Will Politics Poison Valley Projects?

If you are one of the many Valley residents who think the cost to rent apartments or buy homes here is too high now, get ready to pay more – way more. That’s the warning developers are relaying about two initiatives up for public vote in the City of Los Angeles in November and March that aim to sharply curb residential and other types of construction. Measure JJJ, also called Build Better LA, is scheduled for the November ballot. It proposes new labor and wage requirements on most new housing projects – those that would build higher, larger and denser than city planning limits allow. It would make affordable housing a standard part of those projects but also offer ways to get around doing that, such as building the units somewhere else. Backers of the measure – the L.A. County Federation of Labor, AFL-CIO, which is the nation’s second-largest central labor organization, and the local electrical workers’ union, among others – say it’s needed to help residents afford housing in Los Angeles and to create good-paying jobs. The second measure, the LA Neighborhood Integrity Issue, is on the ballot in March. That initiative would temporarily halt most new construction of any building type for two years, specifically those projects that need exceptions to city limits on height, size and density. The backer of that initiative, L.A.’s AIDS Healthcare Foundation, says the measure would stop local politicians from approving mega-projects that intensify development. Also, it would require updates to the city’s General Plan on a five-year cycle starting immediately. Developers and real estate investors predict similar outcomes should either measure pass. Both, they say, would sharply curtail almost all new construction during a declared housing crisis, thus increasing demand and sending home costs and rental rates soaring. “It will make most, if not all, projects in the Valley unfeasible,” said Shawn Evenhaim, chief executive of California Home Builders in Canoga Park, regarding Measure JJJ. “You won’t be able to develop residential projects because of the increase in costs of construction. Everybody knows there’s a limit of how much you can sell a house for so that it’s affordable.” Measure JJJ The Build Better LA initiative is backed by the Build Better L.A. Coalition, made up of labor unions and housing activists, among others. Projects proposing 10 or more housing units, such as apartments, that need exceptions to the city’s General Plan limits on size and number of housing units would have to include varying amounts of affordable housing, depending on the project. Also, it would have to meet requirements to hire personnel who hold city and state licenses, live near the project site and have graduated from a state or federal apprentice program or have equivalent work experience. For example, at least 30 percent of a project’s work force would have to be city and state licensed and live locally, while at least 60 percent would have to come from apprentice programs. If developers want to, they can build the affordable housing portion nearby instead of onsite, but they have to build more of them. Or, they can pay a fee to the Affordable Housing Trust Fund. Developers maintain the labor hiring criteria describes union labor and prevailing wages, which can substantially increase costs over market wages. In government contracting, “prevailing wages” are set by regulatory authorities for every trade or occupation needed for public works construction, and they are usually significantly higher than regular wages. Tim Piasky, chief executivce of the Building Industry Association of Southern California Inc. in Irvine, uses a comparison that Habitat for Humanity San Fernando/Santa Clarita Valleys in Woodland Hills put together for the trade group on the differences between standard and prevailing wages. Laborers in heating, ventilation and air conditioning – one example of a typical worker on a construction site – would receive $70 an hour of prevailing wage versus $35 an hour of standard wage. Habitat based the wages on recent projects. Overall, most prevailing wages would be 20 to 30 percent more, according to the estimate. “Developers won’t be able to build something at a low-enough cost that a first-time home buyer will be able to afford,” Piasky said. Donna Deutchman, chief executive of the local Habitat, said it supplied the comparison but hasn’t taken a position for or against the measure. Still, housing construction affordability is critical to the organization, she said, because it provides homes to its low-income clients at what it costs to build them – with no subsidizes. “If Habitat for Humanity can’t build a house that a low-income family can afford, then we can’t build a house,” Deutchman said. Agoura Hills affordable and market-rate housing developer Amcal Multi-Housing Inc. also said paying prevailing wages – required for its affordable housing projects – is a large factor that makes them more expensive than market-rate projects. Chief Executive Percy Vaz said its average affordable housing project in Los Angeles costs $350,000 a unit, while a luxury housing project it recently built in Long Beach cost $250,000 a unit. “This (measure) limits the number of subcontractors (the ones hiring the labor) who are willing to bid on projects, and therefore it drives up the cost of construction,” Vaz said. He called both initiatives “a disaster.” “We’ll focus our energy