Are There Going to Be Half a Million More Residential Units in LA?

May 4th, 2022  / Author: Cesar Gomez

The City Council’s plan to create almost 500,000 residential units in Los Angeles is deemed too ambitious due to the lack of initiative, says The LA Business Council. This plan is formulated in the Housing Element Update 2021-2029, which lays the groundwork for creating more than 450,000 housing units.

Out of those half a million units, 180,000 should be affordable for low-income families. The Business Council urged LA officials to make significant changes and move towards its goal of creating affordable housing, a missing piece of the real estate puzzle.

“The City Council deserves great credit for setting an ambitious goal to bridge the housing shortage and related affordability gap that is widening by the day, but without significant reform and a blueprint, that goal will not be met,” LABC President Mary Leslie said.

Their concern lies in the fact that more than 55 thousand units should be built each coming year to reach the goal, but LA builders have worked on 16 thousand houses per year for almost ten years.

What is Slowing Down the Production of Housing Inventory?

The US housing supply was very dry, even before the pandemic-caused low rates. The conditions that made construction harder then are now intensified, and the conflict in Ukraine is making it even harder on homebuilders.

Some building materials, such as softwood lumber, saw a yearly inflation rate higher than 12% even before the events in Eastern Europe occurred. After that, everything went up with gas prices. Is it not only the mere increase that is troubling homebuilders but also the volatility of the costs, which makes planning and estimations almost impossible?

The United States has lacked professionals in the construction field for years due to a lack of young people interested in manual work. Insufficient interest in this job market makes the workers hard to find and expensive, adding to the lack of affordable housing.

Can There Be Overproduction of Inventory

Some people are raising their concerns about the rising supply production because of the 2008 scenario comparisons. The rates are rising much higher than expected, there are some indicators of buyers’ pessimism toward the housing market, the investors flooded the market, and the foreclosure numbers are up. When taken out of context, all of these factors could ring the alarms of many people who remember the outcome of the late ’00s housing bubble.

Real estate professionals are assuring everyone that there is no reason for concern and that the market will not crash, especially not in the way it did almost 15 years ago. First of all, the mortgage business is heavily regulated, and today’s borrowers can afford the payments. Second of all, some data has been taken out of context and should not be used to make predictions - foreclosures are up just because they were near 0%.

Additionally, real estate is not something that should often be analyzed on a large scale, as every local market has its trends. So, could some states or counties see 500,000 new residential units as overproduction? Yes, but that is not the case in Los Angeles, where there were less than 4,000 listed houses in February 2022.

Some experts say that the US is getting closer to the housing bubble and that the prices will rise along with the rates, but they are not predicting the 2008 scenario. They say that the rising rates make the home buyers sign the paper as fast as possible to lock in before they go even higher. As the rates get higher, the investors will get out of the market, making it more available to regular consumers. Lower prices would make high rates more bearable for a household budget.



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