Angeles is one of many majority renter cities, for example), the supply has not kept pace. This, it has been shown, has much to do with our housing policies and their tendency to favor home ownership over renting. I’ll get into more specifics on that in a later post. This week, I want to address the importance of tenure-neutral housing policies in creating a well-functioning housing market. We used to be a country of renters. Until the middle of the 20th century, in fact, over sixty percent of households in the US were renters. In the matter of a couple of decades, however, that proportion flipped. Today, the US homeownership rate stands at just under 66%, a rate that is high compared to most nations. This dramatic shift can be attributed to a number of factors, not the least of which are government policies. It does not necessarily reflect a huge change in consumer preferences, only a big change in consumer options. The rental housing market is still crucial in providing housing options for individuals and families. Since the middle of the last century, however, our housing policies have favored home ownership over renting, resulting in a lack of sufficient and well-functioning rental housing options. I’ll get into specifics about this in a later post, but this week let’s take a look in general at the importance of tenure-neutral housing policies, which do not discriminate between ownership and renting, in order to create a healthy and sustainable rental sector. So, why is it that home ownership has increased so dramatically? Many studies find that it is the manner in which a country approaches housing policy that is the biggest determinant of the manner in which housing tenures evolve, not consumer preferences. It has even been argued by the influential housing scholar Jim Kemeny, among others, that a housing policy that leans toward homeownership becomes self-perpetuating at the cost of other alternatives. The argument is as follows: housing policies favoring home ownership eventually work to squeeze out other options from the market, and this leaves fewer options available to households, increasing the number of households that opt for homeownership. Increasing rates of homeownership are then misconstrued to be reflective of an inherent predilection toward homeownership in the population, which then works to validate and increase policies aimed at promoting homeownership. In working to promote the establishment of a well-functioning rental sector, then, the goal is not necessarily to promote a housing policy that favors renting—this could have the same effects cutting the opposite way—but rather to remove any tenure bias from housing policy altogether. As such, the goal is to work to establish a tenure-neutral housing policy, that allows households to fairly choose the best tenure option for them. Now, owning a home can have benefits, but it is not necessarily the best option for all households. So in order to approach a more tenure-neutral policy, it is worth arguing against a blind adherence to the belief that increasing homeownership for everyone is always good. For starters, the empirical evidence in favor of homeownership is not as conclusive as is presented in policy circles. A study by the Inter-American Development Bank (IDB) reports on the subject: “First, the benefits of homeownership may occur only under certain circumstances or may not accrue to all homeowners, particularly low-income homeowners…second, the effects of home ownership must be disentangled from factors such as income, education, and location…third, previous studies have omitted the risks associated with home ownership and the social costs imposed on low-income households…In addition, while homeowners may save more, they also hold most of their wealth in a single asset, whose price volatility can wipe out a lifetime of savings.” Indeed, a number of studies agree with these assertions. In a paper for Harvard’s Joint Center for Housing Studies, William Apgar finds that while homeownership is a good choice for many, it is not necessarily a good choice for all, especially low-income households. “Unable to properly assess the real risks and responsibilities of homeownership, many low-income and low-wealth households become homeowners even if this choice is a risky and potentially costly mistake,” he observes. He continues by stating that: “When families take on debt that they are unable to repay, homeownership does not build wealth, but rather diverts scarce resources away from meeting other pressing needs. In the worst case scenario, lower-income homeowners may become trapped in declining neighborhoods with little access to employment, good quality schools or social services and equally limited potential for price appreciation. In these situations, all too often the dream of homeownership becomes the nightmare of a financially devastating foreclosure.” The immobility that homeownership can impose on households can also have detrimental effects. Immobile workers become stuck in jobs for which they are ill-suited, which is inefficient as it raises prices, reduces incomes, and makes some jobs uneconomic. Additionally, homeowners tend to commute farther than renters, which causes congestion and makes commuting more time-consuming and costly for everyone. Taking this one step further, it has been shown that high rates of homeownership contribute to higher rates of unemployment. According to the economist Andrew J. Oswald, a 10 percent point increase in the owner-occupation rate is associated with approximately 2 percentage point increase in the unemployment rate. The main reason for this correlation, he explains, is the increased immobility of the labor market as homeownership rates increase. As he puts it, “mass unemployment exists because of a secular change that has happened in all but a few Western housing markets—the rise of home ownership and the decline in private renting.” A housing policy that