in other cities, counties or states,” Vaz added. With both measures targeting housing projects that would exceed city limits on height, unit size and density, they would affect a majority – more than 60 percent of those under construction last year, Piasky said. That’s because the city’s planning guidelines are out of date compared with the city’s changing landscape. Many single Valley properties, for example, are still zoned for agricultural use, he said, but are in areas surrounded by residential neighborhoods. Should Measure JJJ pass, there are other potential ripple effects. Robin Kashani, operations manager for TriStar Realty Group of Pacoima, which develops mostly office and medical office buildings, said requiring builders to hire from a specific labor pool could reduce competition because those laborers could control the market and raise their rates because of high demand. That could potentially hurt the single construction worker, or plumber, in business for himself, Kashani said. “It’s going to be harder for them to get projects because certain aspects of work will have to go to those workers who meet the measure’s requirements,” he said. “The smaller guys out there keep wages lower because they provide competition in the market.” But Rusty Hicks, executive secretary and treasurer of the Federation of Labor, said the measure requirements, if approved, will not likely enable any labor group to control the market because of population numbers. “Thirty percent have to be residents in the City of Los Angeles, a city of 4 million,” Hicks said. “And those have either completed labor management courses or have equivalent experience. That’s a pretty broad group, and I doubt they will be able to control the market.” Additionally, the individual electrician or plumber shouldn’t be hurt by the measure should it pass, he added. “The threshold is only attached to projects of 10 units or more,” he said. “The sole proprietor would likely be working on smaller projects.” Hicks also said the measure does not require the labor force to be paid prevailing wage, but rather the area wage standard. “This is not necessarily the same thing, we believe, as prevailing wage,” Hicks said. Integrity measure The LA Neighborhood Integrity Initiative is backed by the Coalition to Preserve LA and sponsored by the AIDS Healthcare Foundation. Voters will decide in March whether or not to approve its proposed two-year moratorium on any new buildings that would exceed height limits. The only exception would be those projects that offer 100 percent affordable housing. The measure aims to eliminate spot-zoning, which are zoning changes to specific areas for projects, and specific-area spot amendments to the city’s General Plan. These kind of changes threaten public health, safety and welfare, the AIDS Foundation says. Most of the new housing built in the city in recent years has had to seek zoning changes and general plan amendments, said Mark Vallianatos, co-founder of Abundance Housing L.A., which opposes the initiative. “It turns out that two-thirds of housing units recently constructed use one of those processes because of the city’s outdated zoning plans,” Vallianatos said. “If you’re buying industrial or commercial land and want to do a medium to large mixed use residential project, you probably have to do some kind of change to make it a profitable project, because of land cost and construction costs.” Over the course of the two-year taller building ban, the initiative also calls for the 35 individual community plans in Los Angeles to be updated, Vallianatos said. While a good idea, he questions whether the city has enough staff to do that. Shlomi Ronen, managing principal of Dekel Capital Inc., a real estate-focused private equity and capital advisory firm in Century City, said with the possibility of a two-year ban on new construction, investors like himself would pull back from potential projects. “I know that’s a risk we would not be willing to take, given that these measures are uncertain,” Ronen said. The uncertainty, he explained, is investing in a project to build 200 units that is eventually reduced to 50 units, which may not pencil out. Jill Stewart, campaign director of Coalition to Preserve LA, the group that put the measure on the ballot, said the two-year ban is “behavior modification” for the City Council. “What they are doing is spot-zoning for favored development,” she said. “We’re saying that the City Council has to do its job.” The time span and requirements in the measure would, if passed, force the City Council to update the General Plan and community plans, which it is avoiding, Stewart said. The two-year ban would affect less than 5 percent of proposed developments, she said, “because the vast majority are not trying to game the system. Most are not trying to bend the rules.” Nevertheless, the two measures are essentially impacting developers’ course of business. Evenhaim, of California Home Builders, said between the two measures and other recently updated development-related fees to pay for such things as community park maintenance, his company has turned down recent offers to buy land. It also won’t be selling any of the entitled land it owns now, he added, despite the fact that developers are now willing to pay 10 to 20 percent more due to the possibility the measures will pass and make entitled land even more valuable. “The last thing I want to do is sell and not build,” Evenhaim said.