‘Linkage fee’ to spur affordable housing production clears city committee

Los Angeles Mayor Eric Garcetti’s proposal to charge developers fees to help pay for affordable housing got a boost Tuesday with the unanimous endorsement of the City Council’s Planning and Land Use Management Committee.

The “linkage fee” would bring in an estimated $75 million to $92 million per year, enough to help pay for the construction of 1,500 new units annually for residents with lower incomes, according to the city planning department. That’s nearly double the amount of affordable housing built in 2016.

“We want to ... create what we have not had in the city of Los Angeles for a number of years now: a steady, funded revenue stream specifically earmarked for affordable housing,” said Los Angeles City Councilmember Jose Huizar, who chairs the committee.

Generating money to preserve and produce more affordable housing is critical, proponents say, as rents and home prices in LA are accelerating and wages aren’t keeping up.

Combine that with a housing shortage, and Los Angeles is the single most unaffordable city in the U.S. for both renters and home-buyers, according to a June report from the UCLA Anderson School of Management.

As drafted, the linkage fee would be charged to residential and commercial developers citywide, but under the plan recommended by PLUM, the amount would vary by real estate markets using boundaries defined in the city’s community plans. The fees would range from $3 to $5 per square foot for new commercial development (hotels, restaurants, shops) and from $8 to $15 per square foot for new residential development.

The goal of the tiered structure is to ensure that the fees don’t deter developers from building in “low-market” areas, primarily in South Los Angeles and the Valley.

In addition to spurring new housing, the fees would also help preserve units already on the market, according to the city planning department. For example, the city could use the money to “assist working poor households as well as middle income families who do not qualify for state and federally sponsored programs but nevertheless struggle to find market-rate rents they can afford.”

Tuesday’s meeting drew an audience of several hundred people, from religious leaders to building industry executives, with proponents saying real estate developers needed to pitch in and opponents arguing the fees could deter them from building at all, which would only exacerbate the housing shortage.

In a letter to City Council members on Monday, two assistant urban planning professors at UCLA, Paavo Monkkonen and Michael Manville, warned that the linkage fee, as drafted, might backfire. A “good financing mechanism” for affordable housing, they wrote, would raise enough money to build a lot of new units without deterring private market construction.

They proposed four amendments, including swapping the fees paid for by commercial and residential developers, so that commercial developers pay more.

“Reduce the residential fee and increase the commercial one. If we must have a linkage fee, we should recognize that LA does not a have a commercial development crisis, but it does it have a housing crisis,” they wrote.

PLUM did not incorporate their recommendations.

The city attorney will now draft a linkage fee ordinance. It will need the City Council’s approval before Garcetti can sign it into law.

“This policy is a critical piece of our comprehensive strategy to combat the housing crisis,” the mayor said in a statement after the vote. “[I] look forward to seeing the positive impact I know it will make in communities across our city.”

• Here's LA's plan to make developers pay for affordable housing [Curbed LA]