is biased toward homeownership can also end up disadvantaging major segments of society. Jim Kemeny argues that when housing policies favor homeownership a bias is created in favor of two-income households that can afford to buy a home. As such, single-income households are severely disadvantaged in gaining access to housing. This, argues Kemeny, becomes a major impediment to gender equality as “access to adequate low-cost housing is one of the most important preconditions for gender equality. The ability of women to run their own household independently... is crucially dependent on the availability of housing, and particularly rental housing.” All this is not to say that rental housing should be prioritized any more than home ownership should be. Nor do I have any issue with homeownership as a goal: it can be great for many households. In the end, though, tipping the scales in one way or another ends up being disadvantageous for the entire system over time. Tenure-neutral housing policies are crucial to creating a healthy and sustainable rental sector and housing system overall. Households should be able to choose the best tenure option for them without policy tipping the scales. https://taller.la/Good-Design-Makes-More-Money Tue, 17 Jan 2023 17:41:28 +0000 TALLER https://taller.la/Good-Design-Makes-More-Money JOURNAL Read it on Substack︎︎︎ <img width="1730" height="974" width_o="1730" height_o="974" data-src="https://freight.cargo.site/t/original/i/27e89794731eab6ad3a2626f37d955c466e230fa0b8248c1e51a32a0d4f6da8d/06-Economics-of-Design.png" data-mid="165045587" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/27e89794731eab6ad3a2626f37d955c466e230fa0b8248c1e51a32a0d4f6da8d/06-Economics-of-Design.png" /> On the Economics of Good Design “Good design is good business.” - Thomas Watson Jr.,&nbsp; former CEO of IBM. This phrase is attributed to a speech that Thomas Watson Jr. gave at the University of Pennsylvania in 1973. It was the distillation of a mantra that Watson had used to transform IBM from a stodgy stalwart of office life to “the paradigm of the modern corporation,” as design historian Steve Heller puts it. The words are oft-repeated to the point that the slogan has become a trope in corporate circles, and their peddling by an architect can appear admittedly self-serving. Stick with me, though, as they are worth repeating and exploring, especially in the context of developing middle density housing. Here, good design is too often seen as a luxury, a capricious endeavor that might add value but is not strictly necessary for the success of a residential development project. To play devil’s advocate, this might be true enough in cities like Los Angeles where the housing shortage is so acute. Because of the lack of supply, you are likely to get just about any dwelling (legal or otherwise) rented. By at least adhering to code you can build something that is good enough to be habitable and good enough to be rented. But who gets out of bed each day and strives for just good enough? And does good enough maximize your leasing value? And when real estate cycles turn, how well will just good enough maintain consistent value? As an architect, I of course believe in the benefits of good design for its own sake: it can elevate a space and everyday experiences. It is a real differentiator in a market awash with big gray stucco boxes, and it can measurably improve one’s quality of life. As a realist, though, I also understand that developments are significant financial endeavors that need to be profitable and it is difficult to justify any additional costs. Thankfully, good design can help with that as well. There are several compelling reasons why good design makes good financial sense for residential development. Before getting into the monetary metrics, however, it is worth briefly defining what I mean by good design as I want to separate this term now from any idea of aesthetics. There are a number of ways to define design, but I choose to look at it as a deliberate and attentive process. Saul Bass posited that “design is thinking made visual,” Steve Jobs famously said “design is how it works,” and Louis Sullivan proclaimed that “form ever follows function.” Somewhere at the intersection of these three maxims–with a bit of poetry mixed in–lies the essence of good design. Viewing it in this manner separates the design of the building from the “look” of the end product. In other words, you may choose to decorate a building differently than I would, but that should have little bearing on whether that project is well designed. I am not advocating for any one “style” over another when I advocate for good design, nor am I of the position that you need to use expensive materials and finishes. I am advocating for thoughtful resolution of program elements that anticipate user needs, efficient allocation of resources, and a striving to improve the everyday quality of life of the end user. One of the main ways in which such good design can benefit a residential development financially is through increased property values. When a development is well-designed, with attractive, functional, and livable spaces, it is more likely to be seen as a desirable place to live. This can lead to higher prices for units in the development, as buyers are willing to pay more for a home that they perceive as being of higher quality. Design here becomes a differentiator, and the increase in property values can translate into higher profits for the developer. For rental units, this difference can be more pronounced through the capitalization of additional income. In the rental market, properties that are well-designed and well-maintained are often able to command higher rental rates than those that are poorly designed or poorly maintained. This is because tenants are willing to pay more to live in a property that they perceive as being of higher quality. Well designed units also work better with a tenant’s