March 5, 2022
The $1.2 billion housing bond, Proposition HHH, has been hampered by significant bureaucratic hurdles, surprising costs and 3 to 6-year construction delays. Deborah La Franchi discusses the viable, cost-efficient and affordable SDS Supportive Housing model.
Column: HHH supporters didn't have $800,000 housing in mind
By Steve Lopez | Columnist, Los Angeles Times
Article Posted on March 5th, 2022
Way back in 2016, when I voted for the $1.2-billion housing bond known as Proposition HHH, I expected a different picture than the one we’re looking at now.
We all knew it would be impossible to erect 10,000 units overnight and bring immediate relief to the city’s homeless multitudes. In fact, a 10-year timeline was laid out.
But HHH, sold as a centerpiece of the strategy to end homelessness, has underdelivered so far.
“It isn’t what Angelenos voted for six years ago,” said former city and county executive Miguel Santana, who cited multiple bureaucratic hurdles and worried that public frustration will make it difficult to win needed support for future investments in housing for homeless people.
More than five years after Mayor Eric Garcetti and other public officials celebrated victory, only 1,142 units have been completed, homelessness is on the rise, only about 8,000 of the promised 10,000 units are on the books, and the cost per unit of new housing keeps soaring, as do developer complaints about beastly permitting and inspection delays.
City Controller Ron Galperin’s latest audit of HHH progress, and lack thereof, reads like an indictment.
“While 54% of projects are currently in construction, nearly a third are still in pre-development,” Galperin found. “Projects in the primary HHH pipeline are taking three to six years to complete, with most set to open between 2023 and 2026.”
The average per-unit cost of projects under construction — originally estimated at $375,000 — went from $531,000 in 2020 to just shy of $600,000 last year.
As Galperin summed it up:
“The costs are too high and the pace is far too slow to address the tragedy on our streets.”
And then there’s this jaw-dropper:
“At least one project in pre-development is estimated to cost nearly $837,000 per unit.”
HHH got 77% approval, but if people knew how slowly the wheels would turn or that there’d come a day when a single unit would go for more than $800,000, it would have gotten buried.
For all of this, HHH was a good idea in theory, even if the execution has been less than sparkling. Los Angeles was and still is way short of the supportive and affordable housing it needs, and the 8,000 HHH units will end up housing 10,000 or more people who might otherwise languish or even die if left on the streets.
When it comes to high prices, L.A. is not alone. A Times report in 2020 put California at the top of the heap in the cost of government-subsidized housing complexes, and the story laid out details of a Solana Beach housing project that topped $1 million per unit.
In a written response to Galperin’s audit, L.A. Housing Department chief Ann Sewill scratched back.
She argued that tweaks suggested by Galperin have already been implemented, that HHH isn’t the only housing initiative, and that HHH progress has been “anything but sluggish.” She also said that despite challenges and market forces, HHH “will over-perform on its goals.”
That’s a rosy assessment. Sewill also argued that the financing model involves the leveraging of funds, so that, say, only $140,833 of HHH money is needed to build a $659,600 unit because HHH leverages funding from multiple other government sources.
Yeah, but that’s not Monopoly money. Those are taxpayer dollars. And that leveraging is part of what drags out the process for years.
“If you have 10 sources of funding, each one has an attorney, and each one drives us utterly crazy with requirements,” said developer Tom Safran, whose company is building seven HHH projects.
Safran said the pandemic — which pushed even more people to the brink of homelessness — has had a crippling effect on the entire process.
“Everything that could go wrong went wrong,” Safran said. “You couldn’t get cabinets.”
And as Sewill pointed out, material costs skyrocketed, inflating the per-unit price tags.
Developers and real estate analysts say that in addition to the high cost of land in L.A., one price driver is that many HHH developments operate under what’s called a Project Labor Agreement, and also require prevailing wages for workers. That generally means there are various hiring and work rules in force along with union pay scales.
The upside is that HHH has created tons of living wage jobs at a time when a scarcity of them is a factor in rising homelessness. But a Rand Corp. study concluded that the HHH labor agreement has added 14.5% to construction costs.
Meanwhile, many market-rate projects that don’t involve work rules, public financing and all the HHH hoop- jumping are erected faster and can cost far less.
“I’m building 2,000-square-foot townhomes in Camarillo for $400,000 each,” said local developer Jerry Marcil.
Deborah La Franchi, founder of SDS Capital Group, is building supportive housing in Los Angeles for as little as $200,000 per unit in two years or less. She said various private-sector investors have contributed to a $150-million fund, and the model involves no public financing.
If you multiplied L.A.’s nearly $600,000 average cost of HHH units, La Franchi said, and used the same formula statewide, “it would cost $96 billion to house each person currently experiencing homelessness in California. This is more than 45% of our state’s General Fund budget.”
City Councilman Kevin de León didn’t hold back.
“The L.A. Housing [Department] is driven primarily by two main principles — how do we spend the most money, and how do we take the longest time to build housing for our unhoused neighbors,” he said.
Last summer, De León suggested derailing some of the more expensive HHH projects on the drawing board. “I’d rather claw back dollars and say, ‘We’re going to spend an average of $150,000 or $175,000 on prefabricated or modular housing units that can be built within three months,’” he said at the time.
De León said he has 8,000 homeless people in his district alone, and they can’t wait years for answers. The district includes Highland Park, and De León touts a tiny home village that opened there last year as interim housing. It has 117 structures, with a total of 224 beds, and a per-unit cost that he put at roughly $55,000.
De León said it’s critical to build more permanent supportive housing, but he wants to see greater emphasis on temporary housing, shared housing and the repurposing of existing buildings.
And more innovation. Garcetti and the City Council set aside $120 million of the HHH kitty for cheaper and faster housing designs, but De León said that wasn’t enough.
“Innovation should have been the majority of it,” De León said. “Ninety percent.”
De León is now running for mayor, and in the weeks ahead, I’ll be checking in with him and other candidates on HHH and their plans to tackle the No. 1 issue in Los Angeles.
If someone doesn’t chart a better course, it might not be long before we see a per-unit estimate that tops $1 million.
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