lifestyle, which can tend to reduce tenant churn. If a tenant likes where they live, they are less likely to want to move. Good design can increase rental income and keep it more consistent. This additional income can be transformed into significant additional value based on local cap rates. Importantly, good design benefits a development financially through increased efficiency as well. When a development is well-designed, it is more likely to be functional and livable, which can make it more attractive to buyers and renters. Thoughtful design can also increase living space by reducing inefficiencies in layout. Increased living space means increased rentable space, which benefits the project’s financial performance. These are just a few manners in which good design can have a healthy impact on a project’s profitability. The reasons are great in principle, but let’s try to quantify them with some basic back-of-the-envelope (BOE) analysis. I’ll take the example of efficiency and throw in a bit of math and development jargon (sorry). On a recent project, for example, we were able to layout the stairs in a novel manner that gave about 100 sf in usable living space back to each dwelling unit. Assuming $4 psf rents, that’s an extra $400 a month for each unit, or an extra $4,800 in net operating income (NOI) per unit. If we capitalize that at a 5% cap rate that means that a small tweak in layout translates to an added value to the project of $96,000 per unit in the first year! On even just a five-unit project that small move creates almost a half million dollars in additional value for the project. Let’s take a similar example and look at an increase in rent. Say a certain design move is expected to increase rent by 10%. Assuming the average rent in Los Angeles of about $2,800 a month, that change could mean an extra $280 a month or $3,360 in NOI annually. At a 5% cap rate, that translates to an increased valuation of $67,200 per unit. Following similar logic we can provide a dollar value on investing more on things that would save costs in the long run (more energy-efficient windows or better insulation, for example). Determining how much you are willing to spend initially for that added end-value would then be a matter of individual hurdle rates. With these simple BOE calculations in mind, however, it becomes clear that good design has real quantifiable benefits to a project’s financial success. So what can all this cost? It varies, of course, but the great thing about it is that it can be relatively inexpensive. On average, the architecture design of a project falls somewhere between 7% and 12% of construction costs. That means that even a generous increase in design spending of say 30% would mean an increase of less than 2.1% to 3.6% to the project overall. If that investment can increase the end project value by even just 10%, then that can already represent a significant multiple on investment in the long run. In the end, it is worth taking the design discussion out of only the aesthetics arena, both for architects and for developers. There are so many intangibles when assessing design that its impact can be hard to appraise. Many organizations have even bought into the idea that “good design is good business,” but they don’t necessarily understand why. Using some simple BOE real estate math, we can start to quantify the saying. These are very simplified examples, of course, but the logic is sound. Good design is not just a luxury in the world of housing development, but rather a crucial factor that can have a significant impact on a development's financial success. Especially in the missing middle, it can act as a significant product differentiator. By investing in good design, developers can increase property values, rental rates, demand, and efficiency, all of which can contribute to higher profits while creating a better overall project along the way.&nbsp; https://taller.la/New-ADU-Laws Mon, 09 Jan 2023 23:44:35 +0000 TALLER https://taller.la/New-ADU-Laws JOURNAL Read it on Substack︎︎︎ <img width="1536" height="864" width_o="1536" height_o="864" data-src="https://freight.cargo.site/t/original/i/1d2a8bcdea629d78f09af43b48db05fa22628b4d91aaf79b9e4ba737ca16dfc0/05-Cover-Taller.png" data-mid="164150524" border="0" data-no-zoom src="https://freight.cargo.site/w/1000/i/1d2a8bcdea629d78f09af43b48db05fa22628b4d91aaf79b9e4ba737ca16dfc0/05-Cover-Taller.png" /> New CA ADU Laws and their Implications Since the first slate of state laws aimed at easing restrictions on ADUs passed back in 2016, the popularity of ADUs and the pace of their construction have skyrocketed. The acronym itself has gone from an obscure planning term to common parlance, and you can hardly drive anywhere in the city without coming across a billboard advertising ADU consultation or design services. In 2016, only 80 permits were issued for ADUs in Los Angeles. By 2021, that annual figure had risen to 5,064, and the rate continues to rise year after year. It is one of those rare occasions where legislation aimed at addressing a problem has worked exceedingly well, providing a successful and popular solution. Still, there have been many jurisdictions that have worked hard to find ways around the intent of these laws, spurring more bills to address these subversions. The last big round of ADU changes came in 2020. This year, we have two new bills on the subject.&nbsp; We’ll end our review of the year’s new housing laws by discussing these new ADU laws and their implications. Passed nearly unanimously by state lawmakers, AB 2221 and SB 897 work together to further restrict local regulation of ADUs. In essence, what these laws aim to achieve is a more permissive, state-mandated local ADU program. And while there is much to be excited about for all ADU prospects, I’ll focus mostly on what these laws mean to multifamily (MF) ADU projects. The two laws are complementary, and they work to clarify the language and intent of previous ADU laws as well as provide for (slightly) more permissive development standards. Regarding the former, the language ambiguities addressed were how more restrictive jurisdictions took solace in continuing to restrict ADUs, so having the clarifications codified in new laws goes a long way toward alleviating municipal NIMBYism. ADUs allowed with proposed projects as well as existing One big (huge?) win that comes from this language change for MF developers is the inclusion of the word "proposed" when addressing how many detached ADUs need to be allowed on a project. Previous versions of the ADU laws have allowed for up to two detached ADUs to be allowed for multifamily projects, but only existing MF projects were explicitly addressed in the letter of the law. This led to ridiculous situations in which new MF projects were allowed the extra units, but the permitting and construction of them could not start until the main MF structures were built and had received their certificate of occupancy. I faced this situation myself on many projects, and for obvious reasons, it was all but assured that the additional ADU units would be abandoned. The logistical and financial challenges of having to mobilize construction crews multiple times for the same project and the fact that the completed MF would have to sit at least partially empty to allow for the subsequent construction of the ADUs meant that these additional units were not feasible. Thankfully, this is now a problem of the past, as the new laws clarify that applications for up to two detached ADUs shall be allowed with both proposed and existing MF projects. Regarding the allowance for units within MF projects, however, the new laws make little change to existing regulations. At least one ADU and up to 25% of the existing MF units are allowed within existing portions of the MF structures that are non-livable spaces such as storage rooms, boiler rooms, passageways, attics, basements, or garages. These are still only allowed in existing MF projects, not proposed ones. Heights Another major(ish) change coming from the new laws regards allowable heights of ADUs. The baseline is still 16’ for most detached ADUs, but this number is slightly increased for certain situations. A minimum height of 18’ is now allowed for any project that is within a half-mile walking distance of public transit or any project on a lot with a proposed or existing MF, multistory building. Now, this increase is great and all, but it continues to be a somewhat frustrating number. Realistically, an 18-foot height limit still means only a one-story building unless the ground floor is excavated below grade to some degree. There is an allowance for an extra 2’ in height to match the roof pitch of the main buildings, but this is for existing projects only. For attached ADUs, the minimum height limit is now stated as 25’ or the underlying zoning height limit, whichever is less. This is a benefit mostly to projects working on lots with single family homes,since attached ADUs don’t seem to be mentioned in the new laws in regards to MF projects. However, they are not specifically disallowed for MF projects either so there could be a feasible path forward to requesting one attached ADU and one detached ADU on a MF project: one would be capped at 25’ and the other at 18’. This is vague territory, though, and such an approach would depend on how each municipality codifies these rule changes in their own ordinance. As of the writing of this post, L.A. has yet to release a new ordinance reflecting the new laws. Approval time and R Occupancy The time that a local jurisdiction has to act on an ADU application is now set by law at 60 days. Previous versions of AB 2221 explicitly included in this approval/review process any input from interdepartmental organizations, but that has been removed from the final version of the bill. This matters because oftentimes the longest wait times for ADU approvals come not from LADBS but from other reviewing agencies such as LADWP. Again, we’ll have to see how this is handled as the new ordinances take shape. The 60-day limit can be prolonged or postponed for ADU applications that are submitted alongside an application for a proposed new main dwelling project. In these cases, the review period for ADU applications begins after a decision has been made on the new main structures, be they SF or MF. Another potentially game-changing aspect gets into the weeds of the building code a bit: it is the disallowance of a change in R occupancy because of the addition of an ADU. For MF developers, this potentially means a duplex-plus-ADU proposal would be reviewed under the CA Residential Code instead of the CA Building Code. The biggest benefit of this would be not having to adhere to accessibility standards. Again, however, the state language is broad and a bit vague, so it will be a wait-and-see approach on this until L.A. codifies a new ordinance. All in all, ADU legislation—along with most other housing legislation—continues to take a more permissive approach with this year’s housing laws. If I may say so humbly, it is a step in the right direction, as these ADU allowances have made for the most dependable avenue to add density without a mountain of red tape. The manner in which local municipalities adopt these laws via ordinance will still matter, however, as there are always loopholes to be had or idiosyncrasies to look out for. So, as always, if you’re planning on adding ADUs to your own development project, make sure you work with someone who is familiar with the process and rules. If you have questions about what I’ve highlighted here, please reach out for a quick discussion. These laws provide a way to combat stringent zoning and provide real results in terms of density. Still, with a housing deficit of over a million units in California, there is still more to be done to facilitate building more housing. More on that